UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ____________ to __________
Commission File No. 000-23529
I.R.S. Employer Identifiction No. 22-678474
THE WILLOWBRIDGE FUND L.P.
(a Delaware Corporation)
4 Benedek Road,
Princeton, New Jersey 08540
Telephone 609-921-0717
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES ____X____ NO _________
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THE WILLOWBRIDGE FUND L.P.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
Item 1. Unaudited Consolidated Financial Statements .......................3
Statement of Financial Condition as of June 30, 1999
(unaudited) and December 31, 1998..................................3
Statement of Operations For the Three Months Ended
June 30, 1999 and 1998 and For the Six Months Ended
June 30, 1999 and 1998 (unaudited).................................4
Statement of Changes in Partners' Capital for the Six
Months Ended June 30, 1999 and 1998 (unaudited) ...................5
Notes to Financial Statements for the Six Months Ended
June 30, 1999 (unaudited) and the Year Ended December 31,
1998 ..............................................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation...........................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk........12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................14
Item 2. Changes in Securities and Use of Proceeds.........................14
Item 3. Defaults Upon Senior Securities...................................14
Item 4. Submission of Matters to a Vote of Security Holders...............14
Item 5. Other Information.................................................14
Item 6. Exhibits and Reports on Form 8-K..................................14
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1999 (unaudited) AND DECEMBER 31, 1998
==========================================================================================================================
June 30, December 31,
1999 1998
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ASSETS
EQUITY IN COMMODITY FUTURES TRADING ACCOUNT:
Due from broker $ 23,555,498 $ 23,023,260
Net unrealized appreciation on open futures contracts 3,482,718 197,957
--------------- ---------------
27,038,216 23,221,217
CASH IN BANK 573,814 205,741
ACCOUNTS RECEIVABLE 46,430 32,006
--------------- ---------------
TOTAL ASSETS $ 27,658,460 $ 23,458,964
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued incentive fees $ 652,477 $ 85,182
Redemptions payable 454,192 269,771
Accrued management fees 47,032 59,116
Advanced subscriptions 34,835 161,822
Other accrued expenses 38,676 43,740
--------------- ---------------
1,227,212 619,631
--------------- --------------
PARTNERS' CAPITAL:
Limited partners (5,518.689811 and 5,264.157985 fully redeemable
units at June 30, 1999 and December 31, 1998, respectively) 24,988,613 21,765,943
General partner (330.748353 and 271.650937 fully redeemable
units at June 30, 1999 and December 31, 1998, respectively) 1,442,635 1,073,390
-------------- ---------------
26,431,248 22,839,333
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 27,658,460 $ 23,458,964
=============== ===============
NET ASSET VALUE PER UNIT
(Based on 5,849.438164 and 5,535.808922 units outstanding
at June 30, 1999 and December 31, 1998, respectively) $ 4,518.60 $ 4,125.74
=============== ===============
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THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF INCOME (LOSS)
===================================================================================================================================
For the three For the three For the six For the six
months ended months ended months ended months ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
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INCOME:
Gains (losses) on trading of commodity
futures, forwards and options:
Realized gains (losses) on closed positions, net $ 727,895 $ (3,390,088) $ 245,916 $ (4,964,935)
Net change in unrealized gains (losses) on
open futures, forwards and options 2,166,973 (821,734) 3,284,761 (438,712)
---------------- ------------- ----------- -------------
Total trading profits (losses) 2,894,868 (4,211,822) 3,530,677 (5,403,647)
Interest income 268,823 171,593 522,605 388,952
----------------- ------------ ---------- -------------
Total income (loss) 3,163,691 (4,040,229) 4,053,282 (5,014,695)
----------------- ------------- ---------- -------------
EXPENSES:
Incentive fees 710,036 - 806,378 -
Brokerage commissions 226,942 138,497 462,471 309,808
Management fees 64,902 36,011 353,177 265,890
Administrative expenses 34,660 93,523 71,369 167,875
----------------- ------------- ---------- -------------
