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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
THE WILLOWBRIDGE FUND, L.P.
(Exact name of registrant as specified in its charter)
Delaware 22-2678474
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
4 Benedek Road
Princeton, NJ 08540
(Address of principal executive offices and zip code)
(609) 921-0717
(Registrant's telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
NONE
Securities to be registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
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Item 1. Business
General
The Willowbridge Fund, L.P. (the "Partnership") is a limited
partnership organized under the Delaware Revised Uniform Limited
Partnership Act. The business of the Partnership is to trade, buy, sell or
otherwise acquire, hold or dispose of commodity futures contracts, options
on physical commodities and on commodity futures contracts, forward
contracts, and any rights pertaining thereto ("Commodity Interests") and to
engage in all activities incident thereto. The objective of the Partnership
is the appreciation of its assets through speculative trading.
Ruvane Investment Corporation, a Delaware corporation (the
"General Partner"), is the general partner of the Partnership. The
Partnership and the General Partner maintain their principal business
office at 4 Benedek Road, Princeton, New Jersey 08540. The telephone number
for the Partnership and the General Partner is (609) 921-0717, the
facsimile number is (609) 921-0577, and their e-mail address is
[email protected]. The General Partner has been registered with the
Commodities Futures Trading Commission ("CFTC") pursuant to the Commodity
Exchange Act, as amended (the "CEA"), as a Commodity Pool Operator ("CPO")
since August 8, 1995, as a Commodity Trading Advisor ("CTA") since January
12, 1990 and as an introducing broker since May 8, 1995, and is a member of
the National Futures Association ("NFA") in such capacities. See " -- The
General Partner."
The General Partner has selected Willowbridge Associates Inc. (the
"Advisor") as the Partnership's trading advisor. The Advisor's main
business address is 101 Morgan Lane, Suite 180, Plainsboro, New Jersey
08536 and its telephone number is (609) 936-1100. The Advisor also has
offices at 667 Madison Avenue, New York, New York 10021. The Advisor has
been registered as a CPO and a CTA pursuant to the CEA since May 3, 1988
and is a member of the NFA in such capacities. All trading decisions
regarding the Partnership are made by the Advisor. See "-- The Advisor."
The General Partner
The General Partner, to the exclusion of the limited partners of
the Partnership (the "Limited Partners"), manages and conducts the business
of the Partnership. The General Partner (i) selects and monitors the
independent commodity trading advisors and the commodity brokers; (ii)
allocates and/or reallocates assets of the Partnership to or from the
advisors; (iii) determines if an advisor or commodity broker should be
removed or replaced; (iv) negotiates management fees, incentive fees and
brokerage commissions; and (v) performs such other services as the
Partnership may from time to time request.
The General Partner is responsible for the allocation of the
Partnership's capital among investment programs of the Advisor. See " --
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The Advisor." In addition, the General Partner may introduce the
Partnership's trades to the Partnership's commodity brokers. Under the
terms of the Amended and Restated Limited Partnership Agreement of the
Partnership (the "Partnership Agreement"), the General Partner will
maintain its capital contributions to the Partnership in an amount equal to
1% of the aggregate capital raised by the Partnership from time to time. As
of September 30, 1997, the General Partner owned approximately $609,000 of
general partnership interests in the Partnership. The General Partner is a
Delaware Corporation organized in January 1990. The principal of the
General Partner is Robert L. Lerner. See "Directors and Executive
Officers."
Investment Philosophy
The justification for futures trading is that it provides the
means for those who produce or deal in cash commodities to hedge against
unpredictable price changes. Price fluctuations affect the value of
inventory, the cost of production and the competitive pricing of end
products. The risks of price fluctuation confront and threaten a diverse
set of firms that merchandise, store or process large volumes of cash
commodities. Government securities dealers, for example, often maintain a
large inventory of notes and bonds. Even a small increase in prevailing
interest rate levels can significantly reduce the value of those inventory
holdings, and hence the price at which they can be sold. In determining the
pricing of its output, the large baker, for example, is subject to the
market prices of its raw materials, such as wheat, sugar and cocoa. A
sudden increase in the prices of these materials will raise the cost of
production and negatively affect the competitiveness of the finished
product. Other entities that face the risks associated with market price
fluctuation include farmers, grain elevator operators, importers, refiners
and commercial banks. The constraint these entities face is that there are
no short run substitutes for certain items essential for continued
operation. The baker cannot function without flour, the securities dealer
without bonds or the refiner without crude oil. As a result, the need
arises for a vehicle through which commercial entities as a group can
transfer the risk of price fluctuation to some other group that is willing
to bear that risk. The futures markets exist as the vehicle that allows the
transfer of price risk from commercial entities, called hedgers, to
risk-bearing entities, called investors or speculators.
The General Partner believes that, if an investor utilizes a
disciplined approach to managing risk, and is appropriately capitalized,
the investor will earn a premium for bearing risk. It is this premium that
is the source of returns to futures investing. The returns to futures
investing are driven by events that upset the supply and demand equilibrium
of the underlying commodity market. For example, a change in the prime rate
will affect interest rate and currency instruments, a drought will alter
the production expectations for agricultural products, or the prospect of a
shooting war in the Middle East will cause the prices of crude oil and its
derivatives to fluctuate. It is during these periods of disruption that the
risk premium generally is paid. Conversely, when commodity markets are
stable and directionless, returns from risk premia are not to be expected.
Since traditional investment instruments like stocks and bonds perform
poorly during disruptive periods and well in a stable economic environment,
a futures investment can offer the potential benefits of diversification to
a traditional portfolio.
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The General Partner believes that two important considerations in
evaluating an investment opportunity are whether the investment has a sound
underlying economic foundation for its expected return and whether the
approach employed by the investment's manager has the capability to realize
that return. The General Partner's approach to investment in futures is
designed to achieve consistent profits over the long term. The key to the
General Partner's investment approach is diversification among trading
methods and among markets, which is intended to reduce the variability of
returns while maintaining the ability to capitalize on profitable trends.
The General Partner allocates the Partnership's capital to
investment programs of the Advisor, which use a mix of trading strategies
that (i) have demonstrated the ability to achieve long-term trading success
and (ii) enhance the diversification characteristics of the account. The
General Partner measures the success of an investment program by its
trading and research results and experience.
The General Partner believes that an account should be considered
a long-term investment in order to afford the different trading strategies
and investment programs time to operate under a variety of different market
conditions. Consequently, the General Partner may choose not to reallocate
capital from or terminate an investment program or trading strategy even if
that investment program or trading strategy has had an unprofitable period
of significant duration. As the performance of the investment programs and
trading strategies will vary, the percentage of the Partnership's capital
under the management of each may vary also. Therefore, it is unlikely that
the current capital allocations will in fact be the actual allocations at
any time during the Partnership's operations. When capital is withdrawn
from the Partnership, the capital under each investment program's and
trading strategy's management will be reduced in amounts determined by the
Advisor, in consultation with the General Partner.
Extensive leverage is available in futures markets. The General
Partner will monitor the Advisor's trading so that leverage remains within
levels acceptable to the General Partner, in its sole discretion. In
general, the General Partner anticipates that margin commitments for the
Partnership will range between 15% and 40% of capital.
The Partnership has no employees and the General Partner has two
employees. Fund Administration and management information systems are
provided by Derivitives Portfolio Management LLC.
The Advisor
The General Partner has selected Willowbridge Associates Inc. as
the Partnership's trading advisor. The Advisor is a global trading advisor,
managing over U.S. $982.7 million in client capital (U.S. $722.2 million of
actual funds and U.S. $260.5 million of notional funds) as of September 30,
1997 in futures, foreign exchange, interest rates and related markets for
international banks, brokerage firms, pension funds, institutions and high
net worth individuals. The Advisor was organized as a Delaware corporation
in January 1988 and trades on a 24-hour
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basis in over 70 markets worldwide. The primary activity of Willowbridge is
to buy, sell (including short sales), spread or otherwise trade in
Commodity Interests. The Advisor may, to a limited extent, also trade in
other instruments. The trading principals of the Advisor are Philip L. Yang
and Michael Y. Gan.
The Advisor makes trading decisions pursuant to its trading
strategies under the investment programs, as well as pursuant to any other
trading program, selected by the General Partner. As used herein, the term
"trading system" refers to a computerized technical, systematic trading
program of the Advisor, the term "trading approach" refers to a
discretionary trading program of the Advisor and the term "trading
strategy" refers to either a trading system or a trading approach.
Trading Programs
Commodity traders generally rely on either fundamental or
technical analysis, or a combination thereof, in making trading decisions
and attempting to identify price trends. Fundamental analysis looks at the
external factors that affect the supply and demand of a particular
commodity in order to predict future prices. As an example, some of the
fundamental factors that affect the demand of a foreign currency, like the
British pound, are the inflation and interest rates of the currency's
domestic market, exchange controls and the country's balance of trade,
business climate and political stability. The supply of a currency may be
determined by, among other things, government spending, credit controls,
domestic money supply and prior years' trade balances. Some of the
fundamental factors that affect the supply of an agricultural commodity,
such as corn, include the acreage planted and factors affecting crop
conditions such as drought, flood and disease. The demand for corn consists
of domestic consumption and exports, and is a product of many things,
including general world economic conditions, as well as the cost of corn in
relation to the cost of competing products such as soybean meal, wheat,
oats and barley.
Technical analysis is not based on the anticipated supply and
demand of the cash (actual) commodity; instead, it is based on the theory
that a study of the markets themselves will provide a means of anticipating
future prices. Technical analysis of the markets generally will include a
study of the actual daily, weekly and monthly price fluctuations, volume
variations and changes in open interest, utilizing charts or computers for
analysis of these items.
The investment programs and trading strategies that the General
Partner has selected to trade the Partnership's assets are described below,
and from time to time may be changed or refined. Additional trading
programs may be developed by the Advisor or other trading advisors who may
be employed in trading the assets of the Partnership.
Each trading system employed by the Advisor will attempt to detect
trends in price movements for futures, option, forward and spot contracts.
All successful speculative commodity trading depends upon establishing a
position and then maintaining that position while the market moves in favor
of the trader. Technical trading systems seek to establish such
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positions and to exit the market and establish reverse positions, or both,
when the favorable trend either reverses or does not materialize. No such
system will be successful if the market is moving in an erratic and
non-trending manner or if the market moves in the direction opposite to
that predicted by the system. Because of the nature of commodity markets,
prices frequently appear to be trending when the market is, in fact,
without a trend. In addition, a trading system may identify markets as
trending favorably to a particular position in the market even though
actual market performance thereafter is the reverse of the trend
identified.
The investment programs and trading strategies to be followed by
the Advisor do not assure the success of the Partnership. Investment
decisions made in accordance with these programs and strategies will be
based on an assessment of available facts. However, because of the large
quantity of facts at hand, a number of available facts may be overlooked.
Variables may shift and any investment decision must, in the final
analysis, be based on the judgment of the Advisor. Accordingly, no
assurance can be given that the Advisor's investment programs and trading
strategies will result in profits to investors in the Partnership.
For each of the trading strategies, risk is managed on a market by
market level as well as on an overall portfolio level. On the market level,
risk is managed primarily by utilizing proprietary volatility filters. When
these filters detect a certain excessive level of volatility in the markets
traded, they will signal that the trading strategies should no longer be
trading in the markets in which the filters have detected excessive
volatility. In this way, the trading strategies do not participate in
markets in which there are extremes in market action. On the portfolio
level, risk is managed by utilizing a proprietary portfolio cutback rule.
When cumulative profits have reached a certain level, this rule determines
that positions should be halved across the entire portfolio. In this way,
risk is reduced while allowing the trading strategies to continue to
participate in the markets, albeit at a reduced level. After the portfolio
has been traded at half, the rule will then determine when to increase
positions to again trade at the full level.
Allocation of Capital
Approximately one-half of the Partnership's assets are currently
traded pursuant to the Select Investment Program, utilizing the MTech
Trading Approach, with the remaining portion currently being traded
pursuant to the Primary Investment Program, utilizing three of the trading
systems operated by the Advisor: the Vulcan System, the Argo System and the
Siren System. The General Partner, in the future, may change the allocation
of the Partnership's assets between the MTech Trading Approach and the
Primary Investment Program, as well as allocate the Partnership's assets to
other trading strategies and investment programs.
MTech Trading Approach
The MTech Trading Approach, which commenced trading in January
1991, is a highly discretionary and judgmental trading approach relying
primarily on Michael Gan's subjective analysis of the markets. Trading
decisions are made on technical as well as fundamental analysis. The MTech
Trading Approach currently trades the United States and international
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futures, forward, spot and options markets. Mr. Gan reserves the right to
change the portfolio composition of the MTech Trading Approach. It is
intended that approximately 15% to 40% of the assets under management
pursuant to the MTech Trading Approach normally will be committed as margin
for commodity interest trading, but from time to time the percentage of
assets committed may be substantially more or less.
MTech's minimum account size is U.S. $2,000,000 on January 1 of
each calendar year, and accounts may be opened on that date in increments
of U.S. $2,000,000, with each increment of U.S. $2,000,000 considered a
unit of investment. Thereafter, accounts may be opened at the current net
asset value of a unit, or multiple thereof, as of the close of business on
the preceding business day, and account sizes may be increased or decreased
by the current net asset value of a unit, or multiple thereof. Subsequent
additions and withdrawals must be made at the then current net asset value
of a unit. If, at the beginning of the year, the account size is not equal
to the unit size or multiple thereof, the client will be so advised and may
choose at that time to increase or decrease allocated assets in order to
trade a unit or multiples thereof. MTech will terminate any account that
has experienced a drawdown of greater than 35% at the close of business on
the last business day of any month, measured from the start of the
then-current calendar year (or inception of trading in the first year).
Primary Investment Program
Under the Primary Investment Program, the Advisor has the
discretion, based upon its periodic evaluation of market conditions, to
determine which trading system to use for a given market. Approximately
one-half of the assets traded by the Advisor pursuant to the Primary
Investment Program are allocated to the Argo System and the remaining
portion is allocated between currencies and financial instruments traded
pursuant to the Vulcan System and precious metals, grains, meats, softs and
tropicals traded pursuant to the Siren System. The Advisor, in consultation
with the General Partner, may change the allocation of the assets it trades
pursuant to the Primary Investment Program among the trading systems and
among the commodities traded pursuant thereto. Typically, changes in
strategies used for particular markets are made infrequently. If the assets
of the Partnership allocated to the Primary Investment Program fall below
$1,000,000, the Advisor may not be able to trade the full Primary
Investment Program portfolio.
Vulcan Trading System. The Vulcan Trading System ("Vulcan") is a
computerized technical trading system. It is not a trend-following system,
but does ride a trend when the opportunity arises. Vulcan uses the concepts
of pattern recognition, support/resistance levels and counter-trend
liquidations in making trading decisions. In effect, Vulcan is more akin to
a systematic technical charting system, as opposed to most computer
systems, which are based on pure trend-following calculations.
The Vulcan System is based on general technical trading principles
that over time have repeatedly shown their validity as price movement
forecasters. As used in connection with the Partnership, it applies these
principles to a diversified portfolio of financial instruments and
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currencies. Given that the system is based on general principles, the
system parameters used are the same for all items in the portfolio and are
not optimized. In this manner, the Vulcan System minimizes the problem of
data-fitting.
Vulcan determines, on a daily basis, whether to be long, short or
flat each of the various commodities in its portfolio. The Vulcan portfolio
traded for the Primary Investment Program includes:
Domestic Financial
Instruments: Treasury Bills, Treasury Bonds, Treasury Notes,
Eurodollars
Foreign Financial
Instruments: Japanese Government Bonds, Euro-Mark, Euro-Swiss,
Ten-year Notional, German Bunds, Pibor, Gilts,
Short Sterling, Australian Treasury Bills,
Australian Treasury Bonds, Italian Bonds,
Euro-Lira, Euro-Yen
Currencies: Pound Sterling, Deutschemark, Canadian Dollar,
Swiss Franc, Japanese Yen, Australian Dollar,
Mark-Yen.
The above list is provided only as an indication of markets traded
since the Advisor removes and adds contracts to the list from time to time.
It is intended that approximately 15% to 40% of the assets under
management pursuant to the Vulcan System normally will be committed as
margin for Commodity Interest trading, but from time to time the percentage
of assets committed may be substantially more or less. Positions are
generally held from 10 to 15 trading days. The largest monthly draw-down
experienced by the Advisor in using Vulcan was 19.39% and occurred in
February 1996. The greatest peak-to-valley draw-down was 19.03% and
occurred in the period between January 1992 to June 1992.
Argo Trading System. The Argo Trading System ("Argo") commenced
trading in 1987. Argo essentially incorporates Vulcan's concepts of pattern
recognition, support/resistance levels and counter-trend liquidations. Argo
has a relatively slower time horizon than Vulcan and attempts to capture
longer-term price moves. The Argo portfolio includes the instruments traded
in the Vulcan portfolio, as well as the following other commodities:
Grains: Corn, Wheat, Soybeans, Soybean Meal, Soybean Oil
Precious Metals: Gold, Silver
General: Crude Oil, Heating Oil, Unleaded Gasoline, Natural
Gas, Copper, Sugar, Coffee, Cocoa, Cotton, Live
Cattle, Live Hogs, Pork Bellies.
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The above list is provided only as an indication of markets traded
since the Advisor removes and adds contracts to the list from time to time.
It is intended that Argo's positions will generally be held from
20 to 30 trading days with approximately 15% to 40% of assets under
management normally committed as margin for Commodity Interest trading, but
from time to time the percentage of assets committed may be substantially
more or less. The largest monthly draw-down experienced by the Advisor
using Argo was 20.49% and occurred in February 1996. The greatest
peak-to-valley draw-down was 31.13% and occurred in the period between May
1996 to July 1996.
Siren Trading System. The Siren Trading System ("Siren"), which
commenced trading in January 1991, is a system based on the principles of
market profiles and other techniques that utilize real time price
information. Siren can best be characterized as a top and bottom picking
system. Siren tries to determine acquisition and distribution patterns that
often signal the end and reversal of a major trend bias. When it identifies
such a change, it will attempt to initiate a countervailing position.
Siren's time frame is generally 18 to 25 trading days. The Siren portfolio
traded for the Primary Investment Program includes:
Grains: Corn, Wheat, Soybeans, Soybean Meal, Soybean Oil,
Oats, Rough Rice
Precious Metals: Gold, Silver
General: Crude Oil, Heating Oil, Unleaded Gasoline, Natural
Gas, Copper, Sugar, Coffee, Cocoa, Cotton, Live
Cattle, Live Hogs, Pork Bellies.
The above list is provided only as an indication of markets traded
since the Advisor removes and adds contracts to the list from time to time.
It is intended that approximately 15% to 40% of the assets under
management pursuant to Siren will be normally committed as margin for
Commodity Interest trading, but from time to time the percentage of assets
committed may be substantially more or less. The largest monthly draw-down
experienced by the Advisor in using Siren was 12.39% and occurred in August
1993 The greatest peak-to-valley draw-down was 21.99% and occurred in the
period between July 1993 to October 1993.
Trading Policies
The Partnership adheres to the following policies in executing its
trading activities. The General Partner will notify limited partners of any
changes in these trading policies.
1. The Partnership will not lend or borrow money, although the
Partnership may utilize lines of credit for trading forward contracts.
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2. The Partnership will not commingle its assets with those of
other persons, except as permitted under the CEA and the rules and
regulations promulgated thereunder.
3. The Partnership will not trade bank forward contracts with or
through any bank that, as of the end of its latest fiscal year, had an
aggregate balance in its capital, surplus and related accounts of less than
$100,000,000, as shown by its published financial statements for such year.
4. The Partnership will not purchase, sell or trade securities,
except securities approved by the CFTC for investment of customer funds.
The Partnership may trade in futures contracts on securities and securities
indices, options on such futures contracts and other commodity options.
The Commodity Brokers
The Partnership executes and clears trades in futures and
commodity options through FIMAT USA, Inc. ("FIMAT") and E.D & F. Man
International Inc. ("Man"), unaffiliated brokers selected by the General
Partner. The General Partner may retain additional or substitute clearing
brokers in the future. FIMAT and Man are registered under the CEA as
futures commission merchants and are members of the NFA in such capacities.
FIMAT and Man act only as clearing brokers for the Partnership and as such
are paid commissions for executing and clearing trades on behalf of the
Partnership. Neither FIMAT nor Man act in any supervisory capacity with
respect to the General Partner or participate in the management of the
General Partner or the Partnership.
The assets of the Partnership are deposited with FIMAT and Man in
trading accounts established by the Partnership for the Advisor and are
used by the Partnership as margin to engage in trading. Each of the
clearing brokers is a futures commission merchant registered with the CFTC.
Such assets are held in either an interest-bearing bank account or in
securities approved by the CFTC for investment of customer funds. The
clearing brokers through clearing futures trades for its customers,
including the Partnership, could expose the Partnership to credit risk. The
clearing brokers attempt to mitigate this risk relating to futures
contracts in regulated commodities by maintaining funds deposited by
customers in separate bank accounts, which are designated as segregated
customers' accounts. In addition, the clearing brokers have set aside funds
deposited by customers relating to foreign futures and options in separate
bank accounts, which are designated as customer secured accounts. Lastly,
the clearing brokers are subject to the CFTC's Net Capital Rule, which
requires the clearing brokers to maintain minimum net capital of at least
4% of the segregated customer funds as defined by the CEA and regulations
promulgated thereunder.
The clearing brokers must comply with the settlement procedures
established by the clearinghouse of each exchange where the clearing broker
is a clearing member. The rules of exchange vary, but at a minimum the
exchange guarantees performance on every contract to each of its clearing
members. Thus, once a trade between two clearing members is matched by
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the exchange, the rights and obligations under the futures or options
contract do not run between the original buyer and seller, but between the
clearing member and the seller of the contract, and between the clearing
member and the buyer. The clearinghouse sets a settlement price for
settling all accounts between clearing members for each contract month.
