File No. 0-23529
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10/A
Amendment No. 1
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 Commodity
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 Partnership's investments are diversified among four distinct
strategies. At December 31, 1997, approximately 55% of the Partnership's
assets were traded pursuant to the Select Investment Program, utilizing the
MTech Trading Approach, with the remaining portion traded pursuant to the
Primary Investment Program, utilizing three of the trading systems operated
by the Advisor. The MTech Trading Approach is a highly discretionary and
judgmental trading approach that combines elements of fundamental and
technical analysis in trading over 40 global markets. The three trading
systems utilized under the Primary Investment Program are computer-based,
quantitative systems that trade in domestic and foreign financial
instruments, currencies, precious metals and other commodities such as
grains, foods and energy products. See "Business---Trading
Programs---Allocation of Capital." The General Partner believes that the
combination of several investment strategies and global market exposure
reduces the Partnership's dependence on the success of any single strategy
while positioning the
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Partnership to participate in economic trends in different markets.
Nonetheless, in many cases the markets traded by the individual trading
strategies overlap and the positions held by the Partnership at any
particular point in time may result in different concentrations in any
group of markets, which may reduce the diversity of the Partnership's
investments. See "Risk Factors- --Partnership's Market Positions May Lack
Diversity."
The Partnership is designed to permit investors to participate in
the financial advantages presented by trading in Commodity Interests.
However, trading in Commodity Interests does entail significant risks, and
it is possible that an investor in the Partnership could lose its entire
investment. Trading in Commodity Interests is speculative, volatile and
highly leveraged and may be riskier and more volatile than many other
investments. Further, the Partnership is obligated to pay trading and
operational expenses and pay incentive fees, if any, which could materially
affect the net results of an investment in the Partnership by reducing net
profits or increasing net losses, and the Partnership 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 and to generate any
profits for the Partnership and the Limited Partners. There can be no
assurance that the Partnership will achieve any profits. See "-- Risk
Factors."
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 various investment programs. The Partnership's
capital currently is allocated among two different trading programs of the
Advisor. See " -- Trading Programs." The General Partner, in the future,
may change the allocation of the Partnership's assets between the two
trading programs, as well as allocate the Partnership's assets to other
trading programs. 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 December 31, 1997, the General Partner owned approximately $681,000 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."
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Futures Trading
Futures contracts are contracts made on or through a commodity
exchange and provide for future delivery of agricultural and industrial
commodities, precious metals, foreign currencies or financial instruments,
and in the case of certain contracts, such as stock index futures contracts
and Eurodollar futures contracts, provide for cash settlement. Such
contracts are uniform for each commodity on each exchange and vary only
with respect to price and delivery time. A contract to buy or sell may be
satisfied either by making or taking delivery of the commodity and payment
or acceptance of the entire purchase price therefor or by offsetting the
obligation with a contract containing a matching contractual obligation on
the same (or a linked) exchange prior to delivery. In futures and forward
trading, capital is not used to acquire a physical asset but only as
security for the payment of losses incurred in open positions. United
States commodity exchanges individually or, in certain limited situations,
in conjunction with certain foreign exchanges, provide a clearing mechanism
to facilitate the matching of offsetting trades. Once trades made between
members of an exchange have been confirmed, the clearinghouse is
substituted for the clearing member acting on behalf of each buyer and each
seller of contracts traded on the exchange and in effect becomes the other
party to the trade. Thereafter, each clearing member party to the trade
looks only to the clearinghouse for performance. Clearinghouses do not deal
with customers, but only with member firms, and the "guarantee" of
performance under open positions provided by the clearinghouse does not run
to customers. If a customer's commodity broker becomes bankrupt or
insolvent, or otherwise defaults on such broker's obligations to such
customer, the customer in question may not receive all amounts owing to
such customer in respect of trading, despite the clearinghouse fully
discharging all of its obligations.
Two broad classifications of persons who trade in commodity
futures are "hedgers" and "speculators." Commercial interests, including
banks and other financial institutions, and farmers, who market or process
commodities, use the futures markets for hedging. Hedging is a protective
procedure designed to minimize losses that may occur because of price
fluctuations. The usual objective of the hedger is to protect the profit
that he expects to earn from his financial operations, rather than to
profit strictly from his futures trading. The commodity markets enable the
hedger to shift the risk of price fluctuations to the speculator.
The speculator, such as the Partnership, risks its capital with
the hope of making profits from the price fluctuations in futures contracts
The speculator assumes the risks which the hedger seeks to avoid.
Speculators rarely expect to take or make delivery of the "cash" or actual
physical commodity in the futures market. Rather, they generally close out
their futures positions by entering into offsetting purchases or sales of
futures contracts. Because the speculator may take either a long or short
position in the futures markets, it is possible for the speculator to earn
profits or incur losses regardless of the direction of price trends.
Generally, commodities trades made by the Partnership will be for
speculative rather than for hedging purposes
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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.
Investment Philosophy
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
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.
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
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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. Margin commitments
represent that portion of the capital of the Partnership which is committed
as margin for futures contracts. Margins are good faith deposits which must
be made with a commodity broker in order to initiate or maintain an open
position in a futures contract.
The Partnership has no employees and the General Partner has two
employees. Fund Administration and management information systems are
provided by Derivatives 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. $963.1 million in client capital (U.S. $709.1 million of
actual funds and U.S. $254.0 million of notional funds, or funds that
clients have instructed the Advisor to trade but not deposited into their
brokerage accounts) as of December 31, 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 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
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may, to a limited extent, also trade in other instruments. The trading
principals of the Advisor are Philip L. Yang and Michael Y. Gan. See
"Directors and Executive Officers."
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 positions
and to exit the market and offset the positions, when the favorable trend
either reverses or does not materialize. No such system will be successful
if the market is moving in an erratic
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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 (i.e. grains, financial instruments, livestock markets, etc.)
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
The Partnership's investments are diversified among four distinct
strategies. At December 31, 1997, approximately 55% of the Partnership's
assets were traded pursuant to the Select Investment Program, utilizing the
MTech Trading Approach, with the remaining portion 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. The General Partner may change
the allocation of the Partnership's assets if a trading program were to
consistently yield unsatisfactory results or if the Advisor were to advise
the General Partner that the assets being traded by a trading system exceed
the optimal aggregate amount determined by the Advisor or if a person
responsible for directing a trading program were to become unavailable. See
" - Risk Factors - Experience of the General Partner; Reliance on Key
Individuals."
