<PAGE> 1
RULE 424(b)(3)
SEC FILE NO. 333-25239
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II
SUPPLEMENT DATED FEBRUARY 1, 1998 TO THE PROSPECTUS DATED APRIL 30, 1997
THIS DOCUMENT IS NOT VALID AFTER APRIL 30, 1998.
SMITH BARNEY INC.
<PAGE> 2
SMITH BARNEY DIVERSIFIED FUTURES FUND L.P. II
Supplement dated February 1, 1998 to the Prospectus dated April 30, 1997
This Supplement amends and updates the Prospectus dated April 30, 1997 (the
"Prospectus") for Smith Barney Diversified Futures Fund L.P. II (the
"Partnership") and should be read in conjunction therewith. Headings herein
correspond to headings in the Prospectus; page numbers in parentheses refer to
the pages in the Prospectus.
As of February 1, 1998, the Partnership's advisors will be JWH, Millburn,
Campbell and Company, Inc. ("Campbell"), ARA and Willowbridge. The General
Partner's and Advisors' performance capsules and related footnotes are included
herein in their entirety.
FEES AND EXPENSES TO THE PARTNERSHIP
BREAK EVEN ANALYSIS (PAGE 20)
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 $62.31 per
Unit (assuming the estimated Partnership size is $120,000,000) or 6.16%, or
$61.61 per Unit (assuming the estimated Partnership size is $150,000,000).
<TABLE>
<S> <C> <C>
Estimated Partnership Size:..................................... $120,000,000 $150,000,000
------------ ------------
Selling Price per Unit(1)....................................... $ 1,000.00 $ 1,000.00
------------ ------------
Interest Income Credit(2)....................................... $ (39.20) $ (39.20)
Brokerage Fees(3)............................................... $ 70.67 $ 70.67
Trading Advisor's Management Fee(4)............................. $ 26.54 $ 26.54
Other Operating Expenses(5)..................................... $ 4.30 $ 3.60
------------ ------------
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........................................ $ 62.31 $ 61.61
------------ ------------
Percentage of Initial Selling Price per Unit.................... 6.23% 6.16%
==== ====
</TABLE>
EXPLANATORY NOTES
(1) Investors will purchase Units at the prevailing Net Asset Value per Unit.
Approximately 108,231 Units (including 964 General Partner Units) were sold
as of November 30, 1997. The Net Asset Value per Unit as of November 30,
1997 was $1,064.97.
(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 3.92%
of the Partnership's Net Asset Value (assuming an estimated annual interest
rate of 4.9%).
(3) Brokerage fees were estimated at 6.8% (6% for brokerage fees and 0.8% for
other trading-related expenses) of Net Assets. Based upon the past
performance of the Partnership and the Advisors during 1997, the fee that
the Partnership pays is equal to $61.00 per round turn transaction, of which
$54.00 is brokerage commissions and $7.00 is other trading-related fees. In
calculating the brokerage fee, Net Assets equals the equity maintained in
cash at the end of the month plus unrealized gain (loss) on open positions
and accrued interest income for the month.
(4) The Partnership's Advisors are paid management fees ranging from 2% to 4%. A
blended rate of 2.74% of Net Assets was used for purposes of this analysis.
<PAGE> 3
(5) Other operating expenses include periodic legal, accounting, filing,
reporting fees and expenses of the Continuous Offering but do not include
extraordinary expenses. These expenses are expected to amount to either
$520,000 or $545,000, assuming either 120,000 or 150,000 Units offered
hereby are sold, respectively. Assuming 120,000 Units are sold, this
estimate consists of (i) $370,000 in continuous offering expenses and (ii)
$150,000 in other operating expenses. Assuming 150,000 Units are sold, this
estimate consists of (i) $370,000 in continuous offering expenses and (ii)
$175,000 in other operating expenses.
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. During
1997 the Partnership incurred $620,000 in offering and other expenses, of which
$500,000 was offering expenses.
CONFLICTS OF INTEREST
CONTROL OF OTHER ACCOUNTS BY THE ADVISORS (PAGE 24)
In addition, JWH acts as advisor to Smith Barney Westport Futures Fund L.P.
Campbell acts as an advisor to Smith Barney Diversified Futures Fund L.P.,
Smith Barney Global Markets Futures Fund L.P., SB/Michigan Futures Fund L.P. and
Smith Barney Potomac Futures Fund L.P.
Willowbridge acts as an advisor to SB/Michigan Futures Fund L.P.
THE GENERAL PARTNER
BACKGROUND (PAGE 26)
The General Partner's parent, Smith Barney Holdings, Inc., has merged with
Salomon Inc., to form Salomon Smith Barney Holdings, Inc.
PRINCIPALS (PAGE 27)
In May 1997, Shelley Ullman and Maureen O'Toole each were appointed as
Senior Vice President of the General Partner; Philip M. Waterman, Jr. resigned
his positions as Vice Chairman and Director.
Ms. O'Toole, age 40, is a Senior Vice President of SB (since April 1995)
and responsible for international and institutional managed futures marketing
and business development. Prior to joining SB in March 1993, Ms. O'Toole was the
director of managed futures quantitative analysis at Rodman and Renshaw from
1989 to 1993. Ms. O'Toole began her career in the futures industry in 1981 when
she joined Drexel Burnham Lambert in the research department of the Financial
Futures Division. She has an MBA with a concentration in Finance from
Northwestern University.
As of November 30, 1997, the General Partner owned approximately 964 units
of general partnership interest.
2
<PAGE> 4
PERFORMANCE OF THE PARTNERSHIP (PAGE 30)
JANUARY 17, 1996 (COMMENCEMENT OF TRADING OPERATIONS) TO NOVEMBER 30, 1997
<TABLE>
<CAPTION>
PERCENTAGE RATE OF RETURN (COMPUTED ON A COMPOUNDED MONTHLY BASIS) 1997 1996
- ----------------------------------------------------------------------------- ----- -----
<S> <C> <C>
January...................................................................... 2.43% 1.53%
February..................................................................... 2.95 (8.57)
March........................................................................ (2.01) 1.66
April........................................................................ (4.26) 4.41
May.......................................................................... (0.31) (6.76)
June......................................................................... (1.70) 4.67
July......................................................................... 5.39 (3.79)
August....................................................................... (7.48) 0.85
September.................................................................... (0.44) 6.07
October...................................................................... 0.42 8.26
November..................................................................... 0.17 5.86
December..................................................................... (0.80)
Annual (or Period) Rate of Return............................................ (5.33)% 12.51%
</TABLE>
<TABLE>
<CAPTION>
Inception of Trading: January 17, 1996
<S> <C> <C>
Aggregate Subscriptions: $114,651,000 (11/97)
Current Net Asset Value: $101,891,000 (11/97)
Largest Monthly Percentage Draw-Down: 8.57% (2/96)
Largest Peak-to-Valley Draw-Down: 10.75% (3/97-9/97*)
</TABLE>
- ---------------
Notes to this table appear at page 9.
* See Note (c) on page 9 "Largest Peak-to-Valley Draw-Down"
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
During the period from January 1, 1997 through November 30, 1997, the
Partnership had realized and unrealized trading losses of $741,285 before
deduction of commissions and other expenses. $5,603,628 in brokerage commissions
and $3,111,018 in management fees, incentive fees, and other expenses were
deducted from trading losses during this period.
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 neither the Partnership nor the broker has control. During the period from
January 1, 1997 through November 30, 1997, the Partnership earned $3,251,115 in
interest.
From commencement of trading through April 30, 1997, the Partnership's
advisors were Chesapeake, JWH and Millburn. From May 1, 1997 through November
30, 1997, the Partnership's advisors were Chesapeake, JWH, Millburn, ARA and
Willowbridge. As of November 30, 1997, the Partnership's assets were allocated
among the Advisors in the following approximate percentages: JWH: 37% (19%
Global Diversified Portfolio; 18% Original Investment Program); Chesapeake: 27%
(14% Financials and Metals; 13% Diversified Trading Program); Millburn: 24%;
ARA: 6%; and Willowbridge: 6%.
Chesapeake will be terminated as an Advisor to the Partnership as of
January 31, 1998. The General Partner has entered into a Management Agreement on
behalf of the Partnership with Campbell pursuant to which Campbell will begin
managing assets of the Partnership on February 1, 1998. As of that date the
General Partner expects that the Partnership's assets will be allocated among
the Advisors in the following approximate percentages: JWH: 37% (20% Global
Diversified Portfolio; 17% Original Investment Portfolio); Millburn: 25%;
Campbell: 24%; ARA: 6%; and Willowbridge: 8%. Future allocations to the Advisors
or additional advisors will be made at the discretion of the General Partner.
After February 1, 1998, the General Partner currently intends to make additional
allocations of Partnership assets to advisors other than JWH.
Updated performance of other pools operated by the General Partner appears
below.
3
<PAGE> 5
OTHER POOLS OPERATED BY THE GENERAL PARTNER (PAGE 30)
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 November
1997. Table 2 sets forth the performance of commodity pools which were
previously operated by the General Partner for the period January 1992 through
November 1997 and which have ceased trading operations as of November 30, 1997.
Table 3 sets forth the performance of commodity pools previously operated by the
General Partner for the period January 1992 through November 1997 for which the
General Partner no longer acts as the pool operator as of November 30, 1997.
Each of the funds has as its purpose to profit by speculation in commodity
interests. As of November 30, 1997, the only active funds operated by the
General Partner which did not have net asset values in excess of their
respective initial offering amounts were: Smith Barney Newport Futures Fund
L.P., Smith Barney Great Lakes Futures Fund L.P., Smith Barney Westport Futures
Fund, L.P., and Smith Barney Potomac Futures Fund, L.P. This situation is
attributable to the failure of the trading systems employed by the respective
advisors to speculate profitably over the period tabulated. It may be noted that
each of the funds has traded for two years or less and their trading programs,
which should be considered long-term, may not have had a sufficient time in
which to take full effect.
4
<PAGE> 6
TABLE 1
CAPSULE PERFORMANCE OF OTHER POOLS CURRENTLY OPERATED BY SMITH BARNEY FUTURES
MANAGEMENT INC.