Unliquidated positions on outstanding contracts are marked to market at
least once a day via midday and/or morning calls to determine any
additional margin requirements. In general, a clearinghouse is backed by
the membership and will act in the event of non-performance by one of its
members or one of the member's customers, the intent of which is to
significantly reduce credit risk. If a clearing broker is not a member of
an exchange clearinghouse, it will comply with the settlement procedures
established with the actual carrying brokers and will operate through them.
Settlement of calls on such contracts may take an extra day on U.S.
exchanges or two extra days on non-U.S. exchanges. Additional margin
requirements are wire-transferred by the clearing brokers to the
appropriate clearinghouse. During the year ended December 31, 1996 and the
nine months ended September 30, 1997, the Partnership had no material
credit risk exposure to a counterparty that is a foreign commodities
exchange.
Fees and Expenses
The General Partner
Upon admission to the Partnership, each new subscriber for
interests in the Partnership will pay 1% of his subscription amount to the
General Partner as an administrative charge. Existing Limited Partners who
subscribe for additional interests in the Partnership will pay to the
General Partner 1% of the amount of the additional subscription as an
administrative charge. The Partnership also pays the General Partner a
yearly management fee in an amount equal to 1% of the net asset value of
the Partnership as of the first business day of each year before deducting
(i) accrued ordinary legal, accounting and auditing fees and (ii) any
incentive fees payable to the Advisor. In addition, the Partnership pays to
the General Partner a flat-rate monthly brokerage commission of
approximately 0.29% of the net asset value of the Partnership as of the
beginning of each month (a 3.5% annual rate). The General Partner will pay
from this amount all floor brokerage, exchange, clearing and NFA fees with
respect to the Partnership's trading, but other execution costs, including
give-up charges and service fees assessed by certain forward dealing desks,
will be paid by the Partnership. The General Partner will pay from its own
funds any futures brokerage commission and fees (except for certain
execution costs as noted above) incurred by the Partnership in excess of
the flat monthly rate it receives from the Partnership. The flat-rate
brokerage commission to the General Partner is calculated after reduction
for any brokerage commissions due at the end of the immediately preceding
month, any redemptions or distributions as of such immediately preceding
month-end and any accrued incentive fees as of such immediately preceding
month-end, and after including the interest credits for such immediately
preceding month-end and any additions as of the beginning of the month for
which the flat-rate brokerage commission is being calculated. Lastly, in
the event the flat-rate monthly brokerage commission payable by the
Partnership to the General Partner at any time exceeds the actual brokerage
commissions and related fees to which such flat-rate brokerage commission
is applied, the General Partner will pay a portion of such excess to
Limited Partners
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who became Limited Partners prior to September 1995, the date as of which
the Partnership ceased to be a proprietary pool under CFTC Rules, which
portion paid to any such Limited Partner shall not exceed such Limited
Partner's pro rata share of the actual brokerage commissions and related
fees paid by the Partnership. The General Partner may also pay a portion of
such excess to properly registered selling agents as compensation for their
ongoing services to the Partnership, which portion paid to any one selling
agent is not expected to exceed 1% per annum of the net asset value of the
limited partnership interests sold by such selling agent.
The Advisor
The Partnership pays to the Advisor a quarterly management fee of
.25% (1% per year) of the Partnership's month-end Net Assets (as defined
below) for each month during such quarter. The Partnership also compensates
the Advisor by paying to it a quarterly incentive fee of 25% of New Profits
(as defined below), if any. If any incentive fee is paid to the Advisor,
the Advisor will retain the amount paid regardless of any subsequent
decline in account value, but will not be eligible to receive subsequent
incentive fee payments until the Advisor has recouped its losses and earned
New Profits.
The Partnership's "Net Assets" shall mean the total assets of the
Partnership including all cash and cash equivalents (valued at cost),
accrued interest and the market value of all open commodity positions and
other assets maintained by the Partnership, less the market value of all
liabilities and reserves of the Partnership, including accrued management
and incentive fees, determined in accordance with the principles specified
in Paragraph 6 of the Partnership Agreement and, where no principle is
specified, in accordance with generally accepted accounting principles. The
market value of a commodity futures contract or option on a commodity
futures contract shall mean the most recent available closing quotation on
the exchange through which the particular commodity futures contract or
option on a commodity futures contract is traded by the Partnership; the
market value of a forward contract is determined by the dealer with which
the Partnership has traded the contract. If, however, a contract cannot be
liquidated on the day with respect to which the cumulative profits or
losses on the account are being determined, because of the operation of
daily limits or other rules of the commodity exchange upon which that
contract is traded or otherwise, the settlement price on the first
subsequent day on which the contract can be liquidated is the basis for
determining the liquidating value of such contract for such day. "New
Profits" for the purpose of calculating the Advisor's incentive fee only,
is defined as the excess (if any) of (A) the net asset value of the
Partnership as of the last day of any calendar quarter (before deduction of
incentive fees paid or accrued for such quarter), over (B) the net asset
value of the Partnership as of the last day of the most recent quarter for
which an incentive fee was paid or payable (after deduction of such
incentive fee). In computing New Profits, the difference between (A) and
(B) above shall be (i) increased by the amount of any distributions or
redemptions paid or accrued by the Partnership as of or subsequent to the
date in (B) through the date in (A), (ii) adjusted (either decreased or
increased, as the case may be) to reflect the amount of any additional
allocations or negative reallocations of Partnership assets from the date
in (B) to the last day of the quarter
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as of which the current incentive fee calculation is made, and (iii)
increased by the amount of any losses attributable to redemptions.
Commodity Brokers
The General Partner currently pays commission rates of
approximately $9 per round-turn with respect to the Partnership's trading
(including NFA assessments and exchange fees), which in the future rates
may be higher or lower. The General Partner believes that this brokerage
rate is generally competitive with those charged by other commodity
brokers; however, other commodity brokerage firms might offer lower rates
to an account similar to that of the Partnership.
Selling Agent
An investor in the Partnership who subscribes through a selling
agent may be charged a sales commission at a rate to be negotiated between
such selling agent and the investor. In no event, however, will such sales
commission exceed 4% of the subscription amount. The sales commission is
paid directly to the Partnership for the benefit of the selling agent.
Selling agents may also receive a portion of the commodity brokerage
commission from the Partnership's commodity brokers.
Dealers
Dealers will not charge the Partnership commissions, but are
compensated from the bid/offer spread that is quoted in dealing with the
Partnership. A customary mark-up is included in the price of the forward or
spot contract or the premium in the case of an option contract.
Others
The General Partner will pay expenses of the continuing offering
of Limited Partnership Units (consisting primarily of printing fees),
estimated to be approximately $5,000 per year, and ordinary operating
expenses actually incurred by the Partnership, including periodic legal,
accounting and auditing fees, and other administrative expenses and fees,
which are estimated to be approximately $75,000 per year (excluding any
extraordinary expenses).
Trading For Own Account
The General Partner, its principal and their affiliates currently
do not, but may in the future, trade Commodity Interests for their own
accounts. Limited Partners will not be permitted to inspect the records of
such trades. The Advisor, its principals and their affiliates also may
trade Commodity Interests for their own accounts. The records and the
results of the proprietary trading by the Advisor and its principals will
not be made available for inspection by the Limited Partners because of
their confidential nature.
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Conflicts of Interest
Although the General Partner is not affiliated with a commodity
broker, the General Partner may have a conflict of interest in selecting
brokers because of continuing business dealings with certain brokers. For
example, affiliates of certain brokers may serve as selling agents for the
Partnership. The General Partner and its principal or their affiliates may
have commodity accounts at the same brokerage firms as the Partnership,
and, because of the amount traded through the brokerage firms, may pay
lower commissions than the Partnership. The General Partner intends to
review brokerage arrangements on a periodic basis to assure that the
Partnership secures favorable execution of brokerage transactions and to
assure that the commissions paid are reasonable in relation to the value of
the brokerage and other services provided.
Under the terms of the Partnership Agreement, the General Partner
has the authority to engage independent commodity trading advisors or
affiliated commodity trading advisors to make trading decisions for the
Partnership. Should the General Partner select trading programs which it,
its principal or their affiliates operate, the General Partner may have a
conflict of interest between choosing the trading programs that the General
Partner believes will be most advantageous to the Partnership and seeing
that it or its affiliates' trading programs are used on behalf of the
Partnership and earning fees therefrom. The General Partner also may be
less likely to terminate the use of one of its or its affiliates' trading
programs. The Advisor has retained the General Partner as an independent
consultant to assist the Advisor in developing new business. The prospect
of possibly losing the ability to earn compensation as a consultant to the
Advisor could serve as a disincentive to the General Partner engaging a
different trading advisor. The General Partner will act as introducing
broker for the Partnership and receive a portion of the brokerage
commissions generated by the Partnership's trading activities. The General
Partner may have a conflict of interest between choosing the investment
programs that the General Partner believes will be most advantageous to the
Partnership and seeing that the investment programs which generate the most
trading activity are used on behalf of the Partnership and earning fees
therefrom.
The Advisor and its affiliates currently manage other accounts and
act as general partner for other limited partnerships that trade Commodity
Interests, and the Advisor, the General Partner and their respective
affiliates may act in the future as manager of additional accounts and as
general partner for other such limited partnerships. Such accounts and
partnerships may hold positions either similar or opposite to the positions
taken by the Partnership, and the compensation received by the Advisor or
the General Partner from such other accounts and partnerships may differ
from the compensation they receive from the Partnership. As the Advisor
manages additional accounts, these accounts will increase the level of
competition for the same trades made for the Partnership.
The principal of the General Partner and his family and affiliates
also may trade for their own accounts. Results of such trading will not be
made available to Limited Partners because of the confidential nature of
such records. In addition, the General Partner, its principal or their
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affiliates may serve as the general partner or sponsor for other investment
vehicles engaged in the trading of instruments and contracts similar to
those traded by the Partnership. Such vehicles may hold positions either
similar or opposite to the positions taken by the Partnership, and the
compensation received by the General Partner, its principal or their
affiliates from such other vehicles may differ from the compensation
received from the Partnership.
Since the Advisor and its principals have traded, and may continue
to trade Commodity Interests for their own accounts, it is possible that
orders for their accounts may be entered in advance of or opposite to
orders for client accounts pursuant to, for instance, a neutral order
allocation system, a different trading strategy or a different risk level
of trading. Also, the spouse of one of the Advisor's principals is a floor
broker who, in the ordinary course of business, may receive brokerage
commissions in respect of trades effected pursuant to the Advisor's trading
on behalf of clients. Any such commissions will be at competitive rates.
However, any such proprietary trading is subject to the duty of the Advisor
to exercise good faith and fairness in all matters affecting client
accounts. The records and the results of the proprietary trading by the
Advisor and its principals will not be made available for inspection by the
limited partners because of their confidential nature. During the normal
course of trading, orders for the client's account may be executed in
competition with the orders for proprietary and other client accounts
managed by the Advisor. Depending on market liquidity and other factors,
this possibility could result in client orders being executed at prices
that are less favorable than would otherwise be the case. In addition, the
Advisor may combine various strategies to trade proprietary and client
accounts. As a result, trading decisions generated by different trading
strategies and investment programs may vary among accounts, resulting in
different positions.
It is possible that certain officers, directors and employees of
the Partnership's clearing brokers and their families may from time to time
trade commodity futures contracts and other Commodity Interests for their
own accounts (some of which may be managed by the Advisor). In the event
such individuals do trade for their own accounts, investors will not be
permitted to inspect such trading records. It is possible that such persons
may take positions either similar or opposite to positions taken by the
Partnership and that the Partnership and such persons may from time to time
be competing for either similar or opposite positions in the commodity
futures markets. In certain instances, the clearing brokers may have orders
for trades from the Partnership and orders from its own employees. The
clearing brokers might be deemed to have a conflict of interest between the
sequence in which such orders will be transmitted to the trading floor.
The Advisor appears on the approved list of commodity trading
advisors for many futures commission merchants. Appearance on an approved
list means that futures commission merchants' representatives may solicit
managed accounts for a trading advisor. Inclusion on such an approved list
may create a conflict of interest for a trading advisor between its duty to
trade clients' accounts in the best interest of clients and its financial
interest in maintaining a position on a futures commission merchant's
approved list, which could be contingent upon generation of adequate
commission income from those accounts managed by the advisor. the
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Advisor's policy, however, is to trade all comparable accounts in the same
manner regardless of the method by which the account was obtained.
The Partnership Agreement contains various exculpatory provisions,
which provide that the General Partner, its officers, directors,
stockholders, employees, agents and affiliates and each person who controls
any of the same will not be liable, responsible or accountable in damages
or otherwise to the Partnership or any of its partners, their successors or
permitted assigns, except by reason of acts or omissions (i) in violation
of federal or state securities laws, (ii) due to intentional or criminal
wrongdoing or gross negligence or willful misconduct, (iii) constituting a
breach of fiduciary duty or (iv) not in good faith in the reasonable belief
that they were in, or not opposed to, the best interests of the
Partnership. Any claim, action or proceeding by any Limited Partner can be
brought only against the General Partner and its assets, and not against
any manager, member, officer, employee, agent or affiliate of the General
Partner, or any person who controls any of the same. In addition, the
Partnership has agreed to indemnify, defend and hold harmless the General
Partner, and its officers, directors, stockholders, employees, agents and
affiliates, and each person who controls any of the same from and against
any loss, liability, damage, cost or expense (including legal fees and
expenses actually and reasonably incurred in defense of any demands, claims
or lawsuits) actually and reasonably incurred arising from actions or
omissions concerning the business or activities undertaken by or on behalf
of the Partnership from any source including, without limitation, any
demands, claims or lawsuits initiated by a Limited Partner, if the acts,
omissions or alleged acts or omissions upon which such actual or threatened
action, proceeding or claim is based were for a purpose reasonably believed
to be in, or not opposed to, the best interests of the Partnership and were
not (i) in violation of federal or state securities laws, (ii) performed or
omitted as a result of intentional or criminal wrongdoing or gross
negligence or willful misconduct or (iii) in violation of the General
Partner's fiduciary obligations to the Partnership. The foregoing rights to
indemnification and payment of legal fees and expenses will not be affected
in the event of the termination of the Partnership or the withdrawal,
dissolution or insolvency of the General Partner. These exculpation and
indemnification provisions may not be enforceable with respect to certain
statutory liabilities, such as liabilities resulting from violations of
federal securities laws.
The responsibility of a general partner to Limited Partners is a
rapidly developing and changing area of the law, and Limited Partners who
have questions concerning the responsibilities of the General Partner
should consult their counsel. Limited Partners should be aware, however, of
the broad authority given to the General Partner under the Partnership
Agreement, including the authority of the General Partner to enter into
trading advisory agreements under the Partnership Agreement, the absence of
judicial decisions providing standards defining excessive trading and the
exculpatory provisions in the Partnership Agreement.
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Risk Factors
Commodity Interest Trading Is Speculative and Volatile
Commodity Interest prices can be highly volatile. Price movements
of Commodity Interest contracts are influenced by, among other things,
changing supply and demand relationships, governmental, agricultural and
trade programs and policies, and national and international political and
economic events. Changing crop prospects occasioned by unexpected weather
or damage by insects and plant diseases make it difficult to forecast
future supplies of agricultural commodities. Similarly, demand is also
difficult to forecast due to such factors as variable world production
patterns, expected purchases by or disruptions of trade with foreign
countries and continued changes in domestic needs. Financial instrument
futures prices are influenced primarily by changes in interest rates.
Foreign currency futures prices are influenced by, among other things,
changes in balances of payments and trade, domestic and international rates
of inflation, international trade restrictions and currency devaluations
and revaluations. The Partnership has no control over these factors.
Commodity Interest Trading Is Highly Leveraged
The low margin deposits normally required in Commodity Interest
trading result in an extremely high degree of leverage. A relatively small
price movement in an unfavorable direction, therefore, in a Commodity
Interest contract could result in immediate and substantial losses to the
investor. Like other leveraged investments, any purchase or sale of a
Commodity Interest contract may result in losses in excess of the amount
invested in that contract. The Partnership may lose more than its initial
margin deposit on a trade.
Commodity Interest Trading May Be Illiquid
The Partnership's investment strategies require liquid, properly
functioning markets. In extraordinary circumstances, the liquidity of some
trading instruments may be impaired and pricing mechanisms may not function
properly. The Partnership might be exposed to substantial losses should it
find it necessary to liquidate positions under such conditions. Each
exchange on which futures are traded typically has a right to suspend or
limit trading in the contracts which it uses. Such a suspension or
limitation could render it impossible for the Partnership to liquidate its
positions and thereby expose it to losses. In addition, there is no
guarantee that exchange and other secondary markets will always remain
liquid enough for existing positions to be closed out. Commodity exchanges
limit fluctuations in certain commodity futures contract prices, including
those for financial futures contracts, during a single day by regulations
referred to as "daily price fluctuation limits" or "daily limits." Under
such daily limits, during a single trading day, no trades can be executed
at prices beyond the daily limit. Once the price of a futures contract for
a particular commodity has increased or decreased by an amount equal to the
daily limit, positions in the commodity can be neither taken nor liquidated
unless traders are
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willing to effect trades at or within the limit. Commodity futures prices
occasionally have reached the daily limit for several consecutive days with
little or no trading. Such market conditions could cause the Partnership to
be unable to liquidate its positions in the futures market. Similarly, with
respect to options on commodity futures, there may be no liquid offset
market on an exchange for a particular option due to, among other reasons,
insufficient trading interest, exchange imposed restrictions, trading halts
or a lack of liquidity in the underlying futures contract.
Counterparty Risk
If one of the Partnership's commodity brokers becomes bankrupt or
insolvent, or otherwise defaults on its obligations to the Partnership, the
Partnership may not receive all amounts owing to it in respect of its
trading, despite the clearinghouse fully discharging all of its
obligations. Furthermore, in the event of the bankruptcy of any such
commodity broker, the Partnership could be limited to recovering only a pro
rata share of all available funds segregated on behalf of such commodity
broker's combined customer accounts, even though certain property
specifically traceable to the Partnership (for example, Treasury bills
deposited by the Partnership with the commodity broker as margin) was held
by such commodity broker. In addition, many of the instruments in which the
Partnership may trade are traded in markets in which performance is the
responsibility only of the individual counterparty and not of an exchange
or clearinghouse. In these cases, the Partnership is subject to the risk of
the inability of, or refusal by, the counterparty to perform with respect
to such contracts. In addition, there is the possibility that institutions,
including banks and brokerage firms, with which the Partnership does
business will encounter financial difficulties that may impair the
operational capabilities or the capital position of the Partnership.
Options Trading
The Partnership may engage in the trading of options (both puts
and calls) on commodity futures contracts on exchanges where such trading
has been authorized by the CFTC. The value of an option depends largely
upon the likelihood of favorable price movements in the underlying futures
contract in relation to the exercise (or strike) price during the life of
the option. Therefore, many of the risks applicable to trading the
underlying futures contract are also applicable to options trading.
However, there are a number of other risks associated solely with the
trading of options. For example, the purchaser of an option runs the risk
of loss of his entire investment (i.e., the premium paid). Similarly, the
"uncovered writer" of an option is subject to the risk of loss due to an
adverse price movement in the underlying futures position. Spread positions
using options are subject to the same risks involved in the purchase and
writing of options. In addition, in the event the Partnership were to write
uncovered options as one part of a spread position and such options were
exercised by the purchasing party, the Partnership would be required to
purchase or deliver the underlying futures contract in accordance with the
terms of the option. Finally, an options trader runs the risk of market
illiquidity for offsetting positions for any particular option. See " --
Commodity Interest Trading May Be Illiquid."
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Trading of Forward Contracts
Forward contracts for the trading of certain commodities, such as
currencies and metals, may be entered into on behalf of the Partnership
with United States and foreign banks and dealers. A forward contract is a
contractual right to purchase or sell a commodity at or before a specified
date in the future at a specified price and, therefore, is similar to a
futures contract. There are no limitations on daily price moves in forward
contracts, and banks and dealers are not required to continue to make
markets in such contracts. There have been periods during which certain
banks and dealers have refused to quote prices for such forward contracts
or have quoted prices with an unusually wide spread between the price at
which the bank or dealer is prepared to buy and that at which it is
prepared to sell. Governmental imposition of credit controls might limit
currency forward contract trading. Neither the CFTC nor banking authorities
regulate forward contract trading through United States banks and dealers,
and foreign banks and dealers are not regulated by any United States
governmental agency. With respect to its trading of forward contracts, the
Partnership may be subject to the risk of bank or dealer failure and the
inability of, or refusal by, a bank or dealer to perform with respect to
such contracts. Any such default would deprive the Partnership of any
profit potential or force the Partnership to cover its commitments for
resale, if any, at the then market price and could result in a loss to the
Partnership. In addition, regulators, legislators and the courts have
focused considerable attention recently on foreign currency trading in the
interbank markets. In the event that the Partnership were to become unable
to trade certain currency contracts, the prospect of the Partnership
achieving its investment objectives could be materially adversely affected.
Charges to Partnership
The Partnership will be required to pay a fixed annual management
fee and a fixed monthly brokerage commission to the General Partner, and a
fixed quarterly management fee and, under certain circumstances, a
quarterly incentive fee to the Advisor. The Partnership also is obligated
to pay certain execution costs, as well as all legal, accounting, auditing
and other administrative expenses and fees, regardless of whether the
Partnership realizes any profits. The Partnership, therefore, will be
required to make trading profits in the amount of such charges and fees,
less interest earned, to avoid depletion or exhaustion of its assets by
these charges and fees. There can be no assurance that the Partnership will
achieve any profits.