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MTech Trading Approach
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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. As of
December 31, 1997, $10,000,000 of Partnership funds were allocated to the
Mtech Trading Approach. Trading decisions are made on technical as well as
fundamental analysis. The MTech Trading Approach currently trades the
United States and international 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 (i.e., losses experienced by an account or
trading strategy over a specified period) 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
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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. As of December
31, 1997, $8,210,186 of Partnership funds were allocated to the Primary
Investment Program. 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, determines
the amounts of the Partnership's assets that are allocated among the three
trading systems and may change the allocation of the assets it trades 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.
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Vulcan Trading System. The Vulcan Trading System ("Vulcan") is a
computerized technical trading system. Vulcan uses a systematic technical
charting system, which makes trading decisions based on concepts of pattern
recognition, support/resistance levels and counter- trend liquidations, as
opposed to most computer systems, which are based on pure trend-following
calculations. It is not a trend-following system, but does ride a trend
when the opportunity arises. Vulcan applies these principles to a
diversified portfolio of financial instruments and currencies using the
same trading methodology for all commodities in its portfolio. Vulcan
determines, on a daily basis, whether to be long, short or flat each of the
various commodities in its portfolio. The Vulcan System attempts to capture
price moves in a time horizon of 10 days to two weeks. Positions are
generally held from 10 to 15 trading days. 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 Vulcan 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. 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. Greatest
peak-to-valley drawdown means the greatest cumulative percentage decline in
month-end net asset value due to losses sustained by an account or trading
strategy during any period in which the initial month-end net asset value
is not equaled or exceeded by a subsequent month-end net assets value and
is expressed as a percentage of the initial month-end net asset value.
Argo Trading System. The Argo Trading System ("Argo"), which commenced
trading in 1987, is a computerized technical trading system. 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. Positions
will generally be held from 20 to 30 trading days. The Argo portfolio
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includes the instruments traded in the Vulcan portfolio, as well as the
following additional 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.
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.
Approximately 15% to 40% of assets under management pursuant to
Argo 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. 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 computerized technical trading
system. Siren uses real time price information to organize data into charts
composed of market profiles, which are "snapshots" of a market at a
particular point in time. Siren uses these charts 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 attempts to initiate a
countervailing position and, therefore, capitalize on the top or bottom of
a market cycle instead of simply following a trend. Positions are generally
held from 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
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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.
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
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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 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
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trading, but other execution costs, including give-up charges (charges paid
to a party for executing trades that will be cleared by a third party) 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 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
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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 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 for each initial purchase (or sale) and offsetting sale
(or purchase) of a commodity futures contract with respect to the
Partnership's trading (including NFA assessments and exchange fees), which
rates in the future 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 determined by the selling agent. In
no event, however, will such sales commission exceed 4% of the subscription
amount. The sales commission is paid directly to the Partnership and is
remitted to the selling agent on behalf of the investor in the Partnership.
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.
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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. The 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 $100,000 per year (excluding any
extraordinary expenses), will be borne by the Partnership.
Break-Even Analysis
As discussed above, the Partnership is obligated to pay trading
and operational expenses and pay incentive fees, if any, which could
materially affect the net results of an investment in the Partnership by
reducing net profits or increasing net losses. The following table
demonstrates that the Partnership would have to make a 2.05% (5.97% if
maximum 4% selling commission is charged) return on its investments, or
$513 ($1,492 if maximum 4% selling commission is charged) of trading income
per $25,000 investment in the Partnership in the first year in order for a
Limited Partner to break even under the assumptions set forth in the
accompanying notes. THE BREAK-EVEN ANALYSIS BELOW DOES NOT CONSTITUTE A
REPRESENTATION BY THE PARTNERSHIP OR THE GENERAL PARTNER AS TO THE ACTUAL
OPERATING EXPENSES OF THE PARTNERSHIP. FURTHERMORE, THERE CAN BE NO
ASSURANCE THAT THE EXPENSES TO BE INCURRED BY THE PARTNERSHIP WILL NOT
EXCEED THE AMOUNTS AS PROJECTED OR THAT THERE WILL BE NO OTHER EXPENSES.
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Break-Even Analysis
Subscription Amount(1) $25,000
Administrative Charge (2) 250
General Partner's Management Fee (3) 250
Partnership's Ordinary Operating Expenses (4) 138
Advisor's Management Fee (5) 250
Advisor's Incentive Fee on Trading Profits (6) 0
Brokerage Commissions (7) 875
Less Interest Income (8) (1,250)
Amount of Trading Income Required per Minimum
Subscription Amount for the Partnership's
net asset value at the end of one year to
equal the Minimum Subscription Amount $513
Percentage of Minimum Subscription Amount 2.05%
Amount of Trading Income Required per Minimum
Subscription Amount for the Partnership's
net asset value at the end of one year to
equal the Minimum Subscription Amount if
4% maximum selling commission is charged (9) $1,492
Percentage of Minimum Subscription Amount including
4% maximum selling commission (9) 5.97%
NOTES:
(1) The minimum purchase is ordinarily $25,000 of interests ($10,000 for
benefit plan investors).
(2) Investors pay a one-time administrative fee of 1% of their subscription
amounts.
(3) Investors pay the General Partner an annual management fee of 1% of the
net asset value of the Partnership.
(4) The Partnership's actual accounting, auditing, legal and other operating
expenses will be borne by the Partnership. These expenses are expected
to amount to approximately .55% of the net asset value of the Partnership.
(5) Investors pay the Advisor a quarterly management fee of .25% of Net
Assets (1% per year).
(6) The Advisor will receive a quarterly incentive fee of 25% of New Profits.
There will be no incentive fee at the break-even level, inasmuch as $513
in trading income, plus $1,250 in interest income, minus all of the fees
and expenses shown above (totaling $1,763) results in $0 in New Profits.
(7) Brokerage commissions are calculated at 3.5% of the net asset value of
the Partnership.
(8) The Partnership will earn interest on margin deposits with its clearing
brokers. Based on current interest rates, interest income is estimated
at 5.0% of net assets.
(9) Investors who subscribe through a selling agent may be charged a
sales commission of up to 4% of the subscription amount, payable to
the selling agent. The amount of the sales commission shall be
determined by the selling agent.
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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.
Conflicts of Interest
Relationship of the General Partner to Commodity Brokers
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.
General Partner's Selection of Trading Advisors and Investment Programs
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. 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. 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 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.
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Management of Other Accounts by the Advisor and the General Partner
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.
Trading by Affiliates of the General Partner for Their Own Accounts
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
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.
Trading by the Advisor and Affiliates of the Advisor for Their Own Accounts
The Advisor and its principals have traded, and may continue to
trade, Commodity Interests for their own accounts. As a result, 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 conflict 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.