FOR THE PERIOD JANUARY 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
CURRENT LARGEST MONTHLY
INCEPTION AGGREGATE TOTAL PERCENT DRAW-DOWN
TYPE OF OF SUBSCRIPTIONS NAV PERCENT
NAME OF POOL POOL TRADING $(000) $(000) (%) DATE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Shearson Select Advisors Futures Fund A Jul-87 50,507 6,181 13.69 (Jan-92)
Hutton Investors Futures Fund II A Jul-87 30,304 21,215 15.16 (Jan-92)
Shearson Hutton Performance Partners A Jun-89 16,541 1,165 8.12 (Aug-97)
Shearson Mid-West Futures Fund 1 Dec-91 60,804 62,622 11.24 (Apr-92)
Smith Barney International Advisors
Currency Fund A Mar-92 32,312 3,194 7.08 (Nov-93)
- ----------------------------------------------------------------------------------------------------------------------------
F-1000 Futures Fund Series VIII 2,A Aug-92 36,000 8,836 3.84 (Feb-96)
F-1000 Futures Fund Series IX 2,A Mar-93 24,005 7,410 4.26 (Feb-96)
Smith Barney Global Markets Futures Fund 1,A Aug-93 20,226 8,746 9.19 (Aug-97)
(formerly Erisa Futures Fund)
Smith Barney Diversified Futures Fund A Jan-94 256,713 144,544 8.12 (Feb-96)
F-1000 Futures Fund Michigan Series I 1,2,A May-94 10,697 13,413 5.86 (Feb-96)
- ----------------------------------------------------------------------------------------------------------------------------
Smith Barney Mid-West Futures Fund II 1 Sep-94 90,217 99,140 9.23 (May-97)
F-1000 Futures Fund Michigan Series II 1,2,A Jun-95 20,490 25,066 5.08 (Feb-96)
Smith Barney Tidewater Futures Fund 1 Jul-95 15,567 11,888 18.24 (Aug-97)
Smith Barney Principal Plus Futures Fund 2,A Nov-95 37,507 35,585 5.94 (Feb-96)
Smith Barney Diversified Futures Fund II A Jan-96 114,651 101,891 8.57 (Feb-96)
- ----------------------------------------------------------------------------------------------------------------------------
SB/Michigan Futures Fund 1,A Jul-96 11,591 12,160 8.08 (Aug-97)
Smith Barney Principal Plus Futures Fund
II 2,A Aug-96 22,581 22,644 5.98 (Aug-97)
Smith Barney Newport Futures Fund 1 Dec-96 25,097 18,035 13.27 (Aug-97)
Smith Barney Great Lakes Futures Fund 1 Jan-97 10,102 9,639 7.62 (Aug-97)
Smith Barney Westport Futures Fund Aug-97 89,338 88,504 3.43 (Aug-97)
Smith Barney Potomac Futures Fund 1 Oct-97 1,400 1,374 1.24 (Oct-97)
- ------------------------------------------------------------------------------------------------------------------------------
LARGEST PEAK-TO-VALLEY
DRAW-DOWN PERCENTAGE RATE OF RETURN
PERCENT (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF POOL (%) TIME PERIOD 1992 1993 1994 1995 1996 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shearson Select Advisors Futures Fund 30.07 (Jan-92 to May-92) (10.47) 20.62 (13.96) 26.91 21.57 9.89
Hutton Investors Futures Fund II 27.03 (Jan-92 to May-92) 1.28 29.40 (4.66) 41.78 29.11 4.02
Shearson Hutton Performance Partners 24.12 (Aug-93 to Jan-95) 1.23 4.38 (10.59) 18.04 2.42 (14.53)
Shearson Mid-West Futures Fund 26.53 (Dec-91 to May-92) 4.91 39.88 (8.64) 36.24 26.76 9.78
Smith Barney International Advisors
Currency Fund 24.08 (Oct-92 to Feb-96) 16.93 0.95 (10.40) (5.04) 22.68 8.11
- ------------------------------------------------------------------------------------------------------------------------------
F-1000 Futures Fund Series VIII 12.23 (Sep-93 to Oct-94) (2.34) 18.93 (10.41) 12.69 3.96 2.76
F-1000 Futures Fund Series IX 8.41 (Jun-95 to Oct-95) - 3.91 (4.13) 12.89 3.51 7.38
Smith Barney Global Markets Futures Fund 12.08 (Dec-96 to May-97*) - (0.59) (7.19) 20.91 17.70 (1.30)
(formerly Erisa Futures Fund)
Smith Barney Diversified Futures Fund 14.50 (Jun-95 to Oct-95) - - (3.29) 12.86 14.54 (1.84)
F-1000 Futures Fund Michigan Series I 8.80 (Jun-95 to Oct-95) - - 1.38 14.25 2.79 8.33
- -------------------------------------------------------------------------------------------------------------------------------
Smith Barney Mid-West Futures Fund II 15.45 (Feb-97 to May-97) - - (7.54) 31.74 26.26 9.63
F-1000 Futures Fund Michigan Series II 7.27 (Feb-96 to May-96) - - - 2.25 9.49 9.24
Smith Barney Tidewater Futures Fund 18.24 (Aug-97 to Aug-97*) - - - (1.25) 7.83 (5.20)
Smith Barney Principal Plus Futures Fund 8.85 (Feb-96 to Aug-96) - - - 5.75 4.37 7.58
Smith Barney Diversified Futures Fund II 10.75 (Mar-97 to Sept-97*) - - - - 12.51 (5.33)
- -------------------------------------------------------------------------------------------------------------------------------
SB/Michigan Futures Fund 8.09 (Aug-97 to Oct-97*) - - - - 18.58 1.67
Smith Barney Principal Plus Futures Fund
II 6.71 (Aug-97 to Sept-97*) - - - - 12.97 2.50
Smith Barney Newport Futures Fund 35.73 (Mar-97 to Oct-97*) - - - - 7.34 (29.54)
Smith Barney Great Lakes Futures Fund 11.29 (Mar-97 to Sept-97*) - - - - - (1.82)
Smith Barney Westport Futures Fund 5.93 (Aug-97 to Sept-97*) - - - - - (3.12)
Smith Barney Potomac Futures Fund 1.85 (Oct-97 to Nov-97*) - - - - - (1.85)
- ---------------------------------------------------------------------------------------------------------------------------------
</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> 7
ADDITIONAL INFORMATION FOR POOLS CURRENTLY OPERATED BY THE
GENERAL PARTNER AS OF NOVEMBER 30, 1997
<TABLE>
<CAPTION>
GENERAL GENERAL
COMMENCEMENT PARTNER PARTNER
OF NUMBER OF UNITS INITIAL
NAME OF POOL TRADING PARTICIPANTS OWNED INVESTMENT
- ----------------------------------------- ------------ ------------ ------- ----------
<S> <C> <C> <C> <C>
Select Advisors Futures Fund............. Jul-87 611 34 $507,000
Hutton Investors Futures Fund II......... Jul-87 414 44 $314,000
SLH Performance Partners Futures Fund.... Jun-89 221 24 $166,000
SLB Mid-West Futures Fund................ Dec-91 691 322 $ 25,000
Smith Barney International Advisors
Currency Fund.......................... Mar-92 142 8,000 $144,760
F-1000 Futures Fund Series VIII.......... Aug-92 629 190 $384,000
F-1000 Futures Fund Series IX............ Mar-93 499 128 $249,000
Smith Barney Global Markets Futures
Fund................................... Aug-93 126 108 $ 75,000
Smith Barney Diversified Futures Fund.... Jan-94 7,001 2,049 $781,000
F-1000 Futures Fund Michigan Series I.... May-94 23 110 $110,000
Smith Barney Mid-West Futures Fund II.... Sep-94 1,058 609 $ 97,000
F-1000 Futures Fund Michigan Series II... Jun-95 2 207 $207,000
Smith Barney Tidewater Futures Fund...... Jul-95 178 128 $ 52,000
Smith Barney Principal Plus Futures
Fund................................... Nov-95 1,504 376 $376,000
Smith Barney Diversified Futures Fund
II..................................... Jan-96 5,163 964 $ 87,000
SB/Michigan Futures Fund................. Jul-96 3 102 $ 52,000
Smith Barney Principal Plus Futures Fund
II..................................... Aug-96 1,326 203 $203,000
Smith Barney Newport Futures Fund........ Dec-96 449 240 $ 44,000
Smith Barney Great Lakes Futures Fund.... Jan-97 2 99 $ 51,000
Smith Barney Westport Futures Fund....... Aug-97 3,847 914 $405,000
Smith Barney Potomac Futures Fund........ Oct-97 39 17 $ 17,000
</TABLE>
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> 8
TABLE 2
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY OPERATED BY SMITH BARNEY FUTURES
MANAGEMENT INC.
FOR THE PERIOD JANUARY 1992 THROUGH NOVEMBER 30, 1997 AND WHICH HAVE CEASED
TRADING OPERATIONS AS OF
NOVEMBER 30, 1997
<TABLE>
<CAPTION>
LARGEST MONTHLY
NAV PERCENT DRAW-DOWN
INCEPTION AGGREGATE BEFORE ---------------
TYPE OF OF TERMINATION SUBSCRIPTION TERMINATION PERCENT
NAME OF POOL POOL TRADING DATE $(000) $(000) (%) DATE
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <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)
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
LARGEST PEAK-TO-VALLEY
DRAW-DOWN
----------------------- PERCENTAGE RATE OF RETURN
PERCENT (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF POOL (%) TIME PERIOD 1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <<C> <C> <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> 9
TABLE 3
CAPSULE PERFORMANCE OF OTHER POOLS PREVIOUSLY OPERATED BY SMITH BARNEY FUTURES
MANAGEMENT INC.
FOR THE PERIOD JANUARY 1992 THROUGH NOVEMBER 30, 1997 AND FOR WHICH SMITH BARNEY
FUTURES MANAGEMENT INC. NO
LONGER ACTS AS COMMODITY POOL OPERATOR AS OF NOVEMBER 30, 1997
<TABLE>
<CAPTION>
LARGEST
PEAK-TO-
LARGEST MONTHLY 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 (%)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <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
Commodity Trend Timing Fund II Dec-82 Apr-95 34,428 1,412 14.48 (Feb-94) 54.67
FT Tryon Futures Fund 1,A May-87 Jun-91 49,513 24,455 2.84 (Jan-91) 4.08
Overlook Performance Fund 3,A Aug-88 May-91 252,706 86,921 1.16 (Apr-91) 1.16
Shearson Lehman Hutton Guarantee
Futures Fund I 2,3 Apr-89 Jul-93 10,202 1,562 5.49 (Feb-92) 10.57
---------------------------------------------------------------------------------------------------------------------------------
FT Tryon Futures Fund II 1,A Aug-90 May-91 60,391 58,726 2.71 (Jan-91) 4.05
Premier Futures Limited 3,A Jun-91 Jul-93 9,878 6,157 7.74 (Jan-92) 14.60
Lehman Brothers Japan Futures Fund 3,A Feb-91 Jul-93 53,007 72,267 7.43 (Jan-92) 11.28
New Millennium Futures Fund Limited 3 Mar-91 Jul-93 10,366 1,210 6.93 (Apr-91) 26.94
Delafund 3 Jan-93 Jul-93 2,521 1,542 15.35 (May-93) 22.20
---------------------------------------------------------------------------------------------------------------------------------
Harbourer Futures Fund 3 May-93 Dec-94 25,003 12,657 5.10 (Feb-94) 5.10
Greenbrier Futures Fund 1 Jul-92 Dec-96 24,678 26,716 10.23 (Aug-94) 15.48
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERCENTAGE RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF POOL TIME PERIOD 1992 1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commodity Trend Timing Fund (Aug-93 to Feb-95*) (14.52) 17.23 (50.55) (5.08) - -
Commodity Trend Timing Fund II (Aug-93 to Feb-95*) (15.03) 16.74 (50.43) (6.86) - -
FT Tryon Futures Fund (Jan-91 to Feb-91) - - - - - -
Overlook Performance Fund (Apr-91 to Apr-91) - - - - - -
Shearson Lehman Hutton Guarantee
Futures Fund I (Jan-92 to Mar-92) (4.23) 11.10 - - - -
-----------------------------------------------------------------------------------------------------------------------------------
FT Tryon Futures Fund II (Jan-91 to Feb-91*) - - - - -
Premier Futures Limited (Jan-92 to May-92) (4.75) 29.84 - - - -
Lehman Brothers Japan Futures Fund (Jan-92 to Apr-92) 2.88 14.46 - - - -
New Millennium Futures Fund Limited (Apr-91 to Mar-93*) (9.76) 9.08 - - - -
Delafund (May-93 to Jul-93*) - (18.12) - - - -
-----------------------------------------------------------------------------------------------------------------------------------
Harbourer Futures Fund (Feb-94 to Feb-94) - 42.95 39.20 - - -
Greenbrier Futures Fund (Aug-94 to Jun-95) 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> 10
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 most recent
five 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, in hundredths, is added to one (1) and the result is multiplied by
the subsequent Monthly ROR similarly expressed. One is then subtracted from the
product and the result is multiplied by one hundred (100).
Monthly rate of return ("Monthly ROR") is calculated by dividing each
month's net performance by the corresponding beginning net asset value adjusted
for time-weighed additions or time-weighted withdrawals.
THE ADVISORS (PAGE 36)
As of November 30, 1997, the aggregate funds under management by the
Advisors were $4.7 billion (excluding notional funds) and $5.0 billion
(including notional funds). The following updates the performance and other
information concerning the Advisors.
JOHN W. HENRY & COMPANY, INC.
PRINCIPALS (PAGE 49)
The following persons are no longer principals of JWH: James E. Johnson;
Mary Elizabeth Hardy; Glenda G. Twist; John A.F. Ford; Jack M. Ryng and Melanie
Caldwell.
Mr. Kevin S. Koshi is now an executive vice president of JWH responsible
for the implementation and oversight of the firm's proprietary strategies and
investments.
Ms. Eilene Nicoll is the vice president of trading administration and a
member of the Investment Policy Committee of JWH. Prior to joining JWH in July
1997, Ms. Nicoll was a vice president beginning in January 1997 at Commercial
Materials LLC, a newly organized corporation which had not yet begun operations.
She was a vice president and director at West Course Capital, Inc., a CTA, from
January 1994 until it dissolved in December 1996. At West Course Capital, Inc.,
Ms. Nicoll was responsible for operations and administration. Prior to joining
West Course Capital, Inc., she was a vice president at Refco, Inc. from May 1991
to December 1993. While at Refco, she was also a principal of Nikkhah & Nicoll
Asset Management Inc., a CPO. Ms. Nicoll was at Shearson Lehman Brothers from
January 1987 to December 1990 as vice president-futures, and from January to May
1991 at Moore Capital Management, Inc. where she was involved in all aspects of
the commodity trading advisor business, including administration, marketing and
allocation of proprietary capital. Ms. Nicoll received her B.A. in psychology
from Brooklyn College.
9
<PAGE> 11
Mr. Paul D. Braica, CPA, is the managing director of administration and a
member of the Operating Committee of JWH. He is also treasurer of JWH Financial
Products Inc. Since joining JWH in April 1996, Mr. Braica has held positions of
increasing responsibility in internal audit, risk management and administration.
Prior to joining JWH, he was employed with Ernst & Young LLP as an Auditor from
December 1994 to March 1996 and as a Tax Manager from July 1986 to September
1993. From October 1993 to November 1994 he was the director of fund accounting
at Organizer Systems, Inc. Mr. Braica received his B.A. in economics from
Gettysburg College, his M.B.A. from Rutgers University and his M.S. in taxation
from Seton Hall University.
Mr. Kevin J. Treacy, FCA, is a vice president and a member of the Operating
Committee of JWH. He is also the treasurer of JWH Asset Management Inc. Prior to
joining JWH in September 1997, Mr. Treacy was the chief financial officer of
Kenmar Advisory Corp. ("Kenmar"), a CPO, from August 1993 to August 1997. While
at Kenmar, Mr. Treacy was also a principal of multiple Kenmar affiliates which
were registered as CTAs and CPOs and an Introducing Broker. At Kenmar he was
responsible for corporate finance and administration for the firm and its
affiliates. Beginning in September 1986, Mr. Treacy worked for E.S. Jacobs, a
corporation specializing in leveraged buyouts and venture capital investments,
where he held positions of increasing responsibility, lastly as the firm's chief
financial officer until July 1993. He received his Bachelor of Commerce and
Masters in Accounting from University College Dublin.
Mr. Matthew J. Driscoll is now chief trader, vice president and a member of
the Investment Policy Committee of JWH responsible for the supervision and
administration of all aspects of order execution strategies and implementation
of trading policies and procedures.
The following persons are each an assistant vice president of JWH: Kenneth
S. Webster, CPA, and Michael Flannery.
LEGAL AND ETHICAL CONCERNS (PAGE 54)
The California complaints were consolidated under the caption "In re Dean
Witter Managed Futures Litigation" in May 1997. The New York complaints were
consolidated under the caption "In re Dean Witter Managed Futures Limited
Partnerships Litigation" in July 1997.
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 November 30, 1997.
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 November 30, 1997.
Table A-2 reflects the composite capsule performance results of all other
trading programs directed by JWH during the periods indicated by the table.
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.
10
<PAGE> 12
TABLE A
JOHN W. HENRY & COMPANY, INC.
