Smith Barney Futures Management Inc.
390 Greenwich Street
New York, NY 10013
By EDGAR
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
RE: Smith Barney Diversified Futures Fund L.P. II
Supplement to Registration Statement on Form S-1
File No. 333-3538
Ladies and Gentlemen:
On Behalf of Smith Barney Diversified Futures Fund L.P. II (the "Partnership") I
am transmitting herewith for filing, pursuant to Rule 424 (b) (3) of the
Securities Act of 1933, as amended, a Supplement dated February 28, 1997 to the
Partnership's final prospectus dated May 31, 1996.
Should you have any questions, please telephone me at 723-5424.
Very truly yours,
/s/ Daniel A. Dantuono
Daniel A. Dantuono
Chief Financial Officer and
Director
Enclosures
<PAGE>
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II
Supplement dated February 28, 1997 to the Prospectus dated May 31, 1996
This document is not valid after April 30 , 1997.
Smith Barney Inc.
<PAGE>
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II
Supplement dated February 28, 1997 to the Prospectus dated May 31, 1996
This Supplement amends and updates the Prospectus dated May 31, 1996 (the
"Prospectus") for Smith Barney Diversified Futures Fund L.P. II (the
"Partnership") and should be read in conjunction therewith. This Supplement
incorporates changes made in previous supplements dated October 7, 1996 and
January 27, 1997. Headings herein correspond to headings in the Prospectus; page
numbers in parentheses refer to the pages in the Prospectus.
THE GENERAL PARTNER
Performance of the Partnership (page 30)
January 17, 1996 (Commencement of Trading Operations) to December 31, 1996
- -------------------------------------------------------------------------------
Percentage rate of return (computed on a compounded monthly basis) 1996
- -------------------------------------------------------------------------------
January (partial month) 1.53%
February (8.57)
March 1.66
April 4.41
May (6.76)
June 4.67
July (3.79)
August 0.85
September 6.07
October 8.26
November 5.86
December (0.80)
Annual (or Period) Rate of Return 12.51%
- -------------------------------------------------------------------------------
Inception of Trading: January 17, 1996
Aggregate Subscriptions: $50,209,000 (12/96)
Current Net Asset Value: $55,298,004 (12/96)
Worst Monthly Percentage Draw-Down: 8.57% (2/96)
Worst Peak-to-Valley Draw-Down: 9.51% (2/96-5/96)
- -------------------------------------------------------------------------------
Notes to this table appear at page 9.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
- -------------------------------------------------------------------------------
During the period from January 17, 1996 through December 31, 1996,
the Partnership had realized and unrealized trading gains of $11,039,086 before
deduction of commissions and other expenses. $2,169,468 in brokerage commissions
and $2,477,652 in management fees, incentive fees, and other expenses were
deducted from trading gains during this period.
1
<PAGE>
The amount of interest income earned by the Partnership depends on
the average daily equity in the Partnership account and upon interest rates over
which the Partnership nor the broker has control. During the period from January
17, 1996 through December 31, 1996 the Partnership earned $1,190,687 in
interest.
As of December 31, 1996, the Partnership's assets were allocated among
the Advisors in the following approximate percentages: John W. Henry & Company,
Inc.: 38%; Chesapeake Capital Corporation: 30%; and Millburn: 32%.
Updated performance of other pools operated by the General Partner
appears below.
FEES AND EXPENSES TO THE PARTNERSHIP
Advisors (page 19) With respect to John W. Henry & Company, Inc. ("JWH") only:
In the event of a redemption, reallocation, distribution or the termination of
the Management Agreement as of any date which is not a calendar quarter-end or
month-end, as the case may be, the quarterly incentive fee shall be computed and
paid as if such date were the quarter-end and the monthly management fee shall
be prorated to the effective date of termination.
Break Even Analysis (page 21)
The following table is a summary of fees and expenses expressed both
as a dollar amount and as a percentage of a $1,000 investment in the
Partnership. See "Fees and Expenses to the Partnership". The break-even point
per Unit (that is, the trading profit the Partnership must realize during the
first year of a limited partner's investment so that such investment at the end
of the year is equal to its value at the beginning of the year), assuming a
limited partner purchases Units at $1,000 each as of the beginning of the year
and redeems its Units at the end of the first year of its investment, is 6.23%
or $62.29 per Unit (assuming the estimated Partnership size is $70,000,000) or
6.19%, or $61.94 per Unit (assuming the estimated partnership size is
$100,000,000).
Estimated Partnership Size: $70,000,000 $100,000,000
----------- ------------
Selling Price per Unit (1) $ 1,000.00 $ 1,000.00
----------- ------------
Interest Income Credit (2) $ (37.60) $ (37.60)
Brokerage Fees (3) $ 72.01 $ 72.01
Trading Advisor's Management Fee (4) $ 25.78 $ 25.77
Other Operating Expenses (5) $ 2.10 $ 1.75
----------- ------------
Amount of Trading Income Required for the
Partnership's Net Asset Value per Unit at
the End of One Year to Equal the Selling
Price per Unit $ 62.29 $ 61.94
----------- ------------
Percentage of Initial Selling Price per
Unit 6.23% 6.19%
----------- ------------
2
<PAGE>
Explanatory Notes
(1) Investors will purchase Units at the prevailing Net Asset Value per Unit.
Approximately 51,165 Units (including 498 General Partner Units) were sold
as of December 31, 1996. The Net Asset Value per Unit as of December 31,
1996 was $1,125.06.
(2) The Partnership earns interest income on 80% of the average daily equity
maintained in cash in the Partnership's accounts at a rate equal to the
average yield on the 30 day U.S. Treasury bills issued during each month.
For purposes of this analysis, the interest rate used was estimated at 3.76%
of the Partnership's Net Asset Value (assuming an estimated annual interest
rate of 4.7%).
(3) Brokerage fees were estimated at 6.94% (6% for brokerage fees and 0.94% for
other trading related expenses) of Net Asset Value. Based on an estimate of
the number of transactions generated by the Advisors in customer accounts in
1996, the fee that the Partnership pays is estimated to equal $52.00 per
round turn transaction,of which $45.00 is brokerage commissions and $7.00 is
other trading-related fees.
(4) The Partnership's Advisors are paid management fees ranging from 2% to 4%. A
blended rate of 2.67% of Net Assets was used for purposes of this analysis.
(5) Other operating expenses include periodic legal, accounting, filing,
reporting fees and expenses of the Continuous Offering. These expenses are
expected to amount to $150,000 or $175,000 assuming either 70,000 or 100,000
Units offered hereby are sold, respectively. Assuming 70,000 Units are sold
this estimate consists of (i) legal expenses of $50,000, (ii) accounting
expenses of $50,000 and (iii) other expenses (such as filing and reporting
fees) of $50,000. Assuming 100,000 Units are sold this estimate is comprised
of (i) legal expenses of $50,000, (ii) accounting expenses of $50,000 and
(iii) other expenses (such as filing and reporting fees) of $75,000.
The Advisors will also receive an incentive fee of 20%, or 15% in the case
of JWH. These amounts have not been included in the table above because they are
calculated based on Trading Profits after deducting all of the Partnership's
expenses.
Initial organizational and offering expenses have been paid in full.
CONFLICTS OF INTEREST
Control of Other Accounts by the Advisors. (page 25)
In addition, John W. Henry & Company, Inc. acts as advisor to Smith
Barney Principal Plus Futures Fund L.P. II. Shearson Lehman Futures 1000 Plus
L.P. has terminated trading.
One of the pools traded by Chesapeake Capital Corporation, ERISA
Futures Fund, L.P. changed its name to Smith Barney Global Markets Futures Fund
on July 1, 1996.
Millburn Ridgefield Corporation acts as advisor to SB/Michigan Futures
Fund L.P. and Smith Barney Great Lakes Futures Fund L.P.
3
<PAGE>
GENERAL PARTNER
Other Pools Operated by the General Partner (page 31)
The General Partner offers other pools whose performance may differ
from the Partnership's. Differences are due to combinations of different trading
advisors (and programs traded) as well as different partnership or
organizational structures. Tables 1, 2 and 3 below set forth the performance of
the other pools which have been operated by the General Partner during the past
five years. Table 1 sets forth the performance of commodity pools currently
operated by the General Partner for the period January 1992 through December
1996. Table 2 sets forth the performance of commodity pools which were
previously operated by the General Partner for the period January 1992 through
December 1996 and which have ceased trading operations as of the date of this
Supplement. Table 3 sets forth the performance of commodity pools previously
operated by the General Partner for the period January 1992 through December
1996 for which the General Partner no longer acts as the pool operator as of the
date of this Supplement.
Each of the funds has as its purpose to profit by speculation in
commodity interests. As of December 31, 1996, each fund operated by the General
Partner had a net asset value in excess of its initial offering amount.
4
<PAGE>
TABLE 1
CAPSULE PERFORMANCE OF OTHER POOLS CURRENTLY
OPERATED BY SMITH BARNEY FUTURES MANAGEMENT INC.
FOR THE PERIOD JANUARY 1992 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
====================================================================================================================================
Worst Monthly
Percent Draw Worst Peak-to-Valley
Current Down Draw Down
Inception Aggregate Total ---------------- -------------------------
Type of of Subscriptions NAV Percent Percent
Name of Pool Pool Trading $(000) $(000) (%) Date (%) Time Period
- ------------------------------------------------------------------------------------------================ =========================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shearson Select Advisors Futures Fund A Jul-87 50,507 6,140 13.69 Jan-92 30.07 Jan-92 to May-92
Hutton Investors Futures Fund II A Jul-87 30,304 19,153 15.16 Jan-92 27.03 Jan-92 to May-92
Shearson Hutton Performance Partners A Jun-89 16,541 2,372 8.02 Jul-94 24.12 Aug-93 to Jan-95
Sheason Mid West Futures Fund 1 Dec-91 60,804 62,075 11.24 Apr-92 26.53 Dec-91 to May-92
Smith Barney International Advisors Currency Fund A Mar-92 32,312 3,359 7.08 Nov-93 24.08* Oct-92 to Feb-96
- ------------------------------------------------------------------------------------------------------------------------------------
F-1000 Futures Fund Series VIII 2,A Aug-92 36,000 15,926 3.84 Feb-96 12.23 Sep-93 to Oct-94
F-1000 Futures Fund Series IX 2,A Mar-93 24,005 7,757 4.26 Feb-96 8.41 Jun-95 to Oct-95
Smith Barney Global Markets Futures Fund 1,A Aug-93 19,866 9,784 5.80 Dec-96 10.10 Aug-93 to Jan-95
(formerly Erisa Futures Fund)
Smith Barney Diversified Futures Fund A Jan-94 256,395 171,587 8.12 Feb-96 14.50 Jun-95 to Oct-95
F-1000 Futures Fund Michigan Series I 1,2,A May-94 10,697 12,599 5.86 Feb-96 8.80 Jun-95 to Oct-95
- ------------------------------------------------------------------------------------------------------------------------------------
Smith Barney Mid West Futures Fund II 1 Sep-94 63,334 68,452 6.19 Feb-96 12.35 Nov-94 to Jan-95
F-1000 Futures Fund Michigan Series II 1,2,A Jun-95 20,490 22,942 5.08 Feb-96 7.27 Feb-96 to May-96
Smith Barney Tidewater Futures Fund 1 Jul-95 13,001 11,769 7.86 Jul-96 10.63 Jul-95 to Oct-95
Smith Barney Principal Plus Futures Fund 2,A Nov-95 37,507 38,254 5.94 Feb-96 8.85 Feb-96 to Aug-96
Smith Barney Diversified Futures Fund II A Jan-96 50,209 55,298 8.57 Feb-96 9.51 Feb-96 to May-96
- ------------------------------------------------------------------------------------------------------------------------------------
SB/Michigan Futures Fund 1,A Jul-96 5,052 5,991 2.61 Jul-96 2.61 Jul-96 to Jul-96
Smith Barney Principal Plus Futures Fund II 2,A Aug-96 20,100 22,707 3.41 Aug-96 3.41 Aug-96 to Aug-96
Smith Barney Newport Futures Fund 1 Dec-96 4,316 4,633 n/a n/a n/a n/a to n/a
====================================================================================================================================
</TABLE>
TABLE 1
CAPSULE PERFORMANCE OF OTHER POOLS CURRENTLY
OPERATED BY SMITH BARNEY FUTURES MANAGEMENT INC.