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Trading by Affiliates of Clearing Brokers for Their Own Accounts
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, including 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.
Depending on market liquidity and other factors, these conflicts could
result in the Partnership's orders being executed at prices that are less
favorable than would otherwise be the case.
Relationship of the Advisor to Futures Commission Merchants
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 recommend
the Advisor as a trading advisor to its clients. 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 Advisor's policy, however, is to trade all comparable accounts
in the same manner regardless of the method by which the account was
obtained.
Limitation of Liability and Indemnification of the General Partner
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
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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.
Risk Factors
Commodity Markets are Speculative and Risky
The markets in which the Partnership trades are speculative and
involve a high degree of risk. It is possible that an investor in the
Partnership could lose its entire investment. Each trading strategy within
an investment program employed by the Advisor involves a significant risk
of incurring large losses. The use of several different trading strategies
may not significantly reduce such risk due to, among other things, certain
similarities which may exist in the trading strategies. The volatility of
the commodities market could cause the Partnership and the Limited Partners
to incur substantial losses, potentially impairing the Partnership's equity
base and ability to achieve its long-term profit objectives even if
favorable market conditions subsequently develop.
Commodity Interest Prices are Volatile
Commodity Interest prices are 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
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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. The
volatility of Commodity Interest prices may result in unprofitable trading
by the Partnership and, therefore, losses to the Limited Partners.
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 a Commodity Interest contract in an unfavorable direction
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 resulting in losses to the Partnership and the Limited Partners.
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, thereby exposing it to losses, or to acquire positions indicated
by a trading strategy, thereby eliminating profit opportunities or making
it impossible to protect against further losses, which could result in
losses to the Partnership and the Limited Partners. 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 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. 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. Such market conditions could
cause the Partnership to be
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unable to liquidate its positions in the futures market, which could
subject the Partnership to substantial losses and result in losses to the
Limited Partners.
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. The failure of the Partnership to recover its assets
from a bankrupt, insolvent or otherwise defaulting commodity broker or
individual counterparty could subject the Partnership to substantial losses
resulting in losses to the Limited Partners. There also exists the
possibility that institutions, including banks and brokerage firms, with
which the Partnership does business will encounter financial difficulties,
which may impair the operational capabilities or the capital position of
the Partnership.
Operating History of the Partnership
The Partnership commenced trading in April 1991. While the
Partnership has realized a net gain through January 1998, no assurance can
be made as to the future performance of the Partnership. In addition, the
Partnership's profitability has varied significantly from period to period.
The results for any one period are not necessarily indicative of results
for any other period.
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 (i.e.,
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where the writer does not own the underlying futures position) 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. As a result of these risks,
the Partnership might experience losses on option trades, resulting in
losses to the Limited Partners. See " -- Commodity Interest Trading May Be
Illiquid."
"Zero-Sum" Trading; The Partnership Does Not Acquire any Asset with
Intrinsic Value
Futures trading is a "zero-sum" risk transfer economic activity. For
every gain there is an equal and offsetting loss rather than an opportunity
to participate over time in general economic growth. Unlike most
"alternative investments," an investment in the Partnership does not
acquire any asset with intrinsic value. Overall stock and bond prices could
rise significantly and the economy as a whole prosper while the Partnership
trades unprofitably.
Partnership's Market Positions May Lack Diversity
The Partnership's assets are diversified among four distinct
strategies. Nonetheless, in many cases the markets traded by the individual
trading strategies overlap and the positions held by the Partnership at any
particular point in time may result in different concentrations in any
group of markets, which may reduce the diversity of the Partnership's
investments. As a result, the Partnership may hold relatively concentrated
positions from time to time as well as over sustained periods of time. This
lack of diversification could result in greater losses to the Partnership
and the Limited Partners than otherwise might be anticipated as the
Partnership's portfolio may be more susceptible to any single economic,
political or regulatory occurrence and more volatile than a more
diversified portfolio.
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
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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 losses to the Partnership
and the Limited Partners. 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 and to
generate any profits for the Partnership and the Limited Partners. There
can be no assurance that the Partnership will achieve any profits. See " --
Fees and Expenses."
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 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, which could have a material adverse effect on the
Partnership and result in losses to the Limited Partners. The General
Partner monitors 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.
Unequal Allocation of the Partnership's Assets Among the Trading Strategies
and Investment Programs
The General Partner allocates 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
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<PAGE>
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 and increase the possibility that the Partnership
and the Limited Partners will experience losses.
Furthermore, there can be no assurance that the strategy of
allocating the Partnership's assets among different trading strategies will
not result in substantial opportunity costs to the Partnership, as assets
may be allocated away from trading strategies which may be about to recover
from a losing period to trading strategies which have been profitable but
may be about to enter into a decline. The entry and exit from trading
strategies can result in significant losses and missed profit opportunities
for the Partnership and the Limited Partners which otherwise would have
been avoided.
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 be subject to regulations which offer different or diminished
protection in comparison to domestic exchanges 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. Further, United States regulatory authorities
may be unable to compel the enforcement of the rules of regulatory
authorities or markets in non-United States jurisdictions where
transactions for the Partnership may be effected. 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 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. Because these risks are not normally
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<PAGE>
experienced on domestic exchanges, trading on foreign exchanges may result
in greater losses to the Partnership and the Limited Partners than may be
experienced if the Partnership traded only on domestic exchanges.
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. There can be no assurance that the General Partner's
decisions relating to the trading strategies and investment programs for
the Partnership will not result in losses to the Partnership and the
Limited Partners.
Reliance on the Advisor
The Partnership relies on a single advisor in making trading
decisions. There can be no assurance that the Advisor's trading decisions
will not result in losses to the Partnership and the Limited Partners. In
addition, an investment in the Partnership may be riskier than other
investments because there is a single advisor.
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
27
<PAGE>
been chosen. No assurance can be given that such trading strategy or
investment program will be successful under all or any market conditions or
that such trading strategy or investment program will not result in
diminished profits or greater losses to the Partnership and the Limited
Partners.
Multiple Trading Strategies
Each trading strategy within an investment program employed by the
Advisor makes 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. 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, resulting in losses to the Partnership and
the Limited Partners.
Experience of the General Partner; Reliance on Key Individuals
The General Partner has operated only this commodity pool; however,
the investment programs and trading strategies that are utilized by the
Advisor to direct trading for the Partnership have been utilized to direct
futures trading for other investors over varying periods of time. The
success of the Partnership is dependent on the trading programs and
strategies of the Advisor, which are executed by Mr. Philip Yang and Mr.