Possible Effects of Speculative Position Limits
The CFTC and the commodity exchanges have established limits
referred to as "speculative position limits" or "position limits" on the
maximum net long or net short commodity position that any person or group
of persons may own, hold or control in particular commodity contracts. The
CFTC has jurisdiction to establish, or cause exchanges to establish,
position limits with respect to all items traded on exchanges located in
the United States and any exchange may impose additional limits on
positions on that exchange. Such limits will be applicable in respect of
trading of futures and options and could affect the ability of the Advisor
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to acquire certain positions that its respective programs would otherwise
indicate as desirable for the Partnership. Were the Advisor to violate
applicable position limits, mandatory liquidation of the Partnership's
positions would result and the Advisor could be subject to regulatory
action restricting or prohibiting the Advisor from providing further
trading advisory services to the Partnership. The General Partner will
monitor the Partnership's compliance with position limits. The positions
held by the Advisor will be aggregated under the CEA and applicable
exchange regulations for purposes of determining compliance with
speculative position limits, which could have a material adverse effect on
the Partnership.
Unequal Allocation of the Partnership's Assets Among the Trading Strategies
and Investment Programs
The General Partner will allocate the Partnership's assets to
investment programs that use unequal allocations among trading strategies.
Reallocation of the Partnership's assets or selection of new investment
programs or trading strategies may be made from time to time at the
discretion of the General Partner. There can be no assurance that the
current allocations will prove as successful as others that might have been
made. Any given investment program or trading strategy may experience a
high monthly rate of return but, as a result of particular allocations, may
represent only a small percentage of the Partnership's net assets. In such
case, the benefit to the Partnership as a whole from that investment
program's or trading strategy's performance will be reduced because of the
limited amount of equity available to that investment program or trading
strategy. An investment program or trading strategy may incur losses in
excess of the assets in that investment program's or trading strategy's
sub-account. If this occurs, the funds may have to be reallocated among the
investment programs or trading strategies, removing assets from the
sub-accounts of more successful investment programs or trading strategies
to pay losses incurred by the unsuccessful investment program or trading
strategy. Any such reallocation will reduce the assets under profitable
management, to the detriment of the account, and could disrupt the trading
of those investment programs or trading strategies that had achieved
profits for the account.
Trading on Exchanges Outside the United States
The Partnership may engage in trading on commodity exchanges
outside the United States. Trading on foreign exchanges is not regulated by
the CFTC and may involve certain risks not applicable to trading on United
States exchanges. For instance, some foreign exchanges are "principals'
markets" in which performance is not guaranteed by a clearing house or an
exchange but is the responsibility only of the individual member with whom
the trader has entered into a contract. In such a case, the Partnership
will be subject to the risk of the inability of, or the refusal by, the
counterparty to perform with respect to such contracts. Moreover, trading
on foreign markets will subject the Partnership's assets to risk of
fluctuations in relevant foreign exchange rates and the possibility of
exchange controls. Some foreign futures exchanges require margin for open
positions to be converted to the home currency of the contract.
Additionally, some brokerage firms have imposed this requirement for all
foreign futures markets traded, whether or not it is required by a
particular exchange. Whenever margin is held
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in a foreign currency, the Partnership is exposed to potential gains and
losses if exchange rates fluctuate. The effect of currency fluctuations on
performance records might be significant.
Reliance on the General Partner
Limited partners will be relying entirely on the ability of the
General Partner to select and monitor the trading strategies and investment
programs for the Partnership and to allocate and reallocate the assets
among trading strategies and investment programs. The selection by the
General Partner of the current trading strategies and investment programs
involved numerous considerations. The General Partner evaluated the
performance records and other aspects of other trading strategies and
investment programs (including the volatility of trading, commodities
traded, amount of management and incentive fees normally received,
personnel, amount of brokerage commissions generated, and amount of funds
under management) and made certain subjective judgments in selecting the
current trading strategies and investment programs on behalf of the
Partnership. Although the General Partner has carefully weighed the noted
factors in making its current selection, other factors not considered by
the General Partner also may be important. In the future, the General
Partner may choose to stop using one or more of the current trading
strategies and investment programs, to change the allocation of the
Partnership's assets among such trading strategies and investment programs,
or to select additional trading strategies and investment programs for the
Partnership, and similar factors will have to be considered by the General
Partner at that time.
New Trading Strategies and Investment Programs
In the future, the General Partner may designate additional or
replacement trading strategies and investment programs to manage the assets
of the Partnership. Upon selecting a new trading strategy or investment
program, the General Partner may reallocate the Partnership's assets among
the then current trading strategies and investment programs and the new
trading strategy or investment program in such amounts as the General
Partner may determine in its sole discretion. Any additional or replacement
trading strategy or investment program may be selected without prior notice
to or approval of the Limited Partners who will not have the opportunity to
review the performance records of the newly designated trading strategy or
investment program. However, the Limited Partners will be informed of the
selection of a new trading strategy or investment program after such
trading strategy or investment program has been chosen.
Multiple Trading Strategies
Each trading strategy within an investment program employed by the Advisor
will be making trading decisions independently of the other. Thus, there is
the possibility that the Partnership could hold opposite positions in the
same or similar Commodity Interest contracts at the same time or during the
same period of time. There is also the possibility that each trading
strategy may, from time to time, enter identical orders and thus compete
for the same trades. Such competition could prevent orders from the
Partnership from being executed at desired prices.
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There can be no assurance that the use of several different trading
strategies will not effectively result in losses by certain of the trading
strategies at virtually all times, offsetting any profits achieved by
others. The Partnership's diversification of trading strategies, which is
intended to reduce "down-side" risk while maintaining the ability to
capitalize on profitable trends, may, in fact, have the opposite result,
minimizing the Partnership's ability to exploit trending markets while
failing to reduce exposure to significant losses.
Experience of the General Partner and Investment Programs; Reliance on Key
Individuals
The General Partner has operated only this commodity pool;
however, the investment programs and trading strategies that are utilized
to direct trading for the Partnership have been utilized to direct futures
trading for other investors over varying periods of time. The Advisor, to a
great extent, relies on certain key individuals in the administration of
its trading strategies. If any of these individuals were to become
unavailable, there may be no adequate replacement who could carry out their
respective functions.
Past Results Are No Assurance of Future Performance
The General Partner and the Advisor each caution prospective
investors to take seriously the warning required by both the CFTC and the
NFA: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The
General Partner and the Advisor each believe that such past performance may
be of interest, but encourage investors to look at such information more as
a statement of the Partnership's objectives than as any indication that
such objectives will, in fact, be achieved.
Termination of the Arrangements with the Advisor, the Advisor's Licensor and
Commodity Brokers
Upon the termination of the Advisory Agreement with the Advisor,
the Advisor's licensing agreement or of any arrangements with the
Partnership's commodity brokers, the General Partner must renegotiate or
make such other arrangements for trading advisors, trading systems or
brokerage services, as the case may be. No assurance is given that the
services of the Advisor or the services of the commodity brokers will be
available after the termination of any such agreements. The Advisor uses
each of its five technical trading systems pursuant to an exclusive
licensing agreement with Caxton Corporation. The licensing agreement for
these systems will continue until December 31, 2001, and shall be renewed
for successive one year terms unless either the Advisor or Caxton has given
90 days' notice to the other prior to such date of its intention not to
renew. The licensing agreement may also be terminated in the case of an
uncured material breach or in other extraordinary situations. There is no
assurance that any of the five technical trading systems will be available,
on an exclusive basis or otherwise, after termination of the licensing
agreement, although the Advisor's discretionary trading approaches would
remain available.
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Limited Ability To Liquidate or Withdraw Investment in Limited Partnership
Units
There currently is no established public trading market for the
Limited Partnership Units and the Partnership has no plans to register any
of the Limited Partnership Units for resale. In addition, the Partnership
Agreement contains certain restrictions on the transfer of Limited
Partnership Units. As of the last day of any month, a Limited Partner may
redeem all of its Limited Partnership Units on 10 days' prior written
notice to the General Partner for an amount equal to the balance of such
Limited Partner's book capital account as of the last day of any month.
Limited Partners Will Not Participate in Management
Limited Partners are not entitled to participate in the management
of the Partnership or in the conduct of its business. Any such
participation could subject a Limited Partner to unlimited liability as a
general partner.
Possibility of Taxation as a Corporation
The General Partner has been advised by its counsel that under
current federal income tax laws and regulations the Partnership will be
classified as a partnership and not as an association taxable as a
corporation, and that under current federal income tax laws the Partnership
will not be taxed as a corporation under the provisions applicable to a
so-called "publicly traded partnership." This status has not been confirmed
by a ruling from, and such opinion is not binding upon, the Internal
Revenue Service. No such ruling has been or will be requested. If the
Partnership were taxed as a corporation for federal income tax purposes,
income or loss of the Partnership would not be passed through to the
limited partners, and the Partnership would be subject to tax on its income
at the rates of tax applicable to corporations without any deductions for
distributions to the Limited Partners. In addition, all or a portion of
distributions made to Limited Partners could be taxable to the limited
partners as dividends.
Automatic Termination
The limited partnership interests are designed for investors who
desire longer term investments. The Partnership will terminate on December
31, 2006, regardless of its financial condition at such time and will
terminate automatically if there is a decline of greater than 50% in the
Net Assets of the Partnership as of the end of any month from the Net
Assets of the Partnership as of the beginning of the previous fiscal year
of the Partnership. However, no assurance can be given to an investor as to
the amount, if any, it will receive on such termination because the
impossibility of executing trades under favorable conditions, as well as
the expenses of liquidation, may completely deplete the Partnership's
assets.
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Absence of Certain Statutory Registrations
Neither the General Partner nor the Partnership has registered as
a securities investment company, or "mutual fund," which is subject to
extensive regulation by the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Partnership is, however, a
"commodity pool" subject to regulation as such by the CFTC under the CEA.
The General Partner and the Advisor each are registered with the CFTC as a
CPO and a CTA and both are members of the NFA. In addition, the General
Partner is registered as an introducing broker with the CFTC.
Exchanges of Futures for Physicals
The Partnership may engage in exchanges of futures for physicals.
An exchange of futures for physicals is a transaction permitted under the
rules of many futures exchanges in which two parties holding futures
positions may close out their positions without making an open, competitive
trade on the exchange. Generally, the holder of a short futures position
buys the physical commodity, while the holder of a long futures position
sells the physical commodity. The prices at which such transactions are
executed are negotiated between the parties. If the Partnership were
prevented from such trading as a result of regulatory changes, the
performance of the Partnership could be adversely affected.
Item 2. Financial Information
Selected Financial Data
Set forth below is certain selected historical financial data for
the Partnership as of and for the years ended December 31, 1996, 1995,
1994, 1993 and 1992 and as of and for the nine months ended September 30,
1997 and 1996. The selected historical financial as of and for the year
ended December 31, 1996 were derived from the financial statements of the
Partnership, which were audited by Deloitte & Touche LLP. The selected
historical financial as of and for the years ended December 31, 1995, 1994,
1993 and 1992 were derived from the financial statements of the
Partnership, which were audited by Coopers & Lybrand LLP. The selected
historical financial data as of and for the nine months ended September 30,
1997 and 1996 are unaudited but, in the opinion of the General Partner,
reflect all adjustments necessary for a fair presentation of the results of
operations and financial position as of and for such period. The results
for the nine months ended September 30, 1997 are not necessarily indicative
of results to be expected for the full year. The information set forth
below should be read in conjunction with the Financial Statements and notes
thereto contained elsewhere in this Registration Statement.
-24-
<PAGE>
<TABLE>
<CAPTION>
(in thousands, except amounts per Unit)
Nine Months ended
September 30, Year ended December 31,
--------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Realized Gains (Losses) on Closed
Positions $1,060 $(867) $ 1,842 $ 768 $ 395 $ 117 $ 144
Net Change in Unrealized
(Losses) Gains on Open Futures
and Options Contracts (182) 537 (121) 24 (76) 136 (29)
Interest Income 566 151 339 87 31 28 18
Incentive Fees 875 -0- 347 205 79 59 22
Brokerage Commissions (including
Clearing and Exchange Fees) 341 106 148 18 14 16 15
Management Fees 223 75 101 29 18 19 13
Administrative Expenses 65 58 83 38 14 14 19
Net Income (Loss) (59) (418) 1,379 587 223 172 64
Net Income (Loss) Per Unit of
Partnership Interest (for a Unit
Outstanding Throughout Each 152 (576) 325 921 513 262 113
Year)
Financial Condition Data:
Limited Partners' Capital $16,053 $7,806 $10,528 $2,839 $946 $903 $846
General Partner's Capital 609 218 276 88 41 22 18
Partners' Capital (Net Asset 16,662 8,024 10,803 2,927 988 925 864
Value)
Net Asset Value per Unit 3,528 2,800 3,376 3,050 2,130 1,616 1,354
Partnership Units Outstanding At 4,723 2,865 3,201 959 464 572 638
End of Period
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The success of the Partnership is dependent upon the ability of
its advisor to generate trading profits through the speculative trading of
Commodity Interests sufficient to produce
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<PAGE>
capital payments after payment of all fees and expenses. Future results
will depend in large part upon the Commodity Interests markets in general,
the performance of its advisor, the amount of additions and redemptions and
changes in interest rates. Due to the highly leveraged nature of the
Partnership's trading activity, small price movements in Commodity
Interests may result in substantial gains or losses to the Partnership.
Because of the nature of these factors and their interaction, past
performance is not indicative of future results. As a result, any recent
increases in net realized or unrealized gains may have no bearing on any
results that may be obtained in the future.
The Partnership incurs substantial charges from the payment of
brokerage commissions to the General Partner, payment of management and
incentive fees to the Advisor, payment of management fees to the General
Partner and administrative expenses. See "Business - Fees and Expenses."
The Partnership is required to make substantial trading profits to avoid
depleting and exhausting its assets from the payment of such fees and
expenses.
The futures markets are constantly changing in character and in
degree of volatility. Although the Advisor has been the sole advisor
trading on behalf of the Partnership since April 1991, the General Partner
continues to evaluate and analyze from both quantitative and qualitative
perspectives the ability of the Advisor to trade effectively on the
Partnership's behalf in the context of the current market environment. In
the future, the General Partner may utilize additional strategies or
appoint additional advisors to trade on behalf of the Partnership.
Until the close of business on December 31, 1996, the assets of
the Partnership were allocated for trading in Commodity Interests entirely
to the Advisor's Primary Program. The Primary Program consists of the Argo,
Vulcan and Siren computer-based, quantitative trading systems. As of
January 1, 1997, the General Partner of the Partnership changed the
allocation for trading in Commodity Interests to approximately one-half the
Advisor's Primary Program and approximately one-half the Advisor's MTech
Trading Approach. The MTech Trading Approach is a highly discretionary
approach managed by Michael Y. Gan, the Executive Vice President of the
Advisor. See "Business -- Trading Programs." The reasons for re-allocating
approximately one-half of the Partnership's assets to the MTech Trading
Approach were to further diversify the Partnership's investment
methodologies and to reduce the Partnership's dependence on the success of
computer-based, quantitative trading systems.
Until the close of business of March 31, 1997, the Partnership
paid commodity brokerage commissions to its clearing brokers on a per-trade
basis. Effective April 1, 1997, the Partnership began paying to the General
Partner a flat-rate monthly brokerage commission of 0.29% of the net asset
value of the Partnership at the beginning of each month (a 3.5% annual
rate). The General Partner pays from this amount all commission charges and
fees with respect to the Partnership's trading in Commodity Interests. The
flat-rate monthly commission is common among programs such as the
Partnership, although the General Partner believes the rate charged the
Partnership is lower than that of similar programs. The flat-rate monthly
commission was implemented to shift the potential cost of the higher
trading volume of the Mtech Trading
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<PAGE>
Approach from the Partnership to the clearing brokers and to reduce the
administrative costs of tracking the Partnership's trades.
Effective July 28, 1997, FIMAT replaced Dean Witter Reynolds Inc.
as one of the Partnership's clearing brokers as a result of the sale by Dean
Witter Reynolds Inc. of its clearing business. FIMAT is an experienced
global futures broker and has the backing of Societe Generale, which is one
of the largest banks in the world. The Partnership continues to use Man as
its other clearing broker. See "Business - The Commodity Brokers."
Results of Operations
Trading in 1996 and the first nine months of 1997 did not offer
the same opportunities for profits as had been experienced during 1994 and
1995. The absence of trending markets as well as sharp reversals in market
prices create difficult trading environments, especially for advisors, such
as the Advisor, who utilize systematic trend-following trading
methodologies. Profit opportunities tend to improve during periods when
markets trend more consistently.
As of September 30, 1997, the net asset value of the Partnership
was $16,661,548 compared to its net asset value of $10,803,324 at December 31,
1996. The Partnership's subscriptions and redemptions for the first
nine months of 1997 totaled $6,959,935 and $1,042,610, respectively,
compared to $5,884,279 and $368,962, respectively, for the first nine
months of 1996. For the nine months ended September 30, 1997, the
Partnership had revenues comprised of $1,060,347 in realized gains on
closed positions, $181,641 in net change in unrealized losses on open
futures and options contracts and $565,789 in interest income. For the nine
months ended September 30, 1996, the Partnership had revenues comprised of
$867,061 in realized losses on closed positions, $536,950 in net change
in unrealized losses on open futures and options contracts and $151,250 in
interest income. For the nine month period ended September 30, 1997, the
Partnership had expenses comprised of $874,575 in incentive fees, $341,284
in brokerage commissions (including clearing and exchange fees), $223,016
in management fees and $64,721 in administrative expenses. This resulted in
the Partnership having a net loss of $59,101 for that period. For the nine
month period ended September 30, 1996, the Partnership had expenses
comprised of $106,049 in brokerage commissions (including clearing and
exchange fees), $74,657 in management fees, $0 in incentive fees and
$58,233 in administrative expenses. This resulted in the Partnership having
a net loss of $417,800 for that period. As indicated above, effective
January 1, 1997, the Partnership's assets were allocated approximately
equally between the Advisor's Primary Program and the Advisor's MTech
Trading Approach. During the first nine months of 1997, the Partnership
achieved small profits due to trends in the currency and soft markets, and
had losses in financial instruments. The net asset value per Unit at
September 30, 1997 was $3,375.50 compared to $2,800.48 at December 31,
1996.
As of December 31, 1996, the net asset value of the Partnership
was $10,803,324, an increase of $7,876,641 from its net asset value of
$2,926,683 at December 31, 1995. The Partnership's 1996 subscriptions and
redemptions totaled $6,957,825 and $460,574, respectively.
-27-
<PAGE>
For the year ended December 31, 1996, the Partnership had revenues
comprised of $1,841,818 in realized gains on closed positions, $121,198 in
net change in unrealized losses on open futures and options contracts and
$338,896 in interest income. For that same period, the Partnership had
expenses comprised of $347,260 in incentive fees, $147,986 in brokerage
commissions (including clearing and exchange fees), $101,446 in management
fees and $83,434 in administrative expenses. This resulted in the
Partnership having net income of $1,379,390 for that period. During fiscal
year 1996, the Partnership's assets were allocated to the Advisor's Primary
Program. During the year, the Advisor achieved profits on behalf of the
Partnership as favorable price trends occurred in certain foreign financial
futures, the energy sector and European currencies. The net asset value per
Unit at December 31, 1996 increased 10.66% from $3,050.30 at December 31,
1995 to $3,375.50 at December 31, 1996.
As of December 31, 1995, the net asset value of the Partnership
was $2,926,683, an increase of $1,938,979 from its net asset value of
$987,704 at December 31, 1994. The Partnership's 1995 subscriptions and
redemptions totaled $1,424,985 and $73,300, respectively. For the year
ended December 31, 1995, the Partnership had revenues comprised of $767,560
in realized gains on closed positions, $23,597 in net change in unrealized
gains on open futures and options contracts and $86,743 in interest income.
For that same period, the Partnership had expenses comprised of $205,375 in
incentive fees, $17,926 in brokerage commissions (including clearing and
exchange fees), $29,248 in management fees and $38,057 in administrative
expenses. This resulted in the Partnership having net income of $587,294
for that period. During fiscal year 1995, the Partnership's assets were
allocated solely to the Advisor's Primary Program. During the year, the
Advisor achieved profits on behalf of the Partnership as favorable price
trends occurred in the U.S. and foreign financial sectors as well as in the
currency markets. The net asset value per Unit at December 31, 1995
increased 43.23% from $2,129.58 at December 31, 1994 to $3,050.30 at
December 31, 1995.
As of December 31, 1994, the net asset value of the Partnership
was $987,704, an increase of $62,804 from its net asset value of $924,900
at December 31, 1993. The Partnership's 1994 subscriptions and redemptions
totaled $50,223 and $210,133, respectively. For the year ended December 31,
1994, the Partnership had revenues comprised of $394,691 in realized gains
on closed positions, $76,340 in net change in unrealized losses on open
futures and options contracts and $30,515 in interest income. For that same
period, the Partnership had expenses comprised of $79,196 in incentive
fees, $14,478 in brokerage commissions (including clearing and exchange
fees), $18,471 in management fees and $14,007 in administrative expenses.
This resulted in the Partnership having net income of $222,714 for that
period. During fiscal year 1994, the Partnership's assets were allocated
equally among three of the Advisor's computer-based, quantitative traded
systems: Vulcan, Argo and Siren. During the year, the Advisor achieved
profits on behalf of the Partnership as favorable price trends occurred in
the coffee, cotton and livestock markets. The net asset value per Unit at
December 31, 1994 increased 31.77% from $1,616.11 at December 31, 1993 to
$2,129.58 at December 31, 1994.
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<PAGE>
Liquidity
There currently is no established public trading market for the
Limited Partnership Units and the Partnership has no plans to register any
of the Limited Partnership Units for resale. In addition, the Partnership
Agreement contains certain restrictions on the transfer of Limited
Partnership Units. As of the last day of any month, a Limited Partner may
redeem all of its Limited Partnership Units on 10 days' prior written
notice to the General Partner for an amount equal to the balance of such
Limited Partner's book capital account as of the last day of any month. See
"Description of Registrant's Securities to be Registered--Redemption."
