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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2002
|_| Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to _______________
Commission file number 0-23529
THE WILLOWBRIDGE FUND, L.P.
(Exact name of registrant as specified in its charter)
Delaware 22-2678474
(State of Incorporation) (I.R.S. Employer Identification No.)
4 Benedek Road,Princeton, NJ 08540
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 921-0717
---------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes |x| No|_|.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |x|
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes | | No|x|.
As of March 19, 2003 the aggregate market value of the limited
partnership interests of the registrant held by non-affiliates of the
registrant was approximately $28,021,591.
TABLE OF CONTENTS
Page
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PART I
Item 1. Business 1
Item 2. Properties 28
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 28
PART II
Item 5. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters 28
Item 6. Financial Information 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 31
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 35
Item 8. Financial Statements and Supplementary Data 37
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 37
PART III
Item 10. Directors and Executive Officers 37
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners
and Management 39
Item 13. Certain Relationships and Related Transactions 40
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 40
PART I
ITEM 1. Business.
Summary
The Willowbridge Fund, L.P. (the "Partnership") is a limited
partnership organized under the Delaware Revised Uniform Limited
Partnership Act. The business of the Partnership is to trade, buy, sell or
otherwise acquire, hold or dispose of commodity futures contracts, options
on physical commodities and on commodity futures contracts, forward
contracts, and any rights pertaining thereto ("Commodity Interests") and to
engage in all activities incident thereto. The objective of the Partnership
is the appreciation of its assets through speculative trading.
Ruvane Investment Corporation, a Delaware corporation (the
"General Partner"), is the general partner of the Partnership. The
Partnership and the General Partner maintain their principal business
office at 4 Benedek Road, Princeton, New Jersey 08540. The telephone number
for the Partnership and the General Partner is (609) 921-0717, the
facsimile number is (609) 921-0577, and their e-mail address is
info@willowbridgefund.com. The General Partner has been registered with the
Commodity Futures Trading Commission ("CFTC") pursuant to the Commodity
Exchange Act, as amended (the "CEA"), as a Commodity Pool Operator ("CPO")
since August 8, 1995, as a Commodity Trading Advisor ("CTA") since January
12, 1990 and as an introducing broker since May 8, 1995, and is a member of
the National Futures Association ("NFA") in such capacities. See " -- The
General Partner."
The General Partner has selected Willowbridge Associates Inc. (the
"Advisor") as the Partnership's trading advisor. The Advisor's main
business address is 101 Morgan Lane, Suite 180, Plainsboro, New Jersey
08536 and its telephone number is (609) 936-1100. The Advisor has been
registered as a CPO and a CTA pursuant to the CEA since May 3, 1988 and is
a member of the NFA in such capacities. All trading decisions regarding the
Partnership are made by the Advisor. See "-- The Advisor."
All of the Partnership's assets are traded pursuant to the Primary
Investment Program, utilizing three of the trading systems operated by the
Advisor. The three trading systems utilized under the Primary Investment
Program are computer-based, quantitative systems that trade in domestic and
foreign financial instruments, currencies, precious metals and other
commodities such as grains, foods and energy products. See "Trading
Programs---Allocation of Capital." The General Partner believes that the
combination of several investment strategies and global market exposure
reduces the Partnership's dependence on the success of any single strategy
while positioning the Partnership to participate in economic trends in
different markets. Nonetheless, in many cases the markets traded by the
individual trading strategies overlap and the positions held by the
Partnership at any particular point in time may result in different
concentrations in any group of markets, which may reduce the diversity of
the Partnership's investments. See "Risk Factors---Partnership's Market
Positions May Lack Diversity."
1
The Partnership is designed to permit investors to participate in
the financial advantages presented by trading in Commodity Interests.
However, trading in Commodity Interests does entail significant risks, and
it is possible that an investor in the Partnership could lose its entire
investment. Trading in Commodity Interests is speculative, volatile and
highly leveraged and may be riskier and more volatile than many other
investments. Further, the Partnership is obligated to pay trading and
operational expenses and pay incentive fees, if any, which could materially
affect the net results of an investment in the Partnership by reducing net
profits or increasing net losses, and the Partnership will be required to
make trading profits in the amount of such charges and fees, less interest
earned, to avoid depletion or exhaustion of its assets and to generate any
profits for the Partnership and the Limited Partners. There can be no
assurance that the Partnership will achieve any profits. See "-- Risk
Factors."
The General Partner
The General Partner, to the exclusion of the limited partners of
the Partnership (the "Limited Partners"), manages and conducts the business
of the Partnership. The General Partner (i) selects and monitors the
independent commodity trading advisors and the commodity brokers; (ii)
allocates and/or reallocates assets of the Partnership to or from the
advisors; (iii) determines if an advisor or commodity broker should be
removed or replaced; (iv) negotiates management fees, incentive fees and
brokerage commissions; and (v) performs such other services as the
Partnership may from time to time request.
The General Partner is responsible for the allocation of the
Partnership's capital among various investment programs. The Partnership's
capital currently is allocated to the Primary Investment Program of the
Advisor. See " -- Trading Programs." The General Partner, in the future,
may allocate the Partnership's assets to other trading programs. In
addition, the General Partner may introduce the Partnership's trades to the
Partnership's commodity brokers. Under the terms of the Amended and
Restated Limited Partnership Agreement of the Partnership (the "Partnership
Agreement"), the General Partner will maintain its capital contributions to
the Partnership in an amount equal to 1% of the aggregate capital raised by
the Partnership from time to time. As of December 31, 2002, the General
Partner owned approximately $752,192 of general partnership interests in
the Partnership. The General Partner is a Delaware Corporation organized in
January 1990. The principal of the General Partner is Robert L. Lerner. See
"Directors and Executive Officers."
Futures Trading
Futures contracts are contracts made on or through a commodity
exchange and provide for future delivery of agricultural and industrial
commodities, precious metals, foreign currencies or financial instruments,
and in the case of certain contracts, such as stock index futures contracts
and Eurodollar futures contracts, provide for cash settlement. Such
contracts are uniform for each commodity on each exchange and vary only
with respect to price and delivery time. A contract to buy or sell may be
satisfied either by making or taking delivery of the commodity and payment
or acceptance of the entire purchase price therefor or by offsetting the
2
obligation with a contract containing a matching contractual obligation on
the same (or a linked) exchange prior to delivery. In futures and forward
trading, capital is not used to acquire a physical asset but only as
security for the payment of losses incurred in open positions. United
States commodity exchanges individually or, in certain limited situations,
in conjunction with certain foreign exchanges, provide a clearing mechanism
to facilitate the matching of offsetting trades. Once trades made between
members of an exchange have been confirmed, the clearinghouse is
substituted for the clearing member acting on behalf of each buyer and each
seller of contracts traded on the exchange and in effect becomes the other
party to the trade. Thereafter, each clearing member party to the trade
looks only to the clearinghouse for performance. Clearinghouses do not deal
with customers, but only with member firms, and the "guarantee" of
performance under open positions provided by the clearinghouse does not
extend to customers. If a customer's commodity broker becomes bankrupt or
insolvent, or otherwise defaults on such broker's obligations to such
customer, the customer in question may not receive all amounts owing to
such customer in respect of trading, despite the clearinghouse fully
discharging all of its obligations.
Two broad classifications of persons who trade in commodity
futures are "hedgers" and "speculators." Commercial interests, including
banks and other financial institutions, and farmers, who market or process
commodities, use the futures markets for hedging. Hedging is a protective
procedure designed to minimize losses that may occur because of price
fluctuations. The usual objective of the hedger is to protect the profit
that he expects to earn from his financial operations, rather than to
profit strictly from his futures trading. The commodity markets enable the
hedger to shift the risk of price fluctuations to the speculator.
The speculator, such as the Partnership, risks its capital with
the hope of making profits from the price fluctuations in futures contracts
The speculator assumes the risks which the hedger seeks to avoid.
Speculators rarely expect to take or make delivery of the "cash" or actual
physical commodity in the futures market. Rather, they generally close out
their futures positions by entering into offsetting purchases or sales of
futures contracts. Because the speculator may take either a long or short
position in the futures markets, it is possible for the speculator to earn
profits or incur losses regardless of the direction of price trends.
Generally, commodities trades made by the Partnership will be for
speculative rather than for hedging purposes.
The justification for futures trading is that it provides the
means for those who produce or deal in cash commodities to hedge against
unpredictable price changes. Price fluctuations affect the value of
inventory, the cost of production and the competitive pricing of end
products. The risks of price fluctuation confront and threaten a diverse
set of firms that merchandise, store or process large volumes of cash
commodities. Government securities dealers, for example, often maintain a
large inventory of notes and bonds. Even a small increase in prevailing
interest rate levels can significantly reduce the value of those inventory
holdings, and hence the price at which they can be sold. In determining the
pricing of its output, the large baker, for example, is subject to the
market prices of its raw materials, such as wheat, sugar and cocoa. A
sudden increase in the prices of these materials will raise the cost of
production and negatively affect the competitiveness of the finished
product. Other entities that face the risks associated with market price
fluctuation include farmers, grain elevator operators, importers, refiners
3
and commercial banks. The constraint these entities face is that there are
no short run substitutes for certain items essential for continued
operation. The baker cannot function without flour, the securities dealer
without bonds or the refiner without crude oil. As a result, the need
arises for a vehicle through which commercial entities as a group can
transfer the risk of price fluctuation to some other group that is willing
to bear that risk. The futures markets exist as the vehicle that allows the
transfer of price risk from commercial entities, called hedgers, to
risk-bearing entities, called investors or speculators.
Investment Philosophy
The General Partner believes that, if an investor utilizes a
disciplined approach to managing risk, and is appropriately capitalized,
the investor will earn a premium for bearing risk. It is this premium that
is the source of returns to futures investing. The returns to futures
investing are driven by events that upset the supply and demand equilibrium
of the underlying commodity market. For example, a change in the prime rate
will affect interest rate and currency instruments, a drought will alter
the production expectations for agricultural products, or the prospect of a
war in the Middle East will cause the prices of crude oil and its
derivatives to fluctuate. It is during these periods of disruption that the
risk premium generally is paid. Conversely, when commodity markets are
stable and directionless, returns from risk premiums are not to be
expected. Since traditional investment instruments like stocks and bonds
perform poorly during disruptive periods and well in a stable economic
environment, a futures investment can offer the potential benefits of
diversification to a traditional portfolio.
The General Partner believes that two important considerations in
evaluating an investment opportunity are whether the investment has a sound
underlying economic foundation for its expected return and whether the
approach employed by the investment's manager has the capability to realize
that return. The General Partner's approach to investment in futures is
designed to achieve consistent profits over the long term. The key to the
General Partner's investment approach is diversification among trading
methods and among markets, which is intended to reduce the variability of
returns while maintaining the ability to capitalize on profitable trends.
The General Partner allocates the Partnership's capital to an
investment program of the Advisor, which uses a mix of trading strategies
that (i) have demonstrated the ability to achieve long-term trading success
and (ii) enhance the diversification characteristics of the account. The
General Partner measures the success of an investment program by its
trading and research results and experience.
The General Partner believes that an account should be considered
a long-term investment in order to afford the different trading strategies
and investment programs time to operate under a variety of different market
conditions. Consequently, the General Partner may choose not to reallocate
capital from or terminate an investment program or trading strategy even if
that investment program or trading strategy has had an unprofitable period
of significant duration. As the performance of the investment programs and
trading strategies will vary, the percentage of the Partnership's capital
under the management of each may vary also. Therefore, it is unlikely that
the current capital allocations will in fact be the actual allocations at
4
any time during the Partnership's operations. When capital is withdrawn
from the Partnership, the capital under each investment program's and
trading strategy's management will be reduced in amounts determined by the
Advisor, in consultation with the General Partner.
Extensive leverage is available in futures markets. The General
Partner will monitor the Advisor's trading so that leverage remains within
levels acceptable to the General Partner, in its sole discretion. In
general, the General Partner anticipates that margin commitments for the
Partnership will range between 15% and 40% of capital. Margin commitments
represent that portion of the capital of the Partnership which is committed
as margin for futures contracts. Margins are good faith deposits which must
be made with a commodity broker in order to initiate or maintain an open
position in a futures contract.
The Advisor
The General Partner has selected Willowbridge Associates Inc. as
the Partnership's trading advisor. The Advisor is a global trading advisor,
managing over U.S. $677.8 million in client capital (U.S. $378.5 million of
actual funds and U.S. $299.3 million of notional funds, or funds that
clients have instructed the Advisor to trade but not deposit into their
brokerage accounts) as of December 31, 2002 in futures, foreign exchange,
interest rates and related markets for international banks, brokerage
firms, pension funds, institutions and high net worth individuals. The
Advisor was organized as a Delaware corporation in January 1988 and trades
on a 24-hour basis in over 70 markets worldwide. The primary activity of
Willowbridge is to buy, sell (including short sales), make a spread or
otherwise trade in Commodity Interests. The Advisor may, to a limited
extent, also trade in other instruments. The trading principals of the
Advisor are Philip L. Yang and Michael Y. Gan.
See "Directors and Executive Officers."
The Advisor makes trading decisions pursuant to its trading
strategies under the investment programs, as well as pursuant to any other
trading program, selected by the General Partner. As used herein, the term
"trading system" refers to a computerized technical, systematic trading
program of the Advisor, the term "trading approach" refers to a
discretionary trading program of the Advisor and the term "trading
strategy" refers to either a trading system or a trading approach.
Trading Programs
Commodity traders generally rely on either technical or
fundamental analysis, or a combination thereof, in making trading decisions
and attempting to identify price trends. Fundamental analysis looks at the
external factors that affect the supply and demand of a particular
commodity in order to predict future prices. As an example, some of the
fundamental factors that affect the demand of a foreign currency, like the
British pound, are the inflation and interest rates of the currency's
domestic market, exchange controls, and the country's balance of trade,
5
business climate and political stability. The supply of a currency may be
determined by, among other things, government spending, credit controls,
domestic money supply and prior years' trade balances. Some of the
fundamental factors that affect the supply of an agricultural commodity,
such as corn, include the acreage planted and factors affecting crop
conditions such as drought, flood and disease. The demand for corn consists
of domestic consumption and exports, and is a product of many things,
including general world economic conditions, as well as the cost of corn in
relation to the cost of competing products such as soybean meal, wheat,
oats and barley.
Technical analysis is not based on the anticipated supply and
demand of the cash (actual) commodity; instead, it is based on the theory
that a study of the markets themselves will provide a means of anticipating
future prices. Technical analysis of the markets generally will include a
study of the actual daily, weekly and monthly price fluctuations, volume
variations and changes in open interest, utilizing charts or computers for
analysis of these items.
The investment programs and trading strategies which the General
Partner has selected to trade the Partnership's assets are described below,
and from time to time may be changed or refined. Additional trading
programs may be developed by the Advisor or other trading advisors who may
be employed in trading the assets of the Partnership.
Each trading system employed by the Advisor will attempt to detect
trends in price movements for futures, option, forward and spot contracts.