Michael Gan. Mr. Yang is the sole shareholder of the Advisor; however,
neither Mr. Yang or Mr. Gan has an employment agreement with the Advisor.
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. In fact, a significant amount
of academic attention has focused on the fact that public futures funds
more frequently than not underperform the past performance records included
in the funds's prospectuses.
28
<PAGE>
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. In case
of the termination of the Advisor's licensing agreement or of any
agreements with the Advisor or the Partnership's commodity brokers, there
is a possibility that the Partnership's assets would not be able to be
traded as effectively, thereby increasing the possibility of losses being
incurred by Partnership and the Limited Partners.
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,
which amount could be less than a Limited Partner's initial investment.
This limited ability to redeem Limited Partnership Units on a monthly
rather than daily basis could prevent investors from withdrawing capital
committed to the Partnership on a timely basis in order to take advantage
of other, more favorable, investment opportunities.
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.
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<PAGE>
Possibility of Taxation as a Corporation
The General Partner has been advised by its counsel, Mayer, Brown &
Platt, that in its opinion, 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.
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
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Partnership were prevented from such trading as a result of regulatory
changes, the performance of the Partnership could be adversely affected,
resulting in losses to Partnership and the Limited Partners.
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, 1997, 1996, 1995,
1994 and 1993. The selected historical financial data as of and for the
years ended December 31, 1997 and 1996 were derived from the financial
statements of the Partnership, which were audited by Deloitte & Touche LLP.
The selected historical financial data as of and for the years ended
December 31, 1995, 1994 and 1993 were derived from the financial statements
of the Partnership, which were audited by Coopers & Lybrand LLP. The
information set forth below should be read in conjunction with the
Financial Statements and notes thereto contained elsewhere in this
Registration Statement.
31
<PAGE>
<TABLE>
<CAPTION>
(in thousands, except amounts per Unit)
Year Ended December 31,
-----------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations Data:
Realized Gains (Losses) on Closed $(191) $ 1,842 $ 768 $ 395 $ 117
Positions
Net Change in Unrealized
(Losses) Gains on Open Futures 897 (121) 24 (76) 136
and Options Contracts
Interest Income 767 339 87 31 28
Incentive Fees 875 347 205 79 59
Brokerage Commissions (including
Clearing and Exchange Fees) 492 148 18 14 16
Management Fees 266 101 29 18 19
Administrative Expenses 115 83 38 14 14
Net Income (Loss) (275) 1,379 587 223 172
Net Income (Loss) Per Unit of
Partnership Interest (for a Unit
Outstanding Throughout Each 105 326 920 514 262
Year)
Financial Condition Data:
Limited Partners' Capital $17,529 $10,528 $2,839 $946 $903
General Partner's Capital 681 276 88 41 22
Partners' Capital (Net Asset 18,210 10,803 2,927 988 925
Value)
Total Assets 18,545 11,344 3,281 1,035 1,028
Net Asset Value per Unit 3,481 3,376 3,050 2,130 1,616
Partnership Units Outstanding At 5,232 3,201 959 464 572
End of Period
</TABLE>
32
<PAGE>
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 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. The
General Partner seeks to limit market and credit risks by monitoring daily
income and margin levels. The General Partner also relies upon the risk
management strategies inherent in the Advisor's trading programs. 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.
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<PAGE>
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 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 1997 and 1996 did not offer the same opportunities for
profits as had been experienced during 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.
Comparison of fiscal years ended December 31, 1997 and 1996
-----------------------------------------------------------
As of December 31, 1997, the net asset value of the Partnership
was $18,210,184 compared to its net asset value of $10,803,324 at December
31, 1996. The Partnership's 1997 subscriptions and redemptions totaled
$9,415,945 and $1,734,201, respectively, compared to $6,957,825 and
$460,574, respectively in 1996. For the year ended December 31, 1997, the
Partnership had revenues comprised of $191,044 in realized losses on closed
positions, $897,177 in net change in unrealized gains on open futures and
options contracts and $766,517 in interest income. For that same period,
the Partnership had expenses comprised of $874,575 in incentive fees,
$491,880 in brokerage commissions (including clearing and exchange fees),
$265,899 in management fees and $115,180 in administrative expenses. This
resulted in the Partnership having a net loss of $274,884 for 1997. The
significant increase in interest income, brokerage commissions, management
fees and administrative fees were due to the significant increase in assets
in the Partnership. Although the Partnership had significantly less trading
profits for the year ended 1997 compared to 1996, the significant increase
in incentive fees was attributable to the substantial trading profits
earned during the first quarter of the year on a larger asset base. During
the first quarter of 1997, the Partnership's trading profits were
$3,350,689 compared to $1,720,620 for the entire year of 1996. As indicated
above, effective January 1, 1997, the
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<PAGE>
Partnership's assets were allocated approximately equally between the
Advisor's Primary Program and the Advisor's MTech Trading Approach. The
Partnership's significant decrease in trading profits during 1997 compared
to 1996 was due primarily to loss positions in financial markets. More
specifically, the Partnership's short positions in U.S. equity and bond
markets proved unprofitable as these markets were able to post price
increases despite the uncertainty created by the Asian economic crisis. The
net asset value per Unit at December 31, 1997 increased 3.11% from
$3,375.50 at December 31, 1996 to $3,480.50 at December 31, 1997.
Comparison of fiscal years ended December 31, 1996 and 1995
-----------------------------------------------------------
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. 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 1996. Significant increases in interest
income, management fees, brokerage commissions and administrative expenses
were attributable to the large increase in assets in the Partnership during
the year. The increase in assets was attributable primarily to the
additional subscriptions to the Partnership during the year, and to a
lesser extent, the increase from profitable trading. Additionally, the 69%
increase in incentive fees was attributable to increased trading profits on
a larger asset base. During fiscal year 1996, 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 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.
Comparison of fiscal years ended December 31, 1995 and 1994
-----------------------------------------------------------
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 1995. Significant increases in interest income, management fees and
administrative fees were attributable to the large increase in assets in
the Partnership during the year. However, brokerage commissions experienced
only a modest increase as market conditions dictated less portfolio
turnover.
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<PAGE>
Incentive fees increased significantly as continued profitable trading
occurred on a larger asset base. 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.