GLOBAL DIVERSIFIED PORTFOLIO
JANUARY 1, 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage monthly rate of return
- ------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January.............................. 1.5 (1.3) (6.9) (2.6) 1.7 (12.3)
February............................. (0.4) (9.8) 13.5 (0.8) 16.6 (15.2)
March................................ (1.0) 1.3 8.5 4.0 2.9 1.1
April................................ (7.2) 7.1 7.3 0.9 6.6 (3.9)
May.................................. (0.8) (9.1) 1.2 7.9 1.5 (1.9)
June................................. (2.1) 1.7 (1.7) 10.8 1.0 6.5
July................................. 11.5 2.2 (8.9) (2.6) 14.3 17.4
August............................... (7.8) 4.5 (5.0) (6.4) (0.0) 6.1
September............................ (0.2) 7.6 (5.1) 2.1 (4.2) (5.3)
October.............................. 4.5 14.6 (2.2) (3.6) 0.1 (1.6)
November............................. (0.5) 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.... (3.8)% 26.9% 19.6% 10.1% 59.8% (12.6)%
- --------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/92-11/30/97) 14.66%
- ---------------------------------------------------------------------------------------------------------------------
Inception of Client Account Trading by CTA: October 1982
Inception of Client Account Trading in Program: June 1988
Number of Open Accounts as of November 30, 1997: 10
Aggregate Assets (Excluding "Notional" Equity) in all
Programs: $2,273,240,415 (11/97)
Aggregate Assets (Including "Notional" Equity) in all
Programs: $2,279,014,139 (11/97)
Aggregate Assets in Program: $ 169,587,498 (11/97)
Largest Monthly Draw-Down: 22.2% (2/92)
Largest Peak-to-Valley Draw-Down: 31.6% (1/92-2/92)
</TABLE>
- --------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
11
<PAGE> 13
TABLE A-1
JOHN W. HENRY & COMPANY, INC.
ORIGINAL INVESTMENT PROGRAM
JANUARY 1, 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage monthly rate of return
- ------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January.................................... 3.4 5.3 2.2 (2.9) (0.8) (6.1)
February................................... 0.2 (7.4) 17.9 1.5 9.5 (8.8)
March...................................... 1.6 1.0 16.6 4.4 (3.5) 0.7
April...................................... 0.5 3.8 9.1 0.2 10.4 (0.8)
May........................................ 1.1 (6.5) (4.4) 5.5 0.1 (4.5)
June....................................... (4.4) 8.0 1.7 6.6 (4.1) 8.3
July....................................... 2.0 (4.4) (0.0) (7.1) 14.9 9.1
August..................................... (0.8) (2.3) (3.9) (4.7) (3.6) 9.1
September.................................. (6.0) 8.2 (3.9) (2.8) 0.6 (2.7)
October.................................... 3.6 10.4 3.3 (14.1) (1.5) 2.2
November................................... (0.0) 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.......... 0.8% 22.6% 53.2% (5.7)% 40.6% 10.9%
- ------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/92-11/30/97) 18.91%
- ------------------------------------------------------------------------------------------------------------------
Inception of Client Account Trading by CTA: October 1982
Inception of Client Account Trading in Program: October 1982
Number of Open Accounts as of November 30, 1997: 24
Aggregate Assets (Excluding "Notional" Equity) in all Programs: $2,273,240,415 (11/97)
Aggregate Assets (Including "Notional" Equity) in all Programs: $2,279,014,139 (11/97)
Aggregate Assets (Excluding "Notional" Equity) in Program: $ 354,288,093 (11/97)
Aggregate Assets (Including "Notional" Equity) in Program: $ 360,061,817 (11/97)
Largest Monthly Draw-Down: 25.9% (10/92)
Largest Peak-to-Valley Draw-Down: 62.1% (7/88-5/92)
</TABLE>
- --------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
12
<PAGE> 14
TABLE A-2
OTHER TRADING PROGRAMS DIRECTED BY JWH
FOR THE PERIOD JANUARY 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
INCEPTION NUMBER
OF CLIENT OF AGGREGATE ASSETS LARGEST LARGEST
TRADING IN OPEN IN PROGRAM MONTHLY PEAK-TO-VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS NOVEMBER 30, 1997 DRAW-DOWN DRAW-DOWN
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Financial and Metals Portfolio Oct-84 36 $1,282,714,109 27.7% (1/92) 58.8% 1/92-5/92
International Foreign Aug-86 4 $82,225,567 16.0% (1/92) 35.9% (9/92-1/95)
Exchange Program
World Financial Perspective Apr-87 2 $29,634,063 25.8% (1/92) 38.4% (1/92-10/92)
G-7 Currency Portfolio Feb-91 6 $82,657,443 13.1% (1/92) 31.4% (10/92-1/95)
International Currency and Jan-93 2 $31,397,632 7.8% (7/94) 23.6% (7/94-1/95)
Bond Portfolio
Global Financial Portfolio Jun-94 7 $149,173,013 19.5% (11/94) 48.9% (7/94-1/95)
Dollar Program Jul-96 2 $25,797,950 8.4% (5/97) 11.6% (5/97-9/97)
Worldwide Bond Program Jul-96 2 $20,142,122 3.8% (4/97) 6.2% (12/96-5/97)
JWH Global Analytics Family Jun-97 2 $45,622,925 4.5% (8/97) 4.5% (8/97-8/97)
of Programs
KT Diversified Program Jan-84 N/A-Closed N/A-Closed 28.6% (1/92) 50.8% (7/91-3/92)
InterRate(TM) Dec-88 N/A-Closed N/A-Closed 10.2% (9/92) 19.7% (9/92-11/93*)
Delevered Yen Denominated Oct-95 N/A-Closed N/A-Closed 3.2% (2/96) 5.1% (2/96-8/96)
Financial and Metals Profile
<CAPTION>
PERCENTAGE RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Financial and Metals Portfolio 12.0 29.7 38.5 (5.3) 46.8 (10.9)
(11)
Months
International Foreign 56.8 3.7 16.9 (6.3) (4.5) 4.5
Exchange Program (11)
Months
World Financial Perspective 4.3 40.9 32.2 (15.2) 13.7 (23.2)
(11)
Months
G-7 Currency Portfolio 20.0 14.5 32.2 (4.9) (6.3) 14.6
(11)
Months
International Currency and 15.5 19.9 36.5 (2.3) 14.8 -
Bond Portfolio (11) (12 Months)
Months
Global Financial Portfolio (0.4) 32.4 86.2 (37.7) - -
(11) (7 Months)
Months
Dollar Program 6.9 10.6 - - - -
(11) (6 Months)
Months
Worldwide Bond Program 7.7 17.8 - - - -
(11) (6 Months)
Months
JWH Global Analytics Family 12.0 - - - - -
of Programs (6 Months)
KT Diversified Program - - - (14.0) 20.6 (11.9)
(2 Months)
InterRate(TM) - 5.8 5.2 3.4 (5.4) (0.7)
(7 Months)
Delevered Yen Denominated - 9.4 0.2 - - -
Financial and Metals Profile (12 Months) (3 Months)
</TABLE>
- --------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
13
<PAGE> 15
TABLE A-2 (CONTINUED)
OTHER TRADING PROGRAMS DIRECTED BY JWH
FOR THE PERIOD JANUARY 1992 THROUGH MARCH 31, 1997
<TABLE>
<CAPTION>
INCEPTION NUMBER LARGEST
OF CLIENT OF AGGREGATE LARGEST PEAK-TO-
TRADING IN OPEN ASSETS MONTHLY VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS IN PROGRAM DRAW-DOWN DRAW-DOWN
- -----------------------------------------------------------------------------------------------------------------------------------
YEN FINANCIAL PORTFOLIO: JAN-92 N/A-CLOSED N/A-CLOSED (See Below) (See Below)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Account 1 Jan-92 N/A-Closed N/A-Closed 14.4% (2/92) 30.5% (4/95-7/96*)
Account 2 Jan-93 N/A-Closed N/A-Closed 6.9% (7/95) 29.0% (4/95-7/96*)
Account 3 Jan-94 N/A-Closed N/A-Closed 6.0% (7/95) 26.6% (4/95-7/96*)
Account 4 Jun-94 N/A-Closed N/A-Closed 6.5% (7/95) 22.3% (4/95-7/96*)
Account 5 Aug-94 N/A-Closed N/A-Closed 7.1% (7/95) 30.4% (4/95-7/96*)
Account 6 Jan-95 N/A-Closed N/A-Closed 7.5% (7/95) 35.5% (4/95-7/96*)
Account 7 Mar-94 N/A-Closed N/A-Closed 6.7% (7/96) 15.9% (2/96-7/96)
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*)
<CAPTION>
PERCENTAGE RATE OF RETURN
(COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
---------------(See Account Detail Below)----------------
YEN FINANCIAL PORTFOLIO:
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Account 1 (3.3) (8.5) 20.6 (13.0) 76.4 20.1
(3 Months) (12 Months)
Account 2 (0.1) (9.9) 21.0 (8.8) 71.4 -
(3 Months) (12 Months)
Account 3 (2.4) (10.9) 22.4 (7.5) - -
(3 Months) (12 Months)
Account 4 1.4 (0.6) 24.2 (1.6) - -
(3 Months) (7 Months)
Account 5 (2.4) (6.0) 21.1 (4.3) - -
(3 Months) (5 Months)
Account 6 (3.7) (13.5) 13.2 - - -
(3 Months) (12 Months)
Account 7 4.0 7.8 28.1 (11.2) - -
(3 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 Month) (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) (4 Months)
</TABLE>
- --------------------
Notes follow Table A-3
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
14
<PAGE> 16
TABLE A-3
OTHER TRADING PROGRAMS DIRECTED BY JWHII
FOR THE PERIOD JANUARY 1992 THROUGH JULY 31, 1995
<TABLE>
<CAPTION>
INCEPTION NUMBER
OF CLIENT OF LARGEST
TRADING IN OPEN AGGREGATE ASSETS MONTHLY
NAME OF PROGRAM PROGRAM ACCOUNTS IN PROGRAM DRAW-DOWN
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial and Metals Portfolio Sep-91 N/A-Closed N/A-Closed 16.6% (1/92)
InterRate(TM) Feb-92 N/A-Closed N/A-Closed 9.3% (9/92)
<CAPTION>
LARGEST
PEAK-TO-
VALLEY PERCENTAGE RATE OF RETURN
NAME OF PROGRAM DRAW-DOWN 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Financial and Metals Portfolio 34.4% (12/91-5/92) 30.3 (0.8) 46.1 (4.0)
(7 Months)
InterRate(TM) 20.6% (8/92-11/93*) - - (9.9) 2.8
(11 Months) (11 Months)
</TABLE>
- --------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
15
<PAGE> 17
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 the composite capsule performance
presentations include individual accounts which, even though traded according to
the same investment program, can have materially different rates of return. The
reasons for this are numerous material differences among accounts: (a)
procedures governing the timing for the commencement of trading and the 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. Notwithstanding these material
differences among accounts, the composite remains a valid representation of the
accounts included herein.
16
<PAGE> 18
For the purpose of determining whether there exist material differences
among accounts traded pursuant to the same trading program, JWH utilizes the
method described 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.
With the exception of accounts that were established at levels below JWH's
current minimum account size, JWH's policy is to provide separate performance
capsules when an account is consistently performing differently on a gross
trading basis than the other JWH accounts traded pursuant to the same trading
program and the continued inclusion of that account in the composite would
create a distortion in the composite rate of return.
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 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, in January
1993 for the International Currency and Bond Portfolio Composite Capsule
Performance Record, in July 1996 for the Worldwide Bond Program and Dollar
Program Composite Capsule Performance Records and in June 1997 for JWH Global
Analytics(TM) Family of Programs.
17
<PAGE> 19
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 managed pursuant to all programs. In
addition the calculations of management and inventive fees are subject to
variation due to the agreed upon definitions contained in each account's
advisory agreement. Management fees range historically from 0% to 6% of assets
under management; incentive fees range 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.
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 be made in order to arrive at the Fully-Funded Subset,
and that the accounts for which performance is so reported meet two tests which
are designed to provide assurance that the Fully-Funded Subset and the resultant
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 in 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
18
<PAGE> 20
Beginning Equity (Actual Funds) and the denominator of which is Beginning
Equity. Alternatively, these rates of return can be calculated by dividing Net
Performance by 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%).
ADDITIONAL NOTES FOR THE FINANCIAL AND METALS PORTFOLIO COMPOSITE PERFORMANCE
SUMMARY
In May 1992, 35 percent of the assets in the Financial Metals Portfolio
were 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 and 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 closed in March 1997. This Portfolio was traded
from the Japanese yen perspective. Accounts were established with either U.S.
dollars or Japanese yen deposits. Accounts originally opened with U.S. dollars
established 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 were
recognized in yen-denominated Japanese markets, accounts held varying levels of
U.S. dollars and Japanese yen. Additionally, the interbank position was adjusted
periodically to reflect the actual portions of the account balances remaining in
U.S. dollars. Because performance may have been affected by fluctuations in the
dollar/yen conversion rate performance records from the perspective of both
denominations are presented.
Accordingly, as the equity mix between U.S. dollars and Japanese yen
varied, performance from each perspective also varied. The performance of the
Yen Financial Portfolio is presented on an individual account basis due to
material differences among accounts' historical performance. Account performance
varied historically due to a number of factors unique to this portfolio,
including whether the portfolio was denominated in dollars or yen, the extent of
hedging currency conversions, the amounts and frequency of currency conversions,
and account size. Several of these factors that materially influenced
performance depended on clients' specific choices that effectively resulted in
customized client portfolios.
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 comprising 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
19
<PAGE> 21
June 1995, these accounts now maintain mature positions and are performing
consistently with each other. In April 1995, JWH established a new leverage
level for the Global Financial Portfolio of one-half the previous level
employed.
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.
TABLE B
SUPPLEMENTAL PERFORMANCE
JOHN W. HENRY & COMPANY, INC.