FOR THE PERIOD JANUARY 1992 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
=======================================================================================================
Percentage Rate of Return
(Computed on a Compounded Monthly Basis)
----------------------------------------------------
Name of Pool 1992 1993 1994 1995 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sheason Select Advisors Futures Fund (10.47) 20.62 (13.96) 26.91 21.57
Hutton Investors Futures Fund II 1.28 29.40 (4.66) 41.78 29.11
Shearson Hutton Performance Partners 1.23 4.38 (10.59) 18.04 2.42
Shearson Mid West Futures Fund 4.91 39.88 (8.64) 36.24 26.76
Smith Barney International Advisors Currency Fund 16.93 0.95 (10.40) (5.04) 22.68
- -------------------------------------------------------------------------------------------------------
F-1000 Futures Fund Series VIII (2.34) 18.93 (10.41) 12.69 3.96
F-1000 Futures Fund Series IX - 3.91 (4.13) 12.89 3.51
Smith Barney Global Markets Futures Fund - (0.59) (7.19) 20.91 17.70
(formerly Erisa Futures Fund)
Smith Barney Diversified Futures Fund - - (3.29) 12.86 14.54
F-1000 Futures Fund Michigan Series I - - 1.38 14.25 2.79
- -------------------------------------------------------------------------------------------------------
Smith Barney Mid West Futures Fund II - - (7.54) 31.74 26.26
F-1000 Futures Fund Michigan Series II - - - 2.25 9.49
Smith Barney Tidewater Futures Fund - - - (1.25) 7.83
Smith Barney Principal Plus Futures Fund - - - 5.75 4.37
Smith Barney Diversified Futures Fund II - - - - 12.51
- -------------------------------------------------------------------------------------------------------
SB/Michigan Futures Fund - - - - 18.58
Smith Barney Principal Plus Futures Fund II - - - - 12.97
Smith Barney Newport Futures Fund - - - - 7.34
=======================================================================================================
</TABLE>
- ------------------------
Notes Follow Table 3
Type of Pool Legend
1-Privately Offered
2-Principal Protected
3-Multi-Advisor
A-More than one trading advisor but not a multi-advisor pool as that term is
defined in Part 4 of the regulations of the CFTC.
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
5
<PAGE>
Additional Information for Pools Currently Operated by the General Partner
as of December 31, 1996
Name of Pool Commencement Number of General General
of Trading Participants Partner Partner
Units Initial
Owned Investment
Select Advisors Futures Fund...... Jul-87 685 34 $507,000
Hutton Investors Futures Fund II.. Jul-87 429 44 $314,000
SLH Performance Partners ......... Jun-89 282 24 $166,000
Futures Fund
SLB Mid-West Futures Fund ........ Dec-91 746 322 $ 25,000
Smith Barney
International Advisors............ Mar-92 181 8,000 $144,760
Currency Fund
F-1000 Futures Fund .............. Aug-92 796 175 $384,000
Series VIII
F-1000 Futures Fund .............. Mar-93 604 103 $249,000
Series IX
Smith Barney Global .............. Aug-93 127 108 $ 75,000
Markets Futures Fund
Smith Barney Diversified ......... Jan-94 7,792 2,049 $781,000
Futures Fund
F-1000 Futures Fund .............. May-94 26 110 $110,000
Michigan Series I
Smith Barney Mid-West ............ Sep-94 804 453 $ 97,000
Futures Fund II
F-1000 Futures Fund .............. Jun-95 2 207 $207,000
Michigan Series II
Smith Barney Tidewater ........... Jul-95 175 118 $ 52,000
Futures Fund
Smith Barney Principal ........... Nov-95 1,759 376 $376,000
Plus Futures Fund
Smith Barney Diversified ......... Jan-96 2,299 498 $ 87,000
Futures Fund II
SB/Michigan Futures Fund ......... Jul-96 2 52 $ 52,000
Smith Barney Principal ........... Aug-96 1,377 203 $203,000
Plus Futures Fund II
Smith Barney Newport ............. Dec-96 86 44 $ 44,000
Futures Fund
IT SHOULD NOT BE ASSUMED THAT PARTICIPANTS IN THE PARTNERSHIP WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
FUNDS. THE RESULTS SET FORTH IN THE FOLLOWING TABLES ARE NOT INDICATIVE OF, AND
HAVE NO BEARING ON, ANY RESULTS THAT MAY BE OBTAINED BY THE PARTNERSHIP NOR ARE
THE PAST RESULTS OF SUCH FUNDS A GUARANTEE OF THE FUTURE PERFORMANCE OF THE
PARTNERSHIP. THIS IS DUE IN LARGE PART TO THE FACT THAT THE RESULTS CONTAINED IN
THESE TABLES DERIVE TO AN EXTENT FROM THE UNCERTAIN NATURE AND FUNCTION OF
COMMODITIES MARKETS AS WELL AS THE DIVERGENT TRADING STRATEGIES, POLICIES AND
METHODS OF THE ADVISORS DIRECTING VARIOUS FUNDS.
6
<PAGE>
TABLE 2
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY
OPERATED BY SMITH BARNEY FUTURES MANAGEMENT INC.
FOR THE PERIOD JANUARY 1992 THROUGH DECEMBER 31, 1996
AND WHICH HAVE CEASED TRADING OPERATIONS AS OF THE
DATE OF THIS DISCLOSURE DOCUMENT
<TABLE>
<CAPTION>
===================================================================================================================
Worst Monthly
Inception NAV Percent Draw-Down
Aggregate Before -----------------
Type of of Termination Subscriptions Termination Percent
Name of Pool Pool Trading Date $(000) $(000) (%) Date
- ---------------------------------------------------------------------------------------------------================
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Venture Fund Nov-80 Feb-95 15,153 1,412 14.04 Jan-92
Matterhorn Commodity Partners Jun-81 Mar-93 15,153 1,989 23.99 Jan-92
Commodity Strategy Partners Aug-82 Aug-91 17,794 1,750 14.32 Apr-91
Matterhorn Commodity Partners II Apr-84 Mar-93 10,653 2,453 24.72 Jan-92
Shearson Lehman Futures 1000 Fund 2 Jan-86 Feb-91 12,699 12,405 n/a n/a
- -------------------------------------------------------------------------------------------------------------------
Hutton Investors Futures Fund III A Apr-88 Dec-93 7,614 612 16.12 Jan-91
Hutton Investors Futures Fund A Jan-89 May-92 47,250 1,945 18.42 Jan-92
Ayco Futures Fund 1 May-88 Jul-94 5,114 161 29.35 Apr-94
F-1000 Guarantee Futures Fund II 2 Jun-88 Aug-93 101,012 33,053 3.45 Feb-92
F-1000 Guarantee Futures Fund III 2 Aug-88 Aug-93 55,824 10,955 3.39 Feb-92
- -------------------------------------------------------------------------------------------------------------------
Parnel Futures Fund 1 Nov-88 Oct-94 2,885 74 19.43 Feb-94
F-1000 Guarantee Futures Fund IV 2 Dec-88 Feb-94 45,692 16,389 5.93 Jan-94
Mid Atlantic Futures Fund 1 Jul-89 Mar-92 3,501 1,458 18.07 Oct-91
F-1000 Futures Fund V 2 Sep-89 Apr-92 87,546 8,253 7.92 Jan-91
F-1000 Futures Fund VI 2 May-90 May-95 32,996 21,805 9.25 Jan-92
- -------------------------------------------------------------------------------------------------------------------
Peregrine Futures Fund A Dec-91 Sep-95 9,767 432 16.21 Aug-93
Shearson Lehman Brothers Erisa Futures Fund 1,A Jan-92 Jun-93 14,026 15,244 3.10 Apr-92
Signet Partners 1,A Jan-93 Feb-95 522 191 11.97 Aug-93
Smith Barney Offshore Futures Fund 3,A Aug-93 Aug-94 2,704 1,945 6.50 Jan-94
Monetary Venture Fund 1 Feb-87 Apr-96 2,368 164 14.14 Jan-92
Shearson Lehman Futures 1000 Plus 2,A May-91 May-96 63,088 40,673 7.26 Jan-92
===================================================================================================================
</TABLE>
TABLE 2
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY
OPERATED BY SMITH BARNEY FUTURES MANAGEMENT INC.
FOR THE PERIOD JANUARY 1992 THROUGH DECEMBER 31, 1996
AND WHICH HAVE CEASED TRADING OPERATIONS AS OF THE
DATE OF THIS DISCLOSURE DOCUMENT
<TABLE>
<CAPTION>
============================================================================================================================
Worst Peak-to-Valley Percentage Rate of Return
Draw-Down (Computed on a Compounded Monthly Basis)
--------------------------- ---------------------------------------------------
Percent
Name of Pool (%) Time Period 1992 1993 1994 1995 1996
- -------------------------------------------===========================------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commodity Venture Fund 39.53* Jan-92 to Feb-95 (8.33) (2.16) (26.37) (8.44) -
Matterhorn Commodity Partners 45.23* Jul-89 to May-92 (31.81) 7.02 - - -
Commodity Strategy Partners 35.49* Jul-88 to Mar-90 - - - - -
Matterhorn Commodity Partners II 51.59* Jul-89 to May-92 (32.68) 5.19 - - -
Shearson Lehman Futures 1000 Fund n/a n/a to n/a - - - - -
- ----------------------------------------------------------------------------------------------------------------------------
Hutton Investors Futures Fund III 36.54* Feb-89 to Feb-91 (6.90) (5.56) - - -
Hutton Investors Futures Fund 45.25* Jul-89 to Apr-92 (30.73) - - - -
Ayco Futures Fund 78.99* Jul-89 to Apr-94 (31.08) (36.84) (45.77) - -
F-1000 Guarantee Futures Fund II 6.31 Jan-92 to Mar-92 (3.05) 4.79 - - -
F-1000 Guarantee Futures Fund III 6.34 Jan-92 to Mar-92 (3.46) 4.15 - - -
- ----------------------------------------------------------------------------------------------------------------------------
Parnel Futures Fund 38.09* Jan-94 to Apr-94 (8.32) 25.49 (28.79) - -
F-1000 Guarantee Futures Fund IV 9.49 Jan-92 to May-92 (2.86) 5.81 (7.22) - -
Mid Atlantic Futures Fund 27.34* Apr-91 to Nov-91 (8.17) - - - -
F-1000 Futures Fund V 13.05* Sep-89 to Jan-91 (1.15) - - - -
F-1000 Futures Fund VI 17.16 Jan-92 to May-92 1.35 22.03 (2.43) 18.61 -
- ----------------------------------------------------------------------------------------------------------------------------
Peregrine Futures Fund 32.42* Jul-93 to Nov-93 (5.19) (20.56) 5.91 (3.05) -
Shearson Lehman Brothers Erisa Futures Fund 6.01 Jan-92 to Apr-92 18.42 12.68 - - -
Signet Partners 11.97 Aug-93 to Aug-93 - 29.21 53.32 (0.36) -
Smith Barney Offshore Futures Fund 6.50 Jan-94 to Jan-94 - 2.22 2.68 - -
Monetary Venture Fund 37.41* Jan-92 to Jan-95 (8.02) (3.18) (27.47) 32.05 5.76
Shearson Lehman Futures 1000 Plus 11.77 Jan-92 to May-92 1.99 10.82 (6.41) 12.79 1.59
============================================================================================================================
</TABLE>
- -------------------------
Notes Follow Table 3
Type of Pool Legend
1-Privately Offered
2-Principal Protected
3-Offshore
4-Multi-Advisor
A-More than one trading advisor but not a multi-advisor pool as that term is
defined in Part 4 of the regulations of the CFTC.