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
36
<PAGE>
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
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 December 31, 1997, approximately 5,232.0597 Partnership
Units were held by 232 Limited Partners and the General Partner. The
following table sets forth certain information as of December 31, 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
- ------------------- ----------------- -----------------
Gunster, Yoakley, Valdes- 288.288 5.51%
Fauli & Stewart, P.A., QPM Trust
777 South Flager Drive
Suite 500 East
West Palm Beach, FL 33401
PY Family L.P. 291.006 5.56%
101 Morgan Lane, Suite 180
Plainsboro, NJ 08536
James O. Welch, Jr. 368.975 7.05%
200 DeForest Avenue
East Hanover, NJ 07936
The Partnership has no directors or officers. The General Partner
manages and conducts the business of the Partnership. As of December 31, 1997,
the General Partner owned
37
<PAGE>
approximately $681,000 of general partner interests in the Company, or
195.63 Partnership Units, representing approximately 3.74% of the total
outstanding Partnership Units, and also beneficially owned 20.34 Limited
Partnership Units. The General Partner is owned entirely by Robert L.
Lerner and trusts for the benefit of him and his family.
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.
The General Partner has selected Willowbridge Associates Inc. as the
Partnership's trading advisor. The trading principals of the Advisor are
Philip L. Yang and Michael Y. Gan.
Philip L. Yang has been the sole shareholder, Director and
President of the Advisor since September 1, 1992, and also held those
positions from the time he formed the Advisor in January 1988 through
September 1989. Mr. Yang is registered as an associated person of the
Advisor. He is individually registered pursuant to the CEA as a CPO and a
CTA and is a member of the NFA in such capacities. He is also a principal
and an associated person of Doublewood, Inc. ("Doublewood") and Union
Spring Asset Management, Inc. ("Union Spring"), entities which are
registered as CPOs and CTAs and are NFA members affiliated with the
Advisor. From 1983 through August 1988 and from October 1989 through August
1992, Mr. Yang was a Senior Vice President at Caxton Corporation, a
commodity trading advisory firm, serving initially as Director of Research,
where his research concentration was in the development and application of
computerized trading models for a broad range of financial markets, and
later as Director of Commodity Trading. Mr. Yang obtained a bachelor's
degree
38
<PAGE>
with honors from the University of California at Berkeley, where he was
inducted into Phi Beta Kappa. He received his master's degree from the
Wharton School of the University of Pennsylvania. He co-authored with
Richard G. Faux, Jr. "Managed Futures: The Convergence with Hedge Funds," a
chapter in Evaluating and Implementing Hedge Fund Strategies, a book
published in 1996 by Euromoney Publications.
Michael Y. Gan has been the Executive Vice President of the
Advisor since September 1, 1992. Mr. Gan is registered as an associated
person of the Advisor. He is individually registered pursuant to the CEA as
a CPO and a CTA and is a member of the NFA in such capacities. He is also a
principal and an associated person of Doublewood and Union Spring. Mr. Gan
was the sole shareholder, Director and President of the Advisor from
October 1989 through August 1992. From 1983 to October 1989, he worked in
the foreign exchange trading group at Marine Midland Bank in New York. In
this capacity, Mr. Gan was responsible for research into technical
analysis, as well as proprietary trading for the firm in both currency
futures and options. He had been promoted to Assistant Vice President prior
to his resignation. Mr. Gan graduated summa cum laude from the University
of the Philippines with a B.S. in Chemical Engineering and subsequently
graduated with honors from the Wharton School of the University of
Pennsylvania with an M.B.A. in Finance.
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, 1997, 1996 and 1995,
the General Partner received a management fee from the Partnership pursuant
to the Partnership Agreement in the amounts of $108,033, $29,267 and
$9,877, respectively. For the years ended December 31, 1997, 1996 and 1995,
the General Partner received administrative charges from the Limited
Partners pursuant to the Partnership Agreement in the amount of $89,991,
$68,094 and $13,150, respectively. For the year ended December 31, 1997,
the General Partner received $421,951 in brokerage commissions from the
Partnership. For the years ended December 31, 1996 and 1995, the General
Partner received no brokerage commissions from the Partnership.
Item 8. Legal Proceedings
39
<PAGE>
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 December 31, 1997, approximately 5,232.060
Partnership Units were held by 232 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.
40
<PAGE>
Item 10. Recent Sales of Unregistered Securities
From January 1, 1995 through December 31, 1997, a total of
5,430.82 Partnership Units were sold for the aggregate net subscription
amount of $17,798,881. Details of the sale of these Partnership Units are
as follows:
Date of Sale Price 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 $1,452,387
41
<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 (the
"Act") and the Partnership Agreement. The aggregate amount of Partnership
Units that may be issued under the Partnership Agreement is $100,000,000.
Limited Partners shall not be liable for the obligations of the
Partnership, except as provided under the Act. Under the Act, a Limited
Partner will be liable for the obligations of the Partnership if the
Limited Partner participates in the control of the business. 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 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.
42
<PAGE>
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.
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.
43
<PAGE>
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
On April 23, 1996, the General Partner engaged the accounting firm
of Deloitte & Touche LLP as the Partnership's independent accountants and
dismissed 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 disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope
or accounting principles. During 1995 and the interim 1996 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 1995 and the 1996 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.
44
<PAGE>
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.
45
<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 25th day of March, 1998.
THE WILLOWBRIDGE FUND, L.P.
By: Ruvane Investment Corporation
Its: General Partner
By: /s/ Robert L. Lerner
---------------------------
Robert L. Lerner, President
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT FOR THE YEARS ENDED
DECEMBER 31, 1997 and 1996 F-2
INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED
DECEMBER 31, 1995 F-3
FINANCIAL STATEMENTS OF THE PARTNERSHIP:
Statements of Financial Condition as of
December 31, 1997 and 1996 F-4
Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-5
Statements of Changes in Partners' Capital for the
Years Ended December 31, 1997, 1996 and 1995 F-6
Notes to Financial Statements F-7
FINANCIAL STATEMENTS OF THE GENERAL PARTNER:
Independent Auditors' Report for the Year Ended
December 31, 1997 F-13
Statement of Financial Condition for the Year Ended
December 31, 1997 F-14
Notes to Financial Statements F-15
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
The Willowbridge Fund L.P.
We have audited the accompanying statements of financial condition of The
Willowbridge Fund L.P. (the "Partnership") as of December 31, 1997 and
1996, and the related statements of income and changes in partners' capital
for the years 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by the 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, 1997 and 1996, and the results of its operations
for the years then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE, LLP
New York, New York
February 17, 1998
F-2
<PAGE>
Coopers & Lybrand LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
The Willowbridge Fund L.P.:
We have audited the accompanying statements of income and changes in
partners' capital of the Willowbridge Fund L.P., for the year ended
December 31, 1995. These financial statements are the responsibility of the
General Partner. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with general accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by the General Partner, as well as
evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material aspects, results of operations of The Willowbridge Fund
L.P. for the year ended December 31, 1995, in conformity with generally
accepted account principles.
