Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Fiscal Year Ended December 31, 2003
Commission File Number 0-22260 and
2-84126
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to __________
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
----------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 52-1823554
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
210 W. PENNSYLVANIA AVENUE
TOWSON, MARYLAND 21204
- ------------------------------- -----------------------------------
Registrant's telephone number, including area code: (410) 296-3301
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant Section 12 (g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
-----------------------------------
(Title of Class)
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 the 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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II 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 Exchange Act Rule 12b-2)
Yes [ ] No [X]
The Registrant has no voting stock. As of December 31, 2003 there were
1,074,763.533 Units of General and Limited Partnership Interest issued and
outstanding.
Total number of pages 36. Consecutive page numbers on which exhibits commence:
5.
TABLE OF CONTENTS
Page
----
PART I
ITEM 1. BUSINESS................................................................................ 1-2
ITEM 2. PROPERTIES.............................................................................. 2
ITEM 3. LEGAL PROCEEDINGS....................................................................... 2
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................... 3
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................... 3
ITEM 6. SELECTED FINANCIAL DATA................................................................. 3-4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS... 4-11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................. 11-16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............................................. 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.... 16
ITEM 9A. CONTROLS AND PROCEDURES................................................................. 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................... 17-18
ITEM 11. EXECUTIVE COMPENSATION.................................................................. 19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS..................................................................... 19
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................... 19
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.................................................. 19
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........................ 20-21
SIGNATURES
CERTIFICATIONS
DOCUMENTS INCORPORATED BY REFERENCE - Prospectus dated September 26, 2003
included within the Registration Statement on Form S-1 (File No. 333-107696),
incorporated by reference into Parts I, II, III and IV.
PART I
ITEM 1. BUSINESS
Campbell Strategic Allocation Fund, L.P. (the "Registrant" or the
"Fund") is a limited partnership, which was organized on May 11, 1993 under the
Delaware Revised Uniform Limited Partnership Act. The Registrant operates as a
commodity investment pool, whose purpose is to trade speculatively in the U.S.
and international futures, forward and swap markets. Specifically, the Fund
trades a portfolio primarily focused on financial futures, which are instruments
designed to hedge or speculate on changes in interest rates, currency exchange
rates or stock index values. A secondary emphasis is on metals and energy
values. The general partner and trading advisor of the Registrant is Campbell &
Company, Inc. ("Campbell & Company"). The Registrant's operations are regulated
by the provisions of the Commodity Exchange Act, the regulations of the
Commodity Futures Trading Commission, and the rules of the National Futures
Association.
The Registrant originally filed a registration statement with the U.S.
Securities and Exchange Commission for the sale of a minimum of $2,500,000 and a
maximum of $25,000,000 in Units of Limited Partnership Interest at $1,000 each,
which registration statement was effective on January 12, 1994. The Fund has
since filed additional registration statements with the U.S. Securities and
Exchange Commission to bring the sum of existing and offered Units of Limited
Partnership Interest to a maximum of approximately $3,410,000,000 through
December 2003. The Unit selling price during the initial offering period, which
lasted for approximately 90 days and ended on April 15, 1994, was $1,000. Since
April 15, 1994, Units of Limited Partnership Interest of the Fund have been
offered on an ongoing basis during the Fund's continuing offering period. During
the continuing offering period, subscriptions are accepted monthly and proceeds
are transferred to bank and brokerage accounts for trading purposes. The Unit
selling price during the continuing offering period is the net asset value per
unit as of the last business day of the month in which the subscription is
accepted.
A total of $2,638,621,409 has been raised in the initial and continuing
offering periods through December 31, 2003.
In addition to making all trading decisions in its capacity as trading
advisor, Campbell & Company conducts and manages all aspects of the business and
administration of the Registrant in its role as general partner.
The Registrant will be terminated and dissolved promptly thereafter
upon the happening of the earlier of: (a) the expiration of the Registrant's
stated term of December 31, 2023; (b) an election to dissolve the Registrant at
any time by Limited Partners owning more than 50% of the Units then outstanding;
(c) the withdrawal of Campbell & Company, unless one or more new general
partners have been elected or appointed pursuant to the Amended Agreement of
Limited Partnership (d) Campbell & Company determines that the purpose of the
Fund cannot be fulfilled; or (e) any event which shall make unlawful the
continuing existence of the Registrant.