All successful speculative commodity trading depends upon establishing a
position and then maintaining that position while the market moves in favor
of the trader. Technical trading systems seek to establish such positions
and to exit the market and establish reverse positions, or both, when the
favorable trend either reverses or does not materialize. No such system
will be successful if the market is moving in an erratic and nontrending
manner or if the market moves in the direction opposite to that predicted
by the system. Because of the nature of commodity markets, prices
frequently appear to be trending when the market is, in fact, without a
trend. In addition, a trading system may identify markets as trending
favorably to a particular position in the market even though actual market
performance thereafter is the reverse of the trend identified.
The investment programs and trading strategies to be followed by
the Advisor do not assure the success of the Partnership. Investment
decisions made in accordance with these programs and strategies will be
based on an assessment of available facts. However, because of the large
quantity of facts at hand, a number of available facts may be overlooked.
Variables may shift and any investment decision must, in the final
analysis, be based on the judgment of the Advisor. Accordingly, no
assurance can be given that the Advisor's investment programs and trading
strategies will result in profits to investors in the Partnership.
For each of the trading strategies, risk is managed on a market by
market level as well as on an overall portfolio level. On the market level,
risk is managed primarily by utilizing proprietary volatility filters. When
these filters detect a certain excessive level of volatility in the markets
traded, they will signal that the trading strategies should no longer be
trading in the markets in which the filters have detected excessive
volatility. In this way, the trading strategies do not participate
6
in markets in which there are extremes in market action. On the portfolio
level, risk is managed by utilizing a proprietary portfolio cutback rule.
When cumulative profits have reached a certain level, this rule determines
that positions should be halved across the entire portfolio. In this way,
risk is reduced while allowing the trading strategies to continue to
participate in the markets, albeit at a reduced level. After the portfolio
has been traded at half, the rule will then determine when to increase
positions to again trade at the full level.
Allocation of Capital
All of the Partnership's assets are currently traded pursuant to
the Primary Investment Program, utilizing all or part of three of the
trading systems operated by Willowbridge: the Vulcan System, the Argo
System and the Siren System. (See "Trading Programs and Use of Proceeds --
Description of Trading Systems.") The General Partner, in the future, may
allocate the Partnership's assets to other trading strategies and
investment programs.
Primary Investment Program
Under the Primary Investment Program, the Advisor has the
discretion, based upon its periodic evaluation of market conditions, to
determine which trading system to use for a given market. Approximately
one-half of the assets traded by the Advisor pursuant to the Primary
Investment Program are allocated to the Argo System and the remaining
portion is allocated between currencies and financial instruments traded
pursuant to the Vulcan System and precious metals, grains, meats, softs and
tropicals traded pursuant to the Siren System. On November 3, 1997, a
trading component of Titan was added to the Primary Investment Program. The
Advisor, in consultation with the General Partner, may change the
allocation of the assets it trades pursuant to the Primary Investment
Program among the trading systems and among the commodities traded pursuant
thereto. Typically, changes in strategies used for particular markets are
made infrequently. If the assets of the Partnership allocated to the
Primary Investment Program fall below $1,000,000, the Advisor may not be
able to trade the Primary Investment Program portfolio.
Description of Trading Systems
The trading systems used by the Advisor are proprietary and
confidential. The descriptions herein, therefore, are, of necessity,
general and not intended to be exhaustive.
Vulcan Trading System
The Vulcan Trading System ("Vulcan") is a computerized technical
trading system. It is not a trend-following system, but does ride a trend
when the opportunity arises. Vulcan uses the concepts of pattern
recognition, support/resistance levels, and counter-trend liquidations in
making trading decisions. In effect, Vulcan is more akin to a systematic
technical charting system, as opposed to most computer systems, which are
based on pure trend-following calculations.
7
The Vulcan System is based on general technical trading principles
that over time have repeatedly shown their validity as price movement
forecasters. As used in connection with the Partnership, it applies these
principles to a diversified portfolio of financial instruments and
currencies. Given that the system is based on general principles, the
system parameters used are the same for all items in the portfolio and are
not optimized. In this manner, the Vulcan System minimizes the problem of
data-fitting.
Vulcan determines, on a daily basis, whether to be long, short or
flat each of the various commodities in its portfolio. The Vulcan portfolio
traded for the Primary Investment Program includes:
Domestic Financial
Instruments: U.S. Treasury Bonds, Treasury Notes,
Eurodollars
Foreign Financial
Instruments: Japanese Bonds, Euro-Swiss, German Bunds, Gilts,
Short Sterling, Australian Treasury Bills,
Australian Treasury Bonds, Euro-Yen, Euribor,
Bobls, Shatz
Currencies: British Pound, Canadian Dollar, Swiss Franc,
Japanese Yen, Australian Dollar, EuroFX,
EuroYen, Euro Pound
The above list is provided only as an indication of markets traded
since the Advisor removes and adds contracts to the list from time to time.
It is intended that approximately 15% to 40% of the assets under
management pursuant to the Vulcan System normally will be committed as
margin for Commodity Interest trading, but from time to time, the
percentage of assets committed may be substantially more or less. Positions
are generally held from 10 to 15 trading days. The largest monthly
draw-down experienced by Willowbridge in using Vulcan was 33.41% and
occurred in February 2002. The greatest peak-to- valley draw-down was
53.45% and occurred in the period between January 2001 to February 2002.
Argo Trading System
The Argo Trading System ("Argo") commenced trading in 1987. Argo
essentially incorporates Vulcan's concepts of pattern recognition,
support/resistance levels and counter-trend liquidations. Argo has a
relatively slower time horizon than Vulcan and attempts to capture
longer-term price moves. The Argo portfolio includes the instruments traded
in the Vulcan portfolio, as well as the following other commodities:
Grains: Corn, Wheat, Soybeans, Soybean Meal, Soybean Oil,
Oats, Rough Rice
Precious Metals: Gold, Silver, Platinum
Domestic Financial
Instruments: Treasury Bonds, Treasury Notes, Eurodollars
Foreign Financial
Instruments: EuroYen, Japanese Bonds, Australian T-Bills,
Australian T-Bonds, Short-Sterling, Gilts, Euribor,
Euro-Swiss, Bunds, Bobls, Shatz
Currencies: Pound Sterling, Canadian Dollar, Swiss Franc,
Japanese Yen, Australian Dollar, EuroFX, EuroYen,
Euro Pound
General: Crude Oil, Heating Oil, Unleaded Gasoline, Natural
Gas, Copper, Sugar, Coffee, Cocoa, Cotton, Live
Cattle, Live Hogs, Pork Bellies
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The above list is provided only as an indication of markets traded
since the Advisor removes and adds contracts to the list from time to time.
It is intended that approximately 15% to 40% of assets under
management normally committed as margin for Commodity Interest trading, but
from time to time the percentage of assets committed may be substantially
more or less. Argo's positions will generally be held from 20 to 30 trading
days. The largest monthly draw-down experienced by Willowbridge in using
Argo was 28.69% and occurred in July 2000. The greatest peak-to-valley
draw-down was 41.45% and occurred in the period between October 1999 to
July 2000.
Siren Trading System
The Siren Trading System ("Siren") commenced trading in January
1991. Siren is a system based on the principles of market profiles and
other techniques that utilize real time price information. Siren can best
be characterized as a top and bottom picking system. Siren tries to
determine acquisition and distribution patterns that often signal the end
and reversal of a major trend bias. When it identifies such a change, it
will attempt to initiate a countervailing position. Siren's time frame is
generally 18 to 25 trading days. The Siren portfolio traded for the Primary
Investment Program includes:
Grains: Corn, Wheat, Soybeans, Soybean Meal, Soybean Oil
Precious Metals: Gold, Silver
General: Crude Oil, Heating Oil, Unleaded Gasoline, Natural Gas,
Copper, Sugar, Coffee, Cocoa, Cotton, Live Cattle, Live
Hogs, Pork Bellies
The above list is provided only as an indication of markets traded
since the Advisor removes and adds contracts to the list from time to time.
It is intended that approximately 15% to 40% of the assets under
management pursuant to Siren will be normally committed as margin for
Commodity Interest trading, but from time to time, the percentage of assets
committed may be substantially more or less. The largest monthly draw- down
experienced by Willowbridge in using Siren was 15.15% and occurred in
September 2000. The greatest peak-to-valley draw-down was 35.30% and
occurred in the period between February 2000 to November 2001.
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Trading Policies
In its trading activities, the Partnership will adhere to the
following policies. The General Partner will notify limited partners of any
changes in these trading policies.
1. The Partnership will not lend or borrow money, although the
Partnership may utilize lines of credit for trading forward contracts.
2. The Partnership will not commingle its assets with those of
other persons, except as permitted under the CEA and the rules and
regulations promulgated thereunder.
3. The Partnership will not trade bank forward contracts with or
through any bank that, as of the end of its latest fiscal year, had an
aggregate balance in its capital, surplus and related accounts of less than
$100,000,000, as shown by its published financial statements for such year.
4. The Partnership will not purchase, sell or trade securities,
except securities approved by the CFTC for investment of customer funds.
The Partnership may trade in futures contracts on securities and securities
indices, options on such futures contracts, and other commodity options.
The Commodity Brokers
The Partnership executes and clears trades in futures and
commodity options through Man Financial, Inc. ("Man") and ADM Investor
Services, Inc. ("ADM"), unaffiliated brokers selected by the General
Partner. The General Partner may retain additional or substitute clearing
brokers in the future. Man and ADM are registered under the CEA as futures
commission merchants and are members of the NFA in such capacities. Man and
ADM act only as clearing brokers for the Partnership and as such are paid
commissions for executing and clearing trades on behalf of the Partnership.
Neither Man nor ADM act in any supervisory capacity with respect to the
General Partner or participate in the management of the General Partner or
the Partnership.
The assets of the Partnership are deposited with Man and ADM
in trading accounts established by the Partnership for the Advisor
and are used by the Partnership as margin to engage in trading. Each of the
clearing brokers is a futures commission merchant registered with the CFTC.
Such assets are held in either an interest-bearing bank account or in
securities approved by the CFTC for investment of customer funds. The
clearing brokers through clearing futures trades for its customers,
including the Partnership, could expose the Partnership to credit risk. The
clearing brokers attempt to mitigate this risk relating to futures
contracts in regulated commodities by maintaining funds deposited by
customers in separate bank accounts, which are designated as segregated
customers' accounts. In addition, the clearing brokers have set aside funds
deposited by customers relating to foreign futures and options in separate
bank accounts, which are designated as customer secured accounts. Lastly,
the clearing brokers are subject to the CFTC's Net Capital Rule, which
requires the clearing brokers to maintain minimum net capital of at least
4% of the segregated customer funds as defined by the CEA and regulations
promulgated thereunder.
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The clearing brokers must comply with the settlement procedures
established by the clearinghouse of each exchange where the clearing broker
is a clearing member. The rules of exchange vary, but at a minimum the
exchange guarantees performance on every contract to each of its clearing
members. Thus, once a trade between two clearing members is matched by the
exchange, the rights and obligations under the futures or options contract
do not run between the original buyer and seller, but between the clearing
member and the seller of the contract, and between the clearing member and
the buyer. The clearinghouse sets a settlement price for settling all
accounts between clearing members for each contract month. Unliquidated
positions on outstanding contracts are marked to market at least once a day
via midday and/or morning calls to determine any additional margin
requirements. In general, a clearinghouse is backed by the membership and
will act in the event of non-performance by one of its members or one of
the member's customers, the intent of which is to significantly reduce
credit risk. If a clearing broker is not a member of an exchange
clearinghouse, it will comply with the settlement procedures established
with the actual carrying brokers and will operate through them. Settlement
of calls on such contracts may take an extra day on U.S. exchanges or two
extra days on non-U.S. exchanges. Additional margin requirements are
wire-transferred by the clearing brokers to the appropriate clearinghouse.
During the years ended December 31, 2002 and 2001, the Partnership had no
material credit risk exposure to a counterparty that is a foreign
commodities exchange.
Fees and Expenses
The General Partner
Upon admission to the Partnership, each new subscriber for
interests in the Partnership will pay 1% of his subscription amount to the
General Partner as an administrative charge. Existing Limited Partners who
subscribe for additional interests in the Partnership will pay to the General
Partner 1% of the amount of the additional subscription as an administrative
charge. The Partnership also pays the General Partner a yearly management fee
in an amount equal to 1% of the net asset value of the Partnership as of the
first business day of each year before deducting (i) accrued ordinary legal,
accounting and auditing fees and (ii) any incentive fees payable to the
Advisor. In addition, the Partnership paid to the General Partner a flat-rate
monthly brokerage commission of approximately 0.29% of the net asset value of
the Partnership as of the beginning of each month (a 3.5% annual rate) for the
period, January 1, 2002 to July 31, 2002. Beginning August 1, 2002, the
Partnership paid to the General Partner a flat-rate monthly brokerage
commission of approximately 0.33% of the net asset value of the Partnership as
of the beginning of each month (a 4.0% annual rate). The General Partner will
pay from this amount all floor brokerage, exchange, clearing and NFA fees with
respect to the Partnership's trading, but other execution costs, including
give-up charges (charges paid to a party for executing trades that will be
cleared by a third party) and service fees assessed by certain forward dealing
desks, will be paid by the Partnership. The General Partner will pay from its
own funds any futures brokerage commission and fees (except for certain
execution costs as noted above) incurred by the Partnership in excess of the
flat monthly rate it receives from the Partnership. The flat-rate brokerage
commission to the General Partner is calculated after reduction for any
brokerage commissions due at the end of the immediately preceding month, any
redemptions or distributions as of such immediately preceding month-end and
any accrued incentive fees as of such immediately preceding month-end, and
after including the interest credits for such immediately preceding month-end
11
and any additions as of the beginning of the month for which the flat-rate
brokerage commission is being calculated. Lastly, in the event the flat-rate
monthly brokerage commission payable by the Partnership to the General Partner
at any time exceeds the actual brokerage commissions and related fees to which
such flat-rate brokerage commission is applied, the General Partner will pay a
portion of such excess to Limited Partners who became Limited Partners prior
to September 1995, the date as of which the Partnership ceased to be a
proprietary pool under CFTC Rules, which portion paid to any such Limited
Partner shall not exceed such Limited Partner's pro rata share of the actual
brokerage commissions and related fees paid by the Partnership. The General
Partner may also pay a portion of such excess to properly registered selling
agents as compensation for their ongoing services to the Partnership, which
portion paid to any one selling agent is not expected to exceed 1% per annum
of the net asset value of the limited partnership interests sold by such
selling agent.
The Advisor
The Partnership pays to the Advisor a quarterly management fee of
.25% (1% per year) of the Partnership's month-end Net Assets (as defined
below) for each month during such quarter. The Partnership also compensates
the Advisor by paying to it a quarterly incentive fee of 25% of New Profits
(as defined below), if any. If any incentive fee is paid to the Advisor,
the Advisor will retain the amount paid regardless of any subsequent
decline in account value, but will not be eligible to receive subsequent
incentive fee payments until the Advisor has recouped its losses and earned
New Profits.