PRO FORMA AND ACTUAL PERFORMANCE
GLOBAL DIVERSIFIED PORTFOLIO
JANUARY 1, 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ----------------------------------------------------------------------------------------------------------------
Actual Performance(i) Pro Forma Performance(ii)
---------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January............................ 1.61 (1.36) (7.00) (3.10) 1.75 (12.30)
February........................... (0.60) (9.81) 13.14 (1.40) 16.27 (14.79)
March.............................. (1.51) 0.71 8.51 4.62 2.60 0.76
April.............................. (7.80) 5.87 7.12 0.80 6.51 (3.98)
May................................ (1.11) (10.21) 1.00 7.55 1.27 (2.01)
June............................... (2.20) 1.32 (1.77) 10.30 1.21 6.93
July............................... 11.39 2.34 (8.90) (2.57) 13.70 18.16
August............................. (8.10) 4.27 (4.93) (6.28) (0.08) 5.37
September.......................... (0.47) 7.05 (5.16) 1.81 (4.10) (5.06)
October............................ 4.47 14.26 (2.18) (3.70) (0.22) (1.69)
November........................... (0.49) 9.19 5.80 5.33 3.45 (0.56)
December........................... - (0.35) 14.35 (4.15) 5.78 (0.37)
Annual (or Period) Rate of
Return........................... (6.05%) 22.55% 17.95% 8.03% 57.64% (12.78%)
- ----------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/92-11/30/97) 12.59%
- ----------------------------------------------------------------------------------------------------------------
Largest Monthly Draw-Down:
Past Five Years and Year-to-Date 14.79% (2/92)
For the Period February 1996 through November 1997 10.21% (5/96)
Largest Peak-to-Valley Draw-Down:
Past Five Years and Year-to-Date 29.15% (1/92-5/92)
For the Period February 1996 through November 1997 13.66% (2/96-5/96)
</TABLE>
(i) Represents the actual performance of this portfolio as traded for the
Partnership for the period February 1996 (the first full month of trading)
through November 30, 1997. The actual partial month performance for January
1996 was 1.52%.
(ii) Represents pro forma performance based upon the advisor's composite
performance. See Notes to Table B.
- --------------------
Notes appear at page 46.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
20
<PAGE> 22
TABLE B-1
SUPPLEMENTAL PERFORMANCE
JOHN W. HENRY & COMPANY, INC.
PRO FORMA AND ACTUAL PERFORMANCE
ORIGINAL INVESTMENT PROGRAM
JANUARY 1, 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ----------------------------------------------------------------------------------------------------------
Actual Performance(i) Pro Forma Performance(ii)
--------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January.............................. 3.37 4.75 2.36 (3.69) (1.11) (6.09)
February............................. (0.51) (6.22) 16.73 1.58 8.72 (8.98)
March................................ 1.68 0.53 15.40 4.07 (3.53) 2.56
April................................ 0.44 3.20 8.22 0.41 8.83 (0.83)
May.................................. 0.26 (7.26) (4.52) 5.52 0.02 (4.61)
June................................. (4.45) 7.99 1.41 7.18 (3.47) 8.49
July................................. 1.22 (5.09) (0.25) (7.13) 13.34 8.43
August............................... (0.97) (2.99) (4.23) (5.16) (3.90) 8.25
September............................ (6.04) 8.55 (4.14) (3.19) 0.38 (2.81)
October.............................. 3.64 9.84 3.11 (13.76) (1.89) 1.70
November............................. (0.20) 4.84 1.10 10.10 3.05 2.82
December............................. - 1.33 6.99 (0.39) 10.18 1.60
Annual (or Period) Rate of Return.... (1.98%) 19.03% 47.57% (6.76%) 32.73% 9.04%
- ----------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/92-11/30/97) 15.31%
- ----------------------------------------------------------------------------------------------------------------
Largest Monthly Draw-Down:
Past Five Years and Year-to-Date 13.76% (10/94)
For the Period February 1996 through November 1997 7.26% (5/96)
Largest Peak-to-Valley Draw-Down:
Past Five Years and Year-to-Date 26.46% (7/94-10/94)
For the Period February 1996 through November 1997 10.29% (2/96-8/96)
</TABLE>
(i) Represents the actual performance of this portfolio as traded for the
Partnership for the period February 1996 (the first full month of trading)
through November 30, 1997. The actual partial month performance for January
1996 was .94%.
(ii) Represents pro forma performance based upon the advisor's composite
performance. See Notes to Table B.
- --------------------
Notes appear at page 46.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
21
<PAGE> 23
MILLBURN RIDGEFIELD CORPORATION
DIVERSIFIED PORTFOLIO (PAGE 71)
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 November 1997:
<TABLE>
<CAPTION>
CURRENCIES AND FINANCIALS NON-FINANCIALS
--------------------------------------------- -------------------------------------------
INTEREST STOCK
CURRENCIES RATES INDICES TOTAL ENERGY AGRICULTURAL METALS TOTAL
---------- -------- ------- ----- ------ ------------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Original........... 41% 20% 10% 71% 10% 11% 8% 29%
World Resource..... 20% 20% 12% 52% 18% 18% 12% 48%
</TABLE>
PAST PERFORMANCE
Table A represents the composite performance record of Millburn's World
Resource version of the Diversified Portfolio for the period September 1995
through November 1997.
Table A-1 represents the composite performance record of Millburn's
Diversified Portfolio for the period January 1992 through November 1997.
Table A-2 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
22
<PAGE> 24
TABLE A
MILLBURN RIDGEFIELD CORPORATION
WORLD RESOURCE VERSION OF THE DIVERSIFIED PORTFOLIO
SEPTEMBER 1, 1995 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January.............................................................. 4.39 (0.52) -
February............................................................. 7.51 (12.20) -
March................................................................ (4.43) 3.18 -
April................................................................ (4.78) 2.87 -
May.................................................................. 3.24 (8.29) -
June................................................................. (1.72) 7.15 -
July................................................................. 3.02 (0.61) -
August............................................................... (10.96) 1.53 -
September............................................................ 0.90 3.97 (6.62)
October.............................................................. 0.50 8.15 (1.92)
November............................................................. (0.93) 4.21 0.93
December............................................................. - 0.57 16.05
Annual (or Period) Rate of Return.................................... 4.51% 8.33% 7.28%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Inception of Client Account Trading by CTA: February 1971
Inception of Client Account Trading in Program: September 1995
Number of Open Accounts as of November 30, 1997: 10
Aggregate Assets in all Programs: $742,999,489 (11/97)
Aggregate Assets in Programs: $148,840,806 (11/97)
Largest Monthly Draw-Down: 12.28% (2/96)
Largest Peak-to-Valley Draw-Down: 15.26% (2/97-8/97)
</TABLE>
- --------------------
Notes follow Table A-2
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
23
<PAGE> 25
TABLE A-1
MILLBURN RIDGEFIELD CORPORATION
DIVERSIFIED PORTFOLIO COMPOSITE
JANUARY 1, 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- --------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January......................................... 8.14 7.43 (3.09) (7.56) (2.69) (8.53)
February........................................ 5.72 (11.05) 6.81 (1.47) 5.78 (1.34)
March........................................... (2.83) 0.80 16.85 7.67 (0.70) (0.72)
April........................................... (3.01) 5.72 4.64 (2.27) 5.76 (0.73)
May............................................. 1.50 (6.72) (1.10) 4.63 (1.79) 0.90
June............................................ 0.52 3.91 0.99 5.80 (2.54) 14.25
July............................................ 8.15 1.37 (2.48) (3.00) 5.11 8.87
August.......................................... (8.52) (1.88) 1.43 (5.26) (8.06) 7.56
September....................................... 1.20 2.79 (1.84) 3.68 1.09 (0.19)
October......................................... (2.22) 10.64 0.06 3.02 (0.70) (3.95)
November........................................ (0.32) 3.96 0.20 4.76 1.33 2.66
December........................................ - 1.08 7.92 2.46 9.02 (0.73)
Annual (or Period) Rate of Return............... 7.28% 17.33% 32.82% 11.78% 10.90% 17.31%
- -----------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/92-11/30/97 16.20%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Inception of Client Account Trading by CTA: February 1971
Inception of Client Account Trading in Program: February 1971
Number of Open Accounts as of November 30, 1997: 9
Aggregate Assets in all Programs: $742,999,489 (11/97)
Aggregate Assets in Program: $317,953,263 (11/97)
Largest Monthly Draw-Down: 11.50% (2/96)
Largest Peak-to-Valley Draw-Down: 12.93% (1/96-5/96)
</TABLE>
- --------------------
Notes follow Table A-2
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
24
<PAGE> 26
TABLE A-2
MILLBURN RIDGEFIELD CORPORATION
OTHER TRADING PROGRAMS DIRECTED BY MILLBURN
FOR THE PERIOD JANUARY 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
INCEPTION NUMBER
OF CLIENT OF AGGREGATE ASSETS LARGEST LARGEST
TRADING IN OPEN IN PROGRAM MONTHLY PEAK-TO-VALLEY
NAME OF PROGRAM PROGRAM ACCOUNTS NOVEMBER 30, 1997 DRAW-DOWN DRAW-DOWN
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Program-Normal Nov-89 5 $152,645,335 10.54% (1/94) 13.74% (6/94-1/95)
Leverage
Global Program-High Jul-93 1 $33,789,724 13.23% (1/94) 20.05% (6/94-1/95)
Leverage
Currency Program-Normal Nov-89 11 $73,908,053 12.03% (8/93) 33.06% (9/92-1/95)
Leverage
Currency Program-High Jul-93 1 $14,037,554 13.10% (8/93) 29.75% (7/93-1/95)
Leverage
Grain Mar-97 1 $1,824,754 7.89% (5/97) 12.85% 4/97-9/97
<CAPTION>
PERCENTAGE RATE OF RETURN (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM 1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Global Program-Normal 11.85 11.38 25.76 (5.24) 9.10 9.66
Leverage (11 Months)
Global Program-High 9.62 11.15 32.15 (9.03) 9.34 -
Leverage (11 Months) (6 Months)
Currency Program-Normal 19.47 11.29 18.88 (7.90) (13.00) 12.47
Leverage (11 Months)
Currency Program-High 24.13 16.36 25.15 (21.29) (11.10) -
Leverage (11 Months) (6 Months)
Grain (3.87) - - - - -
(9 Months)
</TABLE>
- --------------------
Notes follow Table
PAST PERFORMANCE IS NOT NESSARILY INDICATIVE OF FUTURE RESULTS
25
<PAGE> 27
MILLBURN
NOTES TO TABLES A, A1 AND A-2
(a) "Draw-Down" is defined as losses experienced by a program over a
specified period of time.
(b) "Largest Monthly Draw-Down" is the largest monthly loss experienced by
any account in the program in any calendar month expressed as a percentage of
the total equity in the program and includes the month and year of such
draw-down.
(c) "Largest Peak-to-Valley Draw-Down" is the greatest cumulative
percentage decline in month-end net asset value (regardless of whether it is
continuous) due to losses sustained by any account in the trading program during
a period in which the initial month-end net asset value of such peak-to-valley
draw-down has not been equaled or exceeded by any subsequent month's ending net
asset value. The month(s) and year(s) of such decline from the initial month-end
net asset value to the lowest month-end net asset value are indicated. In the
case where the 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.
(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.
26
<PAGE> 28
TABLE B
SUPPLEMENTAL PERFORMANCE
MILLBURN RIDGEFIELD CORPORATION
PRO FORMA AND ACTUAL PERFORMANCE
DIVERSIFIED PORTFOLIO
WORLD RESOURCE VERSION OF THE DIVERSIFIED PORTFOLIO
JANUARY 1, 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- -----------------------------------------------------------------------------------------------------------------------
Actual Performance(i) Pro Forma Performance(ii)
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January............................. 3.37 (0.91) (3.41) (8.13) (3.03) (8.82)
February............................ 6.34 (12.05) 6.17 (2.15) 5.54 (1.74)
March............................... (4.12) 4.30 14.34 7.20 (1.27) (1.15)
April............................... (5.26) 2.16 3.83 (2.65) 5.42 (1.13)
May................................. 4.15 (8.13) (1.23) 4.45 (2.02) 0.34
June................................ (1.85) 6.52 0.58 5.20 (3.04) 14.07
July................................ 2.78 (1.14) (3.21) (3.66) 5.05 7.82
August.............................. (10.25) 1.29 1.25 (5.79) (9.04) 6.45
September........................... 0.66 3.51 (6.82) 3.24 0.76 (0.40)
October............................. 0.04 7.43 (2.42) 2.73 (0.95) (4.64)
November............................ (1.12) 3.77 1.24 5.12 1.17 2.64
December............................ - 0.56 15.81 1.86 9.39 (1.17)
Annual (or Period) Rate of Return... (6.25)% 5.59% 26.36% 6.25% 6.80% 10.83%
- ------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return(1/1/92-11/30/97) 7.96%
- ------------------------------------------------------------------------------------------------------------------
Largest Monthly Draw-Down:
Past Five Years and Year-to-Date 12.05% (2/96)
For the Period February 1996 through November 1997 12.05% (2/96)
Largest Peak-to-Valley Draw-Down:
Past Five Years and Year-to-Date 14.71% (3/97-11/97*)
For the Period February 1996 through November 1997 14.71% (3/97-11/97*)
</TABLE>
(i) Represents the actual performance of this portfolio as traded for the
Partnership for the period February 1996 (the first full month of trading)
through November 30, 1997. The actual partial month performance for January
1996 was 1.80%.
(ii) Represents pro forma performance based upon the advisor's composite
performance. See Notes to Table B. For the period January 1992 through
August 1995, the pro forma performance was based upon the composite
performance of Millburn's Diversified Portfolio. For the period September
1995 through January 1996, pro forma performance was based upon the
composite performance of Millburn's World Resource Version of the
Diversified Portfolio.
- --------------------
Notes appear at page 46.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
27
<PAGE> 29
CAMPBELL & COMPANY INC.
BACKGROUND
Campbell & Company, Inc. ("Campbell") is a Maryland corporation organized
in April 1978 as a successor to a partnership originally formed in January 1974.
Its offices are located at 210 West Pennsylvania Avenue, Suite 770, Baltimore,
Maryland 21204, and its main telephone number is 410-296-3301. Campbell has been
registered with the Commodity Futures Trading Commission ("CFTC") as a Commodity
Trading Advisor since May 1978 and a Commodity Pool Operator since September
1982, and is a member of the National Futures Association ("NFA") in such
capacities.