In general, the Advisor will trade only those Commodity Interests
that have sufficient liquidity to enable it to enter and close out
positions without causing major price movements. Notwithstanding the
foregoing, most United States commodity exchanges limit the amount by which
certain commodities may move during a single day by regulations referred to
as "daily price fluctuation limits" or "daily limits." Pursuant to such
regulations, no trades may be executed on any given day at prices beyond
daily limits. The price of a futures contract occasionally has moved the
daily limit for several consecutive days, with little or no trading,
thereby effectively preventing a party from liquidating his position. While
the occurrence of such an event may reduce or eliminate the liquidity of a
particular market, it will not eliminate losses and may in fact
substantially increase losses because of his inability to liquidate
unfavorable positions. In addition, if there is little or no trading in a
particular futures or forward contract that the Partnership is trading,
whether such illiquidity is caused by any of the above reasons or
otherwise, the Partnership may be unable to liquidate its position prior to
its expiration date, thereby requiring the Partnership to make or take
delivery of the underlying interests of the commodity investment.
The Partnership's trading may also be affected by the various
conflicts of interest among the Partnership, the General Partner, the
Advisor and the clearing brokers. "Business--Conflicts of Interest."
Capital Resources
The Partnership's capital resources are dependent upon three
factors: (a) the trading profit or loss generated by its advisor (including
interest income); (b) the money invested or redeemed by the Limited
Partners; and (c) capital invested or redeemed by the General Partner. The
General Partner has maintained, and has agreed to maintain, at all times, a
capital account in such amount as is necessary for the General Partner to
maintain a one percent (1%) interest in the capital, income and losses of
the Partnership. All capital contributions by the General Partner necessary
to maintain such interest capital account balance are evidenced by Units of
general partnership interest, each of which shall have an initial value
equal to the net asset value per Unit at the time of such contribution. The
General Partner in its sole discretion, may withdraw any excess above its
required capital contribution without notice to the Limited Partners. The
General Partner, in its sole discretion, may also contribute any greater
amount to the
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<PAGE>
Partnership, for which it shall receive additional Units of general
partnership interest at the then-current net asset value.
Item 3. Properties
The Partnership does not own or lease any physical properties. The
Partnership's office is located within the office of the General Partner,
at 4 Benedek Road, Princeton, New Jersey 08540.
Item 4. Security Ownership of Certain Beneficial Owners and
Management
As of September 30, 1997, approximately 4,722.999 Partnership
Units were held by 213 Limited Partners and the General Partner. The
following table sets forth certain information as of September 30, 1997
with respect to each person known to the Partnership to beneficially own
more than 5% of the outstanding Partnership Units.
Name and Address Number of Limited Percent of Total
of Beneficial Owner Partnership Units Partnership Units
- ------------------- ----------------- -----------------
Harry Brener 252.561 5.23%
673 Lawrenceville Road
Princeton, NJ 08540
PY Family L.P. 288.432 5.97%
101 Morgan Lane, Suite 180
Plainsboro, NJ 08536
James O. Welch, Jr. 368.984 7.63%
200 DeForest Avenue
East Hanover, NJ 07936
V.B. Welch Grandchildren Trust 248.897 5.15%
c/o McCage, Heidrich & Wong
4 Gatehall Drive
Parsippany, NJ 07054
The Partnership has no directors or officers. The General Partner
manages and conducts the business of the Partnership. As of September 30,
1997, the General Partner owned approximately $609,000 of general partner
interests in the Company, or 172.63 Partnership Units, representing
approximately 3.57% of the total outstanding Partnership Units, and also
beneficially owned 20.26 Limited Partnership Units. The General Partner is
owned entirely by Robert L. Lerner and trusts for the benefit of him and
his family.
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<PAGE>
Item 5. Directors and Executive Officers
The Partnership has no directors or officers. The General Partner,
Ruvane Investment Corporation, manages and conducts the business of the
Partnership. The General Partner was incorporated as is a Delaware
corporation incorporated in January 1990, is and has been registered with
the CFTC as a CPO since August 8, 1995; as a CTA since January 12, 1990,
and as an introducing broker since May 8, 1995. The General Partner is a
member of the NFA.
Robert L. Lerner is the principal of the General Partner. Mr.
Lerner has been the director and president of the General Partner since its
formation. Mr. Lerner was the sole general partner and CPO of the
Partnership since its inception until November 1995, at which time he
transferred and assigned his general partnership interest to the General
Partner, and had been individually registered with the CFTC as a CPO and a
CTA since October 1984. Mr. Lerner is currently registered as a principal
and an associated person of the General Partner. Mr. Lerner had been a sole
proprietor providing consulting and marketing services to CTAs from January
1992 to January 1996, at which time he transferred his operations to the
General Partner, which continues to provide such services. From May 1988
until January 1992, Mr. Lerner was senior vice president and director of
Mount Lucas Management Corporation, an investment advisory firm he
co-founded, which specializes in futures investment programs for
institutional investors. From July 1985 to May 1988, Mr. Lerner was
employed by Commodities Corporation (U.S.A.) N.V., a leading commodity
trading advisory firm. Mr. Lerner also has practiced commodities and
securities law. Mr. Lerner has a J.D. degree from Boston University Law
School and a B.A. degree from Cornell University.
Item 6. Executive Compensation
The Partnership has no directors or executive officers. The
General Partner manages and conducts the business of the Partnership. The
General Partner receives management and other fees from the Partnership.
See "Business -- Fees and Expenses."
Item 7. Certain Relationships and Related Transactions
The General Partner manages and conducts the business of the
Partnership. To compensate the General Partner for its management of the
Partnership, its monitoring of the Advisor's portfolio and its assumption
of the financial burden of operating the Partnership, the General Partner
receives management and other fees from the Partnership. See "Business --
Fees and Expenses." For the years ended December 31, 1996, 1995 and 1994,
the General Partner received a management fee from the Partnership pursuant
to the Partnership Agreement in the amounts of $29,267, $9,877 and $9,249,
respectively. For the years ended December 31, 1996, 1995 and 1994, the
General Partner received administrative charges from the Limited Partners
pursuant to the Partnership Agreement in the amount of $68,094, $13,150 and
$0, respectively. For the years ended December 31, 1996, 1995 and 1994, the
General Partner received no brokerage commissions from the Partnership.
-31-
<PAGE>
Item 8. Legal Proceedings
There are no pending legal proceedings to which the Partnership or
the General Partner is a party or to which any of their assets are subject.
Item 9. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters
There currently is no established public trading market for the
Limited Partnership Units. As of September 30, 1997, approximately
4,722.999 Partnership Units were held by 213 Limited Partners and the
General Partner.
Following the effectiveness of this Registration Statement, all
of the Limited Partnership Units will be "restricted securities" within the
meaning of Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), and may not be sold unless registered under
the Securities Act or sold in accordance with an exemption therefrom, such
as Rule 144. The Partnership has no plans to register any of the Limited
Partnership Units for resale. In addition, the Partnership Agreement
contains certain restrictions on the transfer of Limited Partnership Units.
See "Description of the Registrant's Securities to be Registered."
Pursuant to the Partnership Agreement, the General Partner has the
sole discretion to determine whether distributions (other than on
redemption of Limited Partnership Units), if any, will be made to partners.
The Partnership has never paid any distributions and does not anticipate
paying any distributions to partners in the foreseeable future.
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<PAGE>
Item 10. Recent Sales of Unregistered Securities
From January 1, 1995 through December 31, 1997, a total of
5,430.13 Partnership Units were sold for the aggregate net subscription
amount of $17,796,494. Details of the sale of these Partnership Units are
as follows:
Date of Sale Value of Units
- ------------ --------------
1/1/95 -0-
2/1/95 $94,125
3/1/95 -0-
4/1/95 $100,000
5/1/95 $62,579
6/1/95 $190,000
7/1/95 $125,000
8/1/95 $200,949
9/1/95 $85,000
10/1/95 $200,000
11/1/95 $107,455
12/1/95 $250,000
1/1/96 $369,267
2/1/96 $564,652
3/1/96 $1,110,911
4/1/96 $622,250
5/1/96 $1,663,701
6/1/96 $496,175
7/1/96 $334,460
8/1/96 $378,185
9/1/96 $344,678
10/1/96 $753,485
11/1/96 $133,643
12/1/96 $186,419
1/1/97 $418,033
2/1/97 $314,060
3/1/97 $1,286,300
4/1/97 $380,930
5/1/97 $1,024,322
6/1/97 $821,166
7/1/97 $556,729
8/1/97 $1,081,465
9/1/97 $1,076,930
10/1/97 $612,432
11/1/97 $391,193
12/1/97 $1,450,000
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<PAGE>
Investors in the Partnership who subscribed through a selling
agent may have been charged a sales commission at a rate negotiated between
such selling agent and the investor, which sales commission in no event
exceeded 4% of the subscription amount.
All of the sales of Partnership Units were exempt from
registration pursuant to Section 4(2) of the Securities Act and Regulation
D promulgated thereunder.
Item 11. Description of the Registrant's Securities to be Registered
The following description of the Limited Partnership Units is
subject to the detailed provisions of the Partnership Agreement, a copy of
which has been filed as an exhibit to this Registration Statement.
Nature of the Partnership Interests
The securities to be registered under this Registration Statement
are Limited Partnership Units. The rights of the Limited Partners are
governed by the Delaware Revised Uniform Limited Partnership Act and the
Partnership Agreement. The aggregate amount of Partnership Units that may
be issued under the Partnership Agreement is $100,000,000. Limited
Partnership Units, when purchased by a Limited Partner, will be fully paid
and non-assessable, except with respect to amounts distributed to the
Limited Partners through redemption of Limited Partnership Units,
distribution of Partnership income or capital or otherwise; however, no
Limited Partner shall be liable for Partnership obligations in excess of
the capital contributed by him and his share of profits (if any), including
any distributions and amounts received upon redemption of Limited
Partnership Units, together with interest thereon. No Limited Partner shall
have any right to demand the return of his capital contributions or any
profits added thereto, except upon the termination and dissolution of the
Partnership or upon the redemption thereof in accordance with the
Partnership Agreement. In no event shall a Limited Partner be entitled to
demand or receive property other than cash.
Management of Partnership
The General Partner, to the exclusion of all Limited Partners,
shall conduct and manage the business of the Partnership. Limited Partners
who participate in the management of the Partnership may lose their limited
liability for obligations of the Partnership.
Term of Partnership
The term of the Partnership shall end upon the first to occur of
the following: (1) December 31, 2006; (2) withdrawal, insolvency or
dissolution of the General Partner; (3) a decline of greater than 50% in
the Net Assets of the Partnership as of the end of any month after the
commencement of trading, from the Net Assets of the Partnership as of the
beginning of each fiscal year (with appropriate adjustments for additions
or redemptions as consistently
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<PAGE>
computed by the General Partner); or (4) the occurrence of any event which
shall make it unlawful for the existence of the Partnership to be
continued.
Redemptions
Upon ten days' written notice, a Limited Partner may require the
Partnership to redeem all or part of his interest in the Partnership
effective as of the close of business on the last day of any calendar month
at the net asset value thereof on such date. Notwithstanding the above, the
General Partner may in its sole discretion and on ten days' prior notice
cause the redemption of a Limited Partner's interest in the Partnership.
Withdrawal of Partners
The Partnership shall terminate and be dissolved upon the
withdrawal, insolvency or dissolution of the General Partner. The General
Partner shall not withdraw from the Partnership without giving the Limited
Partners 45 days' prior written notice. The death, incompetency,
withdrawal, insolvency or dissolution of a Limited Partner shall not
terminate or dissolve the Partnership, and such Limited Partner, his
estate, custodian or legal representative shall have no right to withdraw
or value such Limited Partner's interest in the Partnership, except upon
redemption thereof in accordance with the Partnership Agreement.
Distributions
The General Partner has the sole discretion in determining whether
distributions (other than on redemption of Limited Partnership Units), if
any, will be made to partners. All distributions shall be pro rata in
accordance with the respective book capital accounts of the partners.
Additional Partners and Transfers of Units
The General Partner may, in its discretion, offer and sell
additional Limited Partnership Units. The General Partner may also consent
to and admit any assignee of Limited Partnership Units as a substituted
Limited Partner. Any transfer, assignment, pledge or encumbrance of the
Limited Partnership Units shall be effective as of the end of the month in
which it is made; however, no transfer, assignment, pledge or encumbrance
of any Limited Partnership Unit shall be effective unless the General
Partner has received at least 20 days' prior written notice thereof.
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<PAGE>
Amendments
Amendments to the Partnership Agreement may be proposed by the
General Partner or by Limited Partners owning not less than 10% of the then
outstanding Limited Partnership Units (not including any Limited
Partnership Units held by the General Partner). The approval of a majority
of the then outstanding Limited Partnership Units (not including any
Limited Partnership Units held by the General Partner) shall be required to
pass an amendment. In addition, the Partnership Agreement may be amended by
the General Partner upon 30 days' prior notice to each Limited Partner in
certain limited circumstances.
Item 12. Indemnification of Directors and Officers
The Partnership has no officers or directors and is managed by its
General Partner, Ruvane Investment Corporation. The Partnership Agreement
provides that the General Partner and its affiliates will be indemnified
and held harmless from and against any loss, liability, damage, cost or
expense (including legal fees and expenses incurred in defense of any
demands, claims or lawsuits) actually and reasonably incurred arising from
actions or omissions concerning the business or activities undertaken by or
on behalf of the Partnership from any source including, without limitation,
any demands, claims or lawsuits initiated by a Limited Partner, if the
acts, omissions or alleged acts or omissions upon which such actual or
threatened action, proceeding, or claim is based were for a purpose
reasonably believed to be in, or not opposed to, the best interests of the
Partnership and were not (i) in violation of federal or state securities
laws, (ii) performed or omitted as a result of intentional or criminal
wrongdoing or gross negligence or willful misconduct or (iii) in violation
of the General Partner's fiduciary obligations to the Partnership. Rights
to indemnification and payment of legal fees and expenses will not be
affected in the event of the termination of the Partnership or the
withdrawal, dissolution or insolvency of the General Partner.
Item 13. Financial Statements and Supplementary Data
The Partnership's financial statements, together with the
auditors' reports thereon, appearing on pages F-1 through F-17 hereof, are
incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
In 1996, the General Partner engaged the accounting firm of
Deloitte & Touche LLP as the Partnership's independent accountants to
replace Coopers & Lybrand LLP, the Partnership's former independent
accountants, in connection with the audit of the Partnership's fiscal 1996
financial statements. Coopers & Lybrand LLP did not resign and did not
decline to stand for re-election. The report of Coopers & Lybrand LLP on
the Partnership's financial statements as of and for the year ended
December 31, 1995 did not contain an adverse opinion or a
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<PAGE>
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles. During the Partnership's two most
recent fiscal years and during the interim period prior to the engagement
of new independent accountants, there were no disagreements with Coopers &
Lybrand LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements,
if not resolved to the satisfaction of Coopers & Lybrand LLP, would have
caused it to make a reference to the subject matter thereof in its report.
During the Partnership's two most recent fiscal years and during the
interim period prior to the engagement of Deloitte & Touche LLP, there were
no consultations with Deloitte & Touche LLP regarding the application of
accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the
Partnership's financial statements.
Item 15. Financial Statements and Exhibits
(a) See the Index to Financial Statements, which is incorporated
herein by reference.
(b) See the Index to Exhibits, which is incorporated herein by
reference.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized on this 19th day of December, 1997.
THE WILLOWBRIDGE FUND, L.P.
By: Ruvane Investment Corporation
Its: General Partner
By: /s/Robert L. Lerner
----------------------
Robert L. Lerner, President
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<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED
DECEMBER 31, 1996 F-2
INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED
DECEMBER 31, 1995 AND 1994 F-3
FINANCIAL STATEMENTS:
Statements of Financial Condition for the years ended
December 31, 1996 and 1995 F-4
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 F-5
Statements of Changes in Partners' Capital for the years ended
December 31, 1996, 1995 and 1994 F-6
Notes to Financial Statements for the years ended
December 31, 1996, 1995 and 1994 F-7
Statements of Financial Condition for the nine month period ended
September 30, 1997 and the year ended December 31, 1996 F-11
Statements of Income for the nine month periods ended
September 30, 1997 and 1996 F-12
Statements of Changes in Partners' Capital for the nine month periods ended
September 30, 1997 and 1996 F-13
Notes to Financial Statements as of September 30, 1997 and
December 31, 1996 and for the nine months ended September 30, 1997
and 1996 F-14
</TABLE>
F-1
<PAGE>
Deloitte & Touche, LLP
INDEPENDENT AUDITORS' REPORT
To the Partners of
The Willowbridge Fund L.P.
We have audited the accompanying statement of financial condition of The
Willowbridge Fund L.P. (the "Partnership") as of December 31, 1996 and the
related statements of income and changes in partners' capital for the year
then ended. These financial statements are the responsibility of the
General Partner. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and estimates made by the General Partner, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Willowbridge Fund
L.P. as of December 31, 1996 and the results of its operations for the year
then ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE, LLP
New York, New York
February 7, 1997
F-2
<PAGE>
Coopers & Lybrand LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
The Willowbridge Fund L.P.:
We have audited the accompanying statement of financial condition of The
Willowbridge Fund L.P., as of December 31, 1995 and the related statements
of income and changes in partners' capital for the years ended December 31,
1995 and 1994. These financial statements are the responsibility of the
General Partner. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by the General Partner, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Willowbridge Fund
L.P. as of December 31, 1995 and the results of its operations for the
years ended December 31, 1995 and 1994, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND, LLP
Princeton, New Jersey
February 23, 1996.
F-3
<PAGE>
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
- -------------------------------------------------------------------------------
ASSETS 1996 1995
EQUITY IN COMMODITY FUTURES TRADING ACCOUNT:
Due from broker $ 11,176,071 -
Cash and short-term investments - 2,851,043
Net unrealized appreciation on open
futures contracts 24,859 146,057
------------- -----------
11,200,930 2,997,100
ACCOUNTS RECEIVABLE 50 -
CASH IN BANK 143,417 284,125
-------------- -------------
TOTAL ASSETS $ 11,344,397 $ 3,281,225
============= ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued incentive fees $ 347,260 $ 77,168
Advanced subscriptions 128,000 251,251
Accrued management fees 26,789 6,670
Other accrued expenses 20,465 18,465
Redemptions payable 10,000 -
Accrued commissions 4,893 988
Accounts payable 3,666 -
-------------- ------------
541,073 354,542
PARTNERS' CAPITAL:
Limited partners (3,118.841385
and 930.655173 units, respectively) 10,527,614 2,838,743
General partner (81.669361 and
28.817191 units, respectively) 275,710 87,940
-------------- -------------
$ 10,803,324 $ 2,926,683
============= ============
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 11,344,397 $ 3,281,225
============= ============
NET ASSET VALUE PER UNIT $ 3,375.50 $ 3,050.30
=============== =============
See notes to financial statements.
F-4
<PAGE>
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF INCOME FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
- -------------------------------------------------------------------------------
1996 1995 1994
REVENUE:
Gains (losses) on trading of commodity
futures and options:
Realized gains on closed positions $ 1,841,818 $ 767,560 $ 394,691
Net change in unrealized (losses)
gains on open futures and options
contracts (121,198) 23,597 (76,340)
------------ ---------- ----------
Total trading profits 1,720,620 791,157 318,351
Interest income 338,896 86,743 30,515
------------ ---------- ----------
Total revenues 2,059,516 877,900 348,866
------------ ---------- ----------
EXPENSES:
Incentive fees 347,260 205,375 79,196
Brokerage commissions (includes
clearing and exchange fees of
$19,388, $2,640 and $2,844 in 1996,
1995 and 1994) 147,986 17,926 14,478
Management fees 101,446 29,248 18,471
Administrative expenses 83,434 38,057 14,007
----------- ---------- ----------
Total expenses 680,126 290,606 126,152
---------- ---------- ----------
NET INCOME $ 1,379,390 $ 587,294 $ 222,714
----------- ---------- -----------
See notes to financial statements.
F-5
<PAGE>
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
- -------------------------------------------------------------------------------
Total
General Limited Partners'
Partner Partners Capital
PARTNERS' CAPITAL, JANUARY 1, 1994 $ 22,081 $ 902,819 $ 924,900
Additions 9,249 40,974 50,223
Redemptions - (210,133) (210,133)
Net Income 9,942 212,772 222,714
--------- --------- ---------
PARTNERS' CAPITAL, JANUARY 1, 1995 41,272 946,432 987,704
Additions 23,077 1,401,908 1,424,985
Redemptions - (73,300) (73,300)
Net income 23,591 563,703 587,294
---------- ---------- ----------
PARTNERS' CAPITAL, JANUARY 1, 1996 87,940 2,838,743 2,926,683
Additions 148,410 6,809,415 6,957,825
Redemptions - (460,574) (460,574)
Net income 39,360 1,340,030 1,379,390
---------- ----------- -----------
PARTNERS' CAPITAL, DECEMBER 31, 1996 $ 275,710 $ 10,527,614 $10,803,324
========== ============ ===========
See notes to financial statements.
F-6
<PAGE>
THE WILLOWBRIDGE FUND L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
- ---------------------------------------------------------------------------
1. PARTNERSHIP ORGANIZATION
The Willowbridge Fund L.P. (the "Partnership"), a Delaware limited
partnership, was organized on January 24, 1986. The Partnership is
engaged in the speculative trading of commodity futures contracts,
options on commodities or commodity futures contracts and forward
contracts. The General Partner is registered as a Commodity Pool
Operator and a Commodity Trading Advisor ("CTA") with the
Commodity Futures Trading Commission. The General Partner is
required by the Limited Partnership Agreement, as amended and
restated (the "Agreement"), to contribute an amount equal to one
percent of the aggregate capital raised by the Partnership. The
Agreement requires that all subscriptions are subject to a 1%
administrative charge payable to the General Partner.
2. SIGNIFICANT ACCOUNTING POLICIES
Due from Broker - Due from broker represents cash required to meet
margin requirements and excess funds not required for margin,
which are typically invested in 30- day commercial paper by the
broker.
Short-Term Investments - Short-term investments consist of time
deposits that are carried at cost plus accrued interest, which
approximates market.