The Partnership's "Net Assets" shall mean the total assets of the
Partnership including all cash and cash equivalents (valued at cost),
accrued interest and the market value of all open commodity positions and
other assets maintained by the Partnership, less the market value of all
liabilities and reserves of the Partnership, including accrued management
and incentive fees, determined in accordance with the principles specified
in Paragraph 6 of the Partnership Agreement and, where no principle is
specified, in accordance with generally accepted accounting principles. The
market value of a commodity futures contract or option on a commodity
futures contract shall mean the most recent available closing quotation on
the exchange through which the particular commodity futures contract or
option on a commodity futures contract is traded by the Partnership; the
market value of a forward contract is determined by the dealer with which
the Partnership has traded the contract. If, however, a contract cannot be
liquidated on the day with respect to which the cumulative profits or
losses on the account are being determined, because of the operation of
daily limits or other rules of the commodity exchange upon which that
contract is traded or otherwise, the settlement price on the first
subsequent day on which the contract can be liquidated is the basis for
determining the liquidating value of such contract for such day. "New
Profits" for the purpose of calculating the Advisor's incentive fee only,
is defined as the excess (if any) of (A) the net asset value of the
Partnership as of the last day of any calendar quarter (before deduction of
incentive fees paid or accrued for such quarter), over (B) the net asset
value of the Partnership as of the last day of the most recent quarter for
which an incentive fee was paid or payable (after deduction of such
incentive fee). In computing New Profits, the difference between (A) and
(B) above shall be (i) increased by the amount of any distributions or
redemptions paid or accrued by the Partnership as of or subsequent to the
12
date in (B) through the date in (A), (ii) adjusted (either decreased or
increased, as the case may be) to reflect the amount of any additional
allocations or negative reallocations of Partnership assets from the date
in (B) to the last day of the quarter as of which the current incentive fee
calculation is made, and (iii) increased by the amount of any losses
attributable to redemptions.
Commodity Brokers
The General Partner currently pays commission rates of
approximately $11 for each initial purchase (or sale) and offsetting sale
(or purchase) of a commodity futures contract with respect to the
Partnership's trading (including NFA assessments and exchange fees), which
rates in the future may be higher or lower. The General Partner believes
that this brokerage rate is generally competitive with those charged by
other commodity brokers; however, other commodity brokerage firms might
offer lower rates to an account similar to that of the Partnership.
Commissions are charged to the Partnership based on a percentage of the net
asset value at the beginning of each month. The commission rate charged was
3.5 percent annually of the net asset value of the Partnership for the
period, January 1, 2002 to July 31, 2002. Beginning August 1, 2002, the
Partnership is charged 4.0 percent annually of the net asset value of the
Partnership.
Selling Agent
An investor in the Partnership who subscribes through a selling
agent may be charged a sales commission determined by the selling agent. In
no event, however, will such sales commission exceed 4% of the subscription
amount. The sales commission is paid directly to the Partnership and is
remitted to the selling agent on behalf of the investor in the Partnership.
Selling agents may also receive a portion of the commodity brokerage
commission from the Partnership's commodity brokers.
Dealers
Dealers will not charge the Partnership commissions, but are
compensated from the bid/offer spread that is quoted in dealing with the
Partnership. A customary mark-up is included in the price of the forward or
spot contract or the premium in the case of an option contract.
Others
The General Partner will pay expenses of the continuing offering
of Limited Partnership Units (consisting primarily of printing fees),
estimated to be approximately $10,000 per year. The ordinary operating
expenses actually incurred by the Partnership, including periodic legal,
accounting and auditing fees, and other administrative expenses and fees,
which are estimated to be approximately $150,000 per year (excluding any
extraordinary expenses), will be borne by the Partnership.
Break-Even Analysis
As discussed above, the Partnership is obligated to pay trading
and operational expenses and pay incentive fees, if any, which could
materially affect the net results of an investment in the Partnership by
reducing net profits or increasing net losses. The following table shows
that the Partnership would have to make a 6.07% (10.07% if maximum 4%
13
selling commission is charged) return on its investments or $1,517 ($2,517
if maximum 4% selling commission is charged) of trading income per $25,000
investment in the Partnership) in the first year in order for a limited
partner to break even under the assumptions set forth in the accompanying
notes. See "Charges to the Partnership" for a description of the fees and
expenses charged to the Partnership. THE BREAK- EVEN ANALYSIS BELOW DOES
NOT CONSTITUTE A REPRESENTATION BY THE PARTNERSHIP OR THE GENERAL PARTNER
AS TO THE ACTUAL OPERATING EXPENSES OF THE PARTNERSHIP. FURTHERMORE, THERE
CAN BE NO ASSURANCE THAT THE EXPENSES TO BE INCURRED BY THE PARTNERSHIP
WILL NOT EXCEED THE AMOUNTS AS PROJECTED OR THAT THERE WILL BE NO OTHER
EXPENSES.
Break-Even Analysis
===============================================================================
Subscription Amount (1) $25,000
Administrative Charge (2) 250
General Partner's Management Fee (3) 250
Partnership's Ordinary Operating Expenses (4) 141
Trading Advisor's Management Fee (5) 250
Trading Advisor's Incentive Fee on Trading Profits (6) 0
Brokerage Commissions (7) 1,000
Less Interest Income (8) (374)
Amount of Trading Income Required per Minimum
Subscription Amount for the Partnership's net
asset value at the end of one year to equal the
Minimum Subscription Amount $1,517
Percentage of Minimum Subscription Amount 6.07%
Amount of Trading Income Required per Minimum Subscription
Amount for the Partnership's net asset value at the
end of one year to equal the Minimum Subscription
Amount if 4% maximum selling commission is charged (9) $2,517
Percentage of Minimum Subscription Amount
including 4% maximum selling commission (9) 10.07%
===============================================================================
NOTES:
(1) The minimum purchase is ordinarily $25,000 of interests ($10,000 for
benefit plan investors).
(2) Investors pay a one-time administrative fee of 1% of their capital
contributions.
(3) Investors pay the General Partner an annual management fee of 1% of
net assets.
14
(4) The Partnership's actual accounting, auditing, legal and other
operating expenses will be borne by the Partnership. These expenses
are expected to amount to approximately 0.56% of the Partnership's net
asset value.
(5) Investors pay the Advisor a quarterly management fee of .25% of
month-end net assets (1% per year).
(6) The Advisor will receive a quarterly incentive fee of 25% of New
Profits (as defined on page 12). There will be no incentive fee at
the break-even level, in as much as $1,517 in trading income, plus $374
in interest income, minus all of the fees and expenses shown above
(totaling $1,891) results in $0 in New Profits.
(7) Brokerage commissions are calculated at 4.0% of net asset value.
(8) The Partnership will earn interest on margin deposits with its
clearing brokers. Based on current interest rates, interest income is
estimated at 1.49% of net assets.
(9) Investors who subscribe through a selling agent may be charged a
sales commission of up to 4% of the subscription amount, payable to
the selling agent. The amount of the sales commission shall be
determined between the investor and the selling agent.
Trading For Own Account
The General Partner, its principal and their affiliates currently do
not, but may in the future, trade Commodity Interests for their own
accounts. Limited Partners will not be permitted to inspect the records of
such trades. The Advisor, its principals and their affiliates also may
trade Commodity Interests for their own accounts. The records and the
results of the proprietary trading by the Advisor and its principals will
not be made available for inspection by the Limited Partners because of
their confidential nature.
The Partnership has no employees and the General Partner has two
employees. Until June 30, 2000, Fund Administration and management
information systems were provided by Derivatives Portfolio Management LLC.
As of July 1, 2000, Fund Administration and management information systems
are provided by Lamp Technologies LLP.
Conflicts of Interest
Relationship of the General Partner to Commodity Brokers
Although the General Partner is not affiliated with a commodity
broker, the General Partner may have a conflict of interest in selecting
brokers because of continuing business dealings with certain brokers. For
example, affiliates of certain brokers may serve as selling agents for the
Partnership. The General Partner and its principal or their affiliates may
have commodity accounts at the same brokerage firms as the Partnership,
and, because of the amount traded through the brokerage firms, may pay
lower commissions than the Partnership. The General Partner intends to
review brokerage arrangements on a periodic basis to assure that the
Partnership secures favorable execution of brokerage transactions and to
assure that the commissions paid are reasonable in relation to the value of
the brokerage and other services provided.
General Partner's Selection of Trading Advisors and Investment Programs
Under the terms of the Partnership Agreement, the General Partner has
the authority to engage independent commodity trading advisors or
affiliated commodity trading advisors to make trading decisions for the
Partnership. The Advisor has retained the General Partner as an independent
15
consultant to assist the Advisor in developing new business. The prospect
of possibly losing the ability to earn compensation as a consultant to the
Advisor could serve as a disincentive to the General Partner engaging a
different trading advisor. Should the General Partner select trading
programs which it, its principal or their affiliates operate, the General
Partner may have a conflict of interest between choosing the trading
programs that the General Partner believes will be most advantageous to the
Partnership and seeing that it or its affiliates' trading programs are used
on behalf of the Partnership and earning fees therefrom. The General
Partner also may be less likely to terminate the use of one of its or its
affiliates' trading programs. The General Partner will act as introducing
broker for the Partnership and receive a portion of the brokerage
commissions generated by the Partnership's trading activities. The General
Partner may have a conflict of interest between choosing the investment
programs that the General Partner believes will be most advantageous to the
Partnership and seeing that the investment programs which generate the most
trading activity are used on behalf of the Partnership and earning fees
therefrom.
Management of Other Accounts by the Advisor and the General Partner
The Advisor and its affiliates currently manage other accounts and
act as general partner for other limited partnerships that trade Commodity
Interests, and the Advisor, the General Partner and their respective
affiliates may act in the future as manager of additional accounts and as
general partner for other such limited partnerships. Such accounts and
partnerships may hold positions either similar or opposite to the positions
taken by the Partnership, and the compensation received by the Advisor or
the General Partner from such other accounts and partnerships may differ
from the compensation they receive from the Partnership. As the Advisor
manages additional accounts, these accounts will increase the level of
competition for the same trades made for the Partnership.
Trading by Affiliates of the General Partner for Their Own Accounts
The principal of the General Partner and his family and affiliates
also may trade for their own accounts. Results of such trading will not be
made available to Limited Partners because of the confidential nature of
such records. In addition, the General Partner, its principal or their
affiliates may serve as the general partner or sponsor for other investment
vehicles engaged in the trading of instruments and contracts similar to
those traded by the Partnership. Such vehicles may hold positions either
similar or opposite to the positions taken by the Partnership, and the
compensation received by the General Partner, its principal or their
affiliates from such other vehicles may differ from the compensation
received from the Partnership.
Trading by the Advisor and Affiliates of the Advisor for Their Own Accounts
The Advisor and its principals have traded, and may continue to
trade, Commodity Interests for their own accounts. As a result, it is
possible that orders for their accounts may be entered in advance of or
opposite to orders for client accounts pursuant to, for instance, a neutral
order allocation system, a different trading strategy or a different risk
level of trading. However, any such proprietary trading is subject
16
to the duty of the Advisor to exercise good faith and fairness in all
matters affecting client accounts. The records and the results of the
proprietary trading by the Advisor and its principals will not be made
available for inspection by the Limited Partners because of their
confidential nature. During the normal course of trading, orders for the
client's account may be executed in competition with the orders for
proprietary and other client accounts managed by the Advisor. Depending on
market liquidity and other factors, this conflict could result in client
orders being executed at prices that are less favorable than would
otherwise be the case. In addition, the Advisor may combine various
strategies to trade proprietary and client accounts. As a result, trading
decisions generated by different trading strategies and investment programs
may vary among accounts, resulting in different positions.
Trading by Affiliates of Clearing Brokers for Their Own Accounts
It is possible that certain officers, directors and employees of the
Partnership's clearing brokers and their families may from time to time
trade commodity futures contracts and other Commodity Interests for their
own accounts, including some of which may be managed by the Advisor. In the
event such individuals do trade for their own accounts, investors will not
be permitted to inspect such trading records. It is possible that such
persons may take positions either similar or opposite to positions taken by
the Partnership and that the Partnership and such persons may from time to
time be competing for either similar or opposite positions in the commodity
futures markets. In certain instances, the clearing brokers may have orders
for trades from the Partnership and orders from its own employees. The
clearing brokers might be deemed to have a conflict of interest between the
sequence in which such orders will be transmitted to the trading floor.
Depending on market liquidity and other factors, these conflicts could
result in the Partnership's orders being executed at prices that are less
favorable than would otherwise be the case.
Relationship of the Advisor to Futures Commission Merchants
The Advisor appears on the approved list of commodity trading
advisors for many futures commission merchants. Appearance on an approved
list means that futures commission merchants' representatives may recommend
the Advisor as a trading advisor to its clients. Inclusion on such an
approved list may create a conflict of interest for a trading advisor
between its duty to trade clients' accounts in the best interest of clients
and its financial interest in maintaining a position on a futures
commission merchant's approved list, which could be contingent upon
generation of adequate commission income from those accounts managed by the
advisor. The Advisor's policy, however, is to trade all comparable accounts
in the same manner regardless of the method by which the account was
obtained.
Limitation of Liability and Indemnification of the General Partner
The Partnership Agreement contains various exculpatory provisions,
which provide that the General Partner, its officers, directors,
stockholders, employees, agents and affiliates and each person who controls
any of the same will not be liable, responsible or accountable in damages
17
or otherwise to the Partnership or any of its partners, their successors or
permitted assigns, except by reason of acts or omissions (1) in violation
of federal or state securities laws, (2) due to intentional or criminal
wrongdoing or gross negligence or willful misconduct, (3) constituting a
breach of fiduciary duty or (4) not in good faith in the reasonable belief
that they were in, or not opposed to, the best interests of the
Partnership. Any claim, action or proceeding by any Limited Partner can be
brought only against the General Partner and its assets, and not against
any manager, member, officer, employee, agent or affiliate of the General
Partner, or any person who controls any of the same. In addition, the
Partnership has agreed to indemnify, defend and hold harmless the General
Partner, and its officers, directors, stockholders, employees, agents and
affiliates, and each person who controls any of the same, from and against
any loss, liability, damage, cost or expense (including legal fees and
expenses actually and reasonably incurred in defense of any demands, claims
or lawsuits) actually and reasonably incurred arising from actions or
omissions concerning the business or activities undertaken by or on behalf
of the Partnership from any source including, without limitation, any
demands, claims or lawsuits initiated by a Limited Partner, if the acts,
omissions or alleged acts or omissions upon which such actual or threatened
action, proceeding or claim is based were for a purpose reasonably believed
to be in, or not opposed to, the best interests of the Partnership and were
not (1) in violation of federal or state securities laws, (2) performed or
omitted as a result of intentional or criminal wrongdoing or gross
negligence or willful misconduct or (3) in violation of the General
Partner's fiduciary obligations to the Partnership. The foregoing rights to
indemnification and payment of legal fees and expenses will not be affected
in the event of the termination of the Partnership or the withdrawal,
dissolution or insolvency of the General Partner. These exculpation and
indemnification provisions may not be enforceable with respect to certain
statutory liabilities, such as liabilities resulting from violations of
federal securities laws.