REGULATION
Under the Commodity Exchange Act, as amended (the "Act"), commodity
exchanges and commodity futures trading are subject to regulation by the
Commodity Futures Trading Commission (the "CFTC"). The National Futures
Association (the "NFA"), a registered futures association under the Act, is the
only non-exchange self-regulatory organization for commodity industry
professionals. The CFTC has delegated to the NFA responsibility for the
registration of "commodity trading advisors," "commodity pool operators,"
"futures commission merchants," "introducing brokers" and their respective
associated persons and "floor brokers." The Act requires "commodity pool
operators," and "commodity trading advisors," such as Campbell & Company, and
commodity brokers or "futures commission merchants," such as the Registrant's
commodity broker, to be registered and to comply with various reporting and
recordkeeping requirements. Campbell & Company and the Registrant's commodity
broker are members of the NFA. The CFTC may suspend a commodity pool operator's
or commodity trading advisor's registration if it finds that its trading
practices tend to disrupt orderly market conditions, or as the result of
violations of the
1
Commodity Exchange Act or rules and regulations promulgated thereunder. In the
event Campbell & Company's registration as a commodity pool operator or
commodity trading advisor were terminated or suspended, Campbell & Company would
be unable to continue to manage the business of the Registrant. Should Campbell
& Company's registration be suspended, termination of the Registrant might
result.
In addition to such registration requirements, the CFTC and certain
commodity exchanges have established limits on the maximum net long and net
short positions which any person, including the Registrant, may hold or control
in particular commodities. Most exchanges also limit the maximum changes in
futures contract prices that may occur during a single trading day. The
Registrant also trades in dealer markets for forward and swap contracts, which
are not regulated by the CFTC. Federal and state banking authorities also do not
regulate forward trading or forward dealers. In addition, the Registrant trades
on foreign commodity exchanges, which are not subject to regulation by any
United States government agency.
OPERATIONS
A description of the business of the Registrant, including trading
approach, rights and obligations of the Partners, and compensation arrangements
is contained in the Prospectus under "Summary," "The Risks You Face, " "Campbell
& Company, Inc.," "Conflicts of Interest" and "Charges to the Fund," and such
description is incorporated herein by reference from the Prospectus.
The Registrant conducts its business in one industry segment, the
speculative trading of futures, forwards and swap contracts. The Registrant is a
market participant in the "managed futures" industry. The managed futures
industry has grown substantially in the previous ten years. Market participants
include all types of investors, such as corporations, employee benefit plans,
individuals and foreign investors. Service providers of the managed futures
industry include (a) pool operators, which conduct and manage all aspects of
trading funds (except trading decisions), such as the Registrant, (b) trading
advisors, which make the specific trading decisions, and (c) commodity brokers,
which execute and clear the trades pursuant to the instructions of the trading
advisor. The Registrant has no employees, and does not engage in the sale of
goods or services.
The Registrant engages in financial instrument trading in approximately
50 financial instrument contracts on domestic and international markets. All of
the Fund's assets are currently allocated to the Financial, Metal & Energy Large
Portfolio which is concentrated in the financial markets such as interest rates,
foreign exchange and stock indices, as well as metals and energy products. As of
March 2004, the Fund's assets are allocated to the different market sectors in
approximately the following manner: 47% to currencies, 34% to interest rates,
13% to stock indices, 5% to energy products and 1% to metals. The contracts
traded by the Registrant will fluctuate from time to time.
The Registrant may, in the future, experience increased competition for
the futures and other contracts in which it trades. Campbell & Company will
recommend similar or identical trades for other accounts under its management.
Such competition may also increase due to the widespread utilization of
computerized methods similar to those used by Campbell & Company.
ITEM 2. PROPERTIES
The Registrant does not use any physical properties in the conduct of
its business. Its assets currently consist of futures and other contracts, cash,
short-term time deposits and U.S. Treasury Bills.