COOPERS & LYBRAND, LLP
Princeton, New Jersey
February 23, 1996.
F- 3
<PAGE>
<TABLE>
<CAPTION>
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
- -------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
ASSETS
EQUITY IN COMMODITY FUTURES TRADING
ACCOUNT:
Due from broker $ 16,852,793 $11,176,071
Net unrealized appreciation on open
futures contracts 176,197 -
Net unrealized appreciation on open
forward contracts 632,123 24,859
Options at fair value (cost of $327,109
and $0 at December 31, 1997 and 1996,
respectively) 440,825 -
----------- ----------
18,101,938 11,200,930
ACCOUNTS RECEIVABLE 18,574 50
SUBSCRIPTIONS RECEIVABLE 100,000 -
CASH IN BANK 324,479 143,417
----------- -----------
TOTAL ASSETS $ 18,544,991 $11,344,397
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Advanced subscriptions $ 177,378 $ 128,000
Due to partners 89,875 -
Accrued management fees 42,883 26,789
Other accrued expenses 24,200 20,465
Accounts payable 471 3,666
Accrued incentive fees - 347,260
Redemptions payable - 10,000
Accrued commissions - 4,893
---------- ----------
334,807 541,073
---------- ----------
PARTNERS' CAPITAL:
Limited partners (5,036.432973 and
3,118.841385 fully 17,529,305 10,527,614
redeemable units, respectively)
General partner (195.626712 and
81.669361 units, 680,879 275,710
respectively) ----------- ----------
18,210,184 10,803,324
----------- ----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $18,544,991 $11,344,397
=========== ===========
NET ASSET VALUE PER UNIT $ 3,480.50 $ 3,375.50
=========== ===========
See notes to financial statements.
F- 4
<PAGE>
<CAPTION>
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
REVENUE:
Gains (losses) on trading of commodity
futures, forward and options:
Realized (losses) gains on closed
positions $(191,044) $1,841,818 $ 767,560
Net change in unrealized gains (losses)
on open futures, forward and options
contracts 897,177 (121,198) 23,597
--------- ----------- ---------
Total trading profits 706,133 1,720,620 791,157
Interest income 766,517 338,896 86,743
--------- --------- ---------
Total revenues 1,472,650 2,059,516 877,900
--------- --------- ---------
EXPENSES:
Incentive fees 874,575 347,260 205,375
Brokerage commissions (includes
clearing and exchange fees of
$26,366, $19,388 and $2,640
in 1997, 1996 and 1995) 491,880 147,986 17,926
Management fees 265,899 101,446 29,248
Administrative expenses 115,180 83,434 38,057
-------- --------- --------
Total expenses 1,747,534 680,126 290,606
---------- --------- --------
NET (LOSS) INCOME $ (274,884) $ 1,379,390 $ 587,294
=========== =========== =========
NET (LOSS) INCOME:
Limited partners $ (273,844) $ 1,340,030 $ 563,703
============ =========== =========
General partner $ (1,040) $ 39,360 $ 23,591
============ =========== =========
NET INCOME PER UNIT $ 105 $ 326 $ 920
============ =========== =========
See notes to financial statements.
F- 5
<PAGE>
<CAPTION>
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
General Partner Limited Partners Total
Partners'
Units Amount Units Amount Capital
<S> <C> <C> <C> <C> <C>
PARTNERS' CAPITAL, JANUARY 1, 1995 19.362231 $ 41,272 444.439414 $ 946,432 $ 987,704
Additions 9.454960 23,077 514.138294 1,401,908 1,424,985
Redemptions - - (27.922535) (73,300) (73,300)
Net income - 23,591 - 563,703 587,294
----------- ----------- ------------ ---------- ----------
PARTNERS' CAPITAL, DECEMBER 31, 1995 28.817191 87,940 930.655173 2,838,743 2,926,683
Additions 52.852170 148,410 2,339.764026 6,809,415 6,957,825
Redemptions - - (151.577814) (460,574) (460,574)
Net income - 39,360 - 1,340,030 1,379,390
----------- ----------- ------------ ---------- ----------
PARTNERS' CAPITAL, DECEMBER 31, 1996 81.669361 275,710 3,118.841385 10,527,614 10,803,324
Additions 113.975351 406,274 2,404.771532 9,009,671 9,415,945
Redemptions (0.018000) (65) (487.179944) (1,734,136) (1,734,201)
Net loss - (1,040) - (273,844) (274,884)
----------- ----------- ------------ ----------- -----------
PARTNERS' CAPITAL, DECEMBER 31, 1997 195.626712 $ 680,879 5,036.432973 $17,529,305 $18,210,184
=========== =========== ============ =========== ===========
See notes to financial statements.
</TABLE>
F- 6
<PAGE>
THE WILLOWBRIDGE FUND L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------
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 one percent 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 fifty percent of the net assets of the
Partnership as defined in the Agreement, or the occurrence of any event
which shall make it unlawful for the existence of the Partnership to be
continued.
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 and U.S.
treasury bills by the broker.
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 - Prior to March 31, 1997, commission charges to open and
close contracts were expensed at the time the contract positions were
opened. Commencing April 1, 1997, commission charges were based on a
percentage of the net asset value of the fund at the beginning of the
month. As of December 31, 1997, the commission rate charged was 3.5
percent annually of the net asset value of the fund.
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.
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.
F- 7
<PAGE>
The General Partner, Ruvane Investment Corporation ("Ruvane"), was paid
a management fee equal to one percent 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, $29,267 and
$9,877 in 1997, 1996 and 1995, respectively.