The responsibility of a general partner to Limited Partners is a
rapidly developing and changing area of the law, and Limited Partners who
have questions concerning the responsibilities of the General Partner
should consult their counsel. Limited Partners should be aware, however, of
the broad authority given to the General Partner under the Partnership
Agreement, including the authority of the General Partner to enter into
trading advisory agreements under the Partnership Agreement, the absence of
judicial decisions providing standards defining excessive trading and the
exculpatory provisions in the Partnership Agreement.
Risk Factors
Commodity Markets are Speculative and Risky
The markets in which the Partnership trades are speculative and
involve a high degree of risk. It is possible that an investor in the
Partnership could lose its entire investment. Each trading strategy within
an investment program employed by the Advisor involves a significant risk
of incurring large losses. The use of several different trading strategies
may not significantly reduce such risk due to, among other things, certain
similarities which may exist in the trading strategies. The volatility of
the commodities market could cause the Partnership and the Limited Partners
to incur substantial losses, potentially impairing the Partnership's equity
base and ability to achieve its long-term profit objectives even if
favorable market conditions subsequently develop.
18
Commodity Interest Prices are Volatile
Commodity Interest prices are highly volatile. Price movements of
Commodity Interest contracts are influenced by, among other things,
changing supply and demand relationships, governmental, agricultural and
trade programs and policies, and national and international political and
economic events. Changing crop prospects occasioned by unexpected weather
or damage by insects and plant diseases make it difficult to forecast
future supplies of agricultural commodities. Similarly, demand is also
difficult to forecast due to such factors as variable world production
patterns, expected purchases by or disruptions of trade with foreign
countries and continued changes in domestic needs. Financial instrument
futures prices are influenced primarily by changes in interest rates.
Foreign currency futures prices are influenced by, among other things,
changes in balances of payments and trade, domestic and international rates
of inflation, international trade restrictions and currency devaluations
and revaluations. The Partnership has no control over these factors. The
volatility of Commodity Interest prices may result in unprofitable trading
by the Partnership and, therefore, losses to the Limited Partners.
Commodity Interest Trading Is Highly Leveraged
The low margin deposits normally required in Commodity Interest
trading result in an extremely high degree of leverage. A relatively small
price movement in a Commodity Interest contract in an unfavorable direction
could result in immediate and substantial losses to the investor. Like
other leveraged investments, any purchase or sale of a Commodity Interest
contract may result in losses in excess of the amount invested in that
contract. The Partnership may lose more than its initial margin deposit on
a trade resulting in losses to the Partnership and the Limited Partners.
Commodity Interest Trading May Be Illiquid
The Partnership's investment strategies require liquid, properly
functioning markets. In extraordinary circumstances, the liquidity of some
trading instruments may be impaired and pricing mechanisms may not function
properly. The Partnership might be exposed to substantial losses should it
find it necessary to liquidate positions under such conditions. Each
exchange on which futures are traded typically has a right to suspend or
limit trading in the contracts which it uses. Such a suspension or
limitation could render it impossible for the Partnership to liquidate its
positions, thereby exposing it to losses, or to acquire positions indicated
by a trading strategy, thereby eliminating profit opportunities or making
it impossible to protect against further losses, which could result in
losses to the Partnership and the Limited Partners. In addition, there is
no guarantee that exchange and other secondary markets will always remain
liquid enough for existing positions to be closed out. Commodity exchanges
limit fluctuations in certain commodity futures contract prices, including
those for financial futures contracts, during a single day by regulations
referred to as "daily price fluctuation limits" or "daily limits." Under
such daily limits, during a single trading day, no trades can be executed
at prices beyond the daily limit. Once the price of a futures contract for
a particular commodity has increased or decreased by an amount equal to the
daily limit, positions in the commodity can be neither taken nor liquidated
19
unless traders are willing to effect trades at or within the limit.
Commodity futures prices occasionally have reached the daily limit for
several consecutive days with little or no trading. Similarly, with respect
to options on commodity futures, there may be no liquid offset market on an
exchange for a particular option due to, among other reasons, insufficient
trading interest, exchange imposed restrictions, trading halts or a lack of
liquidity in the underlying futures contract. Such market conditions could
cause the Partnership to be unable to liquidate its positions in the
futures market, which could subject the Partnership to substantial losses
and result in losses to the Limited Partners.
Counterparty Risk
If one of the Partnership's commodity brokers becomes bankrupt or
insolvent, or otherwise defaults on its obligations to the Partnership, the
Partnership may not receive all amounts owing to it in respect of its
trading, despite the clearinghouse fully discharging all of its
obligations. Furthermore, in the event of the bankruptcy of any such
commodity broker, the Partnership could be limited to recovering only a pro
rata share of all available funds segregated on behalf of such commodity
broker's combined customer accounts, even though certain property
specifically traceable to the Partnership (for example, Treasury bills
deposited by the Partnership with the commodity broker as margin) was held
by such commodity broker. In addition, many of the instruments in which the
Partnership may trade are traded in markets in which performance is the
responsibility only of the individual counterparty and not of an exchange
or clearinghouse. In these cases, the Partnership is subject to the risk of
the inability of, or refusal by, the counterparty to perform with respect
to such contracts. The failure of the Partnership to recover its assets
from a bankrupt, insolvent or otherwise defaulting commodity broker or
individual counterparty could subject the Partnership to substantial losses
resulting in losses to the Limited Partners. There also exists the
possibility that institutions, including banks and brokerage firms, with
which the Partnership does business will encounter financial difficulties,
which may impair the operational capabilities or the capital position of
the Partnership.
Operating History of the Partnership
The Partnership commenced trading in April 1991. The Partnership has
realized a net gain through September 2002 and no assurance can be made as to
the future performance of the Partnership. In addition, the Partnership's
profitability has varied significantly from period to period. The results
for any one period are not necessarily indicative of results for any other
period.
Options Trading
The Partnership may engage in the trading of options (both puts and
calls) on commodity futures contracts on exchanges where such trading has
been authorized by the CFTC. The value of an option depends largely upon
the likelihood of favorable price movements in the underlying futures
contract in relation to the exercise (or strike) price during the life of
the option. Therefore, many of the risks applicable to trading the
underlying futures contract are also applicable to options trading.
However, there are a number of other risks associated solely with the
trading of options. For example, the purchaser of an option runs the risk
20
of loss of his entire investment (i.e., the premium paid). Similarly, the
"uncovered writer" of an option is subject to the risk of loss due to an
adverse price movement in the underlying futures position. Spread positions
using options are subject to the same risks involved in the purchase and
writing of options. In addition, in the event the Partnership were to write
uncovered options (i.e., where the writer does not own the underlying
futures position) as one part of a spread position and such options were
exercised by the purchasing party, the Partnership would be required to
purchase or deliver the underlying futures contract in accordance with the
terms of the option. Finally, an options trader runs the risk of market
illiquidity for offsetting positions for any particular option. As a result
of these risks, the Partnership might experience losses on option trades,
resulting in losses to the Limited Partners. See " -- Commodity Interest
Trading May Be Illiquid."
"Zero-Sum" Trading; The Partnership Does Not Acquire any Asset with
Intrinsic Value
Futures trading is a "zero-sum" risk transfer economic activity. For
every gain there is an equal and offsetting loss rather than an opportunity
to participate over time in general economic growth. Unlike most
"alternative investments," an investment in the Partnership does not
acquire any asset with intrinsic value. Overall stock and bond prices could
rise significantly and the economy as a whole prosper while the Partnership
trades unprofitably.
Partnership's Market Positions May Lack Diversity
The Partnership's assets are diversified among three distinct
strategies. Nonetheless, in many cases the markets traded by the individual
trading strategies overlap and the positions held by the Partnership at any
particular point in time may result in different concentrations in any
group of markets, which may reduce the diversity of the Partnership's
investments. As a result, the Partnership may hold relatively concentrated
positions from time to time as well as over sustained periods of time. This
lack of diversification could result in greater losses to the Partnership
and the Limited Partners than otherwise might be anticipated as the
Partnership's portfolio may be more susceptible to any single economic,
political or regulatory occurrence and more volatile than a more
diversified portfolio.
Trading of Forward Contracts
Forward contracts for the trading of certain commodities, such as
currencies and metals, may be entered into on behalf of the Partnership
with United States and foreign banks and dealers. A forward contract is a
contractual right to purchase or sell a commodity at or before a specified
date in the future at a specified price and, therefore, is similar to a
futures contract. There are no limitations on daily price moves in forward
contracts, and banks and dealers are not required to continue to make
markets in such contracts. There have been periods during which certain
banks and dealers have refused to quote prices for such forward contracts
or have quoted prices with an unusually wide spread between the price at
which the bank or dealer is prepared to buy and that at which it is
prepared to sell. Governmental imposition of credit controls might limit
currency forward contract trading. Neither the CFTC nor banking authorities
regulate forward contract trading through United States banks and dealers,
21
and foreign banks and dealers are not regulated by any United States
government agency. With respect to its trading of forward contracts, the
Partnership may be subject to the risk of bank or dealer failure and the
inability of, or refusal by, a bank or dealer to perform with respect to
such contracts. Any such default would deprive the Partnership of any
profit potential or force the Partnership to cover its commitments for
resale, if any, at the then market price and could result in losses to the
Partnership and the Limited Partners. In addition, regulators, legislators
and the courts have focused considerable attention recently on foreign
currency trading in the interbank markets. In the event that the
Partnership were to become unable to trade certain currency contracts, the
prospect of the Partnership achieving its investment objectives could be
materially adversely affected.
Charges to Partnership
The Partnership will be required to pay a fixed annual management fee
and a fixed monthly brokerage commission to the General Partner, and a
fixed quarterly management fee and, under certain circumstances, a
quarterly incentive fee to the Advisor. The Partnership also is obligated
to pay certain execution costs, as well as all legal, accounting, auditing
and other administrative expenses and fees, regardless of whether the
Partnership realizes any profits. The Partnership, therefore, will be
required to make trading profits in the amount of such charges and fees,
less interest earned, to avoid depletion or exhaustion of its assets and to
generate any profits for the Partnership and the Limited Partners. There
can be no assurance that the Partnership will achieve any profits. See "
- --Fees and Expenses."
Possible Effects of Speculative Position Limits
The CFTC and the commodity exchanges have established limits referred
to as "speculative position limits" or "position limits" on the maximum net
long or net short commodity position that any person or group of persons
may own, hold or control in particular commodity contracts. The CFTC has
jurisdiction to establish, or cause exchanges to establish, position limits
with respect to all items traded on exchanges located in the United States
and any exchange may impose additional limits on positions on that
exchange. Such limits will be applicable in respect of trading of futures
and options and could affect the ability of the Advisor to acquire certain
positions that its respective programs would otherwise indicate as
desirable for the Partnership. Were the Advisor to violate applicable
position limits, mandatory liquidation of the Partnership's positions would
result and the Advisor could be subject to regulatory action restricting or
prohibiting the Advisor from providing further trading advisory services to
the Partnership, which could have a material adverse effect on the
Partnership and result in losses to the Limited Partners. The General
Partner monitors the Partnership's compliance with position limits. The
positions held by the Advisor will be aggregated under the CEA and
applicable exchange regulations for purposes of determining compliance with
speculative position limits.
22
Unequal Allocation of the Partnership's Assets Among the Trading
Strategies and Investment Programs
The General Partner allocates the Partnership's assets to investment
programs that use unequal allocations among trading strategies.
Reallocation of the Partnership's assets or selection of new investment
programs or trading strategies may be made from time to time at the
discretion of the General Partner. There can be no assurance that the
current allocations will prove as successful as others that might have been
made. Any given investment program or trading strategy may experience a
high monthly rate of return but, as a result of particular allocations, may
represent only a small percentage of the Partnership's net assets. In such
case, the benefit to the Partnership as a whole from that investment
program's or trading strategy's performance will be reduced because of the
limited amount of equity available to that investment program or trading
strategy. An investment program or trading strategy may incur losses in
excess of the assets in that investment program's or trading strategy's
sub-account. If this occurs, the funds may have to be reallocated among the
investment programs or trading strategies, removing assets from the
sub-accounts of more successful investment programs or trading strategies
to pay losses incurred by the unsuccessful investment program or trading
strategy. Any such reallocation will reduce the assets under profitable
management, to the detriment of the account, and could disrupt the trading
of those investment programs or trading strategies that had achieved
profits for the account and increase the possibility that the Partnership
and the Limited Partners will experience losses.
Furthermore, there can be no assurance that the strategy of
allocating the Partnership's assets among different trading strategies will
not result in substantial opportunity costs to the Partnership, as assets
may be allocated away from trading strategies which may be about to recover
from a losing period to trading strategies which have been profitable but
may be about to enter into a decline. The entry and exit from trading
strategies can result in significant losses and missed profit opportunities
for the Partnership and the Limited Partners which otherwise would have
been avoided.
Trading on Exchanges Outside the United States
The Partnership may engage in trading on commodity exchanges outside
the United States. Trading on foreign exchanges is not regulated by the
CFTC and may be subject to regulations which offer different or diminished
protection in comparison to domestic exchanges and may involve certain
risks not applicable to trading on United States exchanges. For instance,
some foreign exchanges are "principals' markets" in which performance is
not guaranteed by a clearing house or an exchange but is the responsibility
only of the individual member with whom the trader has entered into a
contract. In such a case, the Partnership will be subject to the risk of
the inability of, or the refusal by, the counterparty to perform with
respect to such contracts. Further, United States regulatory authorities
may be unable to compel the enforcement of the rules of regulatory
authorities or markets in non-United States jurisdictions where
transactions for the Partnership may be effected. Moreover, trading on
foreign markets will subject the Partnership's assets to risk of
fluctuations in relevant foreign exchange rates and the possibility of
exchange controls. Some foreign futures exchanges require margin for open
positions to be converted to the home currency of the contract.
Additionally, some brokerage firms have imposed this requirement for all
foreign futures markets traded, whether or not it is required by a
particular exchange. Whenever margin is held in a foreign currency, the
Partnership is exposed to potential gains and losses if exchange rates
fluctuate. The effect of currency fluctuations on performance records might
23
be significant. Because these risks are not normally experienced on
domestic exchanges, trading on foreign exchanges may result in greater
losses to the Partnership and the Limited Partners than may be experienced
if the Partnership traded only on domestic exchanges.