ITEM 3. LEGAL PROCEEDINGS
Campbell & Company is not aware of any material legal proceedings to
which the Registrant is a party or to which any of their assets are subject.
2
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Units of Limited Partnership Interest are not publicly traded. Units
may be transferred or redeemed subject to the conditions imposed by the Amended
Agreement of Limited Partnership. As of December 31, 2003, there were 49,215
Partners in the Registrant and 1,074,763.533 Units of General and Limited
Partnership Interest outstanding.
Campbell & Company has sole discretion in determining what
distributions, if any, the Registrant will make to its Unit holders. Campbell &
Company has not made any distributions as of the date hereof.
The Registrant has no securities authorized for issuance under equity
compensation plans.
ITEM 6. SELECTED FINANCIAL DATA
DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS
For the Year Ended December 31,
-------------------------------
2003 2002 2001 2000 1999
---------- ---------- ----------- ---------- -----------
Total Assets $2,877,967 $1,654,430 $ 954,185 $ 645,193 $ 496,841
Total Partners' Capital 2,828,101 1,617,949 943,219 630,625 484,020
Total Trading Gain (Loss)
(includes brokerage commissions) 543,537 250,527 64,466 73,921 35,924
Net Income (Loss) 342,701 155,979 29,936 61,827 23,306
Net Income (Loss) Per General
and Limited Partner Unit * 385.55 282.19 76.29 208.13 95.52
Increase (Decrease) in Net Asset
Value per General and Limited
Partner Unit 395.32 259.32 55.92 185.62 73,88
The following summarized quarterly financial information presents the results of
operations for the three-month periods ending March 31, June 30, September 30
and December 31, 2003 and 2002.
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
2003 2003 2003 2003
--------- --------- -------- --------
Total Trading Gain (Loss)
(includes brokerage commissions) $ 229,492 $ 124,224 $ (63,151) $ 252,972
Net Income (Loss) 172,436 73,756 (98,886) 195,395
Net Income (Loss)
per General and
Limited Partner
Unit * 227.95 87.04 (105.80) 192.14
Increase (Decrease)
in Net Asset Value
per General and
Limited Partner Unit 235.57 85.71 (112.80) 186.84
Net Asset Value per
General and Limited
Partner Unit at the
End of the Period 2,471.62 2,557.33 2,444.53 2,631.37
* - Based on weighted average number of units outstanding during the period.
3
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
2002 2002 2002 2002
------- ------- -------- --------
Total Trading Gain (Loss)
(includes brokerage commissions) $ (34,032) $ 85,248 $ 220,954 $ (21,643)
Net Income (Loss) (46,959) 71,413 172,861 (41,336)
Net Income (Loss)
per General and
Limited Partner
Unit * (95.88) 135.30 310.14 (64.99)
Increase (Decrease)
in Net Asset Value
per General and
Limited Partner Unit (98.49) 127.92 308.94 (79.05)
Net Asset Value per
General and Limited
Partner Unit at the
End of the Period 1,878.24 2,006.16 2,315.10 2,236.05
* - Based on weighted average number of units outstanding during the period.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
INTRODUCTION
The offering of its Units of Limited Partnership Interest commenced on
January 12, 1994. The initial offering terminated on April 15, 1994 and the Fund
commenced operations on April 18, 1994. The continuing offering period commenced
at the termination of the initial offering period and is ongoing.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of income and expense during
the reporting period. Management believes that the estimates utilized in
preparing the financial statements are reasonable and prudent; however, actual
results could differ from those estimates. The Fund's significant accounting
policies are described in detail in Note 1 of the Financial Statements.
The Fund records all investments at fair value in its financial
statements, with changes in fair value reported as a component of realized and
change in unrealized trading gain (loss) in the Statements of Operations.
Generally, fair values are based on market prices; however, in certain
circumstances, estimates are involved in determining fair value in the absence
of an active market closing price (e.g. swap and forward contracts which are
traded in the inter-bank market).