Willowbridge Associates Inc. ("Willowbridge"), a Delaware corporation, is
the CTA of the Partnership. Willowbridge has been appointed by Ruvane to
manage the assets of the Partnership. As such, Willowbridge is entitled to
an incentive fee based on an increase in the adjusted net asset value of
the located 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 certain partners including Willowbridge employees who are also
limited partners in the Partnership. Incentive and management fees are
presented in the Partnership's financial statements gross of any amounts
rebated by Willowbridge. The rebate to the Partnership is recorded on the
Partnership's financial statements as a capital contribution. The incentive
and management fees rebated to these partners in 1997, 1996 and 1995 were
$116,051, $37,049 and $100,106, 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
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 trades futures, options on futures and forward contracts
and forward contracts in currencies and a wide range of commodities. The
Partnership's trading results by market sector were as follows:
<TABLE>
<CAPTION>
1997
---------------------------------------------------
Net Change In
Net Realized Unrealized Total Trading
Gains/(Losses) Gains/(Losses) Gains/(Losses)
<S> <C> <C> <C>
Currencies $ 948,382 $ 257,013 $ 1,205,395
Tropical products 1,355,445 (2,718,450) (1,363,005)
Metals (357,317) 90,419 (266,898)
Financials (2,484,554) 1,911,786 (572,768)
Grains 893,714 (91,032) 802,682
Energies (563,709) 1,631,394 1,067,685
Livestock (474,885) (183,953) (658,838)
----------- ----------- ----------
(682,924) 897,177 214,253
Brokerage commissions 491,880 - 491,880
----------- ----------- ----------
$ (191,044) $ 897,177 $ 706,133
=========== =========== ==========
<CAPTION>
1996
-----------------------------------------------------
Net Change In
Net Realized Unrealized Total Trading
Gains/(Losses) Gains/(Losses) Gains/(Losses)
<S> <C> <C> <C>
Currencies $ 277,576 $ 34,454 $ 312,030
Tropical products (307,735) (11,295) (319,030)
Metals (189,357) 13,117 (176,240)
Financials 1,338,387 (155,123) 1,183,264
Grains (94,788) (111,352) (206,140)
Energies 734,349 25,971 760,320
Livestock (64,600) 83,030 18,430
------------ ----------- -----------
1,693,832 (121,198) 1,572,634
Brokerage commissions 147,986 - 147,986
------------ ----------- -----------
$ 1,841,818 $ (121,198) $ 1,720,620
============ =========== ===========
</TABLE>
F- 9
<PAGE>
<TABLE>
<CAPTION>
1995
------------------------------------------------------
Net Change In
Net Realized Unrealized Total Trading
Gains/(Losses) Gains/(Losses) Gains/(Losses)
<S> <C> <C> <C>
Currencies $ 312,935 $ 19,886 $ 332,821
Tropical products (43,386) (57,754) (101,140)
Metals (37,064) (28,346) (65,410)
Financials 463,868 33,232 497,100
Grains 22,654 52,166 74,820
Energies 22,926 24,904 47,830
Livestock 7,701 (20,491) (12,790)
-------- --------- ---------
749,634 23,597 773,231
Brokerage commissions 17,926 - 17,926
---------- --------- ---------
$ 767,560 $ 23,597 $ 791,157
========== ========= =========
</TABLE>
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
were the Partnership to actually take or make delivery on the underlying
contract.
Fair Value - The derivative instruments used in the Partnership's trading
activities are marked to market with the resulting unrealized profit (loss)
recorded in the Statements of Financial Condition and the related profit
(loss) reflected in trading revenues in the Statements of Operations.
F-10
<PAGE>
The contract/notional values of open contracts as of December 31, 1997 and
1996 by market sector were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- --------------------------------
Commitment to Commitment to
Purchase Commitment to Purchase Commitment to
(Futures, Sell (Futures, (Futures, Sell (Futures,
Options and Options and Options and Options and
Forwards) Forwards) Forwards) Forwards)
<S> <C> <C> <C> <C>
Currencies $ 2,838,598 $ 30,817,325 $ 4,226,550 $ 13,217,600
Tropical products 8,247,005 - 2,109,224 1,928,980
Metals 3,914,475 15,275 1,435,875 716,680
Financials 182,973,076 5,167,348 42,352,335 3,802,414
Grains 5,964,255 - 1,105,450 -
Energies 39,240 883,050 3,170,033 -
Livestock 2,031,040 11,960 1,602,050 -
------------ ------------ ------------ -----------
$ 206,007,689 $ 36,894,958 $ 56,001,517 $ 19,665,674
============ ============ ============ ===========
</TABLE>
As of December 31, 1997, $174,882,281 of the Partnership's derivative
financial instruments outstanding expire within 90 days, $51,552,788 expire
between 90 and 180 days, and $16,467,578 expire between 180 and 270 days.
As of December 31, 1996, $58,664,973 of the Partnership's derivative
financial instruments outstanding expire within 90 days, $11,072,892 expire
between 90 and 180 days, and $5,929,326 expire between 180 and 270 days.
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. All of the forward contracts entered into by the Partnership are
exchange traded. At December 31, 1997 and 1996, one hundred percent of the
open futures, forwards and options contracts were exchange traded.
Additionally, at December 31, 1997 and December 31, 1996, substantially all
of the open contracts were futures contracts.
F-11
<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.
Management of the Partnership receives fair value information regarding
open commitments to purchase and sell commodity interests on a monthly
basis. The average fair value of all commodity interests owned by the
Partnership during years 1997 and 1996 based on a monthly calculation by
market sector was as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- --------------------------------
Commitment to Commitment to
Purchase Commitment to Purchase Commitment to
(Futures, Sell (Futures, (Futures, Sell (Futures,
Options and Options and Options and Options and
Forwards) Forwards) Forwards) Forwards)
<S> <C> <C> <C> <C>
Currencies $ (32,590) $ 346,245 $ 85,018 $ 119,393
Tropical products 81,606 220 (32,375) (5,112)
Metals 27,560 28,062 (1,263) 5,840
Financials 205,594 (56,679) 251,620 15,832
Grains 150,668 7,559 (23,944) -
Energies 11,089 13,419 38,497 -
Livestock (22,725) 7,802 20,172 -
--------- --------- --------- ---------
$ 421,202 $ 346,628 $ 337,725 $ 135,953
========= ========= ========= =========
F-12
<PAGE>
The fair value of these commodity interests, including options thereon, at
December 31, were as follows:
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase Purchase Sell Sell
(Futures, (Futures, (Futures, (Futures,
Options and Options and Options and Options and
Forwards Forwards Forwards Forwards
Unrealized Unrealized Unrealized Unrealized
Gains) Losses) Gains) Losses)
<S> <C> <C> <C> <C>
Currencies $ 27,163 $ (25,065) $ 456,513 $ -
Tropical products 142,845 (405,997) - -
Metals 172,695 (71,090) 41,112 -
Financials 1,115,515 (35,992) 16,172 (66,564)
Grains 40,055 (186,367) - -
Energies 1,980 - 99,870 -
Livestock 1,040 ( 94,110) 19,370 -
--------- --------- --------- ---------
$1,501,293 $(818,621) $ 633,037 $ (66,564)
========== ========= ========= =========
<CAPTION>
1996
-----------------------------------------------------------------------------------------
Commitment to Commitment to Commitment to Commitment to
Purchase Purchase Sell Sell
(Futures, (Futures, (Futures, (Futures,
Options and Options and Options and Options and
Forwards Forwards Forwards Forwards
Unrealized Unrealized Unrealized Unrealized
Gains) Losses) Gains) Losses)
<S> <C> <C> <C> <C>
Currencies $ - $ (47,310) $ 109,725 $ (9,250)
Tropical products 8,627 (4,275) 5,090 (20,990)
Metals 27,313 (34,625) 15,200 -
Financials 68,493 (177,849) - -
Grains - (47,238) - -
Energies 61,639 (7,421) - -
Livestock 77,730 - - -
--------- --------- --------- --------
$ 243,802 $(318,718) $ 130,015 $(30,240)
========= ========= ========= ========
</TABLE>
* * *
F-13
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Ruvane Investment Corporation:
We have audited the accompanying statement of financial condition of Ruvane
Investment Corporation (an "S" Corporation) as of December 31, 1997. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the statement of
financial condition provides a reasonable basis for our opinion.