Revenue Recognition - Commodity futures, options and forward
contract transactions are recorded on the trade date, and open
contracts are reflected in the financial statements at their fair
value on the last business day of the reporting period. The
difference between the original contract amount and fair value is
reflected in income as an unrealized gain or loss. Fair value is
based on quoted market prices. All commodity futures, options and
forward contracts and financial instruments are reflected at fair
value in the financial statements.
Commissions - Commission charges to open and close contracts are
expensed at the time the contract positions are opened.
Statement of Cash Flows - The Partnership has elected not to
provide a Statement of Cash Flows as permitted by Statement of
Financial Accounting Standard No. 102, "Statement of Cash Flows -
Exemption of Certain Enterprises and Classification of Cash Flows
from Certain Securities Acquired for Resale."
F-7
<PAGE>
Allocation of Profits (Losses) and Fees - Net realized and
unrealized trading gains and losses, interest income and other
operating income and expenses are allocated to the partners
monthly in proportion to their capital account balance, as defined
in the Agreement.
The General Partner, Ruvane Investment Corporation, was paid a
management fee equal to 1% of the net assets of the Partnership
(as defined in the Agreement) as of the last day of the previous
fiscal year-end. Such fees amounted to $29,267, $9,877 and $9,249
in 1996, 1995 and 1994, respectively.
The CTA of the Partnership, Willowbridge Associates, Inc.
("Willowbridge"), is entitled to an incentive fee based on an
increase in the adjusted net asset value of the allocated assets
of the Partnership. The CTA receives 25% of any new profits, as
defined in the Agreement. The term "new profits" is defined as the
increase, if any, in the adjusted net asset value of the allocated
assets. In addition, the Partnership pays a quarterly management
fee of 0.25% (1% per year) of the net asset value of the
Partnership to Willowbridge.
Willowbridge rebates to the Partnership the incentive and
management fees incurred by three Willowbridge employees who are
also limited partners in the Partnership. The rebate to the
Partnership is recorded on the Partnership's financial statements
as a capital contribution to the partners. The incentive and
management fees rebated to these partners in 1996, 1995 and 1994
were $37,049, $100,106 and $40,974, respectively.
Administrative Expenses - Administrative expenses include
professional fees, bookkeeping costs and other charges such as
registration fees, printing costs and bank fees.
Income Taxes - Income taxes have not been provided in the
accompanying financial statements as each partner is individually
liable for taxes, if any, on their share of the Partnership's
profits.
Redemptions - Limited partners may redeem some or all of their
units at the net asset value per unit as of the last business day
of each month on at least ten days' written notice to the General
Partner.
Estimates - 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 and disclosure of contingent 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.
F-8
<PAGE>
3. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Partnership is a party to financial instruments with
off-balance sheet risk in the normal course of its business. These
instruments include financial futures and option contracts.
Market Risk - Derivative financial instruments involve varying
degrees of off-balance sheet market risk whereby changes in the
level of volatility of interest rates, foreign currency exchange
rates or market values of the underlying financial instruments or
commodities may result in cash settlements in excess of the
amounts recognized in the statements of financial condition. The
Partnership's exposure to market risk is directly influenced by a
number of factors, including the volatility of the markets in
which the financial instruments are traded and the liquidity of
those markets.
The Partnership's risk of loss is typically limited to the amounts
recognized in the statement of financial condition and not
represented by the notional or contract amounts of these
instruments, which reflect the extent of involvement, but not
necessarily the amounts subject to risk that the Partnership has
in particular classes of financial instruments. The notional or
contractual amounts of these obligations at December 31, 1996 and
1995 was approximately $75,667,191 and $7,879,665, respectively.
At December 31, 1996, the Partnership had concentrations of open
commitments in the following market sectors: Financial Instruments
(61%) and Foreign Currencies (23%). All other market sectors had
5% or less of the total open commitments.
Credit Risk - Futures and forwards are contracts for delayed
delivery of financial interests in which the seller agrees to make
delivery at a specified future date of a specified financial
instrument at a specified price or yield. Risk arises from changes
in the market value of the underlying instruments and, with
respect to forward contracts, from the possible inability of
counterparties to meet the terms of the contracts. Credit risk due
to counterparty nonperformance associated with these instruments
is the net unrealized gain, if any, included in the statements of
financial condition.
The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter
transactions, because exchanges typically (but not universally)
provide clearing house arrangements in which the collective credit
(in some cases limited in amount, in some cases not) of the
members of the exchange is pledged to support the financial
integrity of the exchange, whereas in over-the-counter
transactions, traders must rely solely on the credit of their
respective individual counterparties. Margins, which may be
subject to loss in the event of a default, are generally required
in exchange trading, and counterparties may require margin in the
over-the-counter markets. At December 31, 1996, 100% of the open
contracts were exchange traded.
F-9
<PAGE>
4. TRADING ACTIVITIES
The Partnership was formed for the purpose of trading contacts in a
variety of commodity interests. The results of the Partnership's
trading activity are shown in the statement of income and expenses.
All of the commodity interests owned by the Partnership are held
for trading purposes. The fair value of these commodity interests,
including options thereon, at December 31, 1996 and 1995 was
$24,859 and $146,057, respectively, and the average fair value
during the years then ended, based on a monthly calculation, was
$473,679 and $89,913 for 1996 and 1995, respectively.
* * * *
F-10
<PAGE>
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
- -------------------------------------------------------------------------------
September 30, December 31,
1997 1996
ASSETS
EQUITY IN COMMODITY FUTURES TRADING
ACCOUNT:
Due from broker $ 16,840,150 $ 11,176,071
Options at fair value (cost
of $164,294 and $0 in 1997 and
1996, respectively) 112,056 -
Net unrealized appreciation on open
futures contracts (104,544) 24,859
---------------- ---------------
16,847,662 11,200,930
SUBSCRIPTIONS RECEIVABLE 135,000 -
------------------ -------------
ACCOUNTS RECEIVABLE 13,491 50
CASH IN BANK 262,932 143,417
------------------ -----------
TOTAL ASSETS $ 17,258,985 $ 11,344,397
================ ==============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued incentive fees $ - $ 347,260
Advanced subscriptions 104,694 128,000
Accrued management fees 81,166 26,789
Other accrued expenses 15,521 20,465
Redemptions payable 390,377 10,000
Accrued commissions - 4,893
Accounts payable 5,679 3,666
------------------- -----------------
597,437 541,073
PARTNERS' CAPITAL:
Limited partners
(4,550.367375 and 3,118.841385
units, respectively) 16,052,515 10,527,614
General partner
(172.631806 and 81.669361
units, respectively) 609,033 275,710
----------------- -------------
$ 16,661,548 $ 10,803,324
================= ============
TOTAL LIABILITIES AND PARTNERS'
CAPITAL $ 17,259,985 $ 11,344,397
================= ============
NET ASSET VALUE PER UNIT $ 3,527.75 $ 3,375.50
================= ==============
See notes to financial statements.
F-11
<PAGE>
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF INCOME FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
- -----------------------------------------------------------------------------
1997 1996
REVENUE:
Gains (losses) on trading of commodity
futures and options:
Realized gains (losses) on closed positions $1,060,347 $(867,061)
Net change in unrealized (losses) gains
on open futures and options contracts (181,641) 536,950
------------- -----------
Total trading profits 878,706 (330,111)
Interest income 565,789 151,250
Total revenues 1,444,405 (178,861)
-------------- -------------
EXPENSES:
Incentive fees 874,575 -
Brokerage commissions 341,284 106,049
Management fees 223,016 74,657
Administrative expenses 64,721 58,233
-------------- --------------
Total expenses 1,503,506 238,939
-------------- --------------
NET INCOME $ (59,101) $ (417,800)
--------------- --------------
See notes to financial statements.
F-12
<PAGE>
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
Total
General Limited Partners'
Partner Partners Capital
PARTNERS' CAPITAL, JANUARY 1, 1996 $ 87,940 $ 2,838,743 $ 2,926,683
Additions 137,370 5,746,909 5,884,279
Redemptions - (368,962) (368,962)
Net Income (7,042) (410,758) (417,800)
---------------- ----------- ------------
PARTNERS' CAPITAL,
SEPTEMBER 30, 1996 $ 218,268 $ 7,805,932 $ 8,024,200
============== ============== ==============
PARTNERS' CAPITAL,
JANUARY 1, 1997 $275,710 $ 10,527,614 $ 10,803,324
Additions 328,640 6,631,295 6,959,935
Redemptions - (1,042,610) (1,042,610)
Net income 4,683 (63,784) (59,101)
--------------- -------------- -------------
PARTNERS' CAPITAL,
SEPTEMBER 30, 1997 $ 609,033 $ 16,052,515 $ 16,661,548
=============== ============== ==============
See notes to financial statements.
F-13
<PAGE>
THE WILLOWBRIDGE FUND L.P.
NOTES TO FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 AND
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
- ------------------------------------------------------------------------------
1. PARTNERSHIP ORGANIZATION
The Willowbridge Fund L.P. (the "Partnership"), a Delaware limited
partnership, was organized on January 24, 1986. The Partnership is
engaged in the speculative trading of commodity futures contracts,
options on commodities or commodity futures contracts and forward
contracts. The General Partner is registered as a Commodity Pool
Operator and a Commodity Trading Advisor ("CTA") with the
Commodity Futures Trading Commission. The General Partner is
required by the Limited Partnership Agreement, as amended and
restated (the "Agreement"), to contribute an amount equal to one
percent of the aggregate capital raised by the Partnership. The
Agreement requires that all subscriptions are subject to a 1%
administrative charge payable to the General Partner.
The Partnership shall end on December 31, 2006 or earlier upon
withdrawal, insolvency or dissolution of the General Partner or a
decline of greater than 50% of the net assets of the Partnership
as defined in the Agreement, or under certain other circumstances
as defined in the Agreement.
2. SIGNIFICANT ACCOUNTING POLICIES
Due from Broker - Due from broker represents cash required to meet
margin requirements and excess funds not required for margin,
which are typically invested in 30- day commercial paper by the
broker.
Short-Term Investments - Short-term investments consist of time
deposits that are carried at cost plus accrued interest, which
approximates market.
Revenue Recognition - Commodity futures, options and forward
contract transactions are recorded on the trade date, and open
contracts are reflected in the financial statements at their fair
value on the last business day of the reporting period. The
difference between the original contract amount and fair value is
reflected in income as an unrealized gain or loss. Fair value is
based on quoted market prices. All commodity futures, options and
forward contracts and financial instruments are reflected at fair
value in the financial statements.
Commissions - Commission charges to open and close contracts are
expensed at the time the contract positions are opened.
Statement of Cash Flows - The Partnership has elected not to
provide a Statement of Cash Flows as permitted by Statement of
Financial Accounting Standard No. 102,
F-14
<PAGE>
"Statement of Cash Flows - Exemption of Certain Enterprises and
Classification of Cash Flows from Certain Securities Acquired for
Resale."
Allocation of Profits (Losses) and Fees - Net realized and
unrealized trading gains and losses, interest income and other
operating 'income and expenses are allocated to the partners
monthly in proportion to their capital account balance, as defined
in the Agreement.
The General Partner, Ruvane Investment Corporation, was paid a
management fee equal to 1% of the net assets of the Partnership
(as defined in the Agreement) as of the last day of the previous
fiscal year-end. Such fees amounted to $108,033 and $29,267 in
1997 and 1996, respectively.
The CTA of the Partnership, Willowbridge Associates, Inc.
("Willowbridge"), is entitled to an incentive fee based on an
increase in the adjusted net asset value of the allocated assets
of the Partnership. The CTA receives 25% of any new profits, as
defined in the Agreement. The term "new profits" is defined as the
increase, if any, in the adjusted net asset value of the allocated
assets. In addition, the Partnership pays a quarterly management
fee of 0.25% (1% per year) of the net asset value of the
Partnership to Willowbridge.
Willowbridge rebates to the Partnership the incentive and
management fees incurred by three Willowbridge employees who are
also limited partners in the Partnership. The rebate to the
Partnership is recorded on the Partnership's financial statements
as a capital contribution to the partners. The incentive and
management fees rebated to these partners for the nine month
periods ended September 30, 1997 and 1996 were $116,051 and
$37,049, respectively.
Administrative Expenses - Administrative expenses include
professional fees, bookkeeping costs and other charges such as
registration fees, printing costs and bank fees.
Income Taxes - Income taxes have not been provided in the
accompanying financial statements as each partner is individually
liable for taxes, if any, on their share of the Partnership's
profits.
Redemptions - Limited partners may redeem some or all of their
units at the net asset value per unit as of the last business day
of each month on at least ten days' written notice to the General
Partner.
Estimates - 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 and disclosure of contingent 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.
F-15
<PAGE>
3. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Partnership is a party to financial instruments with
off-balance sheet risk in the normal course of its business. These
instruments include financial futures and option contracts.
Market Risk - Derivative financial instruments involve varying
degrees of off-balance sheet market risk whereby changes in the
level of volatility of interest rates, foreign currency exchange
rates or market values of the underlying financial instruments or
commodities may result in cash settlements in excess of the
amounts recognized in the statements of financial condition. The
Partnership's exposure to market risk is directly influenced by a
number of factors, including the volatility of the markets in
which the financial instruments are traded and the liquidity of
those markets.
The Partnership's risk of loss is typically limited to the amounts
recognized in the statement of financial condition and not
represented by the notional or contract amounts of these
instruments which reflect the extent of involvement, but not
necessarily the amounts subject to risk that the Partnership has
in particular classes of financial instruments. The notional or
contractual amounts of these obligations at September 30, 1997 and
December 31, 1996 was approximately $98,467,026 and $75,667,191,
respectively.
At September 30, 1997, the Partnership had concentrations of open
commitments in the following market sectors: Financial Instruments
(63%), Foreign Currencies (15%), Metals (8%) and Grains (8%). All
other market sectors had 5% or less of the total open
commitments.
At December 31, 1996, the Partnership had concentrations of open
commitments in the following market sectors: Financial Instruments
(61%) and Foreign Currencies (23%). All other market sectors had
5% or less of the total open commitments.
Credit Risk - Futures and forwards are contracts for delayed
delivery of financial interests in which the seller agrees to make
delivery at a specified future date of a specified financial
instrument at a specified price or yield. Risk arises from changes
in the market value of the underlying instruments and, with
respect to forward contracts, from the possible inability of
counterparties to meet the terms of the contracts. Credit risk due
to counterparty nonperformance associated with these instruments
is the net unrealized gain, if any, included in the statements of
financial condition.
The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter
transactions, because exchanges typically (but not universally)
provide clearing house arrangements in which the collective credit
(in some cases limited in amount, in some cases not) of the
members of the exchange is pledged to support the financial
integrity of the exchange, whereas in over-the-counter
transactions,
F-16
<PAGE>
traders must rely solely on the credit of their respective
individual counterparties. Margins, which may be subject to loss
in the event of a default, are generally required in exchange
trading, and counterparties may require margin in the
over-the-counter markets. At September 30, 1997 and December 31,
1996, 100% of the open contracts were exchange traded.
4. TRADING ACTIVITIES
The Partnership was formed for the purpose of trading contacts in
a variety of commodity interests. The results of the Partnership's
trading activity are shown in the statement of income and
expenses.
All of the commodity interests owned by the Partnership are held
for trading purposes. The fair value of these commodity interests,
including options thereon, at September 30, 1997 and December 31,
1996 was $7,512 and $24,859, respectively, and the average fair
value during the nine month and twelve month periods then ended,
based on a monthly calculation, was $711,064 and $473,679 for 1997
and 1996, respectively.
* * * * *
F-17
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Item Description
3.1 Certificate of Limited Partnership
for The Willowbridge Fund
L.P., dated January 16, 1986
3.2 Form of Amended and Restated Limited
Partnership Agreement for the
Partnership
10.1 Trading Advisor Agreement between
the General Partner and
the Advisor, dated April 1, 1991
10.2 Service Agreement between the
Partnership and Derivatives
Portfolio Management, L.L.C., dated
September 5, 1997
16.1 Letter re Change in Certifying
Accountant
*/27.1 Financial Data Schedule
- --------
*/To be filed by amendment.
F-18
EMPIRE FUTURES FUND L.P.
CERTIFICATE OF LIMITED PARTNERSHIP
The undersigned, for the purposes of forming a limited partnership
pursuant to the provisions of the Delaware Revised Uniform Limited
Partnership Act, hereby certifies as follows:
1. The name of the limited partnership is Empire Futures Fund L.P.
2. The address of the registered office of the limited
partnership is c/o Corporation Trust Center, 1209 Orange
Street, Wilmington, Delaware, and the name and address of
the registered agent for service of process is The
Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware.
3. The name and business address of the sole general partner is:
Robert L. Lerner
701 Mount Lucas Road
Princeton, New Jersey 08542
IN WITNESS WHEREOF, the undersigned has duly executed this
Certificate of Limited Partnership as of the 16th day of January, 1986.
/s/ Robert L. Lerner
---------------------------
Robert L. Lerner
General Partner
State of New Jersey )
) ss
County of Mercer )
Before me, this 16th day of January 1986, came Robert L. Lerner,
and who affirmed under oath that he is the General Partner of Empire
Futures partnership as his free act and deed.
/s/ Amelia A. Trzaka
------------------------
Notary Public
<PAGE>
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF LIMITED PARTNERSHIP OF
EMPIRE FUTURES FUND L.P.
Empire Futures Fund L.P., a limited partnership organized under
the Delaware Revised Uniform Limited Partnership Act, hereby certifies that
Paragraphs FIRST and THIRD of the Certificate of Limited Partnership are
amended to read in their entirety as follows:
FIRST. The name of the Limited Partnership is The
Willowbridge Fund L.P.
THIRD. The name and business address of the sole general
partner is:
Robert L. Lerner
100 Palmer Square
47 Hulfish Street, 5th Floor
Princeton, New Jersey 08542
IN WITNESS WHEREOF, this Certificate of Amendment has been duly
executed by the sole general partner of the Limited Partnership as of the
27 day of March, 1991.
EMPIRE FUTURES FUND L.P.
By:_____________________________
General Partner
/s/ Robert L. Lerner
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==============================================================================
STATE OF DELAWARE
CERTIFICATE TO RESTORE TO GOOD
STANDING A DELAWARE LIMITED PARTNERSHIP
(Pursuant to Title 6, Sec. 17-1109)
==============================================================================
1. Name of Limited Partnership The Willowbridge Fund L.P.
-------------------------------
2. Date of original filing with Delaware Secretary of State January 16, 1986.
------------------
I, Robert L. Lerner , General Partner or Liquidating Trustee of the above
named limited partnership do hereby certify that this limited partnership
is paying all annual taxes, penalties, and interest due to the State of
Delaware.
I do hereby request this limited partnership be restored to Good Standing.
________________________
General Partner
/s/ Robert L. Lerner
------------------------
or
Liquidating Trustee
THE WILLOWBRIDGE FUND L.P.
FORM OF AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
This Amended and Restated Agreement of Limited Partnership made in
Princeton, New Jersey as of [___________] by and between Ruvane Investment
Corporation, a Delaware corporation (the "General Partner") and the other
parties who shall execute this Agreement, whether in counterpart, by
execution of a subscription agreement or other instrument, or otherwise, as
limited partners (individually, "Limited Partner" or collectively, "Limited
Partners"). (The General Partner and Limited Partners may be collectively
referred to herein as Partners".)
WITNESSETH:
WHEREAS, a limited partnership has been formed for the purpose of
trading in commodity interests as described below; and
WHEREAS, the Partners desire to amend and restate the Partnership
Agreement as originally adopted and subsequently amended and restated to
read as hereinafter set forth;
NOW, THEREFORE, the parties hereto agree that the Partnership
Agreement is hereby amended and restated to read as follows:
1. CONTINUATION AND NAME.
The parties hereto do hereby agree to continue the Partnership
under the Delaware Revised Uniform Limited Partnership Act, as amended and
in effect on the date hereof (the "Act"), and the rights and liabilities of
the Partners shall be as provided in the Act except as otherwise herein
provided. The name of the limited partnership is The Willowbridge Fund L.P.
(the "Partnership"). The General Partner shall execute and file an
amendment to the Certificate of Limited Partnership in accordance with the
provisions of the Act and shall execute, file, record and publish, as
appropriate, such amendments thereto, assumed name certificates and other
documents as are or become necessary or advisable as determined by the
General Partner. Each Limited Partner hereby agrees to furnish to the
General Partner a power of attorney which may be filed with the Certificate
of Limited Partnership and any amendments thereto and such additional
information as is required from such Limited Partner to complete such
documents and to execute and cooperate in the filing, recording or
publishing of such documents at the request of the General Partner.
2. PRINCIPAL OFFICE.
The principal office of the Partnership shall be at 4 Benedek
Road, Princeton, New Jersey 08540, or such other place as the General
Partner may designate from time to time. The address of the registered
office and the registered agent of the Partnership in the State of Delaware
is 229 South State
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Street, Dover, Delaware, and the name of the registered agent of the
Partnership in the State of Delaware is Prentice-Hall Corporation System,
Inc.
3. BUSINESS.
The Partnership's business and purpose is to trade, buy, sell or
otherwise acquire, hold or dispose of commodity futures contracts, options
on physical commodities and on commodity futures contracts, forward
contracts, and any rights pertaining thereto and to engage in all
activities incident thereto. The objective of the Partnership business is
the appreciation of its assets through speculative trading.
4. TERM, DISSOLUTION, FISCAL YEAR AND DEFINITIONS.
(a) Term. The term of the Partnership shall end upon the first to
occur of the following: (1) December 31, 2006; (2) withdrawal, insolvency
or dissolution of the General Partner; (3) a decline of greater than 50% in
the Net Assets of the Partnership, as of the end of any month after the
commencement of trading, from the Net Assets of the Partnership as of the
beginning of each fiscal year (with appropriate adjustments for additions
or redemptions as consistently computed by the General Partner); or (4) the
occurrence of any event which shall make it unlawful for the existence of
the Partnership to be continued.