PRINCIPALS
Below is biographical information on the principals of Campbell in
alphabetical order.
Richard M. Bell, 45, began his employment with Campbell in May 1990 and
serves as a Senior Vice President -- Trading. His duties include managing daily
trade execution for the assets under Campbell's management. From September 1986
through May 1990, Mr. Bell was the managing general partner of several
partnerships registered as broker-dealers involved in market making on the floor
of the Philadelphia Stock Exchange ("PHLX") and Philadelphia Board of Trade
("PBOT"). From July 1975 through September 1986 Mr. Bell was a stockholder and
executive vice-president of Tague Securities, Inc., a registered broker-dealer.
Mr. Bell owns a PHLX seat and a Philadelphia Currency Participation, which are
leased out. Mr. Bell graduated from Lehigh University with a B.S. in Finance.
D. Keith Campbell, 55, has served as the Chairman of the Board of Directors
of Campbell since it began operations, was President until January 1, 1994 and
Chief Executive Officer until January 1, 1998. Mr. Campbell is the sole voting
stockholder. From 1971 through June 1978 he was a registered representative of a
futures commission merchant. Mr. Campbell has acted as a commodity trading
advisor since January 1972 when, as general partner of the Campbell Fund, a
limited partnership engaged in commodity futures trading, he assumed sole
responsibility for trading decisions made on behalf of the Fund. Since then he
has applied various technical trading models to numerous discretionary commodity
trading accounts. Mr. Campbell is registered with the CFTC and NFA as a
commodity pool operator and is registered as an Associated Person of Campbell.
William C. Clarke, III, 46, joined Campbell in June 1977. He is an
Executive Vice President and a Director of Campbell. Mr. Clarke holds a B.S. in
Finance from Lehigh University where he graduated in 1973. Mr. Clarke currently
oversees all aspects of research which involves the development of proprietary
trading models and portfolio management methods. Mr. Clarke is registered as an
Associated Person of Campbell.
Bruce L. Cleland, 50, joined Campbell in January 1993. Mr. Cleland serves
as President, Chief Executive Officer and a Director of Campbell. Prior to 1994,
he was Executive Vice President. From May 1986 through December 1992, Mr.
Cleland had served in various principal roles with the following firms:
president, F&G Management, Inc., a commodity trading advisor; president,
Institutional Brokerage Corp., a floor broker; president, Institutional Advisory
Corp., a commodity trading advisor and commodity pool operator; president,
Hewlett Trading Corporation, a commodity pool operator; principal of
Institutional Energy Corporation, an introducing broker. In March 1973, Mr.
Cleland was employed in London by Rudolf Wolff & Company, a founding member of
the London Metal Exchange. In July 1978, Mr. Cleland moved to New York to work
with Rudolf Wolff Futures Inc., a futures commission merchant, where he served
as president from January 1982 until April 1986. Mr. Cleland graduated in 1969
from Victoria University in Wellington, New Zealand where he received a Bachelor
of Commerce and Administration degree. Mr. Cleland is registered as an
Associated Person and is a Director of Campbell.
Xiaohua Hu, 34, serves as a Vice President -- Research. He has been
employed by Campbell since 1994 in the Research Department, where he has a major
role in the ongoing research and development of Campbell's trading systems. From
1992 to 1994 he was employed in Japan by Line System as a software engineer,
where he participated in the research and development of computer software,
including
28
<PAGE> 30
programs for production systems control and software development. Mr. Hu
received his B.A. in Manufacturing Engineering from Changsha University of
Technology in China in 1982. He went on to receive an M.A. and Ph.D. in Systems
and Information Engineering from the Toyohashi University of Technology, in
Japan, in 1987 and 1992 respectively, During his studies at Toyohasi, Xiaohua
was also a Visiting Researcher in Computer Science and Operations Research and
published several research papers.
Phil Lindner, 43, serves as Vice President -- Information Technology. He
has been employed by Campbell since October 1994, became the IT Director in
March 1996, and Vice President in January 1998. He oversees Campbell's computer
and telecommunications systems, including a staff of programmers that program
proprietary applications for Campbell's Trading, Fund Administration, and
Accounting functions, and provide complete computer systems support to all
Campbell employees. Prior to joining Campbell, Mr. Lindner worked as a
programmer and manager for Amtote, a provider of race-track computer systems.
James M. Little, 51, joined Campbell in April 1990 and serves as Executive
Vice President -- Marketing and as a Director of Campbell. Mr. Little holds a
B.S. in Economics and Psychology from Purdue University. From March 1989 through
April 1990 Mr. Little was a registered representative of A.G. Edwards & Sons,
Inc. From January 1984 through March 1989 he was the chief executive officer of
James Little & Associates, Inc., a registered introducing broker, commodity pool
operator and registered broker-dealer. Mr. Little has extensive experience in
the futures industry having worked in the areas of hedging, floor trading and
managed futures. He is the co-author of The Handbook of Financial Futures, and
is a frequent contributor to investment industry publications. Mr. Little is
registered as an Associated Person of Campbell.
Theresa D. Livesey, 34, joined Campbell in 1991 and serves as the Chief
Financial Officer, Secretary, Treasurer, and a Director of Campbell. In addition
to her role as CFO, Ms. Livesey also oversees administration and compliance at
Campbell. From December 1987 to June 1991 she was employed by Bank Maryland
Corp, a publicly held company. When she left she was vice president and chief
financial officer. Prior to that time, she worked with Ernst & Young. Ms.
Livesey is a C.P.A. and has a B.S. in Accounting from the University of
Delaware.
Todd Miller, 35, serves as a Vice President -- Research. He has been
employed by Campbell since 1994 in the Research Department, where he has a major
role in the ongoing research and development of Campbell's trading systems. From
1993 to 1994, Mr. Miller was an assistant professor in the department of
Computer Information Science at the University of Florida, where he taught
classes in object-oriented programming, numerical analysis and programming in C,
C++ and LISP. Mr. Miller holds a variety of degrees from the University of
Florida, beginning with an Associates degree in architecture. He followed that
in 1986 with a B.A. in Business with a concentration in computer science. In
1988 he received his M.A. in Engineering with a concentration in artificial
intelligence. He completed his education in 1993 with a Ph.D. in Engineering
with a concentration in computer simulation.
Albert Nigrin, 36, serves as a Vice President -- Research. He has been
employed by Campbell since 1995 in the Research Department, where he has a major
role in the ongoing research and development of Campbell's trading systems. From
1991-1995 Mr. Nigrin was an assistant professor in the department of Computer
Science and Information Systems at American University in Washington D.C., where
he taught classes in artificial intelligence, computer programming and
algorithms to both graduate and undergraduate students. While teaching, he also
wrote and published a book with MIT Press, Neural Networks for Pattern
Recognition. Mr. Nigrin received a B.A. in Electrical Engineering in 1984 from
Drexel University. He than proceeded directly to a Ph.D. program and received
his degree in Computer Science in 1990 from Duke University, where his doctoral
studies concentrated in the areas of artificial intelligence and neural
networks.
Markus Rutishauser, 36, serves as Vice President -- Trading, and has been
employed by Campbell & Company since October 1993, with responsibility for
day-to-day foreign exchange trading. Prior to joining Campbell, Mr. Rutishauser
worked two years at Maryland National Bank in Baltimore as an Assistant Vice
President in Foreign Exchange trading. Prior to that he was employed by Union
Bank of Switzerland, spending four years in their Zurich office and another four
years in their New York office, in the Foreign Exchange
29
<PAGE> 31
Department. Mr. Rutishauser graduated from the University of Fairfield with a
degree in Finance. He subsequently completed his MBA at the University of
Baltimore in January 1996.
David M. Salmon, 56, is a Director of Campbell. Since January 1976 Mr.
Salmon has participated actively as a consultant in the development and
implementation of research and trading software at Campbell. Prior to his work
with Campbell, Mr. Salmon worked in the field of systems development and
optimization with Systems Control, Inc. and Stanford Research Institute. Mr.
Salmon holds a B.S.E.E. from the University of Auckland, New Zealand, an
M.S.E.E. from Northeastern University and a Ph.D. in Electrical Engineering from
the University of Illinois, Urbana.
C. Douglas York, 39, has been employed by Campbell since November 1992. He
is a Senior Vice President -- Trading for Campbell. His duties include managing
daily trade execution for foreign exchange markets and forward contracts on
precious metals and energy markets. Prior to joining Campbell, Mr. York was the
Global Foreign Exchange Manager for Black & Decker. He holds a B.A. in
Government from Franklin and Marshall College. Mr. York is registered as an
Associated Person of Campbell.
Principals of Campbell may trade futures interests for their own accounts.
In addition, Campbell manages proprietary accounts for its deferred compensation
plan and a principal. The Advisor and its principals reserve the right to trade
for their own accounts. There are no written procedures for proprietary trading.
Trading records for all proprietary trading are available for review by clients
upon reasonable notice.
TRADING STRATEGY
Campbell currently offers seven distinct trading portfolios, including the
Global Diversified Large Portfolio, the Global Diversified Small Portfolio, the
Financial, Metals and Energy Small Portfolio, the Financial, Metals and Energy
Large Portfolio, the Foreign Exchange Portfolio, the Interest Rates, Stock
Indices and Commodities Portfolio and the Ark Portfolio. The General Partner and
Campbell have agreed that Campbell will initially trade on behalf of the
Partnership utilizing only the Financial, Metal and Energy Large Portfolio.
Campbell renders trading decisions for all its Portfolios based on
proprietary technical trend-following models. These models are designed to
follow intermediate to long-term price trends and also utilize quantitative
portfolio management analysis. The principal objective of the models is to
profit from major and sustained price trends. The basic concepts on which they
are built were developed through research efforts in 1976 and 1980. Since that
time, Campbell's models have continued to evolve as ongoing research and
increased computing power have expanded its ability to analyze price and market
parameters.
Campbell has two main trend-following trading models. The differences
between the two models are primarily in their sensitivity to price action. One
model, for example, may assume positions relatively quickly and place
comparatively close stop-loss orders on market entry while the other model may
tend to assume positions less quickly and consolidate profits, where available,
more slowly than the first model. Furthermore, each model may vary as to the
time or price at which the transaction determined by it is signaled. For
example, one model may attempt a transaction at any time during the day that a
price objective is reached, and the other may attempt a transaction at the
opening of the market or at the close of trading on the same day. On occasion
one of the models may trigger a long position signal in one delivery month while
the other model recommends a short position in another delivery month of the
same futures, forward or options contract. It is unlikely that both positions
would prove profitable, and in retrospect one or both trades will appear to have
been unnecessary. On occasion, the models might temporarily recommend opposing
positions in the same delivery month of the same futures, forward or options
contract, in which case the recommendations would cancel each other out, and a
neutral position would be assumed. It is Campbell's policy to follow trades
signaled by each model independent of what the other model may be recommending.
Campbell believes that utilizing more than one trading model on the same account
offers diversification, and is most beneficial when numerous contracts of each
commodity are traded.
30
<PAGE> 32
Over the past several years, Campbell's research has resulted in several
models changes and portfolio enhancements that have increased the quality of
returns (i.e., decreased variability or volatility of performance, while still
maintaining attractive returns).
First, a number of additional markets were added. Most of these were
foreign markets with low correlation to the existing markets traded, thus
overall diversity of the portfolios was increased. Additional markets may again
be added in the future. Some markets may also be deleted from time to time if
their performance does not meet expectations.
Second, an additional set of parameters was added to each trading model, as
it was found that using several different parameter sets to measure market
movement also increased diversity and smoothed the volatility of performance.
This improved quality of performance allowed for an increase in leverage,
without an increase in volatility.
Third, a "risk reduction" method was added to our models to analyze market
volatility and make adjustments to market positions. Over the course of a
long-term trend, there are times when the risk (volatility) of the market is not
justified by the potential reward. Risk reduction assesses the risk/reward ratio
of the trend, and if this ratio becomes imbalanced, the model is signaled to
exit the trade, prior to the end of the trend. While there is some risk to this
method (for example, being out of the market during a significant, fast moving
trend), research indicates that it has also added to the smoothing of
performance.
A third trading model is also used for certain markets which appear to
respond well to both trend-following and contra-trend following techniques.
All of the trading models are applied continuously to various Campbell
portfolios. Campbell may in the future develop additional trading models and
modify models currently in use and, in all likelihood, will employ such models
for all accounts in the Company's portfolios.
Campbell employs a capital management strategy, the purpose of which is to
determine periods of high and low risk, on a market-by-market basis. When, in
the opinion of Campbell such points are reached, positions may be reduced or
increased, so that portfolio risk is decreased or increased, respectively. It is
possible, however that the benefit of having increased or decreased portfolio
risk will not be realized. For example, if a point of high risk is reached and
portfolio risk is decreased by a reduction in certain positions, and the markets
continue to produce profits before the portfolio assets can be redeployed in
additional market positions, the return will be less than it otherwise would
have been had the account been more fully invested. Campbell may, from time to
time, increase or decrease the number of contracts held based on increases or
decreases in an account, changes in internal market conditions, perceived
changes in individual markets or portfolio-wide risk factors, or other factors
which Campbell deems relevant.
Campbell trades futures and option contracts on all of the major U.S.
futures exchanges, futures contracts on certain foreign futures exchanges, and
some forward contracts in the over-the-counter market in currencies, metals and
energy. Campbell has not previously traded in foreign options on futures but may
do so in the future. Campbell may also engage in "exchange for physicals" (or
"EFPs"). An EFP is a transaction that is executed off-exchange, on the
over-the-counter market, that is subsequently converted into an equivalent
number of futures contracts on a futures exchange.
FINANCIAL, METALS & ENERGY LARGE PORTFOLIO
The Financial, Metals & Energy Large Portfolio trades in foreign currencies
(including forward contracts in the cash markets), precious and base metals,
energy products, stock market indices and interest rates. The data in the
composite table does not reflect the performance of any one account. An
individual account may have realized more or less favorable results than the
composite indicates.