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
7
<PAGE>
TABLE 3
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY
OPERATED BY SMITH BARNEY FUTURES MANAGEMENT INC.
FOR THE PERIOD JANUARY 1992 THROUGH DECEMBER 31, 1996
AND WHICH SMITH BARNEY FUTURES MANAGEMENT INC.
NO LONGER ACTS AS COMMODITY POOL OPERATOR
AS OF THE DATE OF THIS DISCLOSURE DOCUMENT
<TABLE>
<CAPTION>
====================================================================================================================================
Worst Monthly Worst Peak-to-Valley
NAV Percent Draw-Down Draw-Down
Inception Aggregate Before --------------------------------------------
Type of of Transfer Subscriptions Transfer Percent Percent
Name of Pool Pool Trading Date $(000) $(000) (%) Date (%) Time Period
- ----------------------------------------------------------------------------------------============================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commodity Trend Timing Fund Jan-80 May-95 16,625 1,275 14.67 Feb-94 54.35* Aug-93 to Feb-95
Commodity Trend Timing Fund II Dec-82 Apr-95 34,428 1,412 14.48 Feb-94 54.67* Aug-93 to Feb-95
FT Tryon Futures Fund 1,A May-87 Jun-91 49,513 24,455 2.84 Jan-91 4.08 Jan-91 to Feb-91
Overlook Performance Fund 3,A Aug-88 May-91 252,706 86,921 1.16 Apr-91 1.16 Apr-91 to Apr-91
Shearson Lehman Hutton Guarantee
Futures Fund I 2,3 Apr-89 Jul-93 10,202 1,562 5.49 Feb-92 10.57 Jan-92 to Mar-92
- ------------------------------------------------------------------------------------------------------------------------------------
FT Tryon Futures Fund II 1,A Aug-90 May-91 60,391 58,726 2.71 Jan-91 4.05* Jan-91 to Feb-91
Premier Futures Limited 3,A Jun-91 Jul-93 9,878 6,157 7.74 Jan-92 14.60 Jan-92 to May-92
Lehman Brothers Japan Futures Fund 3,A Feb-91 Jul-93 53,007 72,267 7.43 Jan-92 11.28 Jan-92 to Apr-92
New Millennium Futures Fund Limited 3 Mar-91 Jul-93 10,366 1,210 6.93 Apr-91 26.94* Apr-91 to Mar-93
Delafund 3 Jan-93 Jul-93 2,521 1,542 15.35 May-93 22.20* May-93 to Jul-93
- ------------------------------------------------------------------------------------------------------------------------------------
Harbourer Futures Fund 3 May-93 Dec-94 25,003 12,657 5.10 Feb-94 5.10 Feb-94 to Feb-94
Greenbrier Futures Fund 1 Jul-92 Dec-96 24,678 26,716 10.23 Aug-94 15.48 Aug-94 to Jun-95
====================================================================================================================================
</TABLE>
TABLE 3
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY
OPERATED BY SMITH BARNEY FUTURES MANAGEMENT INC.
FOR THE PERIOD JANUARY 1992 THROUGH DECEMBER 31, 1996
AND WHICH SMITH BARNEY FUTURES MANAGEMENT INC.
NO LONGER ACTS AS COMMODITY POOL OPERATOR
AS OF THE DATE OF THIS DISCLOSURE DOCUMENT
<TABLE>
<CAPTION>
=================================================================================================
Percentage Rate of Return
(Computed on a Compounded Monthly Basis)
Name of Pool 1992 1993 1994 1995 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commodity Trend Timing Fund (14.52) 17.23 (50.55) (5.08) -
Commodity Trend Timing Fund II (15.03) 16.74 (50.43) (6.86) -
FT Tryon Futures Fund - - - - -
Overlook Performance Fund - - - - -
Shearson Lehman Hutton Guarantee
Futures Fund I (4.23) 11.10 - - -
- -------------------------------------------------------------------------------------------------
FT Tryon Futures Fund II - - - - -
Premier Futures Limited (4.75) 29.84 - - -
Lehman Brothers Japan Futures Fund 2.88 14.46 - - -
New Millennium Futures Fund Limited (9.76) 9.08 - - -
Delafund - (18.12) - - -
- -------------------------------------------------------------------------------------------------
Harbourer Futures Fund - 42.95 39.20 - -
Greenbrier Futures Fund 8.64 33.45 16.74 (1.09) 17.60
=================================================================================================
</TABLE>
- -----------------------
Notes Follow Table
Type of Pool Legend
1-Privately Offered
2-Principal Protected
3-Offshore
4-Multi-Advisor
A-More than one trading advisor but not a multi-advisor pool as that term is
defined in Part 4 of the regulations of the CFTC.
================================================================================
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
8
<PAGE>
NOTES TO TABLES 1, 2 AND 3 AND THE PARTNERSHIP'S TABLE
POOLS OPERATED BY SMITH BARNEY FUTURES MANAGEMENT INC.
(a) "Draw-Down" is defined as losses experienced by a pool over a
specified period of time.
(b) "Largest Monthly Draw-Down" is the largest monthly loss experienced by
the pool in any calendar month expressed as a percentage of the total equity in
the pool and includes the month and year of such draw-down.
(c) "Largest Peak-to-Valley Draw-Down" is the greatest cumulative
percentage decline in month end net asset value (regardless of whether it is
continuous) due to losses sustained by the pool during a period in which the
initial month-end net asset value of such draw-down has not been equal to or
greater than any subsequent month's ending net asset value and indicates the
months and year(s) of such decline from the initial month-end net asset value to
the lowest month-end net asset value of such decline. In the case where the pool
is in a current draw-down, or was in a current draw-down at the termination or
transfer date, the month of the lowest net asset value of such draw-down is
disclosed followed by an asterisk (*).
For purposes of the Largest Peak-to-Valley Draw-Down calculation, any
peak-to-valley draw-down which began prior to the beginning of the five most
recent calendar year period is deemed to have occurred during such five calendar
year period.
(d) "Annual (Year to Date) Rate of Return" is calculated by compounding
the Monthly ROR (as described below) over the months in a given year, i.e., each
Monthly ROR similarly expressed. One is then subtracted from the product and the
result is multiplied by one hundred (100).
Monthly rate of return ("Monthly ROR") is calculated by dividing each
month's net performance by the corresponding beginning net asset value adjusted
for time-weighed additions or time-weighted withdrawals.
9
<PAGE>
The Advisors (Page 37)
Except as noted below there has been no administrative, civil or
criminal action during the preceding five years or ever, either threatened,
pending or completed against any Advisor or its principals that would be
material to an investor's decision whether or not to purchase Units.
As of December 31, 1996, the aggregate funds under management by the
Advisors were $3.3 billion (excluding notional funds) and 3.5 billion (including
notional funds).
Chesapeake Capital Corporation (page 38)
Past Performance
Table A represents the composite performance record of Chesapeake's
Diversified Trading Program for the period January
1992 through December 1996.
Table A-1 represents the composite performance record of Chesapeake's
Financial and Metals Program for the period March 1992 through December 1996.
Table A-2 represents the composite capsule performance record of all
other trading programs directed by Chesapeake for the time periods indicated.
Mr. Parker traded proprietary funds prior to forming Chesapeake and
Chesapeake also trades proprietary funds. The records of such trading are not
included herein.
The information presented in the following records has not been
audited. However, Chesapeake believes that such information is accurate and
fairly presented.
NO REPRESENTATION IS MADE THAT THE PARTNERSHIP WILL OR IS LIKELY TO
ACHIEVE RESULTS SIMILAR TO THOSE SHOWN OR TO AVOID SUBSTANTIAL LOSSES.
FURTHERMORE, THE RATES OR RETURN EARNED WHEN AN ADVISOR IS MANAGING A LIMITED
AMOUNT OF EQUITY MAY BEAR LITTLE RELATIONSHIP TO THOSE WHICH SUCH ADVISOR IS
ABLE TO ACHIEVE MANAGING LARGER AMOUNTS OF EQUITY.