CAPITAL RESOURCES
The Fund will raise additional capital only through the sale of Units
offered pursuant to the continuing offering, and does not intend to raise any
capital through borrowing. Due to the nature of the Fund's business, it will
make no capital expenditures and will have no capital assets which are not
operating capital or assets.
LIQUIDITY
Most United States commodity exchanges limit fluctuations in commodity
futures contracts prices during a single day by regulations referred to as
"daily price fluctuation limits" or "daily limits". During a single trading day,
no trades may be executed at prices beyond the daily limit. Once the price of a
futures contract has reached the daily limit for that day, positions in that
contract can neither be taken nor
4
liquidated. Commodity futures prices have occasionally moved to the daily limit
for several consecutive days with little or no trading. Similar occurrences
could prevent the Fund from promptly liquidating unfavorable positions and
subject the Fund to substantial losses which could exceed the margin initially
committed to such trades. In addition, even if commodity futures prices have not
moved the daily limit, the Fund may not be able to execute futures trades at
favorable prices, if little trading in such contracts is taking place. Other
than these limitations on liquidity, which are inherent in the Fund's commodity
futures trading operations, the Fund's assets are expected to be highly liquid.
The entire offering proceeds, without deductions, will be credited to
the Fund's bank and brokerage accounts to engage in trading activities and as
reserves for that trading. The Fund meets its margin requirements by depositing
U.S. government securities with the futures broker and the over-the-counter
counterparties. In this way, substantially all (i.e., 95% or more) of the Fund's
assets, whether used as margin for trading purposes or as reserves for such
trading, can be invested in U.S. government securities and time deposits with
U.S. banks. Investors should note that maintenance of the Fund's assets in U.S.
government securities and banks does not reduce the risk of loss from trading
futures, forward and swap contracts. The Fund receives all interest earned on
its assets. No other person shall receive any interest or other economic
benefits from the deposit of Fund assets.
Approximately 10% to 30% of the Fund's assets normally are committed as
required margin for futures contracts and held by the futures broker, although
the amount committed may vary significantly. Such assets are maintained in the
form of cash or U.S. Treasury bills in segregated accounts with the futures
broker pursuant to the Commodity Exchange Act and regulations thereunder.
Approximately 10% to 30% of the Fund's assets are deposited with
over-the-counter counterparties in order to initiate and maintain forward and
swap contracts. Such assets are not held in segregation or otherwise regulated
under the Commodity Exchange Act, unless such over-the-counter counterparty is
registered as a futures commission merchant. These assets are held either in
U.S. government securities or short-term time deposits with U.S.-regulated bank
affiliates of the over-the-counter counterparties. The remaining 40% to 80% of
the Fund's assets will normally be invested in cash equivalents, such as U.S.
Treasury bills, and held by the futures broker or the over-the-counter
counterparties.
The Fund's assets are not and will not be, directly or indirectly,
commingled with the property of any other person in violation of law or invested
with or loaned to Campbell & Company or any affiliated entities.
RESULTS OF OPERATIONS
The returns for the years ended December 31, 2003, 2002, and 2001 were 17.68%,
13.12% and 2.91%, respectively.
2003
For the 2003 increase of 17.68%, approximately 27.46% was due to trading gains
(before commissions) and approximately 0.98% was due to interest income, offset
by approximately 10.76% due to brokerage fees, performance fees, and operating
and offering costs borne by the Fund. An analysis of the 27.46% trading gain by
sector is as follows:
SECTOR % GAIN (LOSS)
- ------- -------------
Currencies 26.22%
Stock Indices 5.70
Metals (0.34)
Energy (0.80)
Interest Rates (3.32)
-----
27.46%
=====
The long-term trends that created opportunity for the Fund in 2002 continued in
January 2003, in which profits were earned in every sector. However, the
environment was one where a single event, the prospect of war with Iraq, was
driving the Fund's whole portfolio. While the Fund's systematic and disciplined
5
trading strategies continued to keep it engaged, leverage was subsequently
decreased to protect against significant losses which could result from
potential sharp and extended reversals in core positions.
The Fund was positive again in February with metals being the only negative
sector. Strong momentum in energy, fixed income, currencies and stock indices
continued, largely as a result of the troubled global geopolitical outlook. In
order to mitigate the risk of potential sharp reversals in trends, the Fund
maintained a lower-than-normal level of leverage during the month.