31
<PAGE> 33
PERFORMANCE OF CAMPBELL & COMPANY, INC.
Table A reflects the composite capsule performance results of all accounts
traded according to the Financial, Metals & Energy Large Portfolio of Campbell
for the period January 1992 through November 1997.
Table A-1 reflects the composite capsule performance results of all other
trading programs directed by Campbell for the time periods indicated on the
table.
TABLE A
CAMPBELL & COMPANY, INC.
FINANCIAL, METALS & ENERGY LARGE PORTFOLIO
JANUARY 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January............................... 5.26 5.46 (4.53) (4.67) (0.71) (5.54)
February.............................. 2.26 (5.63) 5.85 (6.81) 13.74 (3.58)
March................................. (2.08) 5.62 9.58 7.00 (5.79) 1.05
April................................. (3.84) 3.49 2.08 (1.77) 2.99 (2.78)
May................................... (1.84) (1.71) 0.88 (2.78) 2.81 1.14
June.................................. 2.23 1.29 (0.90) 5.25 2.55 10.66
July.................................. 9.27 0.01 (4.05) (4.36) 5.55 10.40
August................................ (5.14) 1.78 5.83 (3.79) (4.33) 4.99
September............................. 4.23 2.47 (3.47) 6.91 (4.83) (2.17)
October............................... 2.39 12.06 1.20 0.36 (6.19) (4.67)
November.............................. 0.57 12.22 (0.24) (7.02) 0.59 6.26
December.............................. - (4.29) 6.82 (5.07) (0.08) (1.36)
Annual (or Period) Rate of Return..... 13.15% 35.96% 19.46% (16.74)% 4.68% 13.47%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Compound Average Annual Rate of Return (1/92-11/30/97) 10.63%
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Inception of Trading by CTA: January 1972
Inception of Trading in Program: April 1983
Number of Open Accounts as of November 30, 1997: 5
Aggregate Assets (Excluding "Notional" Equity) in all
Programs: $828,315,970 (11/97)
Aggregate Assets (Including "Notional" Equity) in all
Programs: $856,316,499 (11/97)
Aggregate Assets (Excluding "Notional" Equity) in Program: $704,188,221 (11/97)
Aggregate Assets (Including "Notional" Equity) in Program: $722,493,221 (11/97)
Largest Monthly Draw-Down: 7.02% (11/94)
Largest Peak-to-Valley Draw-Down: 31.75% (7/93-1/95)
</TABLE>
- --------------------
Notes follow Table A-1
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
32
<PAGE> 34
TABLE A-1
OTHER TRADING PROGRAMS DIRECTED BY CAMPBELL & COMPANY, INC.
FOR THE PERIOD JANUARY 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
AGGREGATE ASSETS AGGREGATE ASSETS
INCEPTION NUMBER IN PROGRAM IN PROGRAM
OF OF NOVEMBER 1997 NOVEMBER 1997 LARGEST
TRADING OPEN (EXCLUDING (INCLUDING MONTHLY
NAME OF PROGRAM PROGRAM ACCOUNTS NOTIONAL) NOTIONAL) DRAW-DOWN
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Global Diversified Large
Portfolio........................................... Feb-86 1 $48,151,729 $48,151,729 8.45% (2/94)
Global Diversified Small
Portfolio........................................... Jun-97 10 $ 9,629,333 $10,199,333 5.75% (8/97)
Financial, Metals & Energy Small
Portfolio........................................... Feb-95 43 $47,559,568 $50,774,059 5.78% (9/95)
Foreign Exchange Portfolio............................ Nov-90 2 $ 7,886,487 $13,747,525 11.66% (11/94)
Interest Rates, Stock Indices and
Commodities ("ISC") Portfolio....................... Feb-96 1 $ 9,572,932 $ 9,572,932 6.73% (12/96)
The Ark Portfolio..................................... Sep-96 5 $ 1,327,700 $ 1,377,700 3.99% (4/97)
Diversified Portfolio................................. Jan-72 N/A-Closed N/A-Closed N/A-Closed 10.44% (2/94)
Global Financial Portfolio............................ Dec-93 N/A-Closed N/A-Closed N/A-Closed 5.24% (2/94)
<CAPTION>
LARGEST
PEAK-TO- PERCENTAGE RATE OF RETURN
VALLEY (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
DRAW-DOWN 1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Global Diversified Large
Portfolio........................ 26.05% (7/93-2/94) 9.91 26.78 6.52 9.61 2.39 7.68
(11 Months)
Global Diversified Small
Portfolio........................ 5.75% (8/97-8/97) 7.85 -- -- -- -- --
(6 Months)
Financial, Metals & Energy Small
Portfolio........................ 7.61% (2/97-5/97) 11.28 37.83 20.34 -- -- --
(11 Months) (11 Months)
Foreign Exchange Portfolio......... 44.73% (7/93-1/95) 17.32 43.04 26.36 (21.19) (8.49) 17.67
(11 Months)
Interest Rates, Stock Indices and
Commodities ("ISC") Portfolio.... 9.94% (12/96-4/97) 10.57 25.73 -- -- -- --
(11 Months) (11 Months)
The Ark Portfolio.................. 4.48% (2/97-4/97) 16.74 19.94 -- -- -- --
(11 Months) (4 Months)
Diversified Portfolio.............. 32.10% (7/93-2/94*) -- -- (4.21) 8.52 (5.86) (1.80)
(1 Month)
Global Financial Portfolio......... 19.20% (12/93-1/95*) -- -- 9.30 (13.16) (2.64) --
(3 Months) (1 Month)
</TABLE>
---------------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
33
<PAGE> 35
CAMPBELL
NOTES TO TABLES A AND A-1
For the Global Diversified Small Portfolio, the Diversified Portfolio, the
Financial, Metals and Energy Small Portfolio, the Ark Portfolio and the Foreign
Exchange Portfolio Campbell has adopted the "Fully Funded Subset" method of
computing rate of return and performance disclosure, referred to as the "Fully
Funded Subset" method, pursuant to an Advisory (the "Fully Funded Subset
Advisory") published by the CFTC. The Fully Funded Subset refers to that subset
of accounts included in the applicable composite which is funded entirely by
actual funds (as defined in the Advisory).
To qualify for the use of the Fully Funded Subset method, the Fully Funded
Subset Advisory requires that certain computations be made in order to arrive at
the Fully Funded Subset and that the accounts for which performance is so
reported meet two tests which are designed to provide assurance that the Fully
Funded Subset and the resultant rates of return are representative of the
trading program. Campbell has performed these tests for periods subsequent to
June 30, 1993 for the Diversified Portfolio and Foreign Exchange Portfolio. The
same calculations have been performed for the Financial, Metals and Energy Small
Portfolio, the Ark Portfolio and the Global Diversified Small Portfolio which
commenced trading in February 1995, September 1996 and June 1997, respectively.
However, for Portfolios trading prior to the aforementioned dates, 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") as described in Note
(d). Campbell believes that this method yields substantially the same rates of
return as would the Fully-Funded Subset Method.
(a) "Draw-Down" is defined as losses experienced by an account over a
specified period of time.
(b) "Largest Monthly Drawn-Down" is the largest monthly loss experienced by
the portfolio on a composite basis in any calendar month expressed as a
percentage of the total equity in the portfolio and includes the month and year
of such draw-down. A small number of accounts in the portfolio composites have
experienced monthly drawdowns which are materially larger than the largest
composite monthly drawdown. These variances result from such factors as small
account size (i.e., accounts with net assets of less than the $500,000
prescribed portfolio minimum, which therefore trade fewer contracts than the
standard portfolio), intra-month account opening or closing, significant
intra-month additions or withdrawals, trading commissions in excess of the
stated average and investment restrictions imposed by the client.
(c) "Largest Peak-to-Valley Drawn-Down" is the largest cumulative loss
experienced by the portfolio on a composite basis in any consecutive monthly
period on a compounded basis and includes the time frame of such drawdown. A
small number of accounts in the portfolio composites have experienced
peak-to-valley drawdowns which are materially larger than the largest composite
peak-to-valley drawdown. These variances result from such factors as small
account size (i.e., accounts with net assets of less than the $500,000
prescribed portfolio minimum, which therefore trade fewer contracts than the
standard portfolio), intra-month account opening or closing, significant
intra-month additions or withdrawals, trading commissions in excess of the
stated average and investment restrictions imposed by the client. In the case
where a trading program is in a current draw-down or was in a drawn-down when it
closed, the month of the lowest net asset value of such draw-down is disclosed
followed by an asterisk(*).
For purposes of the Largest Peak-to-Valley Drawn-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
34
<PAGE> 36
exponentially changed by the factor of one (1) divided by the number of years in
the performance summary and then one (1) is subtracted. The Compound Average
Annual Rate of Return appears in Table A.
Monthly Rate of Return (Monthly ROR) for the Global Diversified Large
Portfolio, the Financial, Metals & Energy Large Portfolio, the Interest Rate,
Stock Indices and Commodities Portfolio and the Global Financial Portfolio is
calculated by dividing the net profit or loss by the assets at the beginning of
such period. Additions and withdrawals occurring during the period are included
as an addition to or deduction from beginning net assets in the calculations of
Monthly ROR, except for accounts which close on the last day of a period in
which case the withdrawal is not subtracted from beginning net assets for
purposes of this calculation. Beginning in January 1987, Monthly ROR is
calculated using the OAT method of computation. This computation method is one
of the methods approved by the CFTC to reduce the distortion caused by
significant additions or withdrawals of capital during a month. The records of
many of the accounts in the tables prior to 1987 do not document the exact day
within a month that accounts were opened or closed. Accordingly, there is
insufficient data to calculate Monthly ROR during such periods using the OAT
method. Campbell & Company has no reason to believe that the pre-1987 annual
rates of return would be materially different if the OAT method were used to
calculate such returns. The OAT method excludes from the calculation of rate of
return those accounts which had material intra-month additions or withdrawals
and accounts which were open for only part of the month. In this way, the
composite rate of return is based on only those accounts whose Monthly ROR is
not distorted by intra-month changes.
In this Monthly ROR calculation, accounts are excluded from both net
performance and beginning equity if their inclusion would materially distort the
Monthly ROR. 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 each month subsequent to June 1993 (Diversified Portfolio
and Foreign Exchange Portfolio) and January 1995 (Financial, Metal and Energy
Small Portfolio) is calculated by dividing net performance of the Fully Funded
Subset by the beginning equity of the Fully Funded Subset, except in periods of
significant additions to or withdrawals from the accounts which are 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 calculated pursuant to the Fully Funded Subset
method.
ADDITIONAL FOOTNOTE FOR THE GLOBAL DIVERSIFIED PORTFOLIO AND DIVERSIFIED
PORTFOLIO
As of February 1, 1995, all accounts in the Diversified Portfolio
transferred to the Global Diversified Portfolio. The Diversified Portfolio is no
longer offered as a trading program.
Currently, two versions of the Global Diversified Portfolio are offered:
the Global Diversified Large Portfolio ("GD Large") and the Global Diversified
Small Portfolio ("GD Small"). The GD Large Portfolio is appropriate for accounts
greater than $10 million in size. Accounts in this portfolio trade certain
contracts in the cash markets which do not have futures equivalents. Prior to
June 1997, all Global Diversified accounts were traded in the GD Large
Portfolio. The GD Small Portfolio began in June 1997, when accounts smaller than
$10 million were transferred from the GD Large Portfolio to the GD Small
Portfolio.
ADDITIONAL FOOTNOTE FOR THE FINANCIAL, METALS & ENERGY LARGE PORTFOLIO AND THE
FINANCIAL, METALS & ENERGY SMALL PORTFOLIO
Currently, two versions of the Financial, Metals & Energy Portfolio are
offered: the Financial, Metals & Energy Large Portfolio ("FME Large"), and the
Financial, Metals & Energy Small Portfolio ("FME Small"). The FME Large
Portfolio is appropriate for accounts greater than $10 million in size. Accounts
in this portfolio trade certain contracts in the cash markets which do not have
futures equivalents. Prior to February 1995, all Financial, Metals & Energy
accounts were traded together in the FME Large Portfolio. The FME Small
Portfolio began in February 1995, when accounts smaller than $10 million were
transferred from the FME Large to the FME Small Portfolio.
35
<PAGE> 37
TABLE B
CAMPBELL & COMPANY, INC.
PRO FORMA PERFORMANCE
FINANCIAL, METALS & ENERGY LARGE PORTFOLIO
JANUARY 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January............................... 5.03 4.63 (4.90) (5.16) (1.31) (6.18)
February.............................. 1.71 (6.52) 4.78 (7.17) 12.41 (4.08)
March................................. (2.43) 4.98 8.80 6.55 (5.35) 0.54
April................................. (4.18) 2.84 1.42 (2.42) 2.23 (3.32)
May................................... (2.51) (2.37) 0.14 (3.21) 2.11 0.59
June.................................. 1.57 0.65 (1.63) 4.80 2.36 10.28
July.................................. 8.78 (0.64) (4.74) (4.84) 4.57 9.25
August................................ (6.12) 1.14 5.09 (3.89) (4.40) 4.08
September............................. 4.12 1.86 (4.13) 6.38 (5.44) (2.12)
October............................... 1.77 12.79 0.43 (0.14) (6.67) (5.28)
November.............................. 0.10 13.08 (0.92) (7.36) 0.12 5.83
December.............................. - (5.01) 6.07 (5.60) (0.58) (2.69)
Annual (or Period) Rate of Return..... 7.12% 28.68% 9.72% (21.11)% (1.47)% 5.35%
- -------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/92-11/30/97) 3.68%
- -------------------------------------------------------------------------------------------------------------
Largest Monthly Draw-Down: 7.36% (11/94)
Largest Peak-to-Valley Draw-Down: 36.99% (8/93-1/95)
</TABLE>
- --------------------
Notes appear at page 46.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
36
<PAGE> 38
ARA PORTFOLIO MANAGEMENT COMPANY
PAST PERFORMANCE
Table A represents the composite performance record of ARA's Gamma Program
for the period June 1992 through November 1997.