(b) Dissolution. Upon the occurrence of an event causing the
termination of the Partnership, the Partnership shall terminate and be
dissolved. Dissolution, payment of creditors and distribution of the
Partnership assets shall be effected as soon as practicable in accordance
with the Act, except that the General Partner and each Limited Partner (and
any assignee) shall share in the assets of the Partnership pro rata in
accordance with their respective Book Capital Accounts (as defined below),
less any amount owing by such Partner (or assignee) to Partnership.
(c) Fiscal Year. The fiscal year of the Partnership shall begin on
January 1, of each year (or the date of the inception of the Partnership
for the first fiscal year) and end on the following December 31.
(d) Certain Definitions. The Partnership's "Net Assets" shall mean
the total assets of the Partnership including all cash and cash equivalents
(valued at cost), accrued interest and the market value of all open
commodity positions and other assets maintained by the Partnership, less
the market value of all liabilities and reserves of the Partnership,
including accrued management and incentive fees, determined in accordance
with the principles specified in Paragraph 6 hereof and, where no principle
is specified, in accordance with generally accepted accounting principles.
The market value of a commodity futures contract or option on a commodity
futures contract shall mean the most recent available closing quotation on
the exchange, through which the particular commodity futures contract or
option on a commodity futures contract is traded by the Partnership; the
market value of a forward contract is determined by the dealer with which
the Partnership has traded the contract. If, however, a contract cannot be
liquidated on the day with respect to which the cumulative profits or
losses on the account are being determined, because of the operation of
daily limits or other rules of the commodity exchange upon which that
contract is traded or otherwise, the settlement price on the first
subsequent day on which the contract can be liquidated is the basis for
determining the liquidating value of such contract for such day.
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5. CAPITAL CONTRIBUTIONS AND PARTNERSHIP INTERESTS.
a. General Partner's Contribution. The General Partner shall
contribute to the capital of the Partnership, immediately prior to the time
the Partnership commences trading activity a general partnership
contribution in an amount equal to one percent of the aggregate capital
raised by the Partnership from time to time. The General Partner also may
from time to time make additional general partnership contributions to the
Partnership. The General Partner shall not make any assignment or transfer
of its general partnership capital contribution (to the extent, if at all,
that any such assignment, transfer, or withdrawal would otherwise be
permitted herein) if such action would reduce such capital contribution to
below one percent of the aggregate capital of the Partnership from time to
time. In addition to such general partnership contributions, the General
Partner and any trading advisors to the Partnership may purchase limited
partnership interests and will be treated as Limited Partners with respect
to such limited partnership interests; provided that the aggregate amount
of limited partnership interests purchased by the General Partner and any
party related to the General Partner within the meaning of Section 267(b)
or Section 707(b)(1) of the Internal Revenue Code of 1986, as amended (the
"Code"), shall not exceed 50% of aggregate limited partnership interests.
The General Partner shall, with respect to any limited partnership
interests owned by it, enjoy all of the rights and privileges and be
subject to all of the obligations and duties of a Limited Partner, except
as specified otherwise herein.
b. Limited Partners' Contributions. Interests in the Partnership,
other than the General Partner's general partnership interest, shall be
limited partnership interests. The General Partner may from time to time,
on behalf of the Partnership, issue and sell limited partnership interests.
Each Limited Partner shall contribute at least $10,000 to the capital of
the Partnership. The General Partner shall have the sole discretion to
accept or reject any subscription for any reason. The aggregate of all
contributions shall be available to the Partnership to carry on its
business. All subscriptions for limited partnership interests must be on
the form of subscription agreement provided in the then current Offering
Memorandum. Subscriptions for limited partnership interests must be paid in
full upon execution of a subscription agreement. Interests in the
Partnership, other than the General Partner's general partnership interest,
shall be limited partnership interests.
c. Continuing Offering. The General Partner on behalf of the
Partnership may offer, pursuant to the then current Offering Memorandum and
the terms hereof, any available limited partnership interests which remain
unsold. Aggregate partnership interests offered shall not exceed
$100,000,000. Proceeds from the sale of interests after the Initial Sales
Termination Date shall be deposited in an interest-bearing account at such
bank or financial institution (including a money market fund) as the
General Partner may select during the interim between the time when such
proceeds are received by the Partnership and the time when such proceeds
are booked to the subscriber's capital account (the first day of the next
calendar month) or rejected. The subscriber shall be paid any interest
earned on such proceeds during such interim period if his subscription is
rejected; otherwise, such interest will be paid to the Partnership. The
General Partner may terminate the offering of interests at any time.
d. Status as Limited Partner. A subscriber shall become a Limited
Partner in the Partnership upon receipt by the Partnership of the
subscription amount, acceptance of the subscription agreement, and upon
entry of the subscriber's name in the records of the Partnership as a
Limited Partner. In its discretion, the General Partner may cause the
withdrawal of any Limited Partner and the redemption of that Limited
Partner's interest in the Partnership pursuant to Paragraph 9(b) upon 10
days' written notice to such Limited Partner (or to any assignee of such
Partner's interest).
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6. ALLOCATION OF PROFITS AND LOSSES.
(a) Tax Capital Accounts. A Tax Capital Account shall be
established for each Partner. The initial balance of each Partner's Tax
Capital Account shall be the amount of its initial capital contribution to
the Partnership less the one-time administrative charge. Each Partner's Tax
Capital Account shall be increased by the amount of (i) any additional
capital contribution and (ii) the allocations to the Partner of Partnership
profit (or items thereof) as provided in subparagraph (f) hereof, and shall
be decreased by the amount of (i) money distributed to the Partner by the
Partnership and the fair market value of property distributed to the
Partner by the Partnership (net of liabilities securing such distributed
property), (ii) the allocations to the Partner of expenditures of the
Partnership described in Section 705(a)(2)(B) of the Code, and (iii) the
allocations to the Partner of Partnership loss (or items thereof) as
provided in subparagraph (f) hereof.
(b) Book Capital Accounts. A Book Capital Account shall be
established for each Partner. The initial balance of each Partner's Book
Capital Account shall be the amount of his initial capital contribution to
the Partnership less the one-time administrative charge. The balance of a
Partner's Book Capital Account shall be increased or decreased in
accordance with subparagraph (d) below and shall be further increased by
the amount of any additional capital contributions and decreased by the
amount of any redemptions or other distributions attributable to such
Partner.
(c) Monthly Determinations. As of the close of business (as
determined by the General Partner) on the last day of each month during
each fiscal year of the Partnership, the following determinations shall be
made:
(1) Realized and unrealized gains and losses from all trading
activities.
(2) The accrued quarterly management and incentive fee.
(3) Items of operating income, including without
limitation interest, and items of operating expense, including
without limitation commodity brokerage, legal and accounting fees,
if any.
(d) Monthly Allocations of Profit and Loss. As of the end of each
month, the amounts determined in subparagraph (c) above will be allocated
(charged) proportionately to the Partners' Book Capital Accounts based on
the amount of each Partner's Book Capital Account at the beginning of the
month.
(e) Allocation of Profit and Loss for Federal Income Tax Purposes.
As of the end of each calendar year, the Partnership's realized profit or
loss shall be allocated among the Partners for federal income tax purposes.
For purposes of determining the character of the realized profit and loss
allocated to each Partner for federal income tax purposes, a distinction
will be made between net short-term capital gain or loss and net long-term
capital gain or loss. The Partnership's gross realized profit or loss shall
be allocated first to each Partner who redeemed its or his entire general
or limited partnership interest so that such Partner's Tax Capital Account
is equal to its or his Book Capital Account immediately prior to the
redemption. Any remaining net realized profit or loss shall then be
allocated to the Partners in order to decrease the relative differences
between the Partners' Tax Capital Account and Book Capital Account in
accordance with Treasury Regulation 1.7041(b)(2)(iv)(g), provided, however,
that the
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allocations of such profit and loss to the Partners shall not exceed the
allocations permitted under Subchapter K of the Code as determined by the
General Partner, whose determination shall be binding.
(f) Expenses. The General Partner, not the Partnership, will pay
all organizational expenses and the expenses of the sale of limited
partnership interests. All of the expenses which are for the Partnership's
account shall be billed directly to the Partnership. The General Partner
shall not be reimbursed by the Partnership for any costs incurred by it
relating to office space, equipment, and staff necessary for Partnership
operations. The Partnership shall be obligated to pay all other liabilities
incurred by it, including, without limitation, management and incentive
fees to advisors, commodity brokerage commissions, clearing, National
Futures Association, legal and audit fees. Appropriate reserves may be
created, accrued and charged against Net Assets of the Partnership and
proportionately against the Book Capital Accounts of the Partners for
contingent liabilities, if any, as of the date any such contingent
liability becomes known to the General Partner, such reserves to be in an
amount as the General Partner in its sole discretion deems necessary or
appropriate.
(g) Limited Liability of Limited Partners. Each limited
partnership interest, when purchased by a Limited Partner, shall be fully
paid and nonassessable, except with respect to amounts distributed to the
holders of limited partnership interests through redemption of limited
partnership interests, distribution of Partnership income or capital, or
otherwise; provided, however, no Limited Partner shall be liable for
Partnership obligations in excess of the capital contributed by him, and
his share of profits (if any), including any distributions and amounts
received upon redemption of limited partnership interests, together with
interest thereon.
(h) Return of Capital Contributions. Except to the extent that a
General or Limited Partner shall have the right to withdraw capital through
redemption of general or limited partnership interests or shall be entitled
to withdrawals or distributions in accordance with the terms of this
Agreement, no General or Limited Partner shall have any right to demand the
return of his capital contributions or any profits added thereto, except
upon termination and dissolution of the Partnership. In no event shall a
Limited Partner be entitled to demand or receive property other than cash.
(i) Distributions. The General Partner shall have sole discretion
in determining what distributions (other than on redemption of limited
partnership interests), if any, the Partnership will make to its Partners.
All distributions shall be pro rata in accordance with the respective Book
Capital Accounts of the Partners.
7. MANAGEMENT.
(a) Management of the Partnership. The General Partner, to the
exclusion of all Limited Partners, shall conduct and manage the business of
the Partnership including, without limitation, the investment of the funds
of the Partnership. The General Partner may delegate its responsibility for
providing administrative services to the Partnership. The General Partner
shall monitor the trading and performance of the advisors to the
Partnership and shall not permit churning of the Partnership's account. The
General Partner shall be entitled to receive on the first business day of
each new fiscal year of the Partnership as compensation for the management
services which it renders on behalf of the Partnership an annual management
fee in an amount equal to 1% of the assets of the Partnership as of the
last day of the fiscal year just concluded. The General Partner is
authorized to pay to itself and certain persons who introduce subscribers
to the Partnership a percentage of the brokerage commissions charged to the
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Partnership as compensation for their services in connection with the
Partnership; the amount of such compensation shall be determined by the
General Partner in its sole discretion. Except as provided herein, no
Partner shall be entitled to any salary, draw, or other compensation from
the Partnership. Each Limited Partner hereby agrees to furnish to the
General Partner 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 futures contracts.
(b) Retention of Trading Advisors and Commodity Broker. The
General Partner may make investment decisions regarding the Partnership
itself or may retain one or more trading advisors (who may be its
affiliates) to make such investment decisions, and the General Partner may
delegate complete trading discretion to any such advisor or advisors. The
General Partner is hereby authorized (i) to employ trading advisor(s) from
time to time on such terms as it may approve and to terminate any advisory
agreement at its discretion in accordance with its terms; (ii) to enter
into customer agreements with commodity broker(s); and (iii) to pay
brokerage fees at the rates provided for in the applicable customer
agreement and such rates for trading in the cash and forward markets which
the commodity broker(s) may charge from time to time.
(c) Other Powers. 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; paying or authorizing the payment of distributions to the
Partners and expenses of the Partnership such as management and performance
fees, legal and accounting fees, and registration and other fees of
governmental agencies; and investing or directing the investment of funds
of the Partnership not being utilized as cash margin deposits. The General
Partner is hereby authorized to perform all duties imposed by Sections 6221
through 6232 of the Code on the General Partner as "tax matters partner" of
the Partnership, including (but not limited to) the following: (a) the
power to conduct all audits and other administrative proceedings with
respect to Partnership tax items; (b) the power to extend the statute of
limitations for all Limited Partners with respect to Partnership tax items;
(c) the power to file a petition with an appropriate federal court for
review of a final Partnership administrative adjustment; (d) the power to
enter into a settlement with the Internal Revenue Service on behalf of, and
binding upon, those Limited Partners having less than a 1% interest in the
Partnership unless a Limited Partner notifies the Internal Revenue Service
and the General Partner that the General Partner may not act on his behalf.
The Partnership shall reimburse the General Partner for all costs and
expenses incurred by the General Partner in its capacity as Tax Matters
Partner. The General Partner may, in its sole discretion, make or refrain
from making the election contemplated by Section 754 of the Code on behalf
of the Partnership, and determine how to classify items of income, gain,
expense or profit for federal or state income tax purposes on the
Partnership's tax returns and the Form K-1s (or any successor form)
transmitted to the Limited Partners. The General Partner shall withhold
from income allocated to any foreign Partner any amount that it deems
required by the Code, including Section 1441, 1442, or 1446 thereof, and
any regulations thereunder or administrative interpretations thereof. Any
amount withheld shall be paid over to the United States Treasury and shall
be charged against the foreign Partner's Capital Account.
(d) Records. The General Partner shall keep and retain such books
and records relating to the business of the Partnership as it deems
necessary or advisable or as are required by the Commodity Exchange Act or
the regulations of the Commodity Futures Trading Commission (the "CFTC") at
the principal office of the Partnership or such other office as the General
Partner deems advisable for not less than six years from the date of this
Agreement. Any Subscription Agreement and Power of Attorney executed by a
Limited Partner in connection with his purchase of limited partnership
interests shall be
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retained by the Partnership for not less than six years from the date of
such agreement.
(e) Activity of General Partner. The General Partner may engage in
other business activities and shall not be required to refrain from any
other activity or 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, on behalf of the
Partnership, may engage and compensate from funds of the Partnership such
persons, firms or corporations, including any affiliated person or entity
or any other 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.
(f) Reliance by Third Parties. No person dealing with the General
Partner shall be required to determine its authority to make any
undertaking on behalf of the Partnership, nor determine any fact or
circumstance bearing upon the existence of its authority.
(g) Exculpation. The General Partner, its officers, directors,
stockholders, employees, agents and affiliates and each person who controls
any of the same shall not be liable, responsible or accountable in damages
or otherwise to the Partnership or to any of the Partners, their successors
or permitted assigns, except by reason of acts or omissions (i) in
violation of federal or state securities laws, (ii) due to intentional or
criminal wrongdoing or gross negligence or willful misconduct, (iii) breach
of fiduciary duty, or (iv) for not having acted in good faith in the
reasonable belief that its actions were in, or not opposed to, the best
interests of the Partnership.
8. REVIEW AND REPORTS TO LIMITED PARTNERS.
The Partnership's books shall be audited annually by independent
public accountants. The Partnership will use its best efforts to cause each
Partner to receive (i) such reports (in such detail) as are required to be
given to Limited Partners by the CFTC, (ii) any other reports (in such
detail) required by any other governmental authority which has jurisdiction
over the activities of the Partnership, and (iii) within 75 days after the
close of each fiscal year such Partnership tax information as is necessary
for him to complete his federal income tax return.
9. TRANSFER AND REDEMPTION FROM CAPITAL ACCOUNTS.
(a) Transfer. If the General Partner, its stockholders and any
person related to the General Partner or its stockholders within the
meaning of Sections 267(b) or 707(b)(1) of the Code own in the aggregate
80% or more of the aggregate partnership interests in the Partnership, no
such interest owned by any such person may be transferred, assigned,
pledged or encumbered except that, if there are Limited Partners other than
the persons described above which in the aggregate have at least a 1%
interest in Partnership income, gain, loss, deduction, credit and capital,
this restriction on transfer, assignment, pledge or encumbrance will not
apply if all such other Limited Partners consent in writing thereto. Such
consent shall be granted or denied in the sole discretion of each such
Limited Partner. The General Partner may transfer, assign, pledge or
encumber its general partnership interest subject to the limitations in the
preceding two sentences, and a Limited Partner may transfer, assign, pledge
or encumber its partnership interest (or any portion thereof) only as
provided herein. No such transferee, assignee, pledgee, or secured creditor
shall become a substituted Limited Partner unless the General Partner first
consents to such substitution in writing, which consent shall be granted or
denied in the sole discretion of the General Partner. Any transfer,
assignment, pledge or encumbrance of interests permitted
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hereunder shall be effective as of the end of the month in which such
transfer, assignment, pledge or encumbrance is made, provided that the
Partnership need not recognize any transfer, assignment, pledge, or
encumbrance unless it has received at least 20 days' prior written notice
thereof from the Limited Partner, which notice shall set forth the address
and social security or taxpayer identification number of the transferee,
assignee, pledgee, or secured creditor and the portion of the limited
partnership interest transferred, assigned, pledged or encumbered. Such
notice shall be signed by the Limited Partner and notarized. No transfer,
assignment, pledge or encumbrance shall be permitted unless the General
Partner is satisfied that (i) such transfer, assignment, pledge or
encumbrance would not be in violation of the Act or applicable securities
laws, (ii) the Partnership shall continue to be classified as a partnership
rather than as an association taxable as a corporation for federal tax
purposes, and (iii) it has received all documentation it may reasonably
request. Any transferee, assignee, pledgee, or secured creditor of
interests who has not been admitted to the Partnership as a substituted
Limited Partner shall not have any of the rights of a Limited Partner,
except that such person shall receive that share of capital and profits and
shall have the right of redemption to which his transferor, assignor,
pledgor, or debtor would otherwise have been entitled and shall remain
subject to the other terms of this Agreement binding upon Limited Partners.
The Limited Partner shall bear all costs (including any attorneys' fees)
related to such transfer, assignment, pledge, or encumbrance of his
interest (or portion thereof). No transfer, assignment, pledge or
encumbrance shall be permitted of any interest (or portion thereof) which
has a fair market value that is less than $10,000.
(a) Redemption of Limited Partnership Interest. The General
Partner will redeem for cash all of a Limited Partner's interest in the
Partnership for an amount equal to the balance of such Limited Partner's
Book Capital Account at the close of business on the Redemption Date (as
defined below) (after taking into account the adjustment provided for in
Paragraph 6(d)), less any amount owing by such Partner (and his assignee,
if any) to the Partnership. Such redemption shall occur on the last day of
any calendar month ("Redemption Date") 10 days after a request for
redemption in proper form has been delivered to the General Partner. If
redemption is requested by an assignee, all amounts owed to the Partnership
by the Partner to whom such limited partnership interest was sold as well
as all amounts owed to the Partnership by all assignees of such limited
partnership interest shall be charged to the balance of the subject Book
Capital Account upon redemption by an assignee. A "request for redemption"
shall mean a letter sent by a Limited Partner (or assignee thereof) and
received by the General Partner at least 10 days in advance of the date
redemption is requested, which shall be the last day of the calendar month.
In such request, the Limited Partner must represent and warrant that he is
the true, lawful, and beneficial owner of the subject limited partnership
interest with full power and authority to request the redemption and must
further represent that such limited partnership interest is not subject to
any encumbrances. The signature of the Limited Partner requesting the
redemption must be guaranteed by a commercial bank or by a member of either
a national securities exchange or the National Association of Securities
Dealers, Inc. The General Partner may, in its sole discretion, waive any
notice period or the requirement of a guaranteed signature, provided that,
in the opinion of the General Partner, the Partnership will not be
prejudiced by such action. Notwithstanding the foregoing, the General
Partner may in its sole discretion from time to time cause the redemption
of a Limited Partner's interest in the Partnership upon 10 days' prior
written notice to the Limited Partner (or any assignee of such Partner's
interest), which notice shall specify the Redemption Date. With respect to
all redemptions, payment will be made within 30 days after the Redemption
Date, except that, under special circumstances including but not limited to
the inability on the part of the Partnership to liquidate commodity
positions as of such Redemption Date or default or delay in payments due
the Partnership from commodity brokers, banks or other persons, the
Partnership may delay payment to Partners whose interests are being
redeemed.
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(b) Withdrawals by General Partner. The General Partner may make
withdrawals from its Book Capital Account as of the last day of any month
in any amount in excess of its capital contribution required by paragraph
5(b).
(c) Bookkeeping. All additions made to a Partner's Book Capital
Account will be booked as of the beginning of the month in which they
become effective. All redemptions will be based on the appropriate month
end balance of a Partner's Book Capital Account and will be booked as of
the end of that month.
10. ADMISSION OF ADDITIONAL PARTNERS; ADDITIONAL CAPITAL CONTRIBUTIONS.
At its discretion, the General Partner may admit additional
Limited or General Partners to the Partnership and accept additional
capital contributions from existing Partners as of the first day of any
month after the Partnership has been formed and begun trading. Pursuant to
Paragraph 9, the General Partner may consent to and admit any assignee of a
limited partnership interest as a substituted Limited Partner. Any
additional capital contributions made by a Partner shall be credited to
such Partner's Book Capital Account.
11. NOT TO BE SUBJECT TO CORPORATE TAX AS A PUBLICLY TRADED PARTNERSHIP.
(a) All interests in the Partnership have been or will be issued
in a transaction or transactions that were not required to be registered
under the Securities Act of 1933 (the "1933 Act"), and to the extent such
offerings or sales were not required to be registered under the 1933 Act by
reason of Regulation S (17 CFR 230.901 through 230.904) or any successor
thereto, such offerings or sales would not have been required to be
registered under the 1933 Act if the interests so offered or sold had been
offered and sold within the United States.
(b) Neither the General Partner nor the Partnership will
participate in the interests in the Partnership being traded on an
established securities market. For purposes of the preceding sentence, an
established securities market is a national securities exchange that is
either registered under Section 6 of the Securities Exchange Act of 1934
(the "1934 Act") or exempt from registration because of the limited volume
of transactions, a foreign securities exchange that, under the law of the
jurisdiction where it is organized, satisfies regulatory requirements that
are analogous to the regulatory requirements of the 1934 Act, a regional or
local exchange, or an interdealer quotation system that regularly
disseminates firm buy or sell quotations by identified brokers or dealers
by electronic means or otherwise.