THE FOLLOWING FIGURES HAVE NOT BEEN ADJUSTED TO REFLECT THE CHARGES
PAYABLE BY THE PARTNERSHIP.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
10
<PAGE>
Table A
Chesapeake Capital Corporation
Diversified Trading Program
January 1992 Through December 31, 1996
<TABLE>
<CAPTION>
==========================================================================================
Percentage monthly rate of return
(computed on a compounded monthly basis)
- ------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------
January...........................................1.69.....(3.23)..(3.33)...0.42...(10.98)
February.........................................(4.26)....(4.39)..(4.88)..15.99....(2.86)
March.............................................0.28......8.60....0.09....5.86.....0.53
April............................................10.16......1.45...(0.60)...7.38....(0.44)
May..............................................(3.04).....6.84....9.06....0.40....(3.66)
June..............................................3.27......0.88....7.02....0.98.....6.52
July.............................................(7.64)....(3.09)..(1.70)...9.49....12.96
August............................................0.57.....(2.66)..(2.98)...5.88.....3.16
September.........................................6.47......0.20....3.49...(2.63)...(6.78)
October...........................................5.92.....(1.11)...1.97...(0.06)....5.21
November..........................................6.57......1.76....4.83....1.03.....2.27
December.........................................(4.30).....9.18....2.86....5.77....(1.93)
Annual (or Period) Rate of Return................15.05%....14.09%..15.87%..61.82%....1.81%
Compound Average Annual Rate of Return (1/1/92-12/31/96) 20.17%
- ------------------------------------------------------------------------------------------
Inception of Trading by CTA: February 1988
Inception of Trading in Program: February 1988
Number of Open Accounts as of December 31, 1996: 56
Aggregate Assets (Excluding "Notional" Equity) in all Programs: $871,569,690 (12/96)
Aggregate Assets (Including "Notional" Equity) in all Programs: $1,021,447,353 (12/96)
Aggregate Assets (Excluding "Notional" Equity) in Program: $821,703,939 (12/96)
Aggregate Assets (Including "Notional" Equity) in Program: $971,581,602 (12/96)
Largest Monthly Draw-Down 10.98% (1/92)
Largest Peak-to-Valley Draw-Down 16.62% (1/92-5/92)
===========================================================================================
</TABLE>
- ----------------------
Notes follow Table A-2
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
11
<PAGE>
Table A-1
Chesapeake Capital Corporation
Financials & Metals Program
March 1992 Through December 31, 1996
<TABLE>
<CAPTION>
================================================================================
Percentage monthly rate of return (computed on a compounded monthly basis)
- --------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
January............................2.65.....(1.09)....(4.99).....1.76.........-
February..........................(4.72)....(4.49)....(5.65)....12.93.........-
March..............................0.40......9.58......1.44......1.62.....(0.19)
April..............................4.67......1.41......0.33......8.96......2.77
May...............................(2.70).....6.90......4.59......1.77......1.13
June...............................3.17.....(1.11).....3.32......1.49......4.88
July..............................(7.83)....(1.81)....(4.23)....11.06......8.60
August.............................1.41.....(1.31)....(1.74).....8.70......3.95
September..........................6.72.....(0.38).....1.73.....(0.89)....(4.93)
October............................4.97.....(1.70).....4.18......2.08......5.33
November...........................8.04......1.47......3.29......0.69......2.08
December..........................(5.46).....5.39......1.62......4.27.....(1.08)
Annual (or Period)
Rate of Return....................10.35%....12.61%.....3.22%....68.53%....24.19%
- --------------------------------------------------------------------------------
Compound Average Annual Rate of Return (3/92-12/31/96) 22.67%
- --------------------------------------------------------------------------------
Inception of Trading by CTA: February 1988
Inception of Trading in Program: March 1992
Number of Open Accounts as of December 31, 1996: 2
Aggregate Assets (Excluding "Notional" Equity) in all Programs: $871,569,690 (12/96)
Aggregate Assets (Including "Notional" Equity) in all Programs: $1,021,447,353 (12/96)
Aggregate Assets (Excluding "Notional" Equity) in Program: $28,315,943 (12/96)
Aggregate Assets (Including "Notional" Equity) in Program: $28,315,943 (12/96)
Largest Monthly Draw-Down: 7.83% (7/96)
Largest Peak-to-Valley Draw-Down: 10.36% (1/94-2/94)
================================================================================
</TABLE>
- -------------------
Notes follow Table A-2
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
12
<PAGE>
Table A-2
Other Trading Programs Directed by Chesapeake Capital Corporation
For the Period June 1992 Through December 31, 1996
<TABLE>
<CAPTION>
=============================================================================================================================
Inception Number Aggregate Assets Aggregate Assets Largest
of of in Program in Program Largest Peak-to-
Trading Open December 31, 1996 December 31, 1996 Monthly Valley
Name of Program Program Accounts (Excluding Notional)(Including Notional) Draw-Down Draw-Down
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Diversified 2XL Program Apr-94 4 $21,549,808 $21,549,808 16.40% (7/96) 17.59% (5/96-7/96)
Pacific Rim Program Jun-94 N/A-Closed N/A-Closed N/A-Closed 3.30% (7/95) 3.30% (7/95-7/95*)
Foreign Financials Program Jun-92 N/A-Closed N/A-Closed N/A-Closed 5.77% (9/92) 5.77% (9/92-9/92)
=============================================================================================================================
</TABLE>
Table A-2
Other Trading Programs Directed by Chesapeake Capital Corporation
For the Period June 1992 Through December 31, 1996
<TABLE>
<CAPTION>
================================================================================
Percentage Rate of Return
(Computed on a Compounded Monthly Basis)
Name of Program 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Diversified 2XL Program 18.18 18.77 26.88 - -
(12 Months) (9 Months)
Pacific Rim Program - 37.04 (2.76) - -
(8 Months) (7 Months)
Foreign Financials Program - - (1.77) 21.90 21.42
(6 Months) (7 Months)
================================================================================
</TABLE>
- ------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
13
<PAGE>
CHESAPEAKE CAPITAL CORPORATION
NOTES TO PERFORMANCE SUMMARY
Notes to Tables A, A-1 and A-2
In the accompanying performance summary, Chesapeake has adopted a new
method of computing rate of return and performance disclosure, referred to as
the "Fully-Funded Subset" method, pursuant to an Advisory (the "Fully Funded
Subset Advisory") published by the Commodity Futures Trading Commission. The
Fully Funded Subset refers to that subset of accounts included in the applicable
composite which are funded entirely by actual funds (as defined in the
Advisory).
To qualify for the use of the Fully-Funded Subset method, the Fully
Funded Subset Advisory requires that certain computations be made in order to
arrive at the Fully-Funded Subset and that the accounts for which performance is
so reported meets two tests which are designed to provide assurance that the
Fully-Funded Subset and the resultant rates of return are representative of the
trading program. Chesapeake has performed these tests for periods subsequent to
January 1, 1992. However, for periods prior to January 1, 1992, due to cost
considerations, the Fully-Funded Subset method has not been used. Instead, the
rates of return reported are based on a computation which uses the Nominal
Account Sizes of all of the accounts included in composites calculated in
accordance with the Only Accounts Traded method ("OAT"). Chesapeake believes
that this method yields substantially the same rates of return as would the
Fully-Funded Subset method and that the rates of return as presented herein are
representative of the Trading Programs for the periods presented.
For the periods from January 1, 1992 through December 31, 1993,
Chesapeake compared the OAT method and the Fully Funded Subset method and found
that the two methods yielded substantially the same rates of return.
Consequently, Chesapeake continued to use the OAT method until the end of 1993.
From January 1, 1994 through the period covered by the summary, Chesapeake used
the Fully-Funded Subset method.
(a) "Draw-Down" is defined as losses experienced by a
program over a specified period of time.
(b) "Largest Monthly Draw-Down" is the largest monthly loss
experienced by the program on a composite basis in any calendar month expressed
as a percentage of the total equity (including notional equity) in the program
and includes the month and year of such draw-down. A small number of accounts
managed by Chesapeake have experienced monthly draw-downs which are materially
larger than the largest composite monthly draw-down. These variances result from
such factors as small account size, intra-month account opening or closing,
significant intra-month additions or withdrawals and investment restrictions
imposed by the client. Small account size refers to accounts of $1,000,000
trading level or less, which is substantially below the minimum account size now
required by Chesapeake for new accounts.
(c) "Largest Peak-to-Valley Draw-Down" is the largest calendar month
to calendar month loss experienced by the program on a composite basis
(regardless of whether it is continuous) expressed as a percentage of total
equity (including notional equity) in the program and includes the
14
<PAGE>
month(s) and year(s) in which it occurred. For example, a largest peak-to-valley
draw-down of (16.62%) (1/92-5/92) means that the peak-to-valley draw-down lasted
from January 1992 to May 1992 and resulted in a 16.62% draw-down. A small number
of accounts managed by Chesapeake have experienced peak-to-valley draw-downs
which are materially larger than the largest composite peak-to-valley draw-down.
These variances result from such factors as small account size, intra-month
account opening or closing, significant intra-month additions or withdrawals and
investment restrictions imposed by the client.
For purposes of the Largest Peak-to-Valley draw-down calculation, any
draw-down which began prior to the beginning of the five most recent calendar
year period is deemed to have occurred during such five calendar year period.
(d) "Annual (or Period) Rate of Return" is calculated by compounding
the Monthly ROR (as described below) over the months in a given year, i. e.,
each Monthly ROR, in hundredths, is added to one (1) and the result is
multiplied by the subsequent Monthly ROR similarly expressed. One is then
subtracted from the product and the result is multiplied by one hundred (100).
The Compound Average Annual Rate of Return is similarly calculated except that
before subtracting one (1) from the product, the product is exponentially
changed by the factor of one (1) divided by the number of years in the
performance summary and then one (1) is subtracted. The Compound Average Annual
Rate of Return appears on Tables A and A-1.
Monthly rate of return ("Monthly ROR") for each month beginning
January 1994 is calculated by dividing net performance of the Fully-Funded
Subset by the beginning equity of the Fully Funded Subset except in periods of
significant additions or withdrawals to the accounts in the Fully-Funded Subset.
In such instances, the Fully Funded Subset is adjusted to exclude accounts with
significant additions or withdrawals which would materially distort the rate of
return pursuant to the Fully Funded Subset method.
Monthly ROR for each period prior to January 1992 is calculated using
the OAT method, which is net performance divided by beginning equity subject to
certain adjustments. In this calculation, accounts are excluded from both net
performance and beginning equity if their inclusion would materially distort the
Monthly ROR. The excluded accounts include (1) accounts for which there has been
a material addition or withdrawal during the month, (2) accounts which were open
for only part of the month or (3) accounts which had no open positions during
the month due to the intention of permanently closing the account. Such accounts
were not charged with material nonrecurring costs during the month.
Monthly ROR for the months January 1992 through December 1993 was
calculated using both the Fully-Funded Subset and the Only Accounts Traded
methods of computation, as described above. No material differences were noted
between the Monthly ROR computed using each method.
Beginning in March 1995 in the Diversified Program, the mean Compound
Rate of Return is materially lower than the composite Compound Rate of Return.
This is due to the monthly compounding effect of a large account with a rate of
return which is, on a monthly basis, immaterially higher than most accounts in
the program. This difference in the monthly rate of
15
<PAGE>
return is due to a different cost and interest income structure in this account.
When compared on a gross return basis, most accounts in the Diversified Program,
including the large account, have rates of return which are materially the same
during the period.
In the Financials and Metals Program, certain accounts with
client-imposed trading restrictions earned different rates of return than the
composite indicates. In any month, these restrictions did not have a material
impact on the monthly rate of return. However, due to the compounding effect of
these differences, the Compound Rate of Return is materially different than the
composite Compound Rate of Return for the accounts with no client-imposed
trading restrictions.
16
<PAGE>
John W. Henry & Company, Inc.
Principals (page 48)
Mr. John W. Henry is also a member of the Investment Policy Committee
of JWH.
Mr. Mark H. Mitchell is vice chairman, general counsel and a member of
the JWH Board of Directors. He is also vice chairman and a director of JWH Asset
Management, Inc. and JWH Financial Products, Inc.
Mr. David R. Bailin is also president of JWH Risk Management, Inc.;
president and director of Westport Capital Management Corporation; and president
and chairman of the Board of Directors of Global Capital Management Limited.
Mr. Peter F. Karpen is no longer a principal of JWH.
Mr. James E. Johnson, Jr. is also a principal of JWH Asset Management,
Inc. and JWH Financial Products, Inc.
Ms. Elizabeth A.M. Kenton is also the Vice President of JWH Asset
Management, Inc.
Ms. Mary Elizabeth Hardy is now Senior Vice President, the Director of
Trading Administration and a member of the Investment Policy Committee of JWH.
Ms. Hardy also serves on the executive committee of the board of directors of
the Managed Futures Association and formerly chaired its Trading and Markets
Committee.