Table A-1 represents the composite capsule performance results of all other
trading programs directed by ARA for the time periods indicated.
TABLE A
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
ARA GAMMA PROGRAM
JUNE 8, 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ----------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January........................................ 5.88 (5.54) 0.07 1.24 0.05 -
February....................................... 10.85 (13.28) 6.08 (2.16) 9.05 -
March.......................................... 6.53 5.47 5.09 3.41 0.51 -
April.......................................... (0.73) 14.75 (5.25) 2.83 8.56 -
May............................................ (0.44) (9.56) (4.42) 13.54 (1.41) -
June........................................... (5.02) 5.95 (0.30) 11.90 3.58 11.69
July........................................... (2.90) 0.89 (6.83) (1.92) 3.18 4.51
August......................................... (0.52) 0.67 (0.37) (8.34) (5.63) 3.85
September...................................... (6.48) 4.07 (4.19) (3.05) (4.43) (1.84)
October........................................ (3.14) 8.61 3.55 1.33 0.30 (2.05)
November....................................... 1.30 (5.48) 2.69 14.48 6.71 8.37
December....................................... - (0.42) 10.32 2.00 6.98 0.76
Annual (or Period) Rate of Return.............. 4.03% 2.65% 5.09% 38.01% 29.54% 27.27%
- ------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (6/8/92-11/30/97) 18.58%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
R>
<TABLE>
<S> <C> <C>
Inception of Trading by CTA: June 8, 1992
Inception of Trading in Program: June 8, 1992
Number of Open Accounts as of November 30, 1997: 15
Aggregate Assets in all Programs: $176,174,478 (11/97)
Aggregate Assets in Program: $145,335,992 (11/97)
Largest Monthly Draw-Down: 14.46% (2/96)
Largest Peak-to-Valley Draw-Down: 30.32% (4/95-2/96)
</TABLE>
- --------------------
Notes follow Table A-1
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
37
<PAGE> 39
TABLE A-1
OTHER TRADING PROGRAMS DIRECTED BY ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
FOR THE PERIOD FEBRUARY 1993 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
INCEPTION NUMBER AGGREGATE ASSETS
OF OF IN PROGRAM LARGEST
TRADING OPEN NOVEMBER 30, MONTHLY
NAME OF PROGRAM PROGRAM ACCOUNTS 1997 DRAW-DOWN
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ARA Alpha Program Feb-93 2 $30,838,486 6.69% (2/96)
<CAPTION>
LARGEST
PEAK-TO- PERCENTAGE RATE OF RETURN
VALLEY (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM DRAW-DOWN 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ARA Alpha Program 9.62% (4/95-2/96) 4.7 7.8 8.9 24.1 13.9
(11 Months) (11 Months)
</TABLE>
- --------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
38
<PAGE> 40
ARA PORTFOLIO MANAGEMENT COMPANY, L.L.C.
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
any account in the program in any calendar month expressed as a percentage of
the total equity in the program and includes the month and year of such
draw-down.
(c) "Largest Peak-to-Valley Draw-Down" is the greatest cumulative
percentage decline in month-end net asset value (regardless of whether it is
continuous) due to losses sustained by any account in the trading program during
a period in which the initial month-end net asset value of such draw-down is not
equaled or exceeded by any subsequent month-end net asset value. The months and
year(s) of such decline from the initial month-end net asset value to the lowest
month-end net asset value are indicated. In the case where the trading 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 (*).
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.
(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 Table A.
Monthly rate of return ("Monthly ROR") is calculated by dividing net
performance by the beginning equity adjusted for all time-weighted deposits less
all time-weighted withdrawals during the period.
39
<PAGE> 41
TABLE B
SUPPLEMENTAL PERFORMANCE
ARA PORTFOLIO MANAGEMENT COMPANY
PRO FORMA AND ACTUAL PERFORMANCE
ARA GAMMA PROGRAM
JUNE 8, 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- -----------------------------------------------------------------------------------------------------------------------
Actual Pro Forma Performance(ii)
Performance(i)
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January.............................. 6.88 (5.45) 0.11 1.08 (0.07) -
February............................. 11.14 (13.51) 6.06 (2.54) 9.87 -
March................................ 6.78 5.19 5.10 3.82 0.43 -
April................................ (1.19) 14.76 (5.39) 3.56 9.35 -
May.................................. (0.72) (9.93) (4.55) 13.84 (2.14) -
June................................. (6.52) 5.92 (0.38) 12.87 3.74 13.28
July................................. (3.06) 0.73 (7.68) (2.87) 3.35 4.57
August............................... (1.39) 0.62 (0.45) (8.46) (6.93) 3.95
September............................ (6.63) 4.55 (4.30) (3.23) (4.30) (2.52)
October.............................. (2.76) 8.49 3.80 1.47 (0.28) (2.90)
November............................. 1.28 (5.94) 2.65 15.11 6.63 9.16
December............................. - (0.60) 10.65 1.98 7.42 0.47
Annual (or Period) Rate of Return.... 2.24% 1.23% 4.10% 39.48% 28.70% 27.83%
- ------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (6/8/92-11/30/97) 17.89%
- ------------------------------------------------------------------------------------------------------------------
Largest Monthly Draw-Down:
Past Five Years and Year-to-Date 13.51% (2/96)
For the Period May 1997 through November 1997 6.63% (9/97)
Largest Peak-to-Valley Draw-Down:
Past Five Years and Year-to-Date 23.71% (4/95-2/96)
For the Period May 1997 through November 1997 19.45% (5/97-10/97*)
</TABLE>
(i) Represents the actual performance of this Portfolio as traded for the
Partnership for the period May 1997 (when ARA began trading for the
Partnership) through November 30, 1997.
(ii) Represents pro forma performance based upon the advisor's composite
performance. See Notes to Table B.
- --------------------
Notes appear at page 46
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
40
<PAGE> 42
WILLOWBRIDGE ASSOCIATES INC.
WILLOWBRIDGE'S SYSTEMS, APPROACHES AND PROGRAMS (PAGE 86)
In connection with Willowbridge, the term "trading system" refers to a
computerized technical, systematic trading program of Willowbridge, the term
"trading approach" refers to a discretionary trading program of Willowbridge,
and the term "trading strategy" refers to either a trading system or a trading
approach. Willowbridge's trading strategies are available only through one of
its four "investment programs". An investment program consists of one or more
trading strategies or a combination thereof. For purposes of the past
performance presentation herein, each of the terms "trading system", "trading
approach", "trading strategy" and "investment program" means a "trading program"
as defined in Part 4 of the regulations of the CFTC.
PAST PERFORMANCE
Table A sets forth the composite capsule performance record of all accounts
traded according to the Argo Trading System of Willowbridge for the period
January 1992 through November 1997.
Table A-1 represents the composite capsule performance results of all other
trading systems, approaches and programs directed by Willowbridge during the
periods indicated.
TABLE A
WILLOWBRIDGE ASSOCIATES INC.
ARGO TRADING SYSTEM
JANUARY 1, 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ---------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January........................... 7.92 2.61 (4.49) (9.14) (9.01) (7.71)
February.......................... 9.06 (16.70) 11.13 (6.86) 18.66 (2.15)
March............................. 0.98 7.30 18.39 6.58 0.37 (4.85)
April............................. 0.29 17.39 8.94 (2.31) 3.99 (0.31)
May............................... (4.84) (8.52) 5.00 16.12 1.34 (0.40)
June.............................. (1.28) (0.80) (2.47) 11.47 5.04 5.69
July.............................. 8.83 (14.84) (0.72) 3.23 3.15 20.04
August............................ (12.63) 3.16 1.58 (2.83) (6.83) 13.84
September......................... (4.81) 2.93 (2.05) 2.20 (8.42) (6.24)
October........................... (1.82) 12.24 4.36 1.42 (3.75) (2.55)
November.......................... 4.35 20.33 2.19 1.74 4.99 6.53
December.......................... - (5.75) 8.02 (0.32) 9.77 1.79
Annual (or Period) Rate of 3.83% 12.46% 59.52% 20.28% 17.10% 22.09%
Return...........................
- -----------------------------------------------------------------------------------------------------------------------
Compound Average Annual Rate of Return (1/1/92-11/30/97) 21.74%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Inception of Client Account Trading by CTA: August 1988
Inception of Client Account Trading in Program: August 1988
Number of Open Accounts as of November 30, 1997: 56
Aggregate Assets (Excluding "Notional" Equity) in all
Programs: $707,241,708 (11/97)
Aggregate Assets (Including "Notional" Equity) in all
Programs: $934,197,300 (11/97)
Aggregate Assets (Excluding "Notional" Equity) in Program: $179,159,958 (11/97)
Aggregate Assets (Including "Notional" Equity) in Program: $216,776,089 (11/97)
Largest Monthly Draw-Down: 20.49% (2/96)
Largest Peak-to-Valley Draw-Down: 31.13% (5/96-7/96)
</TABLE>
- --------------------
Notes follow Table A-1
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
41
<PAGE> 43
TABLE A-1
OTHER TRADING PROGRAMS DIRECTED BY WILLOWBRIDGE ASSOCIATES INC.
FOR THE PERIOD JANUARY 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
AGGREGATE ASSETS AGGREGATE ASSETS
INCEPTION NUMBER IN PROGRAM IN PROGRAM
OF CLIENT OF NOVEMBER 30, 1997 NOVEMBER 30, 1997 LARGEST
TRADING IN OPEN (EXCLUDING (INCLUDING MONTHLY
NAME OF PROGRAM PROGRAM ACCOUNTS NOTIONAL FUNDS) NOTIONAL FUNDS) DRAW-DOWN
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Vulcan Trading System.............. Aug-88 25 $ 37,443,203 $ 54,177,702 19.39% (2/96)
Titan Trading System............... Aug-88 10 $ 16,022,218 $ 30,596,005 15.02% (2/94)
Rex Trading System................. Aug-88 1 $ 89,928 $ 1,489,110 25.19% (2/96)
Siren Trading System............... Jan-91 12 $ 23,612,673 $ 48,636,475 12.39% (8/93)
XLIM Trading Approach.............. Aug-88 39 $ 345,158,963 $ 411,393,780 10.73% (8/97)
MTECH Trading Approach............. Jan-91 7 $ 34,229,015 $ 61,061,748 12.44% (2/96)
CFM Trading Program................ Jan-93 4 $ 21,060,598 $ 26,533,950 18.08% (2/94)
Currency Trading Program........... May-91 2 $ 7,998,413 $ 12,998,413 10.31% (8/93)
Primary Trading Program............ Jan-93 16 $ 42,466,739 $ 70,534,028 17.06% (2/96)
Atlas Trading System............... Nov-89 N/A-Closed N/A-Closed N/A-Closed 16.57% (1/92)
<CAPTION>
LARGEST
PEAK-TO- PERCENTAGE RATE OF RETURN
VALLEY (COMPUTED ON A COMPOUNDED MONTHLY BASIS)
NAME OF PROGRAM DRAW-DOWN 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Vulcan Trading System.............. 19.03% (1/92-6/92) 15.21 12.96 57.62 14.67 33.97 19.30
(11 Months)
Titan Trading System............... 27.80% (8/93-5/94) 4.18 31.91 68.10 10.06 23.28 32.16
(11 Months)
Rex Trading System................. 78.84% (9/90-9/96*) (3.51) (27.37) (13.07) (12.49) (10.37) (18.54)
(11 Months)
Siren Trading System............... 21.99% (7/93-10/93) 23.31 1.41 25.12 37.88 9.45 (1.39)
(11 Months)
XLIM Trading Approach.............. 29.10% (8/93-1/95) (6.53) 31.06 31.28 (19.68) 22.30 8.36
(11 Months) (5 Months) (3 Months)
MTECH Trading Approach............. 21.37% (8/93-2/94) (6.34) 45.73 53.22 21.68 32.48 25.13
(11 Months)
CFM Trading Program................ 31.83% (8/93-9/94) (5.79) 31.66 24.52 (10.51) 29.49 --
(11 Months)
Currency Trading Program........... 25.32% (7/93-8/94) 10.86 (0.37) 28.55 (10.26) (8.59) 16.96
(11 Months)
Primary Trading Program............ 22.52% (5/96-7/96) 9.76 14.45 56.76 22.70 16.79 --
(11 Months)
Atlas Trading System............... 46.67% (10/90-5/92) -- -- -- -- -- 18.29
</TABLE>
---------------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
42
<PAGE> 44
WILLOWBRIDGE ASSOCIATES INC.
NOTES TO TABLES A AND A-1
(a) "Draw-Down" is defined as losses experienced by an account over a
specified period of time.
(b) "Largest Monthly Draw-Down" is the largest monthly trading loss
experienced by any account in the program in any calendar month covered by the
table, expressed as a percentage of the total equity and includes the month and
year of such draw-down.
In reviewing its accounts to determine the worst draw-down figures for any
account included in the composite capsules, Willowbridge has excluded accounts
in any month during which the account has (a) been opened or closed, (b)
experienced material additions or withdrawals, or (c) been phased in or out of
trading a full portfolio, in order to obtain representative figures.
(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 trading losses sustained by any account in the trading
program during a period covered by the table, in which the initial month-end net
asset value of such peak-to-valley draw-down is not equaled or exceeded by any
subsequent month's ending net asset value of the account, expressed as a
percentage of total equity. The months and year(s) of such decline from the
initial month-end net asset value to the lowest month-end net asset value are
indicated. In the case where the trading 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
(*).
In reviewing its accounts to determine the worst draw-down figures for any
account included in the composite capsules, Willowbridge has excluded accounts
in any month during which the account has (a) been opened or closed, (b)
experienced material additions or withdrawals, or (c) been phased in or out of
trading a full portfolio, in order to obtain representative figures.
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.
(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 Table A.