Total expenses 1,036,540 268,031 1,693,395 743,573
----------------- ----------- ---------- -----------
NET INCOME (LOSS) $ 2,127,151 $ (4,308,260) $ 2,359,887 $(5,758,268)
================= ============= =========== ============
NET INCOME (LOSS):
Limited partners $ 2,013,335 $ (4,087,185) $ 2,228,487 $(5,471,984)
================= ============= =========== ============
General partner $ 113,816 $ (221,075) $ 131,400 $ (286,284)
================= ============= =========== ============
NET INCOME (LOSS) PER UNIT $ 357.88 $ (763.27) $ 392.86 $ (1,030.07)
================= ============= =========== ============
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THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (unaudited)
=========================================================================================================================
Total
General Partner Limited Partners Partners'
Units Amount Units Amount Capital
======================== ============================ ==============
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PARTNERS' CAPITAL, DECEMBER 31, 1997 195.626712 $ 680,879 5,036.432973 $ 17,529,305 $18,210,184
Additions 58.713214 200,512 957.172476 2,995,103 3,195,615
Redemptions - - (810.210947) (2,322,730) (2,322,730)
Net loss - (286,284) - (5,471,984) (5,758,268)
----------- --------- ------------- ------------ -----------
PARTNERS' CAPITAL, JUNE 30, 1998 254.339926 595,107 5,183.394502 12,729,694 13,324,801
PARTNERS' CAPITAL, DECEMBER 31, 1998 271.650937 1,073,390 5,264.157985 21,765,943 22,839,333
Additions 59.097416 237,845 792.566709 3,270,138 3,507,983
Redemptions - - (538.034883) (2,275,955) (2,275,955)
Net income - 131,400 - 2,228,487 2,359,887
---------- -------- ------------ ----------- -----------
PARTNERS' CAPITAL, JUNE 30, 1999 330.748353 $1,442,635 5,518.689811 $24,988,613 $26,431,248
========== ========== ============ =========== ===========
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THE WILLOWBRIDGE FUND L.P.
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (unaudited)
AND THE YEAR ENDED DECEMBER 31, 1998
1. GENERAL
The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by generally
accepted accounting principles for complete financial statements are not
included herein. Interim statements are subject to possible adjustments in
connection with the annual audit of the Partnership's financial statements
for the full year. In the Partnership's opinion, all adjustments necessary
for a fair presentation of these interim statements have been included and
are of a normal and recurring nature.
2. 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, Ruvane Investment Corporation ("General Partner"), is
registered as a Commodity Pool Operator and a Commodity Trading Advisor
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.
3. SIGNIFICANT ACCOUNTING POLICIES
Due from Broker - Due from broker represents cash required to meet margin
requirements and excess funds not required for margin that are typically
invested in 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 Partnership at the beginning of the month. As of
March 31, 1999, the commission rate charged was 3.5 percent annually of the
net asset value of the Partnership.
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.
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Allocation of Profits (Losses) and Fees - Net realized and unrealized
trading gains and losses, interest income and other operating income and
expenses are allocated to the partners monthly in proportion to their
capital account balance, as defined in the Agreement.
The General Partner 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 $228,393 and
$182,103 in the six months ended June 30, 1999 and the year ended December
31, 1998, respectively.
Willowbridge Associates, the Commodity Trading Advisor ("CTA") of the
Partnership is entitled to an incentive fee based on an increase in the
adjusted net asset value of the allocated assets of the Partnership. The
CTA receives 25% of any new profits, as defined in the Agreement. The term
"new profits" is defined as the increase, if any, in the adjusted net asset
value of the allocated assets. In addition, the Partnership pays the CTA a
quarterly management fee of 0.25% (1% per year) of the net asset value of
the Partnership.
The CTA 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 the CTA. 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 the six months ended June
30, 1999 and the year ended December 31, 1998 were $38,546 and $44,264,
respectively.
Administrative Expense - 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 his/her 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.