The long awaited market reversal occurred in March. Initially, energy, precious
metals and fixed income markets all sold off sharply, while equities and the
U.S. Dollar rallied. Several days into this correction, these markets all sold
off suddenly, as hopes of a quick victory in Iraq subsided. With significantly
reduced leverage, the losses the Fund sustained were relatively modest, giving
the Fund a positive first quarter.
In April, the Fund's leverage was returned to a more normal level, but the
portfolio was not fully engaged in many markets due to the lack of strong
trends. Many markets had calmed significantly at this time, but uncertainty was
still prevalent in global markets due to the many unresolved geopolitical
issues. A strong performance in the currencies sector was partially offset by
negative performances in the metals and stock index sectors.
In May, the uncertainty that remained in April dominated the markets the Fund
trades and led to another positive month. While corporate earnings looked
stronger, unemployment, overcapacity and the ongoing threat of terrorism still
loomed large over the global financial markets. The US dollar weakened further
against the other major currencies despite the concern expressed by the United
States' trade partners over the impact this would have on global trade. Interest
rates were the best performing sector for the Fund particularly at the long end
of the yield curve, where higher prices reflected lower rates. Currency
contracts were also strongly positive, while losses in the energy and stock
index sectors offset some of those gains.
Even with a negative result for June, the Fund finished the first half of 2003
with a double-digit return. Long-term interest rates lost value as yield curves
steepened, particularly the Japanese government bond. Short-term interest rates
and stock index sectors contributed very modest gains for the month, while all
other sectors contributed losses. While the global economy was looking better
than it had for several years, many substantive uncertainties remained.
The Fund's performance for July was negative due to significant price reversals
in the Fund's largest positions. The U.S. Dollar's strong rally caused losses in
the Fund's currency and cross rate sectors. In addition, the sudden sharp
sell-off in long-term bonds resulted in losses in the Fund's long positions.
These losses were partially offset by gains in the Fund's long equity index
positions as investor confidence grew in the economic recovery and the potential
for improved growth.
The stock indices sector was the best performing sector for the month of August
as the U.S. equity markets posted their sixth straight month of gains. Much of
this was attributed to improving consumer confidence, federal tax cuts and
increased defense spending. The energy sector contributed positive returns as
crude oil remained above the thirty-dollar level on continuing supply concerns.
Also, the Fund's short positions in the Japanese Government Bond provided a
significant portion of the month's gains.
In September, the currency sector was the only significantly positive sector as
short U.S. Dollar positions benefited from continued weakness in the U.S.
Dollar. After showing positive returns for most of the month, sudden reversals
in the fixed income, equity and energy markets washed out the gains in the
currency sector and put the Fund's portfolio into negative territory late in the
month. The Fund finished the 3rd quarter with a negative return, but was
positive through September.
The Fund began the fourth quarter on a positive note with a majority of the gain
coming from the currencies and stock indices sectors. The continued but orderly
decline of the U.S. Dollar against the other major currencies provided good
trending opportunities during October, but an unexpectedly sharp decline in the
Yen at the end of the month took away some of the profits earned earlier. The
performance of the currency
6
cross rates, interest rates and energy sectors all resulted in losses for the
month. The energy markets were particularly volatile, with natural gas prices
whipsawing on shifting weather predictions, while crude oil declined sharply
from the high end of its recent trading range.
November was a positive month for the Fund. The currencies and stock indices
sectors provided good profits, which were partially offset by losses in the
cross currency, energy and interest rate sectors. As global equity prices
continued to strengthen, the U.S. dollar weakened, reaching 10 and 5 year lows
against the Canadian dollar and Sterling, respectively, while the Euro made an
all time high late in the month. Paradoxically strong U.S. economic indicators
encouraged a positive outlook, with a strong retail sales and a 20-year high in
manufacturing. Global economic data was also encouraging, particularly that
coming out of Asia.
The trends of the falling U.S. dollar and the rise in global equity indices
prevalent in the second half of 2003 continued in December and left the Fund
with a gain for the month. These trends were also responsible for most of the
gains for the year.