Reliance on the General Partner
Limited partners will be relying entirely on the ability of the
General Partner to select and monitor the trading strategies and investment
programs for the Partnership and to allocate and reallocate the assets
among trading strategies and investment programs. The selection by the
General Partner of the current trading strategies and investment programs
involved numerous considerations. The General Partner evaluated the
performance records and other aspects of other trading strategies and
investment programs (including the volatility of trading, commodities
traded, amount of management and incentive fees normally received,
personnel, amount of brokerage commissions generated, and amount of funds
under management) and made certain subjective judgments in selecting the
current trading strategies and investment programs on behalf of the
Partnership. Although the General Partner has carefully weighed the noted
factors in making its current selection, other factors not considered by
the General Partner also may be important. In the future, the General
Partner may choose to stop using one or more of the current trading
strategies and investment programs, to change the allocation of the
Partnership's assets among such trading strategies and investment programs,
or to select additional trading strategies and investment programs for the
Partnership, and similar factors will have to be considered by the General
Partner at that time. There can be no assurance that the General Partner's
decisions relating to the trading strategies and investment programs for
the Partnership will not result in losses to the Partnership and the
Limited Partners.
Reliance on the Advisor
The Partnership relies on a single advisor in making trading
decisions. There can be no assurance that the Advisor's trading decisions
will not result in losses to the Partnership and the Limited Partners. In
addition, an investment in the Partnership may be riskier than other
investments because there is a single advisor.
New Trading Strategies and Investment Programs
In the future, the General Partner may designate additional or
replacement trading strategies and investment programs to manage the assets
of the Partnership. Upon selecting a new trading strategy or investment
program, the General Partner may reallocate the Partnership's assets among
the then current trading strategies and investment programs and the new
trading strategy or investment program in such amounts as the General
Partner may determine in its sole discretion. Any additional or replacement
trading strategy or investment program may be selected without prior notice
to or approval of the Limited Partners who will not have the opportunity to
review the performance records of the newly designated trading strategy or
investment program. However, the Limited Partners will be informed of the
selection of a new trading strategy or investment program after such
trading strategy or investment program has been chosen. No assurance can be
24
given that such trading strategy or investment program will be successful
under all or any market conditions or that such trading strategy or
investment program will not result in diminished profits or greater losses
to the Partnership and the Limited Partners.
Multiple Trading Strategies
Each trading strategy within an investment program employed by the
Advisor makes trading decisions independently of the other. Thus, there is
the possibility that the Partnership could hold opposite positions in the
same or similar Commodity Interest contracts at the same time or during the
same period of time. There is also the possibility that each trading
strategy may, from time to time, enter identical orders and thus compete
for the same trades. Such competition could prevent orders from the
Partnership from being executed at desired prices. There can be no
assurance that the use of several different trading strategies will not
effectively result in losses by certain of the trading strategies at
virtually all times, offsetting any profits achieved by others. The
Partnership's diversification of trading strategies, which is intended to
reduce "down-side" risk while maintaining the ability to capitalize on
profitable trends, may, in fact, have the opposite result, minimizing the
Partnership's ability to exploit trending markets while failing to reduce
exposure to significant losses, resulting in losses to the Partnership and
the Limited Partners.
Experience of the General Partner; Reliance on Key Individuals
The General Partner has operated only this commodity pool; however,
the investment programs and trading strategies that are utilized by the
Advisor to direct trading for the Partnership have been utilized to direct
futures trading for other investors over varying periods of time. The
success of the Partnership is dependent on the trading programs and
strategies of the Advisor, which are executed by Mr. Philip Yang and Mr.
Michael Gan. Mr. Yang is the sole shareholder of the Advisor; however,
neither Mr. Yang nor Mr. Gan has an employment agreement with the Advisor.
If any of these individuals were to become unavailable, there may be no
adequate replacement who could carry out their respective functions.
Past Results Are No Assurance of Future Performance
The General Partner and the Advisor each caution prospective
investors to take seriously the warning required by both the CFTC and the
NFA: PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The
General Partner and the Advisor each believe that such past performance may
be of interest, but encourage investors to look at such information more as
a statement of the Partnership's objectives than as any indication that
such objectives will, in fact, be achieved. In fact, a significant amount
of academic attention has focused on the fact that public futures funds
more frequently than not underperform the past performance records included
in the funds's prospectuses.
25
Termination of the Arrangements with the
Advisor, the Advisor's Licensor and Commodity Brokers
Upon the termination of the Advisory Agreement with the Advisor, the
Advisor's licensing agreement or of any arrangements with the Partnership's
commodity brokers, the General Partner must renegotiate or make such other
arrangements for trading advisors, trading systems or brokerage services,
as the case may be. No assurance is given that the services of the Advisor
or the services of the commodity brokers will be available after the
termination of any such agreements. The Advisor uses each of its five
technical trading systems pursuant to an exclusive licensing agreement with
Caxton Corporation. The licensing agreement for these systems will continue
until December 31, 2011, and shall be renewed for successive one year terms
unless either the Advisor or Caxton has given 90 days' notice to the other
prior to such date of its intention not to renew. The licensing agreement
may also be terminated in the case of an uncured material breach or in
other extraordinary situations. There is no assurance that any of the five
technical trading systems will be available, on an exclusive basis or
otherwise, after termination of the licensing agreement, although the
Advisor's discretionary trading approaches would remain available. In case
of the termination of the Advisor's licensing agreement or of any
agreements with the Advisor or the Partnership's commodity brokers, there
is a possibility that the Partnership's assets would not be able to be
traded as effectively, thereby increasing the possibility of losses being
incurred by Partnership and the Limited Partners.
Limited Ability To Liquidate or Withdraw Investment in Limited
Partnership Units
There currently is no established public trading market for the
Limited Partnership Units and the Partnership has no plans to register any
of the Limited Partnership Units for resale. In addition, the Partnership
Agreement contains certain restrictions on the transfer of Limited
Partnership Units. As of the last day of any month, a Limited Partner may
redeem all of its Limited Partnership Units on 10 days' prior written
notice to the General Partner for an amount equal to the balance of such
Limited Partner's book capital account as of the last day of any month,
which amount could be less than a Limited Partner's initial investment.
This limited ability to redeem Limited Partnership Units on a monthly
rather than daily basis could prevent investors from withdrawing capital
committed to the Partnership on a timely basis in order to take advantage
of other, more favorable, investment opportunities.
Limited Partners Will Not Participate in Management
Limited Partners are not entitled to participate in the management of
the Partnership or in the conduct of its business. Any such participation
could subject a Limited Partner to unlimited liability as a general
partner.
26
Possibility of Taxation as a Corporation
The General Partner has been advised that under current federal
income tax laws and regulations the Partnership will be classified as a
partnership and not as an association taxable as a corporation, and that
under current federal income tax laws the Partnership will not be taxed as
a corporation under the provisions applicable to a so-called "publicly
traded partnership." This status has not been confirmed by a ruling from,
and such opinion is not binding upon, the Internal Revenue Service. No such
ruling has been or will be requested. If the Partnership were taxed as a
corporation for federal income tax purposes, income or loss of the
Partnership would not be passed through to the limited partners, and the
Partnership would be subject to tax on its income at the rates of tax
applicable to corporations without any deductions for distributions to the
Limited Partners. In addition, all or a portion of distributions made to
Limited Partners could be taxable to the limited partners as dividends.
Automatic Termination
The limited partnership interests are designed for investors who
desire longer term investments. The Partnership will terminate on December
31, 2006, regardless of its financial condition at such time and will
terminate automatically if there is a decline of greater than 50% in the
Net Assets of the Partnership as of the end of any month from the Net
Assets of the Partnership as of the beginning of the previous fiscal year
of the Partnership. However, no assurance can be given to an investor as to
the amount, if any, it will receive on such termination because the
impossibility of executing trades under favorable conditions, as well as
the expenses of liquidation, may completely deplete the Partnership's
assets.
Absence of Certain Statutory Registrations
Neither the General Partner nor the Partnership has registered as a
securities investment company, or "mutual fund," which is subject to
extensive regulation by the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended. The Partnership is, however, a
"commodity pool" subject to regulation as such by the CFTC under the CEA.
The General Partner and the Advisor each are registered with the CFTC as a
CPO and a CTA and both are members of the NFA. In addition, the General
Partner is registered as an introducing broker with the CFTC.
Exchanges of Futures for Physicals
The Partnership may engage in exchanges of futures for physicals. An
exchange of futures for physicals is a transaction permitted under the
rules of many futures exchanges in which two parties holding futures
positions may close out their positions without making an open, competitive
trade on the exchange. Generally, the holder of a short futures position
buys the physical commodity, while the holder of a long futures position
sells the physical commodity. The prices at which such transactions are
executed are negotiated between the parties. If the Partnership were
prevented from such trading as a result of regulatory changes, the
performance of the Partnership could be adversely affected, resulting in
losses to Partnership and the Limited Partners.
27
ITEM 2. Properties.
The Partnership does not own or lease any physical properties. The
Partnership's office is located within the office of the General Partner,
at 4 Benedek Road, Princeton, New Jersey 08540.
ITEM 3. Legal Proceedings.
There are no pending legal proceedings to which the Partnership or
the General Partner is a party or to which any of their assets are subject.
ITEM 4. Submission of Matters to Vote of Security Holders.
Not applicable.
PART II
ITEM 5. Market Price of and Dividends on the Registrant's Common
Equity and Related Stockholder Matters
There currently is no established public trading market for the
Limited Partnership Units. As of December 31, 2002, approximately 4,458
Partnership Units were held by 272 Limited Partners and the General
Partner.
All of the Limited Partnership Units are "restricted securities"
within the meaning of Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), and may not be sold unless
registered under the Securities Act or sold in accordance with an exemption
therefrom, such as Rule 144. The Partnership has no plans to register any
of the Limited Partnership Units for resale. In addition, the Partnership
Agreement contains certain restrictions on the transfer of Limited
Partnership Units.
Pursuant to the Partnership Agreement, the General Partner has the
sole discretion to determine whether distributions (other than on
redemption of Limited Partnership Units), if any, will be made to partners.
The Partnership has never paid any distributions and does not anticipate
paying any distributions to partners in the foreseeable future.
From January 1, 2002 through December 31, 2002, a total of 1,317.53
Partnership Units were redeemed for the aggregate net redemption amount
of $7,809,289. Details of the net subscriptions and redemptions of these
Partnership Units are as follows:
28
Date of Net amount of
Subscriptions/Redemptions Subscriptions/Redemptions
- ------------------------- -------------------------
January 2002 ($238,712)
- ------------- --------------
February 2002 $247,721
- ------------- --------------
March 2002 ($470,588)
- ----------- --------------
April 2002 $293,877
- ----------- --------------
May 2002 ($184,326)
- ----------- --------------
June 2002 ($516,011)
- ----------- --------------
July 2002 ($3,653,792)
- ----------- --------------
August 2002 ($1,428,466)
- ------------ --------------
September 2002 ($311,486)
- --------------- --------------
October 2002 ($522,322)
- ------------- --------------
November 2002 $9,995
- -------------- --------------
December 2002 ($1,035,179)
- ------------- --------------
Investors in the Partnership who subscribed through a selling
agent may have been charged a sales commission at a rate negotiated between
such selling agent and the investor, which sales commission in no event
exceeded 4% of the subscription amount.
All of the sales of Partnership Units were exempt from
registration pursuant to Section 4(2) of the Securities Act and Regulation
D promulgated thereunder.
Item 6. Financial Information
Selected Financial Data
Set forth below is certain selected historical financial data for
the Partnership as of and for the five years ended December 31, 2002. The
selected historical financial data as of and for the five years ended
December 31, 2002, was derived from the financial statements of the
Partnership, which were audited by Deloitte & Touche LLP.
29
SELECTED FINANCIAL DATA
(in thousands, except amounts per Unit)
Year Ended December 31,
------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Operations Data:
Realized Gains (Losses) on Closed $ 14,069 $ 2,670 $ (789) $ 267 $ 5,298
Positions
Change in Unrealized
Losses/Gains on Open Positions, Net (449) (4,533) 7,145 661 (724)
Interest Income 398 960 1,296 1,123 818
Incentive Fees 2,139 498 781 806 85
Brokerage Commissions (including
Clearing and Exchange Fees) 993 918 847 935 651
Management Fees 535 537 507 484 372
Administrative Expenses 169 165 227 134 295
--------- --------- --------- --------- ---------
Net (Loss)Income $ 10,182 $ (3,021) $ 5,290 $ (309) $ 3,989
========= ========= ========= ========= =========
Net Change in Net Asset Value Per Unit
of Partnership Interest (for a Unit
Outstanding Throughout Each Year) $ 1,850 $ (604) $ 973 $ 37 $ 645
========= ========= ========= ========= =========
Financial Condition Data:
Limited Partners' Capital $ 27,366 $ 24,946 $ 26,701 $ 24,440 $ 21,766
General Partner's Capital 752 799 1,002 1,447 1,073
--------- --------- --------- --------- ---------
Partners' Capital (Net Asset Value) $ 28,118 $ 25,745 $ 27,703 $ 25,887 $ 22,839
========= ========= ========= ========= =========
Total Assets $ 29,519 $ 26,122 $ 31,158 $ 26,302 $ 23,459
Net Asset Value per Unit $ 6,307 $ 4,458 $ 5,062 $ 4,089 $ 4,126
Partnership Units Outstanding At
End of Period 4,458 5,775 5,473 6,332 5,536
30
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
General
The success of the Partnership is dependent upon the ability
of its advisor to generate trading profits through the speculative trading
of Commodity Interests sufficient to produce capital payments after payment
of all fees and expenses. Future results will depend in large part upon the
Commodity Interests markets in general, the performance of its advisor, the
amount of additions and redemptions and changes in interest rates. Due to
the highly leveraged nature of the Partnership's trading activity, small
price movements in Commodity Interests may result in substantial gains or
losses to the Partnership. Because of the nature of these factors and their
interaction, past performance is not indicative of future results. As a
result, any recent increases in net realized or unrealized gains may have
no bearing on any results that may be obtained in the future.
The Partnership incurs substantial charges from the payment
of brokerage commissions to the General Partner, payment of management and
incentive fees to the Advisor, payment of management fees to the General
Partner and administrative expenses. The Partnership is required to make
substantial trading profits to avoid depleting and exhausting its assets
from the payment of such fees and expenses.
The futures markets are constantly changing in character and
in degree of volatility. Although the Advisor has been the sole advisor
trading on behalf of the Partnership since April 1991, the General Partner
continues to evaluate and analyze from both quantitative and qualitative
perspectives the ability of the Advisor to trade effectively on the
Partnership's behalf in the context of the current market environment. The
General Partner seeks to limit market and credit risks by monitoring daily
income and margin levels. The General Partner also relies upon the risk
management strategies inherent in the Advisor's trading programs. In the
future, the General Partner may utilize additional strategies or appoint
additional advisors to trade on behalf of the Partnership.
As of December 31, 2002, the assets of the Partnership were
allocated for trading in Commodity Interests entirely to the Advisor's
Primary Program. The Primary Program consists of the Argo, Vulcan and Siren
computer-based, quantitative trading systems.