Recently Issued Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (the "Statement"). Such Statement is effective for fiscal years
commencing after July 1, 2000. The General Partner does not believe that
the Statement will have a significant effect on the financial statements of
the Partnership.
Certain reclassifications have been made to prior year amounts to conform
to the current year's presentation.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation
General
The Partnership is engaged in the speculative trading of commodity futures
contracts, options on commodities or commodity futures contracts and
forward contracts. The objective of the Partnership is the appreciation of
its assets through speculative trading. Willowbridge Associates Inc. is the
Partnership's trading advisor (the "Advisor").
The success of the Partnership is dependent upon the ability of the 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 the Advisor, the amount of
additions to and redemptions from the Partnership 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. As a result of these
factors, the Partnership's past performance is not indicative of future
results and any recent increases in net realized or unrealized gains may
have no bearing on any results that may be obtained in the future.
Beginning in January 1997 and until the close of business on May 1, 1998, the
assets of the Partnership were allocated evenly between the Advisor's Primary
Progarm and the Advisor's Mtech Trading Approach. The Primary Program consists
of three computer-based, quantitative trading systems. The Mtech Trading
Approach is a highly discretionary approach managed by Michael Y. Gan, the
Executive Vice President of the Advisor. Effective June 1, 1998, the General
Partner re-allocated all of the Partnership's assets to the Primary Program
because the Mtech Trading Approach experienced year-to-date losses of greater
than 35%.
Results of Operations
Comparison of Three Months Ended June 30, 1999 and 1998
For the quarter ended June 30, 1999, the Partnership had trading profits
comprised of $727,895 in realized gains on closed positions, $2,166,973 in
net change in unrealized gains on open futures and options contracts and
$268,823 in interest income. For the same quarter in 1998, the Partnership
had trading losses comprised of $3,390,088 in realized losses on closed
positions, $821,734 in net change in unrealized losses on open futures and
options contracts and $171,593 in interest income.
In April 1999, trading was profitable in foreign currencies, European
curriences, energy complex and meats. Unprofitable positions in domestic
financial instruments, corn and wheat offset some gains. The Partnership
recorded a gain of $1,473,033 or $252.22 per unit. In May 1999, trading was
unprofitable in foreign currencies, energy complex, base metals and coffee.
Profitable positions in foreign and domestic financial instruments failed
to offset the losses. The Partnership recorded a loss of $1,307,824 or
$224.08 per unit. In June 1999, trading was profitable in foreign and
domestic financial instruments, energy complex, meats and base metals.
Unprofitable positions in foreign currencies and coffee offset some
profits. The Partnership recorded a gain of $1,961,942 or $329.74 per unit.
In April 1998, trading was unprofitable in financial instruments,
currencies, precious metals and energy complex. The Partnership recorded a
loss of $3,273,418 or $579.25 per unit. In May 1998, trading was
unprofitable in silver and grains. Profitable positions in the Japanese Yen
and foreign financial instruments failed to offset the losses. The
Partnership recorded a loss of $614,511 or $107.57 per unit. In June 1998,
trading was unprofitable in foreign currencies and grains. Profitable
positions in domestic and foreign financial instruments failed to offset
the losses. The Partnership recorded a loss of $420,331 or $76.45 per unit.
For the quarter ended June 30, 1999, the Partnership had expenses comprised
of $266,942 in brokerage commissions (including clearing and exchange
fees), $64,902 in management fees, $710,036 in incentive fees and $34,660
in administrative expenses. For the same quarter in 1998, the Partnership
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had expenses comprised of $138,497 in brokerage commissions (including
clearing and exchange fees), $36,011 in management fees and $93,523 in
administrative expenses. The Partnership had no incentive fees for the
quarter ended June 30, 1998 as trading losses were not recouped. Brokerage
commissions and management fees vary primarily as a result of changes in
assets under management. Incentive fees are generated by quarterly profits.