Monthly Rate of Return ("Monthly ROR") in the accompanying performance
capsules for Argo (beginning January 1992), Vulcan (beginning July 1994), Titan
(beginning July 1995), Siren (beginning April 1995), CFM (beginning January
1993), Currency (beginning January 1992) and Primary (beginning August 1995),
have been calculated using the Fully Funded Subset Method of computing rate of
return and presenting performance disclosure, pursuant to an Advisory published
by the CFTC. To qualify for use of the Fully Funded Subset method, the Advisory
requires that certain computations be made in order to arrive at the Fully
Funded Subset and that the accounts for which performance is so reported meet
two tests which are designed to provide assurance that the Fully Funded Subset
and the resultant rates of return are representative of the trading program.
Willowbridge has performed these tests starting in the periods disclosed above.
Additionally, with respect to the performance capsules for the systems and
programs noted above, "notional" funds were not traded prior to the respective
Fully Funded Subset Method implementation dates as noted above.
Under the Fully Funded Subset Method, Monthly ROR has been 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.
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Otherwise, monthly rate of return is calculated by dividing net performance
by beginning equity adjusted by the value of additions and withdrawals pursuant
to the time-weighted method.
The following matrix is provided to show the relationship between rate of
return and the various funding levels that may exist in a program.
<TABLE>
<CAPTION>
ACTUAL
RATE OF
RETURN(1) RATES OF RETURN BASED ON VARIOUS FUNDING LEVELS(3)
- --------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
20.00% 20.00% 26.67% 30.00% 40.00% 50.00% 60.00% 100.00%
15.00% 15.00% 20.00% 22.50% 30.00% 37.50% 45.00% 75.00%
10.00% 10.00% 13.33% 15.00% 20.00% 25.00% 30.00% 50.00%
5.00% 5.00% 6.67% 7.50% 10.00% 12.50% 15.00% 25.00%
0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
-5.00% -5.00% -6.67% -7.50% -10.00% -12.50% -15.00% -25.00%
-10.00% -10.00% -13.33% -15.00% -20.00% -25.00% -30.00% -50.00%
-15.00% -15.00% -20.00% -22.50% -30.00% -37.50% -45.00% -75.00%
-20.00% -20.00% -26.67% -30.00% -40.00% -50.00% -60.00% -100.00%
-25.00% -25.00% -33.33% -37.50% -50.00% -62.50% -75.00% -125.00%
-30.00% -30.00% -40.00% -45.00% -60.00% -75.00% -90.00% -150.00%
-35.00% -35.00% -46.67% -52.50% -70.00% -87.50% -105.00% -175.00%
-40.00% -40.00% -53.33% -60.00% -80.00% -100.00% -120.00% -200.00%
----------------------------------------------------------------------------------
100.00% 75.00% 66.67% 50.00% 40.00% 33.33% 20.00%
LEVEL OF FUNDING(2)
</TABLE>
- ---------------
Footnotes to Matrix:
(1) This column represents the range of actual rates of return for fully funded
accounts reflected in the accompanying performance capsule.
(2) This represents actual funds divided by the fully funded trading level
expressed as a percentage. Funding levels displayed in the matrix include
the most common funding percentages utilized by the accounts and the lowest
level of the funding allowed by Willowbridge Associates Inc.
(3) These columns represent the rate of return experienced by an account at
various levels of funding traded by the trading advisor. The rates of
returns for accounts that are not fully funded are inversely proportional to
the actual rates of return based on the percentage of level of funding.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
GENERAL NOTES TO PERFORMANCE CAPSULES
Brokerage commissions charged to accounts in the performance capsules may
vary substantially. Not all accounts earn interest income. Monthly or quarterly
management fees and quarterly or annual incentive fees charged may vary between
accounts. Some accounts are not charged a management fee. Certain accounts paid
specific fees unrelated to Willowbridge's trading that were treated as expenses.
Beginning July 1, 1995, such unrelated fees are reflected in the performance
capsules as withdrawals.
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any single account
represented in the records. An investor should note that in a presentation of
past performance data, different accounts, even though traded according to the
same Strategy or Program, can have varying investment results. The reasons for
this are numerous material differences among accounts: (a) procedures governing
time for the commencement of trading and means of moving toward full portfolio
commitment of new accounts; (b) the period during which accounts are active; (c)
leverage employed; (d) the size of the account, which can influence the size of
the positions taken and restrict the account from participating in all markets
available to a Strategy or 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 fees and incentive
fees and the amount of brokerage commissions; (g) the timing of
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<PAGE> 46
orders to open or close positions; (h) the market conditions, which in part
determine the quality of trade executions; and (i) trading instructions and
restrictions of the client. Notwithstanding these material differences among
accounts, the composites remain valid representations of the accounts included
therein.
Additionally, the Strategy or Program used (although all accounts may be traded
in accordance with the same Strategy or Program, such Strategy or Program may be
modified periodically as a result of ongoing research and development by
Willowbridge), may have an affect on performance results.
TABLE B
SUPPLEMENTAL PERFORMANCE
WILLOWBRIDGE ASSOCIATES, INC.
PRO FORMA AND ACTUAL PERFORMANCE
ARGO TRADING PROGRAM
JANUARY 1992 THROUGH NOVEMBER 30, 1997
<TABLE>
<CAPTION>
Percentage Monthly Rate of Return
- ---------------------------------------------------------------------------------------------------------------------
Actual Pro Forma Performance(ii)
Performance(i)
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January............................... 7.36 3.27 (5.36) (9.47) (9.27) (7.95)
February.............................. 8.68 (16.93) 11.27 (7.27) 18.38 (2.63)
March................................. 0.01 6.47 17.67 6.86 (0.18) (5.37)
April................................. (0.19) 17.66 8.26 (2.74) 3.37 (0.62)
May................................... (4.98) (9.13) 4.63 16.32 1.01 (0.72)
June.................................. (2.06) (1.73) (1.84) 11.23 5.26 5.33
July.................................. 9.00 (14.82) (1.45) 3.30 3.21 18.81
August................................ (13.42) 2.33 1.42 (2.57) (7.60) 12.07
September............................. (4.90) 2.95 (2.76) 1.32 (9.10) (5.94)
October............................... (2.15) 11.96 4.65 1.28 (4.61) (3.18)
November.............................. 3.75 20.30 2.56 1.13 5.46 6.18
December.............................. - (5.63) 6.83 (0.53) 10.75 1.40
Annual (or Period) Rate of Return..... (1.25)% 9.46% 53.54% 17.28% 13.80% 15.08%
- -------------------------------------------------------------------------------------------------------------------
d Average Annual Rate of Return (1/1/92-11/30/97) 17.13%
- -------------------------------------------------------------------------------------------------------------------
Largest Monthly Draw-Down:
Past Five Years and Year-to-Date 16.93 (2/96)
For the Period May 1997 through November 1997 13.42 (8/97)
Largest Peak-to-Valley Draw-Down:
Past Five Years and Year-to-Date 23.94 (5/96-7/96)
For the Period May 1997 through November 1997 19.43 (8/97-10/97*)
</TABLE>
(i) Represents the actual performance of this portfolio as traded for the
Partnership for the period May 1997 (when Willowbridge began trading for
the Partnership) through November 30, 1997.
(ii) Represents pro forma performance based upon the advisor's composite
performance. See Notes to Table B.
- --------------------
Notes follow Table
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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<PAGE> 47
NOTES TO TABLES B AND B-1 FOR ALL ADVISORS
Table B and, where applicable, Table B-1 were prepared by the General
Partner and present the results of applying certain arithmetical calculations to
various figures in each Advisor's composite performance record for the program
or portfolio which will be traded for the Partnership in order to indicate
approximately what the month-to-month effect on such figures would have been had
the accounts in question been charged the brokerage, management and incentive
fees which will be paid by the Partnership, as opposed to the brokerage
commissions and management and incentive fees which they did in fact pay, and
received interest income on 80% of account equity. Adjustments for pro forma
other expenses and continuous offering expenses were made to each of the Tables
B and B-1, where applicable, based upon an assumed average partnership size of
$120 million. Beginning with February 1996 for JWH and Millburn, and May 1997
for ARA and Willowbridge, Tables B and B-1 present the actual performance of
each respective Advisor's trading on behalf of the Partnership. The pro forma
calculations are made on a month-to-month basis, i.e., the pro forma adjustment
to trading profits (losses), brokerage commissions, management and incentive
fees and interest income in one month does not affect the actual figures which
are used in the following month for making the similar pro forma calculations
for that period, except for pro forma incentive fees as described in Note 4.
Accordingly, the pro forma tables do not reflect on a cumulative basis the
effect of the difference between the fees to be charged to and interest earned
by the Partnership and the fees and commissions charged to and interest earned
by the Partnership and the fees and commissions charged to and interest earned
by the accounts in the actual performance tables.
1. Pro forma brokerage fees for each month have been calculated by adding the
sum of (a) actual ending equity, actual management and incentive fees,
actual brokerage commissions, actual other expenses and pro forma interest
income minus actual interest income (the "Base Amount"), and (b)
multiplying the result by 1/2 of 1%, plus estimated NFA, exchange,
"give-up" and floor brokerage fees.
2. Pro forma management fees for each month have been calculated by taking the
Base Amount, subtracting pro forma brokerage fees and multiplying the
result by 1/6 of 1% for all Advisors except JWH, which has been calculated
using 1/3 of 1%.
3. Pro forma other expenses have been calculated by taking the Base Amount,
subtracting pro forma brokerage fees and pro forma management fees and
multiplying the result by 1/12 of .61%.
4. Pro forma incentive fees have been calculated by: (a) adding to the actual
net performance, actual management and incentive fees, actual brokerage
commissions and actual other expenses, (b) subtracting actual interest
income, pro forma brokerage fees, pro forma management fees and pro forma
other expenses, and (c) multiplying the resulting figure by 20% for all
Advisors except JWH, which has been calculated using 15%. Pro forma
incentive fees were calculated on a monthly basis (in accordance with
generally accepted accounting principles) and as to reflect the reversal of
previously accrued incentive fees when profits sufficient to generate
incentive fees are recognized as of the end of an interim month in a
quarter but lost in a subsequent month in such quarter. In the case where
there is cumulative negative net performance, which must be reversed before
an incentive fee becomes payable, and there are net withdrawals, the
cumulative negative net performance amount has been proportionately
reduced.
5. Pro forma interest income has been calculated by: (a) adding actual
beginning equity to the sum of: actual ending equity, actual management and
incentive fees, actual brokerage commissions and actual other expenses, (b)
subtracting actual interest income, (c) dividing this sum by two, (d)
multiplying by 80% and (e) then multiplying the result by the monthly
historical 30-day Treasury bill rate. For purposes of the calculation of
pro forma interest income, Partnership interest was estimated using
historical 30-day Treasury bill rates of the time period presented on
Tables B and B-1. Such rates are higher than current 30-day Treasury bill
rates that will be used to calculate Partnership interest income. The
application of historical rates may compare more closely to the interest
income reflected in the Advisors' performance tables which was most likely
earned at the then prevailing interest rates of a particular time period.
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<PAGE> 48
6. Pro forma monthly rate of return ("Pro Forma Monthly ROR") equals pro forma
net performance divided by the actual beginning equity (from the historical
performance tables) or equity adjusted for material additions and
withdrawals, where applicable. Beginning with February 1996 for JWH and
Millburn and May 1997 for ARA and Willowbridge, rate of return as indicated
on Table B, or where applicable, Table B-1, reflects the actual trading
results as experienced by each respective Advisor on behalf of the
Partnership ("Monthly ROR").
7. Pro forma annual rate of return equals the Pro Forma Monthly ROR or Monthly
ROR compounded over the number of periods in a given year, i.e., each Pro
Forma Monthly ROR or Monthly ROR in hundredths is added to one (1) and the
result is multiplied by the previous period's Pro Forma Monthly ROR or
Monthly ROR similarly expressed. One is then subtracted from the product.
The Compound Average Annual Rate of Return for the entire period presented
is similarly calculated except that before subtracting one (1) from the
product, the product is exponentially changed by the factor of one (1)
divided by the number of years in the period presented and then one (1) is
subtracted. The compound average annual rate of return for the entire
period appears as the last entry in the column.
8. "Largest Monthly Draw-Down" is the largest pro forma monthly loss
experienced by the program on a composite basis in any calendar month
expressed as a percentage of the total equity in the program and includes
the month and year of such draw-down.
9. "Largest Peak-to-Valley Draw-Down" is the greatest cumulative pro forma
percentage decline in month-end net asset value (regardless of whether it
is continuous) due to losses sustained by the trading program during a
period in which the initial composite month-end net asset value is not
equaled or exceeded by a subsequent composite month-end net asset value.
The months and year(s) of such decline are indicated.
In the case where the trading program is in a current draw-down, the month
of the lowest net asset value of such draw-down is disclosed followed by an
asterisk (*).
INCOME TAX ASPECTS
CAPITAL GAIN (PAGE 104)
The Taxpayer Relief Act of 1997 made certain changes to the Code with
respect to taxation of long-term capital gains earned by taxpayers other than a
corporation. In general, for sales made after May 6, 1997, the maximum tax rate
for individual taxpayers on net long-term capital gains is lowered to 20% for
most assets. This 20% rate applies to sales on or after July 29, 1997 only if
the asset was held for more than 18 months at the time of disposition. Capital
gains on the disposition of assets on or after July 29, 1997 held for more than
one year and up to 18 months at the time of disposition will be taxed as
"mid-term gain" at a maximum rate of 28%. A rate of 18% instead of 20% will
apply after December 31, 2000 for assets held for more than five years. However,
the 18% rate applies only to assets acquired after December 31, 2000 unless the
taxpayer elects to treat an asset held prior to such date as sold for fair
market value on January 1, 2001. In the case of individuals whose ordinary
income is taxed at a 15% rate, the 20% rate is reduced to 10% and the 10% rate
for assets held for more than five years is reduced to eight percent. The 60%
portion of gain of Section 1256 contracts that is treated as long-term capital
gains is eligible for the reduced rates for gains on assets held more than 18
months.
47