The Partnership paid to the General Partner a flat-rate monthly
brokerage commission of approximately 0.29% of the net asset value of the
Partnership as of the beginning of each month (a 3.5% annual rate) for the
period, January 1, 2002 to July 31, 2002. Beginning August 1, 2002, the
Partnership paid to the General Partner a flat-rate monthly brokerage
commission of approximately 0.33% of the net asset value of the Partnership as
of the beginning of each month (a 4.0% annual rate). The General Partner pays
from this amount all commission charges and fees with respect to the Partner's
trading in Commodity Interests. The flat-rate monthly commission is common
among programs such as the Partnership, although the General Partner believes
the rate charged the Partnership is lower than that of similar programs. As of
December 31, 2002, ADM Investor Services, Inc. and Man Financial, Inc. are the
clearing brokers for the Partnership.
31
Summary of Critical Accounting Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP")
requires management to adopt accounting policies and make estimates and
assumptions that affect amounts reported in the Partnership's financial
statements. The critical accounting estimates and related judgements
underlying the Partnership's financial statements are summarized below. In
applying these policies, management makes judgments that frequently require
estimates about matters that are inherently uncertain. The Partnership's
significant accounting policies are described in detail in Note 1 of the
Notes to Financial Statements.
The Partnership records all investments at fair value in its financial
statements, with changes in fair value reported as a component of Trading
Profits (Losses) in the Statements of Income (Loss). Generally, fair
values are based on quoted market prices; however, in certain
circumstances, significant judgments and estimates are involved in
determining fair value in the absence of an active market closing price.
Results of Operations
Comparison of fiscal years ended December 31, 2002 and 2001
As of December 31, 2002, the net asset value of the Partnership was
$28,117,747 compared to its net asset value of $25,744,644 at December 31,
2001. The Partnership's 2002 subscriptions and redemptions totaled
$2,008,177 and $9,817,466 respectively, compared to $5,068,445 and
$4,005,571 respectively, in 2001.
For the year ended December 31, 2002, the Partnership had trading gains of
$13,619,539 and $397,838 in interest income. For that same period, the
Partnership had expenses comprised of $2,138,561 in incentive fees, $993,401
in brokerage commissions including clearing and exchange fees, $534,498 in
management fees and $168,525 in administrative expenses. This resulted in
the Partnership having a net income of $10,182,392 for 2002. The increase in
trading gains/losses of $15,482,748 from December 31, 2001 to December 31,
2002 was primarily due to significant realized trading gains in foreign
currencies and financials which were recognized during 2002.
No incentive fees were accrued during the fourth quarter of 2002 since the
Partnership incurred trading losses during that period. The Partnership had
significant trading profits during the second and the third quarters of 2002,
which recouped and exceeded the trading losses in the first quarter of 2002. In
the prior year, incentive fees were lower due to the trading losses for the
last three quarter of 2001. The net asset value per Unit at December 31, 2002
increased 41.5% from $4,457.63 at December 31, 2001 to $6,307.41 at
December 31, 2002.
Interest income decreased to $397,838 in 2002 from $959,821 in 2001 primarily
due to the lower interest rate environment in 2002. Brokerage commissions
increased to $993,401 in 2002 from $917,728 in 2001. Brokerage commissions
were charged based on monthly beginning net assets at a rate of 3.5 percent
annually for the period January 1, 2002 to July 31, 2002. Beginning August 1,
2002, the Partnership paid to the General Partner a flat-rate monthly
brokerage commission of approximately 0.33% of the net asset value of the
Partnership as of the beginning of each month (a 4.0% annual rate). Management
fees decreased marginally to $534,498 in 2002 from $537,384 in 2001.
Management fees are charged as one percent of the net assets at the beginning
of the year, therefore the decrease is due to the lower beginning net asset
value in 2002.
32
Comparison of fiscal years ended December 31, 2001 and 2000
As of December 31, 2001, the net asset value of the Partnership was
$25,744,644 compared to its net asset value of $27,703,333 at December 31,
2000. The Partnership's 2001 subscriptions and redemptions totaled
$5,068,445 and $4,005,571 respectively, compared to $3,207,207 and
$5,681,032 respectively, in 2001.
For the year ended December 31, 2001, the Partnership had trading losses of
$1,863,209 and $959,821 in interest income. For that same period, the
Partnership had expenses comprised of $498,003 in incentive fees, $917,728
in brokerage commissions including clearing and exchange fees, $537,384 in
management fees and $165,060 in administrative expenses. This resulted in
the Partnership having a net loss of $3,021,563 2001. The decrease in
trading gains/losses of $8,218,870 from December 31, 2000 to December 31,
2001 was primarily due to significant realized trading losses in foreign
currencies and financials which were incurred during 2001.
No incentive fees were accrued during the last three quarters of 2001 since
the Partnership incurred trading losses during that period. The Partnership
had trading profits during the first quarter of 2001, with $7,553,506 in
realized trading gains and a decrease from $8,003,325 to $2,194,915 in
unrealized appreciation/depreciation for the year ended December 31, 2000 to
the three months ended March 31, 2001, respectively. As a result, incentive
fees of $498,003 were accrued during the first quarter of 2001. In the prior
year, incentive fees were higher due to a higher trading profit level having
to be attained by the Partnership during the fourth quarter of 2000. The net
asset value per Unit at December 31, 2001 decreased 11.93% from $5,061.73 at
December 31, 2000 to $4,457.63 at December 31, 2001.
Interest income decreased to $959,821 in 2001 from $1,295,896 in 2000 due
to the lower interest rate environment in 2001. Brokerage commissions
increased to $917,728 in 2001 from $846,755 in 2000. Brokerage commissions
are charged based on monthly beginning net assets at a rate of 3.5 percent
annually and for nine of the months in 2001, beginning monthly net assets
were higher than in 2000. Management fees increased to $537,384 in 2001
from $507,006 in 2000. Management fees are charged as one percent of
beginning net assets, therefore the increase is due to the higher beginning net
asset value in 2001.
33
Liquidity
There currently is no established public trading market for
the Limited Partnership Units and the Partnership has no plans to register
any of the Limited Partnership Units for resale. In addition, the
Partnership Agreement contains certain restrictions on the transfer of
Limited Partnership Units. As of the last day of any month, a Limited
Partner may redeem all of its Limited Partnership Units on 10 days' prior
written notice to the General Partner for an amount equal to the balance of
such Limited Partner's book capital account as of the last day of any
month.
In general, the Advisor will trade only those Commodity
Interests that have sufficient liquidity to enable it to enter and close
out positions without causing major price movements. Notwithstanding the
foregoing, most United States commodity exchanges limit the amount by which
certain commodities may move during a single day by regulations referred to
as "daily price fluctuation limits" or "daily limits." Pursuant to such
regulations, no trading may be executed on any given day at prices beyond
daily limits. The price of a futures contract occasionally has moved the
daily limit for several consecutive days, with little or no trading,
thereby effectively preventing a party from liquidating his position. While
the occurrence of such an event may reduce or eliminate the liquidity of a
particular market, it will not eliminate losses and may in fact
substantially increase losses because of its inability to liquidate
unfavorable positions. In addition, if there is little or no trading in a
particular futures or forward contract that the Partnership is trading,
whether such illiquidity is caused by any of the above reason or otherwise,
the Partnership may be unable to liquidate its position prior to its
expiration date, thereby requiring the Partnership to make or take delivery
of the underlying interests of the commodity investment.
Capital Resources
The Partnership's capital resources are dependent upon three
factors: (1) the trading profit or loss generated by its advisor (including
interest income); (2) the money invested or redeemed by the Limited
Partners; and (3) capital invested or redeemed by the General Partner. The
General Partner has maintained, and has agreed to maintain, at all times, a
capital account in such amount as is necessary for the General Partner to
maintain a one percent (1%) interest in the capital, income and losses of
the Partnership. All capital contributions by the General Partner necessary
to maintain such interest capital account balance are evidenced by Units of
general partnership interest, each of which shall have an initial value
equal to the net asset value per Unit at the time of such contribution. The
General Partner in its sole discretion, may withdraw any excess above its
required capital contribution without notice to the Limited Partners. The
General Partner, in its sole discretion, may also contribute any greater
amount to the Partnership, for which it shall receive additional Units of
general partnership interest at the then-current net asset value.
34
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Partnership is a commodity pool engaged in the speculative
trading of commodity futures contracts (including agricultural and
non-agricultural commodities, currencies and financial instruments),
options on commodities or commodity futures contracts, and forward
contracts. The risk of market sensitive instruments is integral to the
Partnership's primary business activities.
The futures interests traded by the Partnership involve varying
degrees of related market risk. Such market risk is often dependent upon
changes in the level or volatility of interest rates, exchange rates,
and/or market values of financial instruments and commodities. Fluctuations
in related market risk based upon the aforementioned factors result in
frequent changes in the fair value of the Partnership's open positions,
and, consequently, in its earnings and cash flow. The Partnership accounts
for open positions on the basis of mark-to-market accounting principles. As
such, any gain or loss in the fair value of the Partnership's open
positions is directly reflected in the Partnership's earnings, whether
realized or unrealized.
The Partnership's total market risk is influenced by a wide
variety of factors including the diversification effects among the
Partnership's existing open positions, the volatility present within the
markets and the liquidity of the markets. At varying times, each of these
factors may act to exacerbate or mute the market risk associated with the
Partnership. The following were the primary trading risk exposures of the
Partnership as of December 31, 2002, by market sector:
35
Interest Rate: Interest rate risk is a significant market
exposure of the Partnership. Interest rate movements in one country as well
as relative interest rate movements between countries materially impact the
Partnership's profitability. The Partnership's primary interest rate
exposure is to interest rate fluctuations in the United States and the
other G-7 countries. The General Partner anticipates that G-7 interest
rates will remain the primary market exposure of the Partnership for the
foreseeable future.
Currency: The Partnership's currency exposure is to exchange
rate fluctuations, primarily in the following countries: Germany, England,
Japan, France, Switzerland, Australia, Canada and United States. These
fluctuations are influenced by interest rate changes as well as political
and general economic conditions. The General Partner does not anticipate
that the risk profile of the Partnership's currency sector will change
significantly in the future.
Commodity: The Partnership's primary metals market exposure
is to fluctuations in the price of gold, silver and copper. The Partnership
also has commodity exposures in the price of soft commodities, which are
often directly affected by severe or unexpected weather conditions. The
General Partner anticipates that the Advisor will maintain an emphasis in
the commodities described above. Additionally, the Partnership had exposure
to energies (gas, oil) as of December 31, 2002, and it is anticipated that
positions in this sector will continue to be evaluated on an ongoing basis.
The Partnership measures its market risk, related to its holdings
of commodity interests based on changes in interest rates, foreign currency
rates, and commodity prices utilizing a sensitivity analysis. The
sensitivity analysis estimates the potential change in fair values, cash
flows and earnings based on a hypothetical 10% change (increase and
decrease) in interest, currency and commodity prices. The Partnership used
December 31, 2002 market rates and prices on its instruments to perform the
sensitivity analysis. The sensitivity analysis has been prepared separately
for each of the Partnership's market risk exposures (interest rate,
currency rate, and commodity price) instruments.
The estimates are based on the market risk sensitive portfolios
described in the preceding paragraph above. The potential loss in earnings
is based on an immediate change in:
o The prices of the Partnership's interest rate positions resulting
from a 10% change in interest rates.
o The U.S. dollar equivalent balances of the Partnership's currency
exposures due to a 10% shift in currency exchange rates.
o The market value of the Partnership's commodity instruments due to a
10% change in the price of the instruments.
36
The Partnership has determined that the impact of a 10% change in market
rates and prices on its fair values, cash flows and earnings would not be
material. The Partnership has elected to disclose the potential loss to
earnings of its commodity price, interest rate and currency exchange rate
sensitivity positions as of December 31, 2002.
The potential loss in earnings for each market risk exposure as of
December 31, 2002 was:
Trading portfolio:
Currency exchange rate risk $247,000
-------
Commodity price risk $280,000
-------
Interest rate risk $258,000
-------
Item 8. Financial Statements and Supplementary Data
The Partnership's financial statements, together with the auditors'
report thereon, appear on pages F-1 through F-17 hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable
PART III
Item 10. Directors and Executive Officers
The Partnership has no directors or officers. The General Partner,
Ruvane Investment Corporation, manages and conducts the business of the
Partnership. The General Partner was incorporated as is a Delaware
corporation incorporated in January 1990, is and has been registered with
the CFTC as a CPO since August 8, 1995; as a CTA since January 12, 1990,
and as an introducing broker since May 8, 1995. The General Partner is a
member of the NFA.
37
Robert L. Lerner is the principal of the General Partner. Mr. Lerner
has been a shareholder, director and president of the General
Partner since he formed the General Partner on January 4, 1990. Mr. Lerner
was the sole general partner and CPO of the Partnership since its inception
until November 1995, at which time he transferred and assigned his general
partnership interest to the General Partner, and had been individually
registered with the CFTC as a CPO and a CTA since October 1984. Mr. Lerner
is currently registered as a principal and an associated person of the
General Partner. Mr. Lerner had been a sole proprietor providing consulting
and marketing services to CTAs from January 1992 to January 1996, at which
time he transferred his operations to the General Partner which continues
to provide such services. From May 1988 until January 1992, Mr. Lerner was
senior vice president and director of Mount Lucas Management Corporation,
an investment advisory firm he co-founded which specializes in futures
investment programs for institutional investors. From July 1985 to May
1988, Mr. Lerner was employed by Commodities Corporation (U.S.A.) N.V., a
leading commodity trading advisory firm. Mr. Lerner also has practiced
commodities and securities law. Mr. Lerner has a J.D. degree from Boston
University Law School and a B.A. degree from Cornell University.
The General Partner has selected Willowbridge Associates Inc. as the
Partnership's trading advisor. The trading principals of the Advisor are
Philip L. Yang and Michael Y. Gan.
Philip L. Yang has been the sole shareholder, Director and President
of the Advisor since September 1, 1992, and also held those positions from
the time he formed the Advisor in January 1988 through September 1989. Mr.
Yang is registered as an associated person of the Advisor. He is
individually registered pursuant to the CEA as a CPO and a CTA and is a
member of the NFA in such capacities. He is also a principal and an
associated person of Doublewood, Inc. ("Doublewood") and Union Spring Asset
Management, Inc. ("Union Spring") and Limerick Financial Corporation,
entities which are registered as CPOs and CTAs and are NFA members
affiliated with the Advisor. From 1983 through August 1988 and from October
1989 through August 1992, Mr. Yang was a Senior Vice President at Caxton
Corporation, a commodity trading advisory firm, serving initially as
Director of Research, where his research concentration was in the
development and application of computerized trading models for a broad
range of financial markets, and later as Director of Commodity Trading. Mr.
Yang obtained a bachelor's degree with honors from the University of
California at Berkeley, where he was inducted into Phi Beta Kappa. He
received his master's degree from the Wharton School of the University of
Pennsylvania. He co-authored with Richard G. Faux, Jr. "Managed Futures:
The Convergence with Hedge Funds," a chapter in Evaluating and Implementing
Hedge Fund Strategies, a book published in 1996 by Euromoney Publications.