2002
For the 2002 increase of 13.12%, approximately 22.30% was due to trading gains
(before commissions) and approximately 1.62% was due to interest income, offset
by approximately 10.80% due to brokerage fees, performance fees, and operating
and offering costs borne by the Fund. An analysis of the 22.30% trading gain by
sector is as follows:
SECTOR % GAIN (LOSS)
- ------ -------------
Interest Rates 14.98%
Currencies 6.20
Stock Indices 3.42
Metals (0.34)
Energy (1.96)
-----
22.30%
=====
During January, the Enron and Global Crossing bankruptcies took a toll on the
U.S. equities markets that were already under pressure and resulted in a
stumbling start to the New Year, as layoffs, earnings restatements and revenue
declines continued to dominate the business news. Internationally, the Japanese
economy continued to deteriorate, while the full extent of any Argentinean
contagion was yet to be acknowledged in Brazil or other parts of South America.
On the positive side, U.S. consumer spending continued to be robust. The Fund
posted a small loss for January, largely as a result of volatility in the global
currency markets. Energy and short stock index positions contributed small
gains.
The high market volatility in January continued into February. Further Enron
revelations radiated concern about the accounting practices of other large
companies and caused the equity markets to decline early in the month. Sentiment
reversed abruptly on positive economic news on home sales, manufacturing and
consumer spending. The Fund's performance was negative in February with losses
in energy, stock indices and long-term interest rates partially offset by gains
in short-term interest rates.
March was a mixed month in which positive performance in the energy and interest
rate sectors were more than offset by losses in stock indices and currencies,
which made up a substantial part of the Fund's portfolio. The Japanese Yen
produced the largest loss when it rallied in reaction to Bank of Japan
intervention in preparation for their March 31st fiscal year-end as the Fund was
maintaining a short position. Energy was the strongest performing sector
profiting from long positions in crude oil and unleaded gas. The loss in the
stock indices sector came from short positions in the Nikkei and Hang Seng
indices as Asian
7
equities rallied. The overall loss for the month occurred independently of the
equity and bond markets demonstrating the volatility reducing effect of blending
assets whose returns are largely uncorrelated.
April was one of the most difficult trading months since the Fund began trading.
The Fund ended the month down over 4.5%. The fixed income sector was whip-lashed
as hopes of imminent economic recovery sputtered causing the majority of the
trading losses for the month. Broad-based selling of the three leading US equity
indices put them at their lowest levels since October 2001 and contributed to
the Fund's losses for the month. The energy sector was battered by reports of
unfolding events in both Venezuela and the Middle East. Many areas of concern
remain including continued instability in the Middle East, weak corporate
earnings, continued revelations of corporate accounting issues, fear of a
collapse in the residential real estate market, high energy costs and a growing
federal budget deficit due to lower tax receipts.
The month of May finally provided some trending opportunities that the Fund was
able to profit from. The currencies and interest rates sectors provided the
gains for the month, but these were offset by losses in the energy and stock
indices sectors. While the equities markets remained nervous, many alternative
investment strategies, including managed futures, were able to provide positive
returns.
Strong performance in the month of June contributed to a positive second quarter
and more than made up for losses during the beginning of the year. All major US
equity indices made new cycle lows as domestic and international investor
confidence was battered by reports of scandalous corporate leadership conduct.
The long awaited US economic recovery looked sluggish at best. In this troubled
environment, the US dollar lost ground against most major trading partners,
while interest rate futures rose and stock indices declined. These three sectors
contributed significantly to the profits in June, while small losses were
recorded in the metals and energy sectors.
The Fund's positive performance continued in July, posting similar numbers as
June. This was the third consecutive month of positive performance and was
mainly attributable to profits in short stock indices and long interest rate
positions. These gains were reduced by small negative performances in metals,
currencies and cross rates as the dollar strengthened against other major
currencies, again rising above parity with the Euro.