As assets under management and year to date profits increased in the
quarter ended June 30, 1999, as compared to the quarter ended June 30,
1998, brokerage commissions, management fees and incentive fees also
increased for the three month period. Administrative fees consist primarily
of legal and other expenses relating to the Partnership's reporting
requirements under the Securities Exchange Act of 1934, as amended. The
Partnership became subject to such reporting requirements in April 1998.
As a result of the above, the Partnership recorded a gain of $2,127,151 or
$357.88 per unit for the quarter compared to a loss of $4,308,260, or
$763.27 per unit for the same quarter in 1998.
At June 30, 1999, the net asset value of the Partnership was $26,431,248
compared to its net asset value of $22,839,333 at December 31, 1998. The
net asset value per unit at June 30, 1999 was $4,518.60 compared to
$4,125.74 at December 31, 1998.
During the quarter, the Partnership had no credit exposure to a
counterparty that is a foreign commodities exchange or to any counterparty
dealing in over the counter contracts which was material.
See Footnote 3 of the Financial Statements for procedures established by the
General Partner to monitor and minimize market and credit risks for the
Partnership. In addition to the procedures set out in Footnote 3, the General
Partner reviews on a daily basis reports of the Partnership's performance,
including monitoring of the daily net asset value of the Partnership. The
General Partner also reviews the financial situation of the Partnership's
clearing brokers on a regular basis. The General Partner relies on the
policies of the Clearing Brokers to monitor specific credit risks.
Comparison of Six Months Ended June 30, 1999 and 1998
For the six months ended June 30, 1999, the Partnership had trading profits
comprised of $245,916 in realized gains on closed positions, $3,284,761 in
net change in unrealized gains on open futures and options contracts and
$522,605 in interest income. For the same six month period in 1998, the
Partnership had trading losses comprised of $4,964,935 in realized losses
on closed positions, $438,712 in net change in unrealized losses on open
futures and options contracts and $388,952 in interest income.
During the six months ended June 30, 1999, profits were generated primarily
from European curencies and domestic and foreign financial instruments.
Profitable positions in meats also generated gains. Unprofitable positions
in foreign currencies and coffee offset some gains. In January 1999,
trading was unprofitable in domestic financial instruments and foreign
currencies. The Partnership recorded a loss of $754,373 or $132.99 per
unit. For the same month in 1998, trading was profitable in domestic and
foreign financial instruments, silver and food products. The Partnership
recorded a gain of $1,666,034 or $305.17 per unit during January 1998. In
February 1999, trading was profitable in foreign and domestic financial
instruments, foreign currencies, and base metals. The Partnership recorded
a gain of $1,542,118 or $263.58 per unit. For the same month in 1998, the
Partnership recorded its second worst month in its history. Trading losses
were incurred in the Japanese Yen, food products, grains and domestic
financial instruments. Profits were derived from silver. The Partnership
recorded a loss of $2,993,297 or $550.98 per unit during February 1998. In
March 1999, trading was unprofitable in European currencies, coffee and
silver. Profitable positions in foreign currencies, foreign financial
instruments and natural gas offset some losses. The Partnership recorded a
loss of $555,009 or $95.61 per unit. For the same month in 1998, positions
in the U.S. dollar produced most of the gains, however, these were largely
offset by losses in domestic and foreign financial instruments, food
products and grains. The Partnership recorded a loss of $122,744 or $20.99
per unit during March 1998. In April 1999, trading was profitable in
foreign currencies, European currencies, energy complex and meats.
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Unprofitable positions in domestic financial instruments, corn and wheat
offset some gains. The Partnership recorded a gain of $1,473,033 or $252.22
per unit. For the same month in 1998, trading was unprofitable in financial
instruments, currencies, precious metals and energy complex. The
Partnership recorded a loss of $3,273,418 or $579.25 per unit during April
1998. In May 1999, trading was unprofitable in foreign currencies, energy
complex, base metals and coffee. Profitable positions in foreign and
domestic financial instruments failed to offset the losses. The Partnership
recorded a loss of $1,307,824 or $224.08 per unit. For the same month in
1998, trading was unprofitable in silver and grains. Profitable positions
in the Japanese Yen and foreign financial instruments failed to offset the
losses. The Partnership recorded a loss of $614,511 or $107.57 per unit
during May 1998. In June 1999, trading was profitable in foreign and
domestic financial instruments and energy complex, meats and base metals.