Mr. David M. Kozak is also Secretary of JWH Asset Management, Inc.,
JWH Financial Products, Inc. and assistant secretary of Westport Capital
Management Corporation.
Mr. Kevin S. Koshi is also a member of the Investment Policy Committee
of JWH.
Mr. Barry S. Fox is also a member of the Investment Policy Committee
of JWH.
Ms. Glenda G. Twist announced her resignation from JWH on January 15,
1997 but will continue in her present capacity for the time being.
Mr. John A.F. Ford, age 56, is the Director of Marketing at JWH and is
responsible for the development and implementation of strategic marketing and
communications programs. He joined JWH in May 1996 from J.P. Morgan & Co., Inc.
where he had been vice president and head of corporate communications for the
firm's European operations, responsible for public relations, advertising, and
marketing from February 1994 to October 1995. He previously held a in similar
position with J.P. Morgan & Co., Inc. at the Euroclear Operations Centre in
Brussels from January 1992 to February 1994. From October 1995 to May 1996 he
undertook a number of consultancy projects while relocating to the United
States. Prior to joining J.P. Morgan, Mr. Ford was managing director of the
European headquarters of Gavin Anderson & Co. (UK), an international corporate
and investor relations consultancy firm, from
17
<PAGE>
February 1987 to December 1991. Mr. Ford has also been involved in advising the
Chicago Mercantile Exchange on marketing its services to European institutions
and advising the International Petroleum Exchange in London on similar issues.
He also helped market Mercury Asset Management to major institutions and pension
funds.
Mr. Edwin B. Twist is also a Director of JWH Risk Management, Inc.,
JWH Asset Management, Inc. and JWH Financial Products, Inc.
Ms. Nancy O. Fox is now director of investment support of JWH. She
received an MBA from the University of Connecticut.
Ms. Wendy B. Goodyear, age 34, is the director of the office of the
chairman. She is responsible for managing and coordinating projects involving
Mr. Henry. Ms. Goodyear joined JWH in October 1995 as director of marketing,
responsible for the development and implementation of strategic marketing and
communications programs. Prior to her employment at JWH, Ms. Goodyear was a vice
president at Citibank where she held several positions, including project
development manager for the depository receipt business and marketing manager
for the pension business. Prior to joining Citibank in May 1993, Ms. Goodyear
was employed at Bankers Trust Company from 1985 where she held positions of
increasing responsibility in both the private bank and pension business. Ms.
Goodyear received a B.A. in History from the University of Virginia and an
M.B.A. from the Stern School of Business at New York University.
Mr. Julius A. Staniewicz, age 38, is the senior strategist in JWH's
Product Development Department. He is also President of JWH Asset Management,
Inc. and JWH Financial Products, Inc. Prior to joining JWH in March of 1992, Mr.
Staniewicz was employed with Shearson Lehman Brothers as a financial consultant
since April 1991. Prior to that, beginning in 1990, Mr. Staniewicz was a vice
present of Phoenix Asset Management, a commodity pool operator and introducing
broker, where he helped develop futures funds for syndication and institutional
investors. From 1986 to 1989, Mr. Staniewicz worked in the managed futures
department at Prudential-Bache Securities, Inc., lastly as an assistant vice
president and co-director of managed futures. In that capacity, he oversaw all
aspects of forming and offering futures funds, including the selection and
monitoring of commodity trading advisors. Mr. Staniewicz received a B.A. in
Economics from Cornell University.
Investment Policy Committee
The Investment Policy Committee (the "IPC") is one vehicle for
decision-making at JWH about the content and application of JWH investment
programs. Composition of the IPC, and participation in its discussions and
decisions by non-members, may vary over time. The IPC is an interdepartmental
advisory body which meets periodically to discuss issues relating to the JWH
trading programs and their application to markets, including research on markets
and strategies in relation to the proprietary trading models employed by JWH.
JWH's proprietary research group may determine new markets which should be
traded in given portfolios, or determine markets which should be removed from
given portfolios. Non-proprietary recommendations from research are then
presented to and discussed by the IPC, which may recommend them to the chairman
for approval. Proprietary research findings are reviewed
18
<PAGE>
directly by the chairman before implementation. All recommendations of the IPC
are subject to final approval by the chairman. The IPC does not make particular
trading decisions. The trading department initiates and liquidates positions and
manages JWH portfolios in accordance with the firm's proprietary trading
methodology, which is not overruled unless the chief trader or director of
trading administration determines that doing so is in the best interest of
clients. No trade indications are overruled without the express approval of the
chairman. The chairman may also notify the trading department at any time of
special situations which he deems may require a modification in applying the
methodology.
Legal and Ethical Concerns
There have been no administrative, civil or criminal actions pending,
on appeal or concluded against the Advisor or any of its individual principals
within the past five years, except as noted below.
In September, 1996, JWH was named as a co-defendant in class action
lawsuits brought in the California Superior Court, Los Angeles County and in the
New York Supreme Court, New York County. In November, 1996, JWH was named as a
co-defendant in a similar lawsuit filed in the Delaware Superior Court,
Newcastle County that contained the same allegations as the California and New
York complaints. The actions, which seek unspecified damages, purport to be
brought on behalf of investors in certain Dean Witter, Discover & Co. commodity
pools, some of which are advised by JWH, and are primarily directed at Dean
Witter's alleged fraudulent selling practices in connection with the marketing
of those pools. JWH is essentially alleged to have aided and abetted or directly
participated with Dean Witter in those practices. JWH believes the allegations
against it are without merit; it intends to contest these allegations vigorously
and is convinced that it will be shown to have acted properly and in the best
interest of investors.
JWH and Mr. Henry may engage in discretionary trading for their own
accounts, and may trade for the purpose of testing new investment programs and
concepts, as long as such trading does not amount to a breach of fiduciary duty.
In the course of such trading, JWH and Mr. Henry may take positions in their own
accounts which are the same as or opposite to client positions due to testing a
new quantitative model or program, a neutral allocation system, and/or trading
pursuant to individual discretionary methods. On occasion, orders for such
accounts may receive better fills than client accounts. Records for these
accounts will not be made available to clients. Employees and principals of JWH
(other than Mr. Henry) are not permitted to trade on a discretionary basis in
futures, options on futures or forward contracts. However, such principals and
employees may invest in investment vehicles which trade futures, options on
futures, or forward contracts, when an independent trader manages trading in
such vehicles, or through the JWH Employee Fund, L.P., for which JWH is the
trading advisor. The records of these accounts also will not be made available
to clients.
Trading Techniques (page 51)
JWH's systematic investment process is designed to generate, over market
cycles, favorable risk-adjusted rates of return under a variety of market
conditions. The JWH process
19
<PAGE>
attempts to capitalize on emerging, long-term, rising and falling price trends
and to ignore day-to-day price fluctuations. To ensure disciplined
implementation of its investment philosophy, JWH uses mathematical models to
execute investment decisions in more than 50 global markets encompassing
currencies commodities and financial securities. All JWH investment programs
follow the strict money management framework outlined below.
The first step in the JWH investment process is the identification of
a price trend. While there are many ways to identify trends, JWH uses a
methodology which identifies opportunities in order to attempt to capture a
majority of the significant price movements in a given market. The process
presumes that such price movements will often exceed the expectation of the
general marketplace. As such, the JWH discipline is to pare losing positions
relatively quickly while allowing profitable positions to mature. Positions held
for two to four months are not unusual, and positions have been held for more
than one year. Historically, only thirty to forty percent of all trades made
pursuant to the investment methods have been profitable. Large profits on a few
trades in positions that typically exist for several months have produced
favorable overall results. Generally, most losing positions are liquidated
within weeks. The greatest cumulative percentage decline in daily net asset
value JWH has experienced in any single program was nearly sixty percent.
Investors should understand that similar or greater draw-downs are possible in
the future.
JWH at its sole discretion may override computer-generated trading
signals, and may at times use discretion in the application of its quantitative
models which may affect performance positively or negatively. Subjective aspects
of JWH's quantitative models also include the determination of leverage,
commencement of trading an account, contracts and contract month traded, margin
utilization, and effective trade execution.
No assurance is given that JWH will be able to achieve the objectives
described above in connection with its trading techniques.
Other JWH Programs (page 53)
InterRate(TM) and the Delevered Yen Denominated Financial and Metals
Profile ceased trading client accounts in July 1996 and December 1996,
respectively.
Past Performance
Table A sets forth the composite performance capsule results of all
accounts traded according to the Global Diversified Portfolio of JWH for the
period January 1992 through December 31, 1996.
Table A-1 reflects the composite capsule performance results of all
accounts traded according to the Original Investment Program of JWH for the
period January 1992 through December 31, 1996.
Table A-2 reflects the composite capsule performance results of all
other trading programs directed by JWH during the periods indicated by the
table.
20
<PAGE>
Table A-3 reflects the composite capsule performance results of all
trading programs directed by JWH Investments, Inc. ("JWHII"), an affiliate of
JWH, which was registered as a commodity trading advisor and an investment
adviser during the periods indicated by the table. JWHII has ceased operations.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
21
<PAGE>
Table A
John W. Henry & Company, Inc.
Global Diversified Portfolio
January 1, 1992 Through December 31, 1996
<TABLE>
<CAPTION>
============================================================================================
Percentage monthly rate of return (computed on a compounded monthly basis)
- --------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
January.............................................(1.3).....(6.9)...(2.6)....1.7....(12.3)
February............................................(9.8).....13.5....(0.8)...16.6....(15.2)
March................................................1.3.......8.5.....4.0.....2.9......1.1
April................................................7.1.......7.3.....0.9.....6.6.....(3.9)
May.................................................(9.1)......1.2.....7.9.....1.5.....(1.9)
June.................................................1.7......(1.7)...10.8.....1.0......6.5
July.................................................2.2......(8.9)...(2.6)...14.3.....17.4
August...............................................4.5......(5.0)...(6.4)...(0.0).....6.1
September............................................7.6......(5.1)....2.1....(4.2)....(5.3)
October.............................................14.6......(2.2)...(3.6)....0.1.....(1.6)
November.............................................9.1.......5.9.....5.6.....3.1.....(0.2)
December............................................(1.0).....14.9....(4.1)....6.1.....(0.1)
Annual (or Period) Rate of Return...................26.9%.....19.6%...10.1%...59.8%...-12.6%
- --------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/92-12/31/96) 18.5%
- --------------------------------------------------------------------------------------------
Inception of Client Account Trading by CTA: October 1982
Inception of Client Account Trading in Program: June 1988
Number of Open Accounts as of December 31, 1996: 14
Aggregate Assets (Excluding "Notional" Equity) in all Programs: $1,894,000,000 (12/96)
Aggregate Assets (Including "Notional" Equity) in all Programs: $1,919,000,000 (12/96)
Aggregate Assets (Excluding "Notional" Equity) in Program: $149,935,156 (12/96)
Aggregate Assets (Including "Notional" Equity) in Program: $161,765,331 (12/96)
Largest Monthly Draw-Down 20.3% (7/91)
Largest Peak-to-Valley Draw-Down 33.2% (12/91-5/92)
=============================================================================================
</TABLE>
- ---------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
22
<PAGE>
Table A-1
John W. Henry & Company, Inc.