In August, the Fund recorded another month of positive performance with profits
in the interest rates, currencies, stock indices and energy sectors. Global
markets continued to respond to weak US economic data and concerns over
geopolitical developments. The much-anticipated US economic recovery continued
to be elusive, while economies in Europe and Japan appeared to be stagnant. The
quickened pace of US plans to invade Iraq aroused much international criticism
and concern, which impacted energy prices and investor confidence.
September was the fifth consecutive month of positive returns for the Fund as
traditional investment strategies continued to struggle. Profits were earned in
the stock indices, interest rates and energy sectors offset, by losses in the
currency sector. Further reports of corporate governance and accounting
failures, the possibility of an unpopular war in the Middle East, rising jobless
claims, disappointing earnings and a gloomy retail outlook were compounded by
high energy prices and systemic instability in Japan and Brazil. In this time of
global economic weakness and uncertainty, the Fund's ability to trade both the
long and short side of a diverse portfolio of international markets proved to be
a beneficial tool.
Many of the trends that had been so profitable for the Fund over the preceding
five months reversed during October, resulting in losses in interest rates,
equity indices and precious metals. The US dollar weakened on unfavorable Gross
Domestic Product news and caused losses in the currency sector. US equities
surprised the market by turning their second best month since 1997. As the US
struggled with the United Nations over Iraq, energy prices sold off sharply
making this the Fund's worst performing sector in October.
In October and November, US equity prices rose at a faster pace than any time
since 1997. Over this same period, the Fund was defensively positioned against a
reversal of the major trends that were profitable for the year, leaving
year-to-date gains in the double digits. Performance for November was marginally
negative, with gains in currencies offset by losses in interest rates, stock
indices and energy.
8
The Fund recorded a strong positive performance for December and for the year.
The Fund's core strategy of systematic, diversified trend-following again
demonstrated the ability to outperform most other strategies in times of
economic weakness and uncertainty. The ability to short markets enabled the Fund
to profit as global markets suffered their third consecutive negative year.
Profits were generated in interest rates, currencies and equities, while losses
occurred in energy and industrial metals.
2001
For the 2001 increase of 2.91%, approximately 8.55% was due to trading gains
(before commissions) and approximately 3.63% was due to interest income, offset
by approximately 9.27% due to brokerage fees, performance fees, and operating
and offering costs borne by the Fund. An analysis of the 8.55% trading gain by
sector is as follows:
SECTOR % GAIN (LOSS)
- ------ -------------
Currencies 8.14%
Interest Rates 5.70
Stock Indices 1.46
Metals (0.57)
Energy (6.18)
-----
8.55%
======
January was a turbulent month due to the underestimated slowdown of the U.S.
economy and difficult transition between presidential administrations. The
Federal Reserve intervened twice by lowering interest rates during the month a
total of 100 basis points. The interest rate reductions resulted in gains in the
Fund's long bond positions, but these were offset by losses in its Swiss and
Sterling currency positions. The most noticeable turnaround for the month was
the energy markets, which incurred the largest losses for the Fund. Overall,
February was a mostly flat month for the Fund. The Federal Reserve's failure to
lower interest rates ahead of its March meeting, and the continued declining
consumer confidence pushed U.S. equities lower, with the NASDAQ posting a new
two-year low. This economic news was favorable to both the Fund's short equities
positions and long bond positions. The energy markets continued to disappoint
and this sector posted a loss for the month. The currency markets were mixed and
ended flat for February. The first quarter ended well for the Fund. During the
month of March, all markets were profitable, except the energy sector. In the
midst of some painful trends in the global economy, the Fund's trading
principles enabled it to ride the bear trend in equities while simultaneously
benefiting from long fixed income positions.
Sharp price reversals in the equity, bond and energy markets resulted in a
negative performance in April as many of the Fund's largest positions hit
protective stops. The capitulation that caused the sharp downturn in equities in
the first quarter was reversed as investors greeted a surprise 50 basis point
rate cut by the Federal Reserve by pushing the equity markets substantially
higher. The flight to quality that had caused the long bond to trade so strongly
in March was abandoned as investors sold bonds to invest in stocks. May was a
volatile month for many of the markets the Fund trades, but the Fund produced a
positive result despite the adverse