38
Michael Y. Gan has been the Executive Vice President of the Advisor
since September 1, 1992. Mr. Gan is registered as an associated person of
the Advisor. He is individually registered pursuant to the CEA as a CPO and
a CTA and is a member of the NFA in such capacities. He is also a principal
and an associated person of Doublewood and Union Spring. Mr. Gan was the
sole shareholder, Director and President of the Advisor from October 1989
through August 1992. From 1983 to October 1989, he worked in the foreign
exchange trading group at Marine Midland Bank in New York. In this
capacity, Mr. Gan was responsible for research into technical analysis, as
well as proprietary trading for the firm in both currency futures and
options. He had been promoted to Assistant Vice President prior to his
resignation. Mr. Gan graduated summa cum laude from the University of the
Philippines with a B.S. in Chemical Engineering and subsequently graduated
with honors from the Wharton School of the University of Pennsylvania with
an M.B.A. in Finance.
Item 11. Executive Compensation
The Partnership has no directors or executive officers. The General
Partner manages and conducts the business of the Partnership. The General
Partner receives management and other fees from the Partnership. See
"Business -- Fees and Expenses."
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 31, 2002, approximately 4,458 Partnership Units were
held by 272 Limited Partners and the General Partner. The following table
sets forth certain information as of December 31, 2002 with respect to each
person known to the Partnership to beneficially own more than 5% of the
outstanding Partnership Units.
Name and Address Number of Limited Percent of Total
of Beneficial Owner Partnership Units Partnership Units
- ------------------- ----------------- -----------------
Kenneth Hart, Eag, Gunster, Yoakley et al. 272.090 6.1036%
Qualified Plans Master Trust
777 South Flagler Drive, Suite 500 East
West Palm Beach, Fl. 33401
- ----------------------------------------------------------------------------------------
Mr. W. Duke Kimbrell 237.271 5.3225%
Parkdale Mills, Inc. Attn: Daniel K. Wilson
PO Box 1787
Gastonia, NC 28053-1787
- ----------------------------------------------------------------------------------------
Mellon Bank, Custodian Archbold Expedition 251.506 5.6418%
c/o Arlene D. Steur, AIM 193-0721
1735 Market Street
Philadelphia, PA 19103
- ----------------------------------------------------------------------------------------
PY Family Limited Partnership 334.352 7.5002%
PY Corporation, General Partner
101 Morgan Lane, Suite 180
Plainsboro, NJ 08536
- ----------------------------------------------------------------------------------------
39
The Partnership has no directors or officers. The General Partner
manages and conducts the business of the Partnership. As of December 31,
2002, the General Partner owned approximately $752,192 of general partner
interests in the Company, or 119.2550 Partnership Units, representing
approximately 2.7% of the total outstanding Partnership Units, and also
beneficially owned 26.873 Limited Partnership Units. The General Partner
is owned entirely by Robert L. Lerner and trusts for the benefit of him and
his family.
Item 13. Certain Relationships and Related Transactions
The General Partner manages and conducts the business of the Partnership.
To compensate the General Partner for its management of the Partnership,
its monitoring of the Advisor's portfolio and its assumption of the
financial burden of operating the Partnership, the General Partner receives
management and other fees from the Partnership. See "Business -- Fees and
Expenses." For the years ended December 31, 2002, 2001, and 2000, the
General Partner received a management fee from the Partnership pursuant to
the Partnership Agreement in the amounts of $257,446, $277,033, and
$261,301, respectively. For the year ended December 31, 2002, 2001 and
2000, the General Partner received administrative charges from the Limited
Partners pursuant to the Partnership Agreement in the amount of $17,215
30,577 and $40,437, respectively. This is a one-time, one percent of
capital administrative charge for new partners on their initial
contribution. For the year ended December 31, 2002, 2001 and 2000, the
General Partner received net brokerage commissions $394,488, $190,613 and
$263,663, respectively from the Partnership. Net brokerage commissions
represent the gross brokerage commissions of 3.5% annually of the net asset
value of the Partnership less actual brokerage commissions paid to clearing
brokers. One individual who is associated with the CTA is also a limited
partner of the fund. At December 31, 2002, 2001 and 2000 the individual's
outstanding partnership interest was 2,108,893, $1,485,719 and $1,638,449,
respectively.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
(a) Documents Filed as a Part of This Report.
1. See the Table of Contents to Financial Statements on page F-3,
which is incorporated herein by reference.
2. See the Index to Exhibits, which is incorporated herein by
reference.
(b) Reports on Form 8-K.
Not Applicable.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Willowbridge Fund, L.P. has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
THE WILLOWBRIDGE FUND, L.P.
By: Ruvane Investment Corporation
Its: General Partner
By: /s/ Robert L. Lerner
---------------------------
Robert L. Lerner, President
Date: March 19, 2003
41
THE WILLOWBRIDGE FUND, L.P.
CERTIFICATION PURSUANT TO
DISCLOSURE OF CONTROLS
THE SARBANES-OXLEY ACT OF 2002
I, Robert Lerner certify that:
1) I have reviewed this annual report on Form 10-K of The Willowbridge
Fund, L.P.
2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition and results of operations
of the registrant as of, and for, the periods presented in
this annual report;
4) I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date") and
c) presented in this annual report my conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
42
5) I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent function);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
registrant and in the capacities and on the dates indicated.
By: /s/ Robert L. Lerner
-------------------------------
Robert L. Lerner, President of
Ruvane Corporation
Date: March 19, 2003
43
The Willowbridge Fund L.P.
Financial Statements as of
December 31, 2002 and 2001 and
for the Years Ended December 31,
2002, 2001 and 2000, and
Independent Auditors' Report
F-1
The Willowbridge Fund L.P.
C/o Ruvane Investment Corporation, General Partner
Four Benedek Road
Princeton, NJ 08540
I affirm that, to the best of my knowledge and belief, the information
contained in the attached financial statements of The Willowbridge Fund
L.P. as of December 31, 2002 and 2001 and for the years ended December 31,
2002, 2001 and 2000 is accurate and complete.
Ruvane Investment Corporation
General Partner of
The Willowbridge Fund L.P.
/s/ Robert L. Lerner
--------------------------------
By: Robert L. Lerner, President
F-2
THE WILLOWBRIDGE FUND L.P.
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
INDEPENDENT AUDITORS' REPORT F-4
FINANCIAL STATEMENTS:
Statements of Financial Condition as of December 31,
2002 and 2001 F-5
Condensed Schedules of Investments as of December 31,
2002 and 2001 F-6 - F-7
Statements of Income (Loss) for the Years Ended December 31,
2002, 2001 and 2000 F-8
Statements of Changes in Partners' Capital for the Years
Ended December 31, 2002, 2001 and 2000 F-9
Notes to Financial Statements F-10 - F-17
F-3
INDEPENDENT AUDITORS' REPORT
To the Partners of
The Willowbridge Fund L.P.
We have audited the accompanying statements of financial condition of The
Willowbridge Fund L.P., including the condensed schedules of investments,
as of December 31, 2002 and 2001 and the related statements of income
(loss) and changes in partners' capital for each of the three years in the
period ended December 31, 2002. These financial statements are the
responsibility of the General Partner. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the General
Partner, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Willowbridge Fund
L.P. as of December 31, 2002 and 2001 and the results of its operations and
changes in its partners' capital for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.
March 19, 2003
F-4
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 2002 AND DECEMBER 31, 2001
- ------------------------------------------------------------------------------------------------------------------
2002 2001
ASSETS
CASH AND CASH EQUIVALENTS $ 1,364,472 $ 3,332,403
EQUITY IN COMMODITY FUTURES TRADING ACCOUNT:
Due from broker 25,084,626 19,307,320
Net unrealized gains on open futures and forward contracts 3,021,151 3,470,476
--------------- ---------------
28,105,777 22,777,796
ACCOUNTS RECEIVABLE 43,851 -
INTEREST RECEIVABLE 5,381 11,372
--------------- ---------------
TOTAL ASSETS $ 29,519,481 $ 26,121,571
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Redemptions payable $ 1,081,906 $ 183,099
Prepaid subscriptions 210,274 61,887
Accrued management fees 71,874 66,073
Accounts payable - 15,628
Sales commissions 1,400 240
Other accrued expenses 36,280 50,000
--------------- ---------------
1,401,734 376,927
PARTNERS' CAPITAL:
Limited partners (4,338.6367 and 5,596.2849 fully redeemable
units at December 31, 2002 and December 31, 2001, respectively) 27,365,555 24,946,122
General partner (119.2550 and 179.1362 fully redeemable
units at December 31, 2002 and December 31, 2001, respectively) 752,192 798,522
--------------- ---------------
28,117,747 25,744,644
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 29,519,481 $ 26,121,571
=============== ===============
NET ASSET VALUE PER UNIT
(Based on 4,457.8917 and 5,775.4211 units outstanding
at December 31, 2002 and December 31, 2001, respectively) $ 6,307.41 $ 4,457.63
=============== ===============
See Notes to Financial Statements.
F-5
THE WILLOWBRIDGE FUND L.P.
CONDENSED SCHEDULE OF INVESTMENTS
FOR THE YEAR ENDED DECEMBER 31, 2002
- --------------------------------------------------------------------------------------------------------------------------------
Long Positions Short Positions Net Unrealized
Commodity Unrealized Percentage of Unrealized Percentage of Gain (Loss) on Percentage of
Industry Sector Gain Net Asset (Loss) Net Assets Open Positions Net Assets
- ------------------- --------------- ---------------- ------------- --------------- --------------- --------------
Livestocks $ 23,070 0.082% $ - - $ 23,070 0.082%
Grains - - (46,970) -0.167% (46,970) -0.167%
Tropical Products 158,996 0.565% - - 158,996 0.565%
Energy 899,134 3.198% - - 899,134 3.198%
Currencies 1,053,696 3.747% - - 1,053,696 3.747%
Interest rates 817,055 2.906% - - 817,055 2.906%
Metals 116,170 0.413% - - 116,170 0.413%
--------------- ---------------- ------------- --------------- --------------- --------------
$ 3,068,121 10.911% $ (46,970) -0.167% $ 3,021,151 10.744%
=============== ================ ============= =============== =============== ==============
See Notes to Financial Statements.
F-6
THE WILLOWBRIDGE FUND L.P.
CONDENSED SCHEDULE OF INVESTMENTS
FOR THE YEAR ENDED DECEMBER 31, 2001
- --------------------------------------------------------------------------------------------------------------------------------
Long Positions Short Positions Net Unrealized
Commodity Unrealized Percentage of Unrealized Percentage of Gain (Loss) on Percentage of
Industry Sector Gain (Loss) Net Asset Gain (Loss) Net Assets Open Positions Net Assets
- ------------------- --------------- ---------------- ------------- --------------- --------------- --------------
Livestocks $ 47,000 0.183% $ - - $ 47,000 0.183%
Grains (18,850) -0.073% 243,927 0.947% 225,077 0.874%
Tropical Products 92,140 0.358% - - 92,140 0.358%
Energy (63,449) -0.246% 297,250 1.155% 233,801 0.909%
Currencies
Japanese Yen - - 2,897,100 11.253% 2,897,100 11.253%
Others (8,588) -0.033% (287,780) -1.118% (296,368) -1.151%
Interest rates - - 140,198 0.545% 140,198 0.545%
Metals 172,128 0.669% (40,600) -0.158% 131,528 0.511%
--------------- ---------------- ------------- --------------- --------------- --------------
$ 220,381 0.858% $ 3,250,095 12.624% $ 3,470,476 13.482%
=============== ================ ============= =============== =============== ==============
See Notes to Financial Statements.
F-7
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
INCOME (LOSS):
Profits (losses) on trading of commodity futures,
forwards and options:
Realized gains (losses) on closed positions, net $ 14,068,864 $ 2,669,640 $ (789,139)
Change in unrealized gains/losses on open
positions, net (449,325) (4,532,849) 7,144,800
------------------- ---------------- ------------------
Total trading profits (losses) 13,619,539 (1,863,209) 6,355,661
Interest income 397,838 959,821 1,295,896
------------------- ---------------- ------------------
Total income (loss) 14,017,377 (903,388) 7,651,557
------------------- ---------------- ------------------
EXPENSES:
Incentive fees 2,138,561 498,003 780,847
Brokerage commissions (includes clearing and
exchange fees of $45, $15, and $5,204
in 2002, 2001, and 2000, respectively) 993,401 917,728 846,755
Management fees 534,498 537,384 507,006
Administrative expenses 168,525 165,060 227,020
------------------- ---------------- ------------------
Total expenses 3,834,985 2,118,175 2,361,628
------------------- ---------------- ------------------
NET INCOME (LOSS) $ 10,182,392 $ (3,021,563) $ 5,289,929
=================== ================ ==================
NET INCOME (LOSS):
Limited partners $ 9,933,311 $ (2,908,469) $ 5,119,725
=================== ================ ==================
General partner $ 249,081 $ (113,094) $ 170,204
=================== ================ ==================
CHANGE IN NET ASSET VALUE PER UNIT $ 1,849.78 $ (604.10) $ 973.18
=================== ================ ==================
See Notes to Financial Statements.
F-8
THE WILLOWBRIDGE FUND L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- -----------------------------------------------------------------------------------------------------------------------------------
General Partner Limited Partners Total Partners'
Units Amount Units Amount Capital
----------- -------------- -------------- -------------- ----------------
PARTNERS' CAPITAL, JANUARY 1, 2000 353.9228 $ 1,447,031 5,977.7063 $ 24,440,138 $ 25,887,169
Additions 60.4005 242,390 1,316.4651 4,964,877 5,207,267
Redemptions (216.3443) (857,509) (2,019.0493) (7,823,523) (8,681,032)
Net income - 170,204 - 5,119,725 5,289,929
----------- -------------- -------------- -------------- ----------------
PARTNERS' CAPITAL, DECEMBER 31, 2000 197.9790 1,002,116 5,275.1221 26,701,217 27,703,333
Additions 7.2634 34,500 1,110.3631 5,033,945 5,068,445
Redemptions (26.1062) (125,000) (789.2003) (3,880,571) (4,005,571)
Net loss - (113,094) - (2,908,469) (3,021,563)
----------- -------------- -------------- -------------- ----------------
PARTNERS' CAPITAL, DECEMBER 31, 2001 179.1362 798,522 5,596.2849 24,946,122 25,744,644
Additions 4.1981 19,623 421.1960 1,988,554 2,008,177
Redemptions (64.0793) (315,034) (1,678.8442) (9,502,432) (9,817,466)
Net income - 249,081 - 9,933,311 10,182,392
----------- -------------- -------------- -------------- ----------------
PARTNERS' CAPITAL, DECEMBER 31, 2002 119.2550 $ 752,192 4,338.6367 $ 27,365,555 $ 28,117,747
=========== ============== ============== ============== ================
See Notes to Financial Statements.