Unprofitable positions in foreign currencies and coffee offset some
profits. The Partnership recoded a gain of $1,961,942 or $329.74 per unit.
For the same month in 1998, trading was unprofitable in foreign currencies
and grains. Profitable positions in domestic and foreign financial
instruments failed to offset the losses. The Partnership recorded a loss of
$420,331 or $76.45 per unit during June 1998. On June 1, 1998, the
Partnership ceased using Willowbridge Associates Inc.'s Mtech Trading
Approach and all the Partnership's assets were re-allocated to
Willowbridge's Primary Program, consisting of the Argo, Vulcan and Siren
quantitative, computer-based trading systems currently used by the
Partnership. Since Mtech experienced a loss of greater than 35% for 1998,
the General Partner decided to terminate trading pursuant to Mtech.
For the six months ended June 30, 1999, the Partnership had expenses comprised
of $462,471 in brokerage commissions (including clearing and exchange fees),
$353,177 in management fees, $808,378 in incentive fees and $71,369 in
administrative expenses. For the same six months in 1998, the Partnership had
expenses comprised of $309,808 in brokerage commissions (including clearing
and exchange fees), $265,890 in management fees and $167,875 in administrative
expenses. The Partnership had no incentive fees for the six months ended June
30, 1998 as trading losses were not recouped. Brokerage commissions and
management fees vary primarily as a result of changes in assets under
management. Incentive fees are generated by quarterly profits. As assets under
management and year to date profits increased in the six months ended June 30,
1999, as compared to the six months ended June 30, 1998, brokerage
commissions, management fees and incentive fees also increased for the six
month period. Administrative fees consist primarily of legal and other
expenses relating to the Partnership's reporting requirements under the
Securities Exchange Act of 1934, as amended. The Partnership became subject to
such reporting requirements in April 1998.
As a result of the above, the Partnership recorded a gain of $2,359,887 or
$392.86 per unit for the six month period compared to a loss of $5,758,268,
or $1,030.07 per unit for the same period in 1998.
Liquidity and Capital Resources
In general, the Advisor trades 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 exceeded the daily limit for
several consecutive days, with little or no trading, thereby effectively
preventing a party from liquidating its 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 the 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.
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The Partnership's capital resources are dependent upon three factors: (a)
the income or losses generated by the Advisor; (b) the money invested or
redeemed by the limited partners; and (c) the capital invested or redeemed
by the General Partner.
The Partnership sells limited partnership units to investors from time to
time in private placements pursuant to Regulation D of the Securities Act
of 1933, as amended. 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.
The General Partner must maintain a capital account in such amount as is
necessary for the General Partner to maintain a one percent (1%) interest
in the capital, income and losses of the Partnership. All capital
contributions by the General Partner necessary to maintain such capital
account balance are evidenced by units of general partnership interest,
each of which has an initial value equal to the net asset value per unit at
the time of such contribution. The General Partner may withdraw any excess
above its required capital contribution without notice to the limited
partners and may also contribute any greater amount to the Partnership.
Year 2000 Issues
Many of the world's computer systems currently record years in a two-digit
format. Such computer systems will be unable to properly interpret dates
beyond the year 1999, which could lead to business disruptions in the U.S.
and internationally (the "Y2K" problem). The Partnership use both the
Advisor and an administrator, Derivatives Portfolio Management, LLC (the
"Administrator") herein together the "Y2K Parties", to trade, record and
process transactions. The discussion below of the actions of the Y2K
Parties are based on their representations to the General Partner. As the
millennium approaches, the Y2K Parties have undertaken initiatives to
address the Year 2000 problem. The Y2K Parties believe that they have
identified and evaluated their internal Y2K problem and that they are
devoting sufficient resources to renovating technology systems that are not
already Year 2000 compliant. The Y2K Parties expect the renovation phase
(as discussed below), testing efforts and integration of the Year 2000
programs to be substantially completed by the end of the third quarter
1999. As of the quarter ended June 30, 1999, the testing efforts and
integration of the Year 2000 programs are substantially underway.