In our opinion, the statement of financial condition referred to above
presents fairly, in all material respects, the financial position of Ruvane
Investment Corporation as of December 31, 1997, in conformity with
generally accepted accounting principles.
WITHUM, SMITH & BROWN
Princeton, New Jersey
February 27, 1998
F- 14
<PAGE>
<TABLE>
<CAPTION>
RUVANE INVESTMENT CORPORATION
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
ASSETS
<S> <C>
Current Assets:
Cash $ 89,001
Commissions and Other Receivables 91,679
----------------
Total Current Assets 180,680
Property and Equipment, net of
accumulated depreciation of $4,920 5,715
Investment in Partnership 680,879
----------------
TOTAL ASSETS $ 867,274
================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ 52,819
State Income Taxes Payable 16,830
----------------
Total Current Liabilities 69,649
STOCKHOLDERS' EQUITY
Stockholders' Equity:
Common Stock, $1 par; authorized 1,000
shares, issued and outstanding 100 shares 100
Additional Paid-in-Capital 82,439
Retained Earnings 715,086
----------------
Total Stockholders' Equity 797,625
----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 867,274
===============
The Notes to Financial Statements are an integral part of this statement.
</TABLE>
F- 15
<PAGE>
RUVANE INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies:
Significant accounting policies followed by the Company in the
preparation of the accompanying financial statements are
summarized below:
A. Nature of Business
The Company was incorporated on January 4, 1990 under the
laws of the State of Delaware as a calendar year corporation.
The Company commenced operations on January 1, 1995. The
Company is registered with the Commodity Futures Trading
Commission ("CFTC") as a commodity pool operator, Introducing
Broker ("IB") and a commodity trading advisor.
The Company is also a member of the NFA.
B. Accounting Basis
The books and records of the Company are prepared on the
accrual basis of accounting for financial reporting purposes.
The accompanying financial statements represent the
transactions of the Company for the year ended December 31,
1997.
C. Revenue Recognition
Revenue is recognized when substantially all significant
services to be provided by the Company have been performed.
These revenues are based on its three business lines. First,
the Company consults with futures professionals concerning
new business developments. Second, the Company advises
institutions and money managers on how to improve performance
and reduce costs related to their futures trading. Finally,
the Company is the general partner of The Willowbridge Fund
L.P., a partnership, see Note 3 for more detail.
D. Income Taxes
The Company has made an election not to be subject to federal
income taxes at the corporate level. As a result, the income
or loss of the Company is included in the current taxable
income of the Company's individual stockholder under Internal
Revenue Code Section 1372(a).
Effective January 1, 1995, the Company has elected "S"
Corporation status for the State of New Jersey and is subject
to a corporate level income tax of 2.63 percent for the year
ended December 31, 1997.
The Company provides for state deferred income taxes in
accordance with FASB 109. There were no state deferred income
taxes for the year ended December 31, 1997.
F- 16
<PAGE>
RUVANE INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (Cont.):
E. Property and Equipment
Property and equipment are stated at cost, less accumulated
depreciation. The Company provides for depreciation of
property and equipment on a straight-line basis over the
following useful lives:
Years
Computer Equipment 5
Furniture and Fixtures 5
Repair and maintenance costs are expensed when incurred,
while additions and improvements are capitalized. The cost
and related accumulated depreciation of assets sold or
retired are eliminated from the accounts and any gains or
losses are reflected in earnings.
F. Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
G. Cash and Cash Equivalents
The Company considers all highly liquid investments with an
initial maturity of three months or less to be cash
equivalents.
Note 2 - Net Capital Requirements:
As an introducing broker, the Company is subject to the CFTC Net
Capital Regulation (Regulation 1.17), which requires the
maintenance of a minimum net capital amount. At December 31, 1997,
the Company had an adjusted net capital of $366,716, which was
$336,716 in excess of the required minimum net capital of $30,000.
Note 3 - Investments in Partnership:
During 1995, the majority stockholder of the Company transfered
and assigned his General Partner interest in a related commodities
trading partnership, the Willowbridge Fund L.P. (Partnership), to
the Company. At December 31, 1997, the Company owned an equity
interest of approximately four percent in the Partnership. The
investment is being recorded on the equity method.
F- 17
<PAGE>
RUVANE INVESTMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 3 - Investment in Partnership (Cont.):
Summarized financial information from the audited financial
statements of the Partnership follows:
Financial Statement December 31, 1997
Current Assets $ 18,544,991
===============
Current Liabilities $ 334,807
===============
Partners' Equity $ 18,210,184
===============
Year Ended
December 31, 1997
Gains on Trading of Commodity
Commodity Futures and Options $ 706,133
Interest Income 766,517
Total Expenses (1,747,534
-------------------
Net Loss $ (274,884)
===================
As the general partner, the Company is required by the Amended and
Restated Limited Partnership Agreement ("Agreement") to maintain
an interest in the Partnership of an amount equal to one percent
of the partners' equity raised by the Partnership. The partner's
equity at December 31, 1997 amounted to $18,210,184 of which the
general partner was required to maintain a minimum capital of
$182,102.
In addition, the Agreement requires that all subscriptions are
subject to a one-time one percent administrative charge payable to
the Company as general partner.
As of December 31, 1997, the Company had commissions receivables
amounting to approximately $60,000 due from Willowbridge
Associates, Inc.
Note 4 - Concentration of Credit Risk:
The Company maintains its cash in bank deposit accounts, which, at
times, may exceed federally insured limits. The Company has not
experienced any credit losses on such accounts and believes it is
not exposed to any significant credit risk on its cash balances.
F- 18
<PAGE>
INDEX TO EXHIBITS
Exhibit Item Description
Number
*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
- -------------------------
* Previously filed.
F- 19