F-9
THE WILLOWBRIDGE FUND L.P.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
- -------------------------------------------------------------------------------
1. PARTNERSHIP ORGANIZATION
The Willowbridge Fund L.P. (the "Partnership"), a Delaware limited
partnership, was organized on January 24, 1986. The Partnership is
engaged in the speculative trading of commodity futures contracts,
options on commodities or commodity futures contracts and forward
contracts. Ruvane Investment Corporation ("General Partner"), is
registered as a Commodity Pool Operator and a Commodity Trading Advisor
with the Commodity Futures Trading Commission. The General Partner is
required by the Limited Partnership Agreement, as amended and restated on
April 15, 1998 (the "Agreement") to contribute an amount equal to one
percent of the aggregate capital raised by the Partnership. The Agreement
requires that all subscriptions are subject to a one percent
administrative charge payable to the General Partner.
The Partnership shall end on December 31, 2006 or earlier upon
withdrawal, insolvency or dissolution of the General Partner or a decline
of greater than fifty percent of the net assets of the Partnership as
defined in the Agreement, or the occurrence of any event which shall make
it unlawful for the existence of the Partnership to be continued.
2. SIGNIFICANT ACCOUNTING POLICIES
Due from Broker - Due from broker represents cash required to meet
margin requirements and excess funds not required for margin which
are typically invested in 30 day commercial paper and U.S. Treasury
bills which are carried at cost plus accrued interest, which
approximates market.
Revenue Recognition - Investments in swaps, commodity futures,
options and forward contracts are recorded on the trade date and open
contracts are recorded in the financial statements at their fair
value on the last business day of the reporting period. The
difference between the original contract amount and fair value is
recorded in income as an unrealized gain/(loss). Fair value is
based on quoted market prices. All commodity futures, options and
forward contracts and financial instruments are recorded at fair
value in the financial statements.
Securities which are traded on a national securities exchange in the
United States of America are valued at their last reported sales
price on the date as of which the value is being determined on the
national securities exchange on which such securities are principally
traded provided that such sales price is between the closing "bid"
and "ask" prices. If there are no sales on such date on such exchange
or if the last sales price is not between the "bid" and the "ask,"
such securities are valued at the mean between the "bid" and the
"ask" prices at the close of trading on such date on such exchange.
Securities not traded on a national securities exchange in the United
States of America, but traded over-the-counter, are valued at their
last reported sales price on the date as of which the value is being
determined; provided that such sales price is between the closing
"bid" and "ask" prices. If sales are not reported, or there are no
sales on such date, or if the last sales price is not between the
"bid" and the "ask" prices, such securities are valued at the mean
between the "bid" and the "ask" prices at the close of trading on the
date as of which the value is determined, as reported by the NASD
Automated Quotations System ("NASDAQ").
F-10
Commissions - Commissions were charged at a rate of 3.5 percent
annually of the net asset value of the Partnership at the beginning of
each month for the period, January 1, 2002 to July 31, 2002. Beginning
August 1, 2002, the Partnership paid to the General Partner a flat-rate
of 4.0 percent annually of the net asset value of the Partnership as
of the beginning of each month.
Statement of Cash Flows - The Partnership has elected not to provide
a Statement of Cash Flows as permitted by Statement of Financial
Accounting Standard No. 102, "Statement of Cash Flows - Exemption of
Certain Enterprises and Classification of Cash Flows from Certain
Securities Acquired for Resale."
Allocation of Profits (Losses) and Fees - Net realized and unrealized
trading gains and losses, interest income and other operating income
and expenses are allocated to the partners monthly in proportion to
their capital account balance, as defined in the Agreement.
Incentive Fees - Willowbridge Associates, Inc. ("Willowbridge") the
Commodity Trading Advisor ("CTA") of the Partnership is entitled to an
incentive fee based on an increase in the adjusted net asset value of
the allocated assets of the Partnership. The CTA receives 25% of any new
profits, as defined in the Agreement. The term "new profits" is defined
as the increase, if any, in the adjusted net asset value of the
allocated assets.
Management Fees - The General Partner is paid a management fee
equal to approximately one percent of the net assets of the Partnership
(as defined in the Agreement) as of the first day of the fiscal year.
Such fees amounted to $257,446, $277,033 and $261,361 in 2002, 2001
and 2000, respectively. The Partnership pays the CTA a quarterly
management fee of 0.25% (1% per year) of the net asset value of the
Partnership.
Administrative Expenses - Administrative expenses include
professional fees, bookkeeping costs and other charges such as
registration fees, printing costs and bank fees.
Income Taxes - Income taxes have not been provided in the
accompanying financial statements as each partner is individually
liable for taxes, if any, on his or her share of the Partnership's
profits.
Redemptions - Limited partners may redeem some or all of their units
at net asset value per unit as of the last business day of each month
on at least ten days written notice to the General Partner.
Estimates - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income (loss) and expenses
during the reporting period. Estimates include accrual of expenses
such as professional fees. Actual results could differ from these
estimates.
Reclassifications - Certain reclassifications have been made to prior
year amounts to conform to the current year's presentation.
Recently Issued Accounting Pronouncements - In January 2003, the
Financial Accounting Standards Board issued FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB
No. 51" "(FIN 46"), effective immediately to varialble interest entities
created after January 31, 2003. For all financial statements issued
after January 31, 2003, enterprises are required to disclose the nature,
purpose, size and activities of the variable interest entity and the
enterprise's maximum exposure to loss as a result of its involvement
with the variable interest entity if it is reasonably possible that an
enterprise will consolidate or disclose information about a variable
interest entity when FIN 46 becomes effective. As the Partnership does
not invest any of its funds in other entities, management has determined
that the adoption of FIN 46 will not have a material impact on the
Partnership's financial statements.
F-11
In November 2002, the Financial Accounting Standards Board issued FASB
Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"), which is effective for financial
statements of interim or annual periods ending after December 15, 2002.
The initial recognition and initial measurement provisions apply on a
prospective basis to guarantees issued or modified after December 31,
2002, regardless of the guarantor's fiscal year end. Management has
determined that the adoption of FIN 45 did not have any effect on the
financial statements of the Partnership, since the Partnership has not
entered into any guarantee contracts in the capacity of a guarantor.
In March 2001, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position
01-1, "Amendment to the Scope of Statement of Position 95-2, Financial
Reporting by Nonpublic Investment Partnerships, to Include Commodity
Pools" effective for fiscal years ending after December 15, 2001.
Accordingly, commodity pools are now required to include a condensed
schedule of investments identifying those investments, which constitute
more than 5% of net assets, taking long and short positions into account
separately. The Partnership's condensed schedules of investments do not
separately identify individual futures contracts within each industry
sector where such contracts are less than 5% of net assets.
In December 2000, the American Institute of Certified Public
Accountants issued an updated Audit and Accounting Guide - Audits of
Investment Companies (the "Guide") which is effective for fiscal
periods beginning after December 15, 2000. The Guide establishes new
financial reporting requirements for investment companies, including
the disclosure of financial highlights for the latest operating
period. The Partnership has presented this information in the
Footnote 6.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities",
effective for fiscal years beginning after June 15, 2000, as amended
by SFAS No. 137. SFAS No. 133 is further amended by SFAS No. 138,
which clarifies issues surrounding interest rate risk, foreign
currency denominated items, normal purchases and sales and net
hedging. This Statement supercedes SFAS No. 119 "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments" and SFAS No. 105 "Disclosure of Information about
Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentrations of Credit Risk" and amends certain
disclosure requirements of SFAS No. 107 "Disclosure About Fair Value
of Financial Instruments". The adoption of SFAS No. 133, as amended,
on January 1, 2001, did not have a significant effect on the
financial statements.
F-12
3. DERIVATIVE INSTRUMENTS
The Partnership trades futures, options on futures and forward
contracts and forward contracts in currencies and a wide range of
commodities, energy and metals.
The Partnership's trading results by market sector were as follows:
For the year ended December 31, 2002
-----------------------------------------------------
Net Change in
Net Realized Unrealized Total Trading
Gains/(Losses) Gains/Losses Gains/(Losses)
-------------- -------------- --------------
Financials $ 6,968,034 $ 676,858 $ 7,644,892
Currencies 6,011,883 (1,547,037) 4,464,846
Grains 1,315,282 (272,047) 1,043,235
Energies 325,359 665,333 990,692
Livestock 214,601 (23,930) 190,671
Tropical products (693,100) 66,856 (626,244)
Metals (1,066,596) (15,358) (1,081,954)
-------------- -------------- --------------
13,075,463 (449,325) 12,626,138
Brokerage commissions 993,401 - 993,401
-------------- -------------- --------------
Total trading profits
(losses) $ 14,068,864 $ (449,325) $ 13,619,539
============== ============== ==============
F-13
For the year ended December 31, 2001
-----------------------------------------------------
Net Change in
Net Realized Unrealized Total Trading
Gains/(Losses) Gains/Losses Gains/(Losses)
-------------- -------------- --------------
Financials $ 6,120,850 $ (3,080,938) $ 3,039,912
Currencies (1,462,114) (1,777,388) (3,239,502)
Grains (1,799,461) 94,534 (1,704,927)
Energies (146,760) 233,801 87,041
Livestock (898,239) (135,080) (1,033,319)
Tropical products 630,613 78,796 709,409
Metals (692,977) 53,426 (639,551)
-------------- -------------- --------------
1,751,912 (4,532,849) (2,780,937)
Brokerage commissions 917,728 - 917,728
-------------- -------------- --------------
Total trading profits
(losses) $ 2,669,640 $ (4,532,849) $ (1,863,209)
============== ============== ==============
For the year ended December 31, 2000
-----------------------------------------------------
Net Change in
Net Realized Unrealized Total Trading
Gains/(Losses) Gains/Losses Gains/(Losses)
-------------- -------------- --------------
Financials $ (1,047,903) $ 3,153,588 $ 2,105,685
Currencies (64,431) 3,939,112 3,874,681
Grains (280,051) 125,342 (154,709)
Energies 3,564,714 23,750 3,587,464
Livestock (166,680) 196,400 29,720
Tropical products (3,727,862) (117,670) (3,845,532)
Metals 86,319 (174,722) (88,403)
-------------- -------------- --------------
(1,635,894) 7,144,800 5,508,906
Brokerage commissions 846,755 - 846,755
-------------- -------------- --------------
Total trading (losses)
profits $ (789,139) $ 7,144,800 $ 6,355,661
============== ============== ==============
Market Risk - Derivative financial instruments involve varying
degrees of off-balance sheet market risk whereby changes in the level
of volatility of interest rates, foreign currency exchange rates or
market values of the underlying financial instruments or commodities
may result in cash settlements in excess of the amounts recognized in
the Statements of Financial Condition. The Partnership's exposure to
market risk is directly influenced by a number of factors, including
the volatility of the markets in which the financial instruments are
traded and the liquidity of those markets.
F-14
Fair Value - The derivative instruments used in the Partnership's
trading activities are marked to market with the resulting unrealized
profits recorded in the Statements of Financial Condition and the
related trading profits/losses reflected in trading profits (losses)
in the Statements of Income (Loss). Substantially all of the
Partnership's derivative financial instruments outstanding expire
within 90 days.
Credit Risk - Futures and forwards are contracts for delayed delivery
of financial interests in which the seller agrees to make delivery at
a specified future date of a specified financial instrument at a
specified price or yield. Risk arises from changes in the market
value of the underlying instruments and with respect to forward
contracts, from the possible inability of counterparties to meet the
terms of the contracts. Credit risk due to counterparty
nonperformance associated with these instruments is the net
unrealized gain, if any, included in the Statements of Financial
Condition.
The risks associated with exchange-traded contracts are typically
perceived to be less than those associated with over-the-counter
transactions, because exchanges typically (but not universally)
provide clearing house arrangements in which the collective credit
(in some cases limited in amount, in some cases not) of the members
of the exchange is pledged to support the financial integrity of the
exchange, whereas in over-the-counter transactions, traders must rely
solely on the credit of their respective individual counterparties.
Margins, which may be subject to loss in the event of a default, are
generally required in exchange trading, and counterparties may
require margin in the over-the-counter markets.
4. ADMINISTRATOR
The Administrator acts as Secretary and Registrar for the
Partnership. For its services, the Administrator receives a fee paid
out of the Partnership's assets based upon the nature and extent of
the services performed.
5. NET ASSET VALUE PER PARTICIPATING UNIT
The net asset value per participating unit at December 31, 2002 and
2001 was $6,307.41 and $4,457.63, respectively. There were 4,457.8917
and 5,775.4211 units issued and outstanding at December 31, 2002 and
2001, respectively.
F-15
6. FINANCIAL HIGHLIGHTS
The following sets forth the financial highlights for the years
ended December 31, 2002, 2001, 2000, 1999 and 1998:
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Per Share Operating Performance
(for a share outstanding for the
entire year)
Net Asset Value, Beginning of Year $ 4,457.63 $ 5,061.73 $ 4,088.73 $ 4,125.73 $ 3,480.73
----------- ----------- ----------- ----------- -----------
(Loss) income from investment operations
Net investment loss (1) (624.41) (231.59) (196.02) (147.99) (94.60)
Net realized and change in unrealized
gain/loss on investments 2,474.19 (372.51) 1,169.02 110.99 739.60
----------- ----------- ----------- ----------- -----------
Total from investment operations 1,849.78 (604.10) 973.00 (37.00) 645.00
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year $ 6,307.41 $ 4,457.63 $ 5,061.73 $ 4,088.73 $ 4,125.73
=========== =========== =========== =========== ===========
Total Return (2) 41.50% -11.93% 23.80% -0.90% 18.53%
=========== =========== =========== =========== ===========
Ratios/Supplemental Data
- ------------------------
Ratio of expenses to average net assets -14.41% -8.26% -9.94% -9.36% -7.58%
Ratio of net investment loss (1) to -12.92% -4.52% -4.49% -4.91% -3.16%
average net assets
F-16
(1) Net investment loss is comprised of interest income and total expenses.
(2) Total return is derived as opening net asset value less ending net asset
value divided by opening net asset value
7. SUBSEQUENT EVENTS
In accordance with the amendment to Section 5 of the Agreement,
effective January 16, 2003, the Partnership will offer separate classes
of limited partnership interests, whereby interests which were already
issued by the Partnership will be designated as Class A interests. As
per the offering memorandum dated February 26, 2003, the Partnership
plans to offer Class B limited partnership interests in a private
offering pursuant to Regulation D as adopted under section 4(2) of
the Securities Act of 1933, as amended. The Partnership will offer
the Class B interest, up to an aggregate of $100,000,000.
*****
F-17
INDEX TO EXHIBITS
Exhibit Number Item Description
- -------------- ----------------
3.1 Certificate of Limited Partnership for The Willowbridge
Fund L.P., dated January 16, 1986 (Filed as Exhibit 3.1
to the Registrant's Form 10 and incorporated by reference
herein.)
3.2 Form of Amended and Restated Limited Partnership
Agreement for the Partnership (Filed as Exhibit 3.2
to the Registrant's Form 10, and incorporated by
reference herein.)
10.1 Trading Advisor Agreement between the General Partner
and the Advisor, dated April 1, 1991 (Filed as
Exhibit 10.1 to the Registrant's Form 10, and
incorporated by reference herein.)
F-18