Original Investment Program
January 1, 1992 Through December 31, 1996
<TABLE>
<CAPTION>
================================================================================================
Percentage monthly rate of return
(computed on a compounded monthly basis)
- ------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
January..................................................5.3.......2.2.....(2.9)...(0.8)...(6.1)
February................................................(7.4).....17.9......1.5.....9.5....(8.8)
March....................................................1.0......16.6......4.4....(3.5)....0.7
April....................................................3.8.......9.1......0.2....10.4....(0.8)
May.....................................................(6.5).....(4.4).....5.5.....0.1....(4.5)
June.....................................................8.0.......1.7......6.6....(4.1)....8.3
July....................................................(4.4).....(0.0)....(7.1)...14.9.....9.1
August..................................................(2.3).....(3.9)....(4.7)...(3.6)....9.1
September................................................8.2......(3.9)....(2.8)....0.6....(2.7)
October.................................................10.4.......3.3....(14.1)...(1.5)....2.2
November.................................................5.2.......1.1.....10.2.....3.5.....3.6
December.................................................1.1.......6.8.....(0.0)...11.4.....2.2
Annual (or Period) Rate of Return.......................22.6%.....53.2%....-5.7%...40.6%...10.9%
- ------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/92-12/31/96) 22.5%
- ------------------------------------------------------------------------------------------------
Inception of Client Account Trading by CTA: October 1982
Inception of Client Account Trading in Program: October 1982
Number of Open Accounts as of December 31, 1996: 27
Aggregate Assets (Excluding "Notional" Equity) in all Programs: $1,894,000,000 (12/96)
Aggregate Assets (Including "Notional" Equity) in all Programs: $1,919,000,000 (12/96)
Aggregate Assets (Excluding "Notional" Equity) in Program: $223,914,157 (12/96)
Aggregate Assets (Including "Notional" Equity) in Program: $236,557,401 (12/96)
Largest Monthly Draw-Down 18.1% (2/92)
Largest Peak-to-Valley Draw-Down 62.1% (6/88-5/92)
=================================================================================================
</TABLE>
- ---------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
23
<PAGE>
Table A-2
Other Trading Programs Directed by JWH
For the Period January 1992 Through December 31, 1996
<TABLE>
<CAPTION>
====================================================================================================================================
Inception Number Largest
of Client of Aggregate Assets Largest Peak-to-
Trading in Open in Program Monthly Valley
Name of Program Program Accounts December 31, 1996 Draw-Down Draw-Down
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial and Metals Portfolio Oct-84 44 $1,182,736,149 27.7% (1/92) 58.8% (12/91-5/92)
International Foreign Exchange Program Aug-86 7 $69,780,961 13.6% (1/92) 35.9% (8/92-1/95)
World Financial Perspective Apr-87 4 $21,916,179 25.5% (1/92) 38.4% (12/91-10/92)
G-7 Currency Portfolio Feb-91 6 $68,532,111 12.3% (1/92) 31.4% (9/92-1/95)
International Currency and Bond Portfolio Jan-93 1 $2,458,195 7.8% (7/94) 23.6% (7/94-1/95)
Global Financial Portfolio Jun-94 5 $95,299,973 19.5% (11/94) 48.9% (6/94-1/95)
Dollar Program Jul-96 2 $23,048,878 2.3% (8/96) 3.5% (7/96-9/96)
Worldwide Bond Program Jul-96 2 $15,373,037 2.3% (12/96) 2.3% (11/96-12/96)
KT Diversified Program Jan-84 N/A-Closed N/A-Closed 28.6% (1/92) 50.8% (1/91-3/92)
TM
InterRate Dec-88 N/A-Closed N/A-Closed 10.2% (9/92) 19.0% (8/92-11/93*)
Delevered Yen Denominated Financial and
Metals Profile Oct-95 N/A-Closed N/A-Closed 3.2% (2/96) 5.1% (1/96-8/96)
====================================================================================================================================
</TABLE>
Table A-2
Other Trading Programs Directed by JWH
For the Period January 1992 Through December 31, 1996
<TABLE>
<CAPTION>
=======================================================================================================================
Percentage Rate of Return
(Computed on a Compounded Monthly Basis)
Name of Program 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial and Metals Portfolio 29.7 38.5 (5.3) 46.8 (10.9)
(12 Months)
International Foreign Exchange Program 3.7 16.9 (6.3) (4.5) 4.5
(12 Months)
World Financial Perspective 40.9 32.2 (15.2) 13.7 (23.2)
(12 Months)
G-7 Currency Portfolio 14.5 32.2 (4.9) (6.3) 14.6
(12 Months)
International Currency and Bond Portfolio 19.9 36.5 (2.3) 14.8 -
(12 Months) (12 Months)
Global Financial Portfolio 32.4 86.2 (37.7) - -
(12 Months) (7 Months)
Dollar Program 10.6 - - - -
(6 Months)
Worldwide Bond Program 17.8 - - - -
(6 Months)
KT Diversified Program - - (14.0) 20.6 (11.9)
(2 Months)
TM
InterRate 5.8 5.2 3.4 (5.4) (0.7)
Delevered Yen Denominated Financial and
Metals Profile 9.6 0.2 - - -
(12 Months)(3 Months)
=======================================================================================================================
</TABLE>
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
24
<PAGE>
Table A-2 (Continued)
Other Trading Programs Directed by JWH
For the Period January 1992 Through December 31, 1996
<TABLE>
<CAPTION>
=====================================================================================================================
Inception Number Largest
of Client of Aggregate Assets Largest Peak-to-
Trading in Open in Program Monthly Valley
Name of Program Program Accounts December 31, 1996 Draw-Down Draw-Down
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yen Financial Portfolio: Jan-92 7 $41,094,092 (See Below) (See Below)
- ---------------------------------------------------------------------------------------------------------------------
Account 1 Jan-92 1 $6,110,574 14.4% (2/92) 30.5% (4/95-7/96*)
Account 2 Jan-93 1 $1,072,120 6.9% (7/95) 29.0% (4/95-7/96*)
Account 3 Jan-94 1 $897,167 6.0% (7/95) 26.6% (4/95-7/96*)
Account 4 Jun-94 1 $24,269,262 6.5% (7/95) 22.3% (4/95-7/96*)
Account 5 Aug-94 1 $4,442,710 7.1% (7/95) 30.4% (4/95-7/96*)
Account 6 Jan-95 1 $2,546,608 7.5% (7/95) 35.5% (4/95-7/96*)
Account 7 Mar-94 1 203,617,610 6.7% (7/96) 15.9% (1/96-7/96)
(Yen Denominated)
Account 8 Apr-92 N/A-Closed N/A-Closed 11.7% (5/92) 11.7% (4/92-5/92)
Account 9 Feb-92 N/A-Closed N/A-Closed 11.5% (2/92) 11.5% (2/92-2/92)
Account 10 Mar-94 N/A-Closed N/A-Closed 5.4% (5/94) 10.5% (4/94-12/94*)
Account 11 Nov-93 N/A-Closed N/A-Closed 9.0% (8/95) 18.8% (4/95-8/95*)
Account 12 Nov-93 N/A-Closed N/A-Closed 6.3% (5/94) 16.5% (4/94-1/95*)
Account 13 Dec-92 N/A-Closed N/A-Closed 4.9% (7/95) 15.8% (12/93-1/95)
Account 14 Jan-93 N/A-Closed N/A-Closed 6.2% (7/95) 15.8% (4/95-12/95*)
Account 15 Apr-93 N/A-Closed N/A-Closed 5.8% (5/94) 19.9% (11/93-9/94*)
Account 16 Jan-94 N/A-Closed N/A-Closed 5.5% (5/94) 11.0% (4/94-8/94*)
Account 17 Dec-92 N/A-Closed N/A-Closed 6.0% (7/95) 12.4% (4/95-10/95*)
Account 18 Mar-94 N/A-Closed N/A-Closed 6.2% (7/95) 18.5% (4/95-4/96*)
Account 19 Dec-94 N/A-Closed N/A-Closed 6.6% (7/95) 21.1% (4/95-4/96*)
Account 20 Jun-94 N/A-Closed N/A-Closed 5.1% (7/94) 10.4% (6/94-11/94*)
Account 21 Jun-94 N/A-Closed N/A-Closed 3.6% (7/94) 9.9% (6/94-1/95)
Account 22 Apr-94 N/A-Closed N/A-Closed 4.7% (5/94) 7.0% (4/94-9/94*)
Account 23 Mar-94 N/A-Closed N/A-Closed 6.3% (5/94) 11.0% (4/94-9/94*)
Account 24 Apr-94 N/A-Closed N/A-Closed 9.1% (5/94) 12.9% (4/94-9/94*)
Account 25 Apr-93 N/A-Closed N/A-Closed 6.1% (5/94) 17.9% (11/93-12/94*)
Account 26 Sep-93 N/A-Closed N/A-Closed 6.0% (5/94) 14.1% (4/94-12/94*)
=====================================================================================================================
</TABLE>
Table A-2 (Continued)
Other Trading Programs Directed by JWH
For the Period January 1992 Through December 31, 1996
<TABLE>
<CAPTION>
================================================================================
Percentage Rate of Return
(Computed on a Compounded Monthly Basis)
Name of Program 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Yen Financial Portfolio: ------------(See Account Detail Below)-------------
- --------------------------------------------------------------------------------
Account 1 (8.5) 20.6 (13.0) 76.4 20.1
(12 Months) (12 Months)
Account 2 (9.9) 21.0 (8.8) 71.4 -
(12 Months) (12 Months)
Account 3 (10.9) 22.4 (7.5) - -
(12 Months) (12 Months)
Account 4 (0.6) 24.2 (1.6) - -
(12 Months) (7 Months)
Account 5 (6.0) 21.1 (4.3) - -
(12 Months) (5 Months)
Account 6 (13.5) 13.2 - - -
(12 Months)(12 Months)
Account 7 7.8 28.1 (11.2) - -
(12 Months) (10 Months)
Account 8 - - - 62.6 27.0
(9 Months)(9 Months)
Account 9 - - - - 32.7
(11 Months)
Account 10 - - (7.4) - -
(10 Months)
Account 11 - 20.0 (13.4) 5.2 -
(8 Months) (2 Months)
Account 12 - (0.6) (15.0) 4.8 -
(1 Month) (2 Months)
Account 13 (4.1) 31.4 (14.1) 69.2 0.1
(3 Months) (1 Month)
Account 14 - 10.9 (4.1) 43.6 -
(12 Months) (12 Months)
Account 15 - - (19.0) 25.3 -
(9 Months)(9 Months)
Account 16 - - (6.7) - -
(8 Months)
Account 17 0.3 26.6 (5.1) 73.9 (1.0)
(1 Month) (1 Month)
Account 18 (6.3) 18.5 (10.1) - -
(4 Months) (10 Months)
Account 19 (7.8) 18.3 0.2 - -
(4 Months) (1 Month)
Account 20 - - (7.9) - -
(7 Months)
Account 21 - 48.1 (6.6) - -
(3 Months)(7 Months)
Account 22 - - (4.6) - -
(6 Months)
Account 23 - - (9.7) - -
(7 Months)
Account 24 - - (9.8) - -
(6 Months)
Account 25 - - (16.6) 26.5 -
(12 Months)(9 Months)
Account 26 - - (12.4) 3.2 -
(12 Months)(3 Months)
================================================================================
</TABLE>
- ----------------------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
25
<PAGE>
Table A-3
Other Trading Programs Directed by JWHII
For the Period January 1992 Through July 31, 1995
<TABLE>
<CAPTION>
==================================================================================================
Inception Number Largest
of of Aggregate Largest Peak-to-
Trading Open Assets Monthly Valley
Name of Program Program Accounts in Program Draw-Down Draw-Down
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial and Metals Portfolio Sep-91 N/A-Closed N/A-Closed 16.6% (1/92) 34.4% (12/91-5/92)
TM
InterRate Feb-92 N/A-Closed N/A-Closed 9.3% (9/92) 20.6% (8/92-11/93*)
==================================================================================================
</TABLE>
Table A-3
Other Trading Programs Directed by JWHII
For the Period January 1992 Through July 31, 1995
<TABLE>
<CAPTION>
===========================================================================
Percentage Rate of Return
(Computed on a Compounded
Monthly Basis)
Name of Program 1995 1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial and Metals Portfolio 30.3 (0.8) 46.1 (4.0)
(7 Months)
TM
InterRate - - (9.9) 2.8
(11 Months) (11 Months)
===========================================================================
</TABLE>
- -----------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
26
<PAGE>
JWH AND JWHII
Notes to Performance Summary
NOTES TO TABLES A, A-1, A-2 AND A-3
(a) "Draw-Down" is defined as losses experienced by any account in a
program over a specified period of time.