The failure of the Y2K Parties' technology systems relating to a Y2K
problem would likely have a material adverse effect on the Partnership's
business, results of operations, or financial condition. This effect could
include disruption of normal business transactions, such as the execution,
processing, and recording of trades in commodities, currencies, and other
financial derivative instruments. The Y2K problem could also increase the
Partnership's exposure to risk and its need for liquidity.
To ensure that the Partnership's computer systems are Y2K compliant, a team
of information technology professionals have been preparing for the Y2K
problem. The Y2K Parties have reviewed each of their systems and programs
to identify those that contain two-digit year codes. The Y2K Parties have
assessed the amount of programming required to upgrade or replace each of
the affected programs with the goal of completing all relevant internal
software remediation and testing by the end of the third quarter of 1999.
In addition, the Y2K Parties are actively working with all their major
external counterparties and service providers to assess their compliance
efforts and exposure to them.
The Y2K Parties have defined the scope of the Y2K problem, including their
annual budgets and strategies, and determined the level of expert knowledge
required regarding particular systems or applications. They have developed
detailed inventories of applications and systems identifying the scope of
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necessary renovations to each application or system and establishing a
conversion schedule. During the renovation phase, source codes were
actually converted, date fields were expanded or windowed (windowing is
used on an exception basis only), test data was prepared, and each system
or application was tested using a variety of Y2K scenarios.
The Y2K Parties are validating that a renovated system is functionally the
same as the existing production version, that renovation has not introduced
defects, and that expanded or windowed date fields continue to handle
current dates properly. Steps have been taken and are ongoing to validate
that a system can run successfully in a Y2K environment. Finally, the Y2K
Parties are validating that a system can successfully interface with both
internal and external systems. These efforts will be continued throughout
the remainder of 1999.
The Y2K Parties continue to survey and communicate with parties with whom
they have important relationships that may be associated with information
technology Y2K problems, as well as parties that may be associated with
non-information technology Y2K problems, such as landlords. They are
unable, at this point, to ascertain whether all such third parties will
successfully address the Y2K problem, particularly parties outside the
U.S., where it is believed that remediation efforts relating to the Y2K
problem may be less advanced than in the U.S. The Y2K Parties will continue
to monitor third parties' Y2K readiness to determine whether additional or
alternative measures are necessary. Such measures may include the selection
of alternate third parties or other efforts designed to mitigate some of
the effects of a third party's noncompliance. In light of the
interdependency of the parties in or serving the financial markets there
can be no assurance that all Y2K problems will be identified and remediated
on a timely basis or that all remediation efforts will be successful. The
failure of certain exchanges, clearing organizations, vendors, clients, or
regulators to resolve their own processing issues in a timely manner could
have a material adverse effect on the Partnership's business, results of
operations, or financial condition.