(c) Notwithstanding anything to the contrary in this Partnership
Agreement, for each taxable year of the Partnership, pursuant to Sections
7704(c) and 7704(d) of the Code, the principal activity of the Partnership
has consisted and will consist of entering into and buying for investment
purposes futures and forward contracts on foreign currencies and
commodities (which are capital assets to the Partnership) and at least 90%
of the Partnership's gross income for each taxable year of the Partnership
has constituted and will constitute "qualifying income" under such
provisions in the form of gains from such trading and other qualifying
income, including interest income.
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12. SPECIAL POWER OF ATTORNEY.
(a) Each Limited Partner by the execution of this Agreement does
irrevocably constitute and appoint the General Partner 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 a
Certificate of Limited Partnership, including amendments thereto; (ii) all
instruments which the General Partner deems necessary or appropriate to
reflect any amendment, change or modification of the Partnership in
accordance with the terms of this Agreement; (iii) certificates of Assumed
Name; (iv) all instruments which the General Partner deems necessary or
appropriate to qualify the Partnership to do business as a foreign limited
partnership in other jurisdictions; (v) customer agreements with any
dealers, commodity brokerage firms or banks; (vi) advisory agreements with
any commodity trading advisors and (vii) such other certificates or
instruments (including amendments or modifications of any of the foregoing)
as may be required to be filed by the Partnership or the Partners under the
laws of the State of Delaware or any other jurisdiction or as the General
Partner may deem necessary or desirable to carry out the purpose and intent
of this Agreement. The Power of Attorney granted herein shall be
irrevocable and deemed to be a power coupled with an interest and shall
survive the death, legal incapacity, insolvency or dissolution of a Limited
Partner or the delivery of any assignment by a Limited Partner of the whole
or any portion of his interest, and any assignee of a Limited Partner does
hereby constitute each person from time to time serving as an officer of
the General Partner his attorney in the same manner and with the same force
and for the same purposes as does the assignor. 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, and each Limited Partner hereby waives any and all defenses which
may be available to contest, negate or disaffirm the action of the General
Partner and any successor thereto, taken in good faith under such Power of
Attorney.
(b) Each Limited Partner agrees to execute such special Power(s)
of Attorney on documents separate from this Agreement as the General
Partner may request. 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.
13. WITHDRAWAL OF A PARTNER.
The Partnership shall terminate and be dissolved upon the
withdrawal, insolvency or dissolution of the General Partner. The General
Partner shall not withdraw from the Partnership without giving the Limited
Partners forty-five days' prior written notice. The death, incompetency,
withdrawal, insolvency or dissolution of a Limited Partner shall not
terminate or dissolve the Partnership, and such Limited Partner, his
estate, custodian or legal representative shall have no right to withdraw
or value such Limited Partner's interest in the Partnership except as
provided in Paragraph 9 hereof. Each Limited Partner (and any assignee of
such Partner's interest) expressly agrees that in the event of his death,
he waives on behalf of himself and his estate, and he directs the legal
representative of his estate and any person interested therein to waive,
the furnishing of any inventory, accounting, or appraisal of the assets of
the Partnership and any right to an audit or examination of the books of
the Partnership. If a Limited Partner who is an individual dies or a court
of competent jurisdiction adjudges him to be incompetent to manage his
person or his property, the Limited Partner's executor, administrator,
guardian, conservator or other legal representative may exercise all of the
Limited Partner's rights for the purpose of settling his estate or
administering his property, but no such person or entity shall become a
substituted Limited Partner
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unless the requirements of Section 9 of this Agreement are met. If a
Limited Partner is a corporation, trust, or other entity and is dissolved
or terminated, the powers of that Limited Partner may be exercised by its
legal representative or successor.
14. NO PERSONAL LIABILITY FOR RETURN OF CAPITAL OR PROFITS.
The General Partner shall not be personally liable for the return
or repayment of all or any portion of the capital or profits of any Partner
(or assignee), it being expressly agreed 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.
15. INDEMNIFICATION.
(a) Indemnification of General Partner. The Partnership shall
indemnify, defend and hold harmless the General Partner and its officers,
directors, stockholders, employees, agents and affiliates and each person,
if any, who controls any of them from and against any loss, liability,
damage, cost or expense (including legal fees and expenses incurred in
defense of any demands, claims or lawsuits) actually and reasonably
incurred arising from actions or omissions concerning the business or
activities undertaken by or on behalf of the Partnership from any source
including, without limitation, any demands, claims or lawsuits initiated by
a Limited Partner, if the acts, omissions or alleged acts or omissions upon
which such actual or threatened action, proceeding, or claim is based were
for a purpose reasonably believed to be in, or not opposed to, the best
interests of the Partnership and were not (i) in violation of federal or
state securities laws, (ii) performed or omitted as a result of intentional
or criminal wrongdoing or gross negligence or willful misconduct or (iii)
in violation of the General Partner's fiduciary obligations to the
Partnership. All rights to indemnification and payment of legal fees and
expenses shall not be affected by the termination of the Partnership or the
withdrawal, dissolution or insolvency of the General Partner.
(b) Indemnification by Partners. In the event the Partnership is
made a party to any claim, dispute or litigation or otherwise incurs any
loss or expense as a result of or in connection with any Partner's (or
assignee's) obligations or liabilities unrelated to the Partnership's
business, such Partner (or assignees cumulatively) shall indemnify and
reimburse the Partnership for all loss and expense incurred, including
reasonable attorneys' and accountants' fees.
16. AMENDMENTS.
Amendments to this Agreement may be proposed by the General
Partner or by Limited Partners owning not less than 10% of the then
outstanding limited partnership interests (not including any limited
partnership interests held by the General Partner). Within 30 days
following receipt of a proposal, the General Partner shall submit the
proposed amendment to the Limited Partners, and the General Partner shall
make its recommendation with regard to each such proposal. A majority of
the then outstanding limited partnership interests (not including any
limited partnership interests held by the General Partner) shall be
required to pass an amendment. For purposes of obtaining a written vote,
the General Partner may require responses to be made within a specified
time.
This Agreement may be amended by the General Partner, upon 30
days' prior notice to each Partner, as to the following matters: (a) to add
to the duties or obligations of the General Partner or
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surrender any right or power granted to the General Partner herein, for the
benefit of the Limited Partners; (b) to cure any ambiguity, to correct or
supplement any provision in this Agreement which may be inconsistent with
any other provision, or to add any other provisions with respect to matters
or questions arising under this Agreement which will not result in
inconsistency with the provisions of this Agreement; or (c) to delete from
or add any provision to this Agreement required or deemed necessary to be
so deleted or added by representatives of the Securities and Exchange
Commission, the CFTC or any other governmental agency or authority for the
benefit or protection of the Limited Partners.
No amendment, whether proposed by the General Partner or Limited
Partners, shall cause the Partnership to become a general partnership,
change the liability of the General Partner or the Limited Partners so as
to materially and adversely affect any Partner, change any Partner's share
of the profits or losses of the Partnership without the consent of such
Partner, extend the duration of the Partnership, or change the provisions
of this paragraph.
17. GOVERNING LAW.
The validity and construction of this Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware.
18. MISCELLANEOUS.
(a) Priority Among Limited Partners. Except as otherwise may be
specifically set forth in this Agreement, no Limited Partner shall be
entitled to any priority or preference over any other Limited Partner in
regard to 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 air courier or
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 latest known address of each Limited Partner.
(c) Binding Effect. This Agreement shall inure to the benefit of
and be binding upon all of the parties, their successors, assigns as
permitted herein, 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.
(d) Captions. Captions in no way define, limit, extend or describe
the scope of this Agreement nor the effect of any of its provisions.
(e) Severability. If any provision of this Agreement or the
application of such provision to any person or circumstance shall be held
invalid, the remainder of this Agreement, or the application of such
provision to persons or circumstances, other than those as to which it is
held invalid, shall not be affected thereby.
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(f) Tax Status of Partnership. If, by reason of any provision or
provisions of this Agreement, the Internal Revenue Service shall assert the
position that the Partnership shall not be deemed to be a partnership for
purposes of the federal income tax laws, then said provision or provisions
of this Agreement shall not be operative.
(g) Limited Liability. If, by any reason of any provision or
provisions of this Agreement, the Limited Partners shall be deemed to be
liable as general partners rather than limited partners, then said
provision or provisions of this Agreement shall not be operative.
(h) Counterparts. This Agreement and the subscription agreement
may be executed in counterparts, each of which shall be considered an
original and all of which counterparts of each agreement shall constitute
one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
General Partner:
RUVANE INVESTMENT CORPORATION
By__________________
Robert L. Lerner
President
Limited Partners:
Those Limited Partners, together
owning 100% of the limited partnership
interests in the Partnership, who have
executed the Consent dated
as of ___________________
By: RUVANE INVESTMENT
CORPORATION, the General Partner, as
attorney-in-fact
By:______________________
Robert L. Lerner
President
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TRADING ADVISOR AGREEMENT
THIS AGREEMENT is made as of the 1st day of April, 1991 between
The Willowbridge Fund L.P., a Delaware limited partnership (the
"Partnership"), and Willowbridge Associates Inc. (with respect to the
Vulcan, Argo and Rex trading systems), a Delaware corporation (the "Trading
Advisor").
W I T N E S S E T H:
WHEREAS, the Partnership has been organized, with Robert L. Lerner
serving as the general partner, to engage in trading any commodity futures
contracts and options on commodities or commodity futures contracts
(collectively, "futures contracts"), and the limited partnership agreement
of the Partnership acknowledges that Mr. Lerner may and intends to contract
with trading advisors who will make the actual trading decisions for the
Partnership;
WHEREAS, the Trading Advisor's business is making trading
decisions on behalf of investors in the purchase and sale of futures
contracts; and
WHEREAS, Mr. Lerner and the Trading Advisor each desire the
Trading Advisor to make investment decisions for the Partnership on the
terms and conditions set forth in this Agreement:
NOW, THEREFORE, the parties agree as follows:
1. Duties of the Trading Advisor. (a) Mr. Lerner will use multiple
trading approaches operated by the Trading Advisor in connection with the
management of the Partnership's assets. Initially, Mr. Lerner intends to
use three of the Trading Advisor's approaches: Vulcan, Argo and Rex. A
separate account(s) will be maintained for each trading approach at the
Partnership's commodity broker(s). The aggregate amount originally
allocated to the Trading Advisor, together with cumulative profits thereon
as a result of futures trading, including any interest income earned
thereon, less any allocated fees and expenses and adjusted for additions
and withdrawals, shall be the "Trading Advisor's Allocated Assets."
Management and performance fees paid or accrued, commissions charged,
extraordinary expenses, and any other specific liabilities attributable to
the account(s) shall be chargeable to such account(s). After consultation
with the Trading Advisor, Mr. Lerner may reallocate or withdraw at any time
all or a portion of the Partnership's assets being directed by a particular
trading approach of the Trading Advisor and may allocate additional assets
of the Partnership to any of the trading approaches or to a new approach of
the Trading Advisor.
(b) The Trading Advisor shall determine the investment
and reinvestment of the Trading Advisor's Allocated Assets on the terms and
conditions set forth in this Agreement and in accordance with the Trading
Policies set forth in the current Offering Memorandum for the Partnership
and the Trading Advisor's trading approach (which term, for purposes of
this Agreement, shall include trading instructions, methods and systems),
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as described in the latest disclosure document filed by the Trading Advisor
with the Commodity Futures Trading Commission ("CFTC"). The Trading Advisor
shall have sole discretion and use its best efforts in determining
independently the investment and reinvestment of the Trading Advisor's
Allocated Assets pursuant to the trading approach as so described, except
that Mr. Lerner may overrule the instructions of the Trading Advisor (i) to
the extent necessary to comply with speculative position limits, (ii) to
the extent that Mr. Lerner believes doing so is necessary or advisable for
the protection of the Partnership, or (iii) to the extent otherwise
described herein.
(c) The Trading Advisor may, in its discretion, alter its
trading approach in investing and reinvesting the Trading Advisor's
Allocated Assets, provided that the Trading Advisor determines that such
alteration is in the best interests of the Partnership. The Trading Advisor
will give prompt notice in writing to Mr. Lerner of any change (i) in such
trading approach which the Trading Advisor considers to be material, and
(ii) in the management or ownership of the Trading Advisor.
(d) Neither the Trading Advisor, nor any employee or
officer of the Trading Advisor or any person who controls the Trading
Advisor shall be liable to Mr. Lerner, the Partnership, or any other firm,
person or organization under this Agreement except as set forth in Section
9 hereof; it being understood that trading profits recognized or losses
incurred on behalf of the Partnership shall be for the account of the
Partnership and the Trading Advisor shall not incur any liability for such
profits or losses provided the Trading Advisor would not otherwise be
liable to the Partnership under the terms hereof.
(e) The Partnership or Mr. Lerner will instruct the
Partnership's commodity broker(s) to furnish copies of all trade
confirmations and monthly trading reports to the Trading Advisor. On a
daily basis after the close of trading, the Trading Advisor shall check out
with the Partnership's broker(s). The Trading Advisor will maintain a
record of all purchase and sale statements furnished to it by the
Partnership's commodity broker for the Partnership's account with respect
to the Trading thereto. The Trading Advisor agrees to notify Mr. Lerner
immediately of any employees with respect to a trade on behalf of the
Partnership and to notify Mr. Lerner promptly of any order or trade for the
Partnership which the Trading Advisor believes was not executed in
accordance with the Trading Advisor's instructions to any commodity
broker(s).
2. Requests for Information. The Trading Advisor agrees to provide
Mr. Lerner with any information concerning the Trading Advisor that Mr.
Lerner may reasonably request including, but not limited to, information
regarding any change in control, personnel, trading approach and financial
condition which Mr. Lerner reasonably deems to be material to the
Partnership and shall notify Mr. Lerner of any such matters the Trading
Advisor believes are material to the Partnership. Nothing in this Agreement
shall require the Trading Advisor to disclose the proprietary details of
any trading system used to manage the Trading Advisor's Allocated Assets.
Further, the Trading Advisor agrees to cooperate with Mr. Lerner in
connection with his obligations to the Partnership.
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3. Disclosure Documents. During the term of this Agreement, the
Trading Advisor shall promptly furnish Mr. Lerner with a copy of each
disclosure document of the Trading Advisor filed with the CFTC and the
National Futures Association ("NFA"). Mr. Lerner hereby acknowledges
receipt of the latest filed disclosure document of the Trading Advisor.
4. Inspection Rights. The Trading Advisor hereby agrees to permit
Mr. Lerner, upon prior written notice setting forth both the scope and
purpose of any such inspection, to inspect and examine, subject to receipt
of adequate assurances of confidentiality, the books and records of the
Trading Advisor upon reasonable notice and during normal business hours, to
the extent reasonably required by Mr. Lerner in connection with his
obligations under the limited partnership agreement of the Partnership;
provided, however, that the Trading Advisor may withhold the name of its
clients.
5. Trading Advisor Independent. The Trading Advisor shall for all
purposes herein be deemed to be an independent contractor and shall, except
as expressly provided or authorized, have no authority to act for or
represent the Partnership or Mr. Lerner in any way or otherwise be deemed
an agent of the Partnership or Mr. Lerner. It is acknowledged and agreed
that the Trading Advisor is neither a partner of nor a joint venturer with
any other trading advisors which may be selected by Mr. Lerner.
6. Commodity Broker. All trades for the account of the Partnership
shall be made through such commodity broker(s) as Mr. Lerner shall direct.
Initially, Mr. Lerner has selected Refco, Inc. as the Partnership's
commodity broker. In placing trades for the account of the Partnership, the
Trading Advisor agrees that it shall use its standard procedures for
allocating orders among the Trading Advisor's various accounts and not
knowingly favor any other such account over that of the Partnership.
7. Fees. (a) For the performance of its services under this
Agreement, the Partnership will pay the Trading Advisor a quarterly
management fee based upon the Trading Advisor's Allocated Assets at the end
of each calendar quarter during the term hereof, without regard to whether
the Partnership is profitable with respect to the Trading Advisor's
Allocated Assets, and an annual performance fee payable at the end of each
calendar year during the term hereof. The quarterly management fee will be
an amount equal to one-quarter of one percent (.25%) of the sum of (i) the
Trading Advisor's Allocated Assets as of the start of each quarter, and
(ii) the cumulative profits (as defined below) from the trading of futures
contracts at the end of such quarter, less any paid performance fees. The
Trading Advisor's Allocated Assets shall be determined in accordance with
the definition set forth in Section 1 above. The performance fee payable by
the Partnership to the Trading Advisor is twenty-five percent (25%) of the
amount by which cumulative profits (as defined below) from the Trading
Advisor's Allocated Assets exceed the highest level of cumulative profits
prior to that year. Profits are the performance results from the trading of
futures contracts, net of the management fees, all brokerage costs and
other direct expenses; profits will include all gains and losses, both
realized and unrealized. It is agreed that the first performance fee
payable by the Partnership to the Trading Advisor shall not be due until
the Net Asset Value per Unit of the Partnership (as defined in the Limited
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Partnership Agreement) exceeds $1,191.48 at year-end. It is further agreed
and understood that the performance fee to be paid by the Partnership to
the Trading Advisor will be based upon the cumulative performance of each
trading approach used by the Trading Advisor in trading the Allocated
Assets.
(b) If trading by the Trading Advisor on behalf of the
Partnership commences in mid-quarter or mid-year the Trading Advisor's
Allocated Assets as of the date the Trading Advisor commenced trading on
behalf of the Partnership will be used for purposes of calculating the fees
payable hereunder. If this Agreement is terminated (i) on a date other than
the end of a quarter, the quarterly management fee described above shall be
determined as if such date were the end of a quarter (but the applicable
fee shall be prorated based on the ratio of the number of trading days in
the quarter through the date of termination to the total number of trading
days in the quarter) or (ii ) on a date other than the end of a year, the
performance fee described above shall be determined as if such date were
the end of a year. The quarterly management fee payable to the Trading
Advisor for the quarter in which the Trading Advisor commences trading
shall be prorated based on the ratio of the number of trading days in the
quarter from the day trading commences to the total number of trading days
in the quarter. The quarterly management fee and the annual performance fee
shall be paid to the Trading Advisor within ten days after completion of
the Partnership's monthly account statement.
8. Term. (a) Unless terminated earlier by Mr. Lerner as provided
herein, the term of this Agreement shall run from the date hereof until
March 31, 1992 (the "Initial Term") and is automatically renewable
thereafter for one year periods unless either the Trading Advisor or Mr.
Lerner terminates the Agreement at the end of the Initial Term or at the
end of any one year renewal period thereafter by giving thirty days' prior
written notice to the other party. In addition, Mr. Lerner shall have the
right to terminate this Agreement immediately at any time upon written
notice to the Trading Advisor if: (i) Mr. Lerner no longer serves as the
general partner of the Partnership; (ii) Michael Y. Gan does not continue
to be actively engaged in the operations and affairs of the Trading Advisor
or otherwise direct the trading by the Trading Advisor; (iii) the Trading
Advisor mergers, consolidates with, or sells its advisory business or a
substantial portion of its assets or its goodwill to any individual or
entity, or becomes bankrupt or insolvent; (iv) the registration of the
Trading Advisor as a commodity trading advisor with the CFTC or its
membership in the NFA is suspended or terminated; or (v) the Trading
Advisor materially violates the Trading Policies of the Partnership set
forth in the Offering Memorandum of the Partnership.
(b) Further, the Trading Advisor shall have the right to
terminate this Agreement immediately at any time upon written notice to Mr.
Lerner if (i) a new general partner is elected; (ii) additional trading
advisors are retained for the Partnership; or (iii) there is a material
change in the Partnership's trading policies.
9. Standard of Liability. Neither the Trading Advisor nor any of
its employees, principals, shareholders, affiliates or any person who
controls the Trading Advisor shall be liable to Mr. Lerner or the
Partnership under this Agreement except by reason of acts or omissions
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<PAGE>
which constitute misconduct or negligence or which result from not having
acted in good faith in the reasonable belief that such actions or having
acted in good faith in the reasonable belief that such actions or omissions
were in, or not opposed to, the best interests of Mr. Lerner or the
Partnership or any acts in contravention of this Agreement; it being
understood that, without limiting the Trading Advisor's liability
hereunder, futures and options transactions made by the Trading Advisor on
behalf of the Partnership shall be for the account and risk of the
Partnership.
10. The General Partner's Indemnification of the Trading Advisor.
The General Partner agrees to indemnify, defend and hold harmless the
Trading Advisor and its officers, directors, shareholders, principals, and
employees from and against any and all losses, claims, damages,
liabilities, judgments, costs and expenses (including, without limitation,
reasonable attorneys' fees and any amounts paid in settlement; provided,
that the General Partner shall have approved such settlement) resulting
from a demand, claim, lawsuit, action or proceeding relating to, based upon
or arising out of, (x) this Agreement or the advisory services performed or
to be performed by the Trading Advisor for the account of the Partnership,
or solely from the fact that the Trading Advisor is or was a trading
advisor to the Partnership or (y) the offering, issuance or sale of units
in the Partnership, including any untrue statement or alleged untrue
settlement of a material fact contained in the Offering Memorandum, or the
omission or alleged omission therefrom or a material fact necessary in
order to make the statements therein not misleading, except that the
General Partner shall not indemnify and hold harmless the Trading, or its
officers, directors, employees, principals or shareholders for any loss,
claim, damage, judgment, liability, cost or expense relating to, based
upon, or arising out of (i) an act or omission by the Trading Advisor or
its officers, directors, principals, shareholders or employees constituting
negligence or misconduct or an action or omission taken otherwise than in
good faith and in a manner reasonably relieved to be in, or not opposed to,
the best interests of the Partnership, or (ii) a material breach of a
warranty, representation or agreement on the part of the Trading Advisor or
its officers or directors contained in this Agreement, or (iii) any untrue
statement or alleged untrue statement of a material fact contained in the
section of the Offering Memorandum describing the Trading Advisor or its
principals, officers, directors, operations, trading approaches, methods of
trading or performance, or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, not
misleading. Any indemnification required by this Section 10, unless ordered
by a court or agreed to by the General Partner, shall be made by the
General Partner only upon a determination by independent legal counsel
reasonably acceptable to the General Partner and the indemnified party in a
written opinion that the conduct which is the subject of the claim, demand,
lawsuit, action or proceeding with respect to which indemnification is
sought meets the applicable standard set forth in this Section 10; provided
that if the indemnified party shall have prevailed on the merits in the
defense of any demand, claim, lawsuit, action or proceeding subject to
indemnification hereunder, indemnification shall be payable hereunder
irrespective of the receipt of any such legal opinion. The foregoing
agreement of indemnity shall be in addition to, and shall in no respect
limit or restrict, any other remedies which may be available to an
indemnified party.
11. Trading Advisor's Indemnification of the General Partner and
the Partnership. The Trading Advisor agrees to indemnify, defend and hold
harmless the Partnership and the
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General Partner and his affiliates from and against any and all losses,
claims, damages, liabilities, judgments, costs and expenses (including,
without limitation, reasonable attorneys' fees and any amounts paid in
settlement; provided, that the Trading Advisor shall have approved such
settlement) resulting from a demand, claim, lawsuit, action or proceeding
relating to, based upon or arising out of, (x) this Agreement or the
advisory services performed or to be performed by the Trading Advisor for
the account of the Partnership, or the services provided by or obligations
of the General Partner hereunder, or solely from the fact that the General
Partner is or was the General Partner of the Partnership or (y) the
offering, issuance or sale of units in the Partnership, including any
untrue statement or alleged untrue statement of a material fact contained
in the Offering Memorandum, or the omission or alleged omission therefrom
or a material fact necessary in order to make the statements therein not
misleading, provided that the losses, claims, damages, liabilities,
judgments, costs or expenses related to, were based upon or arose out of
(i) an act or omission by the Trading Advisor or its officers, directors,
principals, shareholders or employees constituting negligence or misconduct
or an action or omission taken otherwise than in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interests of the
Partnership, or (ii) a material breach of a warranty, representation or
agreement on the part of the Trading Advisor or its officers or directors
contained in this Agreement, or (iii) any untrue statement or alleged
untrue statement of a material fact contained in the section of the
Offering Memorandum describing the Trading Advisor or its principals,
officers, directors, operations, trading approaches, methods of trading or
performance, or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, not misleading. Any
indemnification required by this Section 11, unless ordered by a court or
agreed to by the Trading Advisor, shall be made by the Trading Advisor only
upon a determination by independent legal counsel reasonably acceptable to
the Trading Advisor and the indemnified party in a written opinion that the
conduct which is the subject of the claim, demand, lawsuit, action or
proceeding with respect to which indemnification is sought meets the
applicable standard set forth in this Section 11; provided that if the
indemnified party shall have prevailed on the merits in the defense of any
demand, claim, lawsuit, action or proceeding subject to indemnification
hereunder, indemnification shall by payable hereunder irrespective of the
receipt of any such legal opinion. The foregoing agreement of indemnity
shall be in addition to, and shall in no respect limit or restrict, any
other remedies which may be available to an indemnified party.
12. Right to Advise Others. (a) The Trading Advisor's business is,
among other things, advising persons as to the purchase and sale of futures
contracts, and it may or will be advising other persons and trading for
their accounts during the same periods that it is managing the
Partnership's account. During the term of this Agreement, the Trading
Advisor also may trade for its own account and accounts of its officers,
directors, employees, and their families. Under no circumstances will the
Trading Advisor knowingly or deliberately favor any account advised or
managed by it over the account of the Partnership in any way or manner,
except as described below with respect to position limits. The Trading
Advisor agrees to treat the Partnership in a fiduciary capacity. Subject to
that standard, the Trading Advisor will be free to manage accounts for
other investors, itself, its officers, directors and employees and their
families, and will be free to trade on the basis of methods similar or
identical to those employed
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by the Trading Advisor on behalf of the Partnership, or methods which are
entirely independent of such methods, including but not limited to trading
in a manner the Trading Advisor determines, in its sole judgment, to be
inappropriate for the Partnership at any particular time, and shall be free
to compete for the same futures contracts or other commodity interests as
the Partnership or take positions opposite to the Partnership, where such
actions do not knowingly or deliberately prefer any client (including
accounts managed for itself, its officers, directors and employees and
their families) to the Partnership, except as described below with respect
to position limits.
(b) Notwithstanding the provisions of Section 12(a), so
long as the Trading Advisor is performing services for the Partnership, it
agrees that it will not accept additional capital for management in the
commodities markets if doing so would have a reasonable likelihood of
resulting in the Trading Advisor having to modify substantially its trading
approach, because of position limits or other factors, being used by the
Trading Advisor for the Partnership in a manner which might reasonably be
expected to be to the detriment of the Partnership (it being understood
that this paragraph shall not prohibit the acceptance of additional capital
which acceptance requires only routine adjustments to trading patterns in
order to comply with position limits). The Trading Advisor agrees to
provide Mr. Lerner on or before the last business day of each month the
performance information of all funds placed under the Trading Advisor's
management (singly or with others) during the immediately preceding
calendar month in such form as Mr. Lerner may reasonably request. The
Trading Advisor further agrees to discuss its trading approaches, methods,
systems, and performance with Mr. Lerner upon request.
(c) In addition to the inspection rights set forth in
Section 4 hereof, upon reasonable notice to the Trading Advisor, Mr. Lerner
may inspect on a confidential basis all records of the Trading Advisor
related to the trading of futures contracts for the purpose of confirming
that the Partnership has been treated equitably with regard to trading
during the term of this Agreement by the Trading Advisor. It is understood
and agreed that, in its discretion, the Trading Advisor may withhold from
such inspection the name of the client for whom an account is maintained
and that the information disclosed to Mt. Lucas will be accorded
confidential treatment by Mr. Lerner, subject to its fiduciary obligations
and applicable law.
13. Representations and Warranties of the Trading Advisor. The
Trading Advisor represents and warrants to the Partnership as follows:
(a) The Trading Advisor is duly organized and validly
existing under the laws of the jurisdiction of its organization and has the
corporate power and authority to perform its obligations under this
Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by the Trading Advisor and constitutes a valid and legally
binding obligation of the Trading Advisor enforceable in accordance with
its terms.
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(c) The Trading Advisor is a member in good standing of
the NFA and has all required governmental and regulatory licenses to
perform its obligations under this Agreement and the Trading Advisor is in
compliance with all applicable rules and regulations of the CFTC and the
NFA to the extent material to the conduct of its business; and the
performance by the Trading Advisor of its obligations under this Agreement
will not violate, or constitute a default under, the articles of
incorporation or by-laws of, or any agreement, order, law or regulation
binding upon, the Trading Advisor.
14. Representations and Warranties of the Partnership. The
Partnership represents and warrants to the Trading Advisor as follows:
(a) The Partnership is duly organized and validly
existing under the laws of the jurisdiction of its organization and has the
corporate power and authority to perform its obligations under this
Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by the Partnership and constitutes a valid and legally binding
obligation of the Partnership enforceable in accordance with its terms.
(c) Mr. Lerner is a member in good standing of the NFA
and has all required governmental and regulatory licenses to perform its
obligations under this Agreement. The Partnership is in compliance with all
applicable rules and regulations of the Securities and Exchange Commission,
the CFTC, and the NFA to the extent material to the conduct of its
business.
(d) Mr. Lerner, as general partner of the Partnership,
has the authority to retain the Trading Advisor to trade futures contracts
for the account of the Partnership. The Partnership's partners have
represented that they understand and are willing to assume the risks of
futures trading, and that their objectives are to achieve the greatest
amount of net profits for its account over the long term.
15. Covenants of the Trading Advisor. During the term of this
Agreement the Trading Advisor agrees as follows:
(a) The Trading Advisor covenants that under no
circumstances will it or any of its principals or affiliates knowingly or
deliberately favor any account managed or controlled (in whole or in part)
by it or any of its principals or affiliates over the Partnership;
provided, however, that except as otherwise provided herein this covenant
shall not prevent the Trading Advisor from using a different trading
approach in the trading of solely proprietary or experimental, as opposed
to customer, accounts or using such an approach as otherwise disclosed to
Mr. Lerner, or from charging different fees to different accounts. The
Trading Advisor will provide such information with respect to any other
accounts of the Trading Advisor or any of its principals or affiliates as
Mr. Lerner may reasonably request. The Trading Advisor shall provide Mr.
Lerner, upon request, with an explanation of the differences, if any, in
8
<PAGE>
performance between the Partnership and any other account for which the
Trading Advisor or any of its principals or affiliates acts as a commodity
trading advisor (in whole or in part).
(b) The Trading Advisor shall maintain all registrations
and memberships necessary for the Trading Advisor to furnish services to
the Partnership hereunder and shall at all times comply in all material
respects with all applicable laws, to the extent that the failure to so
comply would adversely affect the Trading Advisor's ability to perform
services for the Partnership as contemplated hereby.
(c) The Trading Advisor acknowledges and agrees that its
obligations to the Partnership hereunder are independent of any obligations
of the Partnership and that no dispute, non-payment or default by the
Partnership under any arrangements with the Trading Advisor shall in any
respect diminish the Trading Advisor's obligations to the Partnership
hereunder.
16. Covenant of Mr. Lerner. Mr. Lerner shall maintain all
registrations and memberships necessary for him to furnish services to the
Partnership hereunder and at all times comply in all material respects with
all applicable laws, to the extent that the failure to do so would
adversely affect his ability to perform services for the Partnership as
contemplated hereby.
17. Complete Agreement. This Agreement supercedes any prior
agreements between the parties and constitutes the entire agreement between
the parties, and no other agreement, verbal or otherwise, shall be binding
as between the parties hereto unless in writing and signed by the party
against whom enforcement is sought.
18. Assignment. This Agreement may not be assigned by either party
without the express written consent of the other party.
19. Amendment. This Agreement may not be amended except by the
written consent of the parties.
20. Notices. All notices required to be delivered under this
Agreement shall be delivered personally or by registered or certified mail,
postage prepaid, return receipt requested, as follows:
if to the Partnership or Mr. Lerner:
The Willowbridge Fund L.P.
c/o Robert L. Lerner, General Partner
100 Palmer Square
P.O. Box 190
Princeton, New Jersey 08542
9
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if to the Trading Advisor:
Willowbridge Associates Inc.
101 Morgan Lane, Suite 300
Plainsboro, New Jersey 08536
Attention: Michael Y. Gan
21. Headings. Headings to sections herein are for the convenience
of the parties only, and are not intended to be a part of or to affect the
meaning or interpretation of this Agreement.
22. Successors. This Agreement shall be binding upon and inure to
the benefit of the parties hereto, their successors and permitted assigns,
and no other person shall have any right or obligation under this
Agreement.
23. Governing Law, This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey.
IN WITNESS WHEREOF, this Agreement has been executed for and on
behalf of the undersigned as of the date first above written.
Willowbridge Associates Inc. The Willowbridge Fund L.P.
By_________________________ By________________________
President General Partner
/s/ Michael Y. Gan /s/ Robert L. Lerner
------------------------- ------------------------
10
SERVICE AGREEMENT
THIS AGREEMENT, made this 5th day of September, 1997, by:
Derivatives Portfolio Management, L.L.C.,
a Delaware limited liability company,
P.O. Box 6741
Two Worlds Fair Drive
Somerset, New Jersey 08875-6741
("DPM")
and
The Willowbridge Fund, L.P.,
a Delaware limited partnership,
c/o Ruvane Investment Corporation
4 Benedek Road
Princeton, New Jersey 08540
(the "Client")
RECITALS
A. DPM is engaged in the financial accounting service business.
B. The Client desires to engage DPM and DPM agrees to provide
services to the Client on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, and other good and valuable consideration, the receipt and
sufficiency of which the parties hereby acknowledge, the parties agree as
follows:
1. Services of DPM. The Client hereby authorizes DPM to perform
those services herein enumerated (the "Activities") as follows:
a) Generate and deliver to Client on a timely basis by agreed upon
procedure daily activity reports, portfolio reports, portfolio
summary reports, fund summary reports, realized profit and loss,
risk and net asset value reports by computing, adjusting,
verifying, updating and reconciling data obtained from trading
advisors and brokers;
b) Compile and prepare monthly reports of realized and unrealized
gain/loss, accrued dividends and interest analysis; calculate
monthly net asset value; prepare monthly purchase-sales journal,
dividends and interest journal; prepare monthly balance sheets,
changes in partner equity and income statements; prepare a monthly
1
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General Ledger accompanied by appropriate documentation including
reconciliations and detailed fee schedules; provide trading
advisors with monthly balance sheets; and prepare and provide
reconciliations to brokers and trading advisors;
c) Maintain records of the General Ledger, broker's statements,
trader reports and other relevant reports received;
d) Prepare and deliver month-end financial statements and other
reports as necessary including reporting to limited partners
and/or their representatives on a timely basis; prepare and
maintain a data base of investors and investor representatives and
compute selling agents commissions and monthly brokerage trailers;
and
e) Prepare for auditors' review and approval the tax information
required to be given to the Client's limited partners pursuant to
the Internal Revenue Code and handle communications with the
Client's auditors and tax professionals;
2. Broker Services. DPM will not perform the services of a trading
broker, including, without limitation, executions of transactions, payment
of brokerage commissions, confirmations of transactions to the Client,
transmittal of monthly account statements to the Client, enforcement of any
margin requirements, or the custody of funds or securities.
3. Compliance Services. DPM and the Client recognize and
acknowledge that DPM's services pursuant to this Agreement are solely
limited to performance of the Activities. Nothing contained herein,
expressed or implied, is intended or shall be construed to confer upon DPM
any duty to ensure that the Client or any related entities are acting in
compliance with any applicable domestic or international laws or
regulations.
4. Sole Responsibility for the Activities. The Client will not
authorize any other party to perform the Activities.
5. Authorization for DPM Communications. The Client hereby
authorizes DPM to communicate, as required, with its limited partners,
trading advisors, brokers, FCMs, accountants and other agents and related
parties to obtain the information needed to perform the Activities.
6. Compensation. As compensation for DPM's performance of the
Activities pursuant to this Agreement, the Client will pay DPM, commencing
as of day DPM begins to perform the Activities a monthly fee equal to
twenty/twelfths basis points of the value of the assets under management in
the Fund including any notional funds (herein, the "Assets"), as computed
by DPM as of the first day of each month. For example, if the Assets equal
$10,000,000 as of the first day of a month, the monthly fee for that month
would equal $1,667 ($10,000,000 multiplied by 0.002, then divided by 12).
DPM will send Client an invoice showing the fee for each month within 10
days after the last day of that month. Client will pay the fee within 15
days of receipt of the invoice. DPM will calculate its fee on a pro rata
basis if DPM begins to perform the Activities on a day other
<PAGE>
than the first day of a month. In addition to the fee referred to above,
DPM will be paid $18.00 per limited partner per year for expenses
associated with mailing and handling. This expense payment will be due
initially at the beginning of the term of this agreement and thereafter as
each new limited partner is admitted.
7. Special Projects. The parties hereto may agree that DPM
undertake to perform additional tasks or projects, as needed, upon terms
and conditions, including compensation, to be mutually agreed upon by the
parties.
8. The Client's Representations. The Client represents to DPM
that:
A. The Client is duly organized and validly existing as a limited
partnership organized in the State of Delaware and in good standing under
the laws of the State of Delaware and is in good standing and qualified to
do business in each jurisdiction in which the nature or conduct of its
business requires such qualification.
B. The Client has full authority and power to execute, deliver,
consummate and perform this Agreement.
C. The performance by the Client of its obligations under this
Agreement will not conflict with or result in a breach of any of the terms
or provisions of any agreement of which the Client is a party to or to
which it is bound, and does not violate any applicable laws, rules or
regulations.
D. The Client is knowledgeable about commodities trading and aware
of the risk of substantial loss in such trading.
E. The Client will ensure that DPM has full access to the relevant
limited partners, trading advisors, brokers, accountants and other agents
in order to obtain the information DPM will need to perform the Activities.
F. All the information relating to the Client given to DPM in
connection with the transactions contemplated by this Agreement is full,
complete and accurate and DPM may rely on such information until it
receives written notice from the Client of any changes.
G. The Client will immediately notify DPM if any of the foregoing
representations cease to be true.
9. DPM's Representations. DPM represents to the Client that:
A. DPM is duly organized and validly existing as a limited
liability company in the State of Delaware and in good standing under the
laws of the State of Delaware and is in good standing and qualified to do
business in each jurisdiction in which the nature or conduct of its
business requires such qualification.
<PAGE>
B. DPM has full authority and power to execute, deliver,
consummate and perform this Agreement.
C. The performance by DPM of its obligations under this Agreement
will not conflict with or result in a breach of any of the terms or
provisions of any agreement of which DPM is a party or to which it is bound
and does not violate any applicable laws, rules or regulations.
D. DPM has completed, obtained and performed all registrations,
filings, approvals, authorizations, consents or examinations required by
any government or governmental authority to perform the Activities
contemplated by this Agreement and will maintain the same in effect for so
long as this Agreement remains in effect.
E. DPM will immediately notify the Client if any of the foregoing
representations cease to be true.
10. Non-Exclusive Services. DPM's services to the Client are not
exclusive and DPM shall be free to render similar and other services to
others.
11. Relationship of the Parties. DPM shall at no time retain
possession of, or have any right, title and interest in the Client's
assets. DPM is an independent contractor and this Agreement does not
establish a joint venture or partnership between DPM and the Client, nor
authorize any entity to act as general agent, or to enter into any contract
or other agreement on behalf of any other party except as specifically
provided herein. No party shall be liable to any third party in any way for
any unauthorized or negligent act or omission of the other party.
12. Term. The term of this Agreement shall begin upon the
execution of both parties and end July 31, 1998, unless terminated on 90
days written notice by either party hereto. Termination shall not affect
DPM's right to compensation earned prior to the date of termination pro
rata. Unless terminated earlier pursuant to this Section 12 this Agreement
will renew itself for successive one-year terms, subject to renegotiation
of the terms of compensation stated herein.
13. Notices. Any communication, notice or demand pursuant to this
Agreement shall be in writing and delivered by personal service (including
express or courier service) or by registered or certified mail, postage
prepaid, return receipt requested:
<PAGE>
If to DPM:
Derivatives Portfolio Management, L.L.C.
P.O. Box 6741
Two Worlds Fair Drive
Somerset, New Jersey 08875-6741
Attention: Robert M. Aaron
Telephone: (908) 563-6220
Facsimile: (908) 563-1193
If to the Client:
The Willowbridge Fund, L.P.
c/o Ruvane Investment Corporation
4 Benedek Road
Princeton, New Jersey 08540
Attention: Robert L. Lerner
Telephone: (609) 921-0717
Facsimile: (609) 921-0577
14. Confidentiality. DPM and the Client agree to keep confidential
the terms of this Agreement and each transaction hereunder, and all related
agreements, business practices, financial data, procedures and policies
hereunder or otherwise relating to either of them or their affiliates that
are not publicly available (the "Confidential Information"). The parties
shall keep the Confidential Information in strictest confidence except to
perform the services as contemplated by this Agreement or except as
required by applicable law or regulation. The obligations of the parties
pursuant to this section shall survive termination of this Agreement.
15. Indemnification. The Client agrees to indemnify and hold
harmless DPM and DPM's officers, employees and agents and their respective
successors and permitted assigns from and against any and all liabilities,
claims, costs, fines, damages, expenses, losses or attorneys' fees arising
pursuant to this Agreement. Nothing contained herein shall require the
Client to indemnify DPM or DPM's officers, employees or agents and their
respective successors and permitted assigns with respect to an act which
constitutes negligence, malfeasance or willful misconduct by DPM or any of
the aforementioned persons. The obligations of the Client pursuant to this
section shall survive termination of this Agreement.
16. Employment Practices. The Client agrees that it shall not hire
or solicit the employment of, or services from, any employee of DPM unless
approved in advance by the
<PAGE>
President of DPM or until a minimum period of twelve (12) months has passed
from the employee's last day of employment with DPM.
17. Governing Law. This Agreement and performance hereunder and
all suits and special proceedings hereunder shall be construed in accordance
with the laws of the State of Delaware.
18. Contract Terms To Be Exclusive. This Agreement contains the
sole and entire agreement between the parties and supersedes any and all
other agreements between the parties relating to the subject matter hereof.
A modification of this Agreement will be effective only if it is in writing
and signed by both parties.
19. Assignability. This Agreement shall be binding on and inure to
the benefit of the respective parties hereto and their heirs, executors,
successors and assigns. No party shall assign the rights or delegate the
duties pursuant to this Agreement without the prior written consent of the
other parties.
20. Waiver. The waiver by any party of a breach of any provisions
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party. The failure of a party to insist upon
strict adherence to any provision of the Agreement shall not constitute a
waiver or thereafter deprive such party of the right to insist upon strict
adherence.
IN WITNESS WHEREOF, the parties have set their hands and seals on
the day first written above.
ATTEST: THE WILLOWBRIDGE FUND, L.P.,
a Delaware Limited Partnership
By: Ruvane Investment Corporation,
Its General Partner
_________________________ By: Robert L. Lerner
Robert L. Lerner, President
ATTEST: DERIVATIVES PORTFOLIO MANAGEMENT, L.L.C.,
a Delaware Limited Liability Company
_________________________ By: Robert M. Aaron
Robert M. Aaron, President
December 19, 1997
Securities and Exchange Commission
Washington, DC 20549
We have read the statements made by The Willowbridge Fund L.P. as included
in Item 14 of this Form 10, pursuant to Item 304 of Regulation S-K. We agree
with the statements concerning our Firm.
Very truly yours,
COOPERS & LYBRAND L.L.P.