(b) "Largest Monthly Draw-Down" within the past five years is the
largest monthly loss experienced by any single account in the relevant
investment program in any calendar month covered by the capsule. "Loss" for
these purposes is calculated on the basis of the loss experienced by the
individual account, expressed as a percentage of total equity (including
"notional" equity) in the account. Largest monthly draw-down information
includes the month and year of such draw-down.
(c) "Largest Peak-to-Valley Draw-Down" is the largest percentage
decline by any single account in the relevant investment program (after
eliminating the effect of additions and withdrawals) during the period covered
by the capsule from any month-end net asset value, without such month-end net
asset value being equaled or exceeded as of a subsequent month end by the
individual account, expressed as a percentage of total equity (including
"notional" equity) in the account. In the case where the General Partner noted
that the program is in a current draw-down, or was in a current draw-down when
the trading program closed, the month of the lowest net asset value of such
draw-down is disclosed followed by an asterisk(*).
(d) "Annual (or Period) Rate of Return" is calculated by compounding
the Adjusted ROR (as described below) over the months in a given year, i.e.,
each Adjusted ROR, in hundredths, is added to one (1) and the result is
multiplied by the subsequent Adjusted ROR similarly expressed. One is then
subtracted from the product and the result is multiplied by one hundred (100).
The Compound Average Annual Rate of Return is similarly calculated except that
before subtracting one (1) from the product, the product is exponentially
changed by the factor of one (1) divided by the number of years in the
performance summary and then one (1) is subtracted. The Compound Average Annual
Rate of Return appears on Tables A and A-1.
Adjusted rate of return ("Adjusted ROR") is calculated by dividing
net performance by the sum of beginning equity plus additions minus withdrawals.
For such purposes, all additions and withdrawals are effectively treated as if
they had been made on the first of the month even if, in fact, they occurred
later, unless, beginning in 1991, they are material to the performance of a
program, in which case they are time-weighted. If time weighting is materially
misleading, then the Only Accounts Traded method is utilized.
Additional Notes to all Performance Records
An investor should note that in a presentation of past performance
data, different accounts, even though they are traded according to the same
investment program, can have varying performance results. The reasons for this
include numerous material differences among accounts including: (a) procedures
governing the timing for the commencement of trading and the
27
<PAGE>
method of moving toward full portfolio commitment for new accounts; (b) the
period during which accounts are active; (c) trading size to equity ratio
resulting from the procedures for the commencement of trading and appropriate
means of moving toward full portfolio commitment of new accounts and capital;
(d) the size of the account, which can influence the size of positions taken and
restrict the account from participating in all markets available to an
investment program; (e) the amount of interest income earned by an account,
which will depend on the rates paid by an FCM on equity deposits and/or on the
portion of an account invested in interest-bearing obligations such as U.S.
Treasury bills; (f) the amount of management and incentive fees paid to JWH and
the amount of brokerage commissions paid which will vary and will depend on the
fees negotiated with the broker; (g) the timing of orders to open or close
positions; (h) the market conditions, which in part determine the quality of
trade executions; (i) trading restrictions of the client including futures
versus forwards contracts and contract months; (j) variations in fill prices;
and (k) the timing of additions and withdrawals.
For the purpose of determining whether there exist material
differences among accounts traded pursuant to the same trading program, JWH
utilizes the method describe herein. The gross trading performance of each JWH
investment program and each individual JWH account within the relevant program
is reviewed and the following parameters established by the Division of Trading
and Markets of the CFTC are calculated: (i) if the arithmetic average of two
percentages is greater than 10 percentage points and the difference between the
two is less than 10% of their average; (ii) if the arithmetic average of the two
percentages is greater than 5 points but less than 10 points and the difference
between the two is 1.5 percentage points or less; and (iii) if the arithmetic
average of the two percentages is less than 5 points and the difference between
the two is 1.0 percentage point or less. If one of the parameters (i)-(iii) is
satisfied in the review, then the results within the designated range are deemed
"materially the same" or "not materially different". The parameters (i) - (iii)
determine if differences between accounts are materially different. JWH further
evaluates performance on a gross trading basis for materiality in an overall
context each JWH investment program and each individual JWH account within the
relevant program not satisfying the above parameters whether any material
differences that are detected could be misleading after review of the reasons
for the differences.
During the periods covered by the following performance records, and
particularly since 1989, JWH increased and decreased leverage in certain markets
and entire trading programs, and also altered the composition of the markets and
contracts that it traded for certain programs. In general, before 1993 JWH
programs used greater leverage than they currently do. In addition, the
subjective aspects listed under "The Advisor Trading Techniques" section have
been utilized more often in recent years and therefore may have had a more
pronounced effect on performance results during recent periods. The investment
program used (although all accounts may be traded in accordance with the same
approach such approach may be modified periodically as a result of ongoing
research and development by JWH) may have an effect on performance results. In
reviewing the JWH performance records, prospective investors should bear in mind
the possible effects of these variations on rates of return and the application
of JWH's trading methods.
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any of the accounts
represented in the tables. Investors are
28
<PAGE>
further cautioned that the data set forth in the performance tables is not
indicative of any results which may be attained by JWH in the future, since past
results are not necessarily indicative of future results. The following notes
are an integral part of these performance summaries. JWH has decreased leverage
in certain markets and entire trading programs on several occasions over the
last five years. These actions have reduced the volatility of certain trading
programs when compared to the volatility prior to the decreases in leverage.
While historical returns represent actual performance achieved, investors should
be aware that the degree of leverage currently utilized may be significantly
different from that used during previous time periods.
Prior to December 1991 for JWH and July 1992 for JWHII, performance
tables are presented on a cash basis except as otherwise stated in the footnotes
to the tables. The recording of items on a cash basis should not, for most
months, be materially different from presenting such rates of return on an
accrual basis. Any differences in the monthly rates of return between the two
methods would be immaterial to the overall performance presented.
Beginning with the change to the accrual basis of accounting for
incentive fees in December 1991 for JWH and July 1992 for JWHII, the net effect
to monthly net performance and the rate of return in the capsule performance
records of continuing to record interest income, management fees, commissions
and other expenses on a cash basis is materially equivalent to the full accrual
basis. In July 1992, JWH began reflecting all items of net performance on an
accrual basis for the G-7 Currency Portfolio Composite Capsule Performance
Record and in January 1993 for the International Currency and Bond Portfolio
Composite Capsule Performance Record.
Due to the commencement of trading in July 1996 of a new
multi-program fund managed by JWH, JWH developed a new method for treating the
accrual of incentive fees for the multi-advisor funds and multi-program accounts
it manages. For these accounts, JWH agreed that it would earn incentive fees
only when overall fund performance for multi-advisor funds, or overall JWH
performance for multi-program accounts, as the case may be, is profitable. As
applied, this new method presents incentive fees due for each program on a
stand-alone basis - in essence, to reflect the performance results that would
have been experienced by an investor in that program, regardless of any external
business arrangements (such as a multi-advisor structure or the use of multiple
JWH programs) that might have affected actual incentive fees paid. The new
method was applied initially to August 1996 performance. In that month, a
one-time adjustment to performance rate of return was made to each affected
program to show the impact of this adjustment from program inception through
August 1996. In the case of certain programs, the adjustment had a material
(i.e., greater than 10%) impact on the rate of return that otherwise would have
been shown. In the case of accounts that closed before JWH received an incentive
fee due to the operation of such netting arrangements, a balancing entry was
made to offset the effect of incentive fee accrual on ending equity.
Advisory fees vary among accounts in the case of all programs.
Management fees vary from 0% to 6% of assets under management; incentive fees
vary from 0% to 25% of profits. Such variations in advisory fees may have a
material impact on the performance of an account from time to time.
29
<PAGE>
InterRate(TM) was qualitatively different from the other JWH programs
with respect to: (a) fees charged; (b) length of time for which positions were
held; (c) positions taken; (d) leverage used; and (e) rate of return objectives.
Additional Footnote to the Global Diversified Portfolio Composite Track Record
and JWHII InterRate(TM) Performance Summaries Utilizing the Fully-Funded Subset
Method (the "Summaries"):
The level of Actual Funds in the accounts that make up the Summaries
currently requires additional disclosure. Actual Funds are the amount of
margin-qualifying assets on deposit. Nominal Account Size is a dollar amount
which clients have agreed to in writing and which determines the level of
trading in the account regardless of the amount of Actual Funds. Notional Funds
are the amount by which the Nominal Account Size exceeds the amount of Actual
Funds. The amount of notional equity in the accounts that compose the Summaries
requires additional disclosure under current CFTC policy. The Summaries include
notional equity in excess of the 10% disclosure threshold established by the
CFTC and reflect the adoption of a method of presenting rate-of-return and
performance disclosure authorized by the CFTC, referred to as the Fully Funded
Subset method. This method permits notional and fully funded accounts to be
included in a single performance record.
To qualify for use of the Fully Funded Subset method, the Advisory
requires that certain computations by made in order to arrive at the Fully
Funded Subset, and that the accounts for which performance is so reported meet
two tests which are designed to provide assurance that the Fully Funded Subset
and the resultant Adjusted Rates of Return are representative of the programs.
These computations have been performed for the Global Diversified
Portfolio from January 1, 1992 through June 30, 1996, and for JWHII
InterRate(TM), from its inception to its close. They were designed to provide
assurance that the performance presented to the Summaries and calculated on a
Fully Funded Subset basis would be representative of such performance calculated
on a basis which includes notional equity in Beginning Equity. The Adjusted
Rates of Return in the Records are Calculated by dividing Net Performance by the
sum of Beginning Equity plus Additions minus Withdrawals. JWH and JWHII believe
that this method yields substantially the same adjusted rates of return as would
the Fully Funded Subset method were there any "fully funded" accounts, and that
the Adjusted Rates of Return for the Records are representative of the programs
for the periods presented.