The Partnership will not incur any material cost for Y2K expenditures and such
expenditures would not have an effect on the Partnership's results of
operations or financial condition. These costs are incurred by the Y2K
Parties, independently of each other. The Partnership has no contingency plans
in the event the Y2K Parties are unable to timely resolve their Y2K problem.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership is a commodity pool engaged in the speculative trading of
commodity futures contracts (including agricultural and non-agricultural
commodities, currencies and financial instruments), options on commodities
or commodity futures contracts, and forward contracts. The risk of market
sensitive instruments is integral to the Partnership's primary business
activities. The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often dependent upon
changes in the level or volatility of interest rates, exchange rates,
and/or market values of financial instruments and commodities. Fluctuations
in related market risk based upon the aforementioned factors result in
frequent changes in the fair value of the Partnership's open positions,
and, consequently, in its earnings and cash flow. The Partnership accounts
for open positions on the basis of mark-to-market accounting principles. As
such, any gain or loss in the fair value of the Partnership's open
positions is directly reflected in the Partnership's earnings, whether
realized or unrealized. The Partnership's total market risk is influenced
by a wide variety of factors including the diversification effects among
the Partnership's existing open positions, the volatility present within
the markets and the liquidity of the markets. At varying times, each of
these factors may act to exacerbate or mute the market risk associated with
the Partnership. The following were the primary trading risk exposures of
the Partnership as of June 30, 1999, by market sector:
Interest Rate: Interest rate risk is the principal market exposure
of the Partnership. Interest rate movements in one country as well
as relative interest rate movements between countries materially
impact the Partnership's profitability. The Partnership's primary
interest rate exposure is to interest rate fluctuations in the
12
<PAGE>
United States and the other G-7 countries. The General Partner
anticipates that G-7 interest rates will remain the primary market
exposure of the Partnership for the foreseeable future.
Currency: The Partnership's currency exposure is to exchange rate
fluctuations, primarily in the following countries: England,
Japan, Switzerland other G-7 countries. Additionally, the
Partnership has exposure to countries comprising the Euro. These
fluctuations are influenced by interest rate changes as well as
political and general economic conditions. The General Partner
does not anticipate that the risk profile of the Partnership's
currency sector will change significantly in the future.
Commodity: The Partnership's primary metals market exposure is to
fluctuations in the price of copper and silver. The Partnership
also has commodity exposures in the price of soft commodities,
which are often directly affected by severe or unexpected weather
conditions. Sugar accounted for the Partnership's primary soft
commodities exposure as of June 30, 1999. Additionally, the
Partnership has commodity exposures in soymeal, wheat, cattle and
hogs at June 30, 1999 which are also affected by weather matters
as well as seasonal supply and demand factors. The Partnership
also has exposure in the primary energy commodities; namely crude
oil, heating oil, gasoline and natural gas. The price of these
commodities is highly influenced by political conditions in the
Middle East, as well as general supply and demand factors.
The Partnership measures its market risk related to its holdings of
commodity interests based on changes in interest rates, foreign currency
rates, and commodity prices utilizing a sensitivity analysis. The
sensitivity analysis estimates the potential change in fair values, cash
flows and earnings based on a hypothetical 10% change (increase and
decrease) in interest, currency and commodity prices. The Partnership used
June 30, 1999 market rates and prices on its instruments to perform the
sensitivity analysis. The sensitivity analysis has been prepared separately
for each of the Partnership's market risk exposures (interest rate,
currency rate, and commodity price) instruments.
The estimates are based on the market risk sensitive portfolios described
in the preceding paragraph above. The potential loss in earnings is based
on an immediate change in:
The prices of the Partnership's interest rate positions resulting
from a 10% change in interest rates.
The U.S. dollar equivalent balances of the Partnership's currency
exposures due to a 10% shift in currency exchange rates.
The market value of the Partnership's commodity instruments due to
a 10% change in the price of the instruments.
The Partnership has determined that the impact of a 10% change in market
rates and prices on its fair values, cash flows and earnings would not be
material. The Partnership has elected to disclose, though deemed
immaterial, the potential loss to earnings of its commodity price, interest
rate and currency exchange rate sensitivity positions as of June 30, 1999.
The potential loss in earnings for each market risk exposure as of June 30,
1999 was:
Trading portfolio:
Commodity price risk $1,778,468
Interest rate risk $1,308,879
Currency exchange rate risk $1,651,680
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
The General Partner is not aware of any pending legal proceedings to which
the Partnership or the General Partner is a party or to which any of their
assets are subject
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits--The following exhibit is filed as part of this report on Form
10-Q:
27 Financial Data Schedule
Reports on Form 8-K
None.
14
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WILLOWBRIDGE FUND L.P.
Date: August 12, 1999 By: Ruvane Investment Corporate
its General Partner
By: /s/ Robert L. Lerner
Robert L. Lerner
President
15
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
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