Rates of return determined on the basis of Beginning Equity (Actual
Funds) can be calculated from the Adjusted Rates of Return by dividing such
Adjusted Rates of Return by a fraction, the numerator of which is Beginning
Equity (Actual Funds) and the denominator of which is Beginning Equity.
Alternatively, these rates of return can be calculated by dividing Net
Performance of Beginning Equity (Actual Funds). As an example, in the Global
Diversified Portfolio for the month of August 1992, the Adjusted Rate of Return
was 6.1 percent; an account which had 50 percent Actual Funds would have had an
Adjusted Rate of Return of 12.2 percent (6.1%/50%)
30
<PAGE>
Additional Notes for the Financial and Metals Portfolio
Composite Performance Summary
In May 1992, 35 percent of the assets in the Financial Metals
Portfolio was deleveraged 50 percent at the request of a client. The
deleveraging materially affected the rates of return in JWH's performance
records. The 1992 annual rate of return for these deleveraged accounts was
negative 24.3 percent. The 1992 annual rate of return for the Financial and
Metals Portfolio Composite Performance Summary was negative 10.9 percent. If
these accounts had been excluded from the Financial and Metals Portfolio
Composite Performance Summary, the 1992 annual rate of return would have been
negative 3.9 percent. The effect of this deleveraging was eliminated in
September 1992.
Additionally, the Financial and Metals Portfolio Composite
Performance Record includes the performance of several accounts that do not
participate in global markets due to their smaller account equities which do not
meet the minimums established for this program. Accounts not meeting such
minimums can experience performance materially different than the performance of
an account which meets the minimum account size. The performance of such
accounts has no material effect on the overall Financial Metals Portfolio
Composite Performance Summary.
In May 1991 and March 1992, respectively, two proprietary accounts
began trading in the Financial and Metals Portfolio. Both accounts are included
in the performance information from their inception until August 1995. The
maximum percentage of proprietary funds during this time frame was less than
0.5% and had no material impact on the rate of return.
Additional Note for Yen Financial Portfolio Composite Performance
Summaries
The Yen Financial Portfolio is traded from the Japanese yen
perspective. Accounts may be opened with either U.S. dollars or Japanese yen
deposits. Accounts originally opening with U.S. dollars establish additional
interbank positions in Japanese yen in an effort to enable such accounts to
generate returns similar to returns generated by accounts with yen-denominated
balances. Over time, as profits and losses are recognized in yen-denominated
Japanese markets, accounts may hold varying levels of U.S. dollars and Japanese
yen. Additionally, the interbank position is adjusted periodically to reflect
the actual portions of the account balances remaining in U.S. dollars. Because
performance may be affected by fluctuations in the dollar/yen conversion rate,
and investors may open accounts with either U.S. dollars or Japanese yen
deposits, performance records from the perspective of both denominations are
presented.
Accordingly, as the equity mix between U.S. dollars and Japanese yen
varies, performance from each perspective will also vary. Investors should be
aware that their individual account performance may differ from the composite
performance records presented in relation to the perspective of their base
currency. Such differences arise from exchange rate movements, percentage of
account balances held in yen, and fee arrangements.
31
<PAGE>
Additional Note for Global Financial Portfolio Composite Performance Summary
Since the inception of the Global Financial Portfolio, the timing of
individual account openings has had a material impact on compounded rates of
return. Based on the account startup methodology used by JWH, the performance of
individual accounts composing the Global Financial Portfolio Composite
Performance Summary has varied. In 1994, the two accounts that were open
generated separate rates of return of -44% and -17%. For the period January 1995
through June 1995, the three open accounts achieved separate rates of return of
101%, 75% and 67%, with annual rates of return for 1995 of 122%, 92% and 78%
respectively. As of June 1995, these accounts now maintain mature positions and
are performing consistently with each other.
Additional Note to the Capsule Performance of the Original Investment Program,
the Global Financial Portfolio, the International Currency and Bond Portfolio,
the G-7 Currency Portfolio, the Yen Financial Portfolio and the Global
Diversified Portfolio
The performance capsules for the above mentioned programs each
presently include one proprietary account trading or which has been traded
pursuant to an investment in a fund. These proprietary accounts have been traded
in exactly the same manner that client funds would be traded, and are subject to
all of the same fees and expenses that would be charged to a client investment
in the fund. Therefore, there is no material impact on the rates of return
presented.
32
<PAGE>
Millburn Ridgefield Corporation
Principals (page 66)
Mr. George E. Crapple is also a member of the Board of Directors of
each of the National Futures Association and the Managed Futures Association.
Mr. Barry Goodman is also a partner of ShareIn Vest Research L.P., an
affiliate of the General Partner which manages portfolios of U.S. small
capitalization growth stocks. He joined Millburn in 1982 as Assistant Director
of Trading.
Mr. Grant N. Smith is also a partner of ShareIn Vest Research L.P.
Mr. Mark B. Fitzsimmons is also a partner of ShareIn Vest Research
L.P.
Mr. Dennis B. Newton is now Senior Vice President of Millburn.
Mr. Malcolm H. Wiener is also a Director of Millburn and The Millburn
Corporation.
Diversified Portfolio (page 67)
Millburn trades a broadly diversified portfolio of approximately fifty
markets in the following six sectors: currencies, precious and industrial
metals, debt instruments, stock indices, agricultural commodities and energy.
The following table depicts the respective approximate market sector weightings
of the World Resource version of the Original and World Resource versions of the
Diversified Portfolio as of January 1997:
Currencies and Financials Non-Financials
--------------------------------- -----------------------------------
Interest Stock
Currencies Rates Indices Total Energy Agricultural Metals Total
Original 38% 21% 10% 69% 11% 10% 10% 31%
World 19% 19% 11% 49% 18% 18% 15% 51%
Resource
Past Performance
Table A represents the composite performance record of Millburn's
World Resource version of the Diversified Portfolio for the period January 1995
through December 1996.
Table A-1 represents the composite capsule performance results of all
other trading programs directed by Millburn for the time periods indicated.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
33
<PAGE>
Table A
Millburn Ridgefield Corporation
World Resource Version of the Diversified Portfolio
September 1, 1995 Through December 31, 1996
<TABLE>
<CAPTION>
================================================================================
Percentage monthly rate of return
(computed on a compounded monthly basis)
- --------------------------------------------------------------------------------
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
January.......................................................(0.52)........-
February.....................................................(12.20)........-
March..........................................................3.18.........-
April..........................................................2.87.........-
May...........................................................(8.29)........-
June...........................................................7.15.........-
July..........................................................(0.61)........-
August.........................................................1.53.........-
September......................................................3.97......(6.62)
October........................................................8.15......(1.92)
November.......................................................4.21.......0.93
December.......................................................0.57......16.05
Annual (or Period) Rate of Return..............................8.33%......7.28%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Inception of Client Account Trading by CTA: February 1971
Inception of Client Account Trading in Program: September 1995
Number of Open Accounts as of December 31, 1996: 5
Aggregate Assets in all Programs: $557,439,769 (12/96)
Aggregate Assets in Program: $89,364,706 (12/96)
Largest Monthly Draw-Down: 12.20% (2/96)
Largest Peak-to-Valley Draw-Down: 14.98% (12/95-5/96)
================================================================================
</TABLE>
- ---------------------
Notes follow Table A-1
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
34
<PAGE>
Table A-1
Millburn Ridgefield Corporation
Other Trading Programs Directed by Millburn
For the Period January 1992 Through December 31, 1996
<TABLE>
<CAPTION>
====================================================================================================================================
Inception Number Largest
of Client of Aggregate Assets Largest Peak-to-
Trading in Open in Program Monthly Valley
Name of Program Program Accounts December 31, 1996 Draw-Down Draw-Down
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Diversified Portfolio Feb-71 10 $174,922,281 11.05% (2/96) 11.59% (1/96-4/96)
Global Program-Normal Leverage Nov-89 4 $201,514,502 9.04% (1/94) 13.50% (6/94-1/95)
Global Program-High Leverage Jul-93 4 $28,097,151 12.93% (1/94) 20.00% (6/94-1/95)
Currency Program-Normal Leverage Nov-89 7 $50,661,894 9.35% (8/93) 25.49% (9/92-1/95)
Currency Program-High Leverage Jul-93 1 $12,879,235 13.10% (8/93) 29.75% (7/93-1/95)
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Table A-1
Millburn Ridgefield Corporation
Other Trading Programs Directed by Millburn
For the Period January 1992 Through December 31, 1996
=====================================================================================================================
Percentage Rate of Return
(Computed on a Compounded Monthly Basis)
Name of Program 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Diversified Portfolio 17.29 32.82 11.78 10.90 17.31
(12 Months)
Global Program-Normal Leverage 11.38 25.76 (5.24) 9.10 9.66
(12 Months)
Global Program-High Leverage 11.15 32.15 (9.03) 9.34 -
(12 Months) (6 Months)
Currency Program-Normal Leverage 11.32 18.88 (7.90) (13.00) 12.47
(12 Months)
Currency Program-High Leverage 16.36 25.15 (21.29) (11.10) -
(12 Months) (6 Months)
======================================================================================================================
</TABLE>
- ------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
35
<PAGE>
MILLBURN
NOTES TO TABLES A AND A-1
(a) "Draw-Down" is defined as losses experienced by a program over a
specified period of time.
(b) "Largest Monthly Draw-Down" is the largest monthly loss
experienced by the program on a composite basis in any calendar month expressed
as a percentage of the total equity in the program and includes the month and
year of such draw-down. Individual accounts may have experienced larger monthly
draw-downs.
(c) "Largest Peak-to-Valley Draw-Down" is the greatest cumulative
percentage decline in month-end net asset value (regardless of whether it is
continuous) due to losses sustained by the trading program during a period in
which the initial composite month-end net asset value of such peak-to-valley
draw-down has not been equal to or greater than any subsequent month's composite
ending net asset value and indicates the month(s) and year(s) in which of such
decline from the initial month-end net asset value to the lowest month-end net
asset value of such decline. In the case where the program is in a current
draw-down, or was in a draw-down when the trading program closed, the month of
the lowest net asset value of such draw-down is disclosed followed by an
asterisk (*).
For purposes of the Largest Peak-to-Valley draw-down calculation, any
draw-down which began prior to the beginning of the most recent five calendar
year period is deemed to have occurred during such five calendar year period.
Individual accounts may have experienced larger peak-to-valley draw-downs.
(d) "Annual (or Period) Rate of Return" is calculated by compounding
the Monthly ROR (as described below) over the months in a given year, i.e., each
Monthly ROR, in hundredths, is added to one (1) and the result is multiplied by
the subsequent Monthly ROR similarly expressed. One is then subtracted from the
product and the result is multiplied by one hundred (100).
Monthly rate of return ("Monthly ROR") is calculated by dividing net
profit (loss) for the month by that month's starting equity. If there were
additions or withdrawals during a month which, when included in the starting
equity figure used to calculate Monthly ROR, increased or decreased the Monthly
ROR by 10% or more from the Monthly ROR calculated without including the
additions or withdrawals in starting equity, Monthly ROR was calculated by
dividing net profit (loss) by starting equity plus additions, minus withdrawals.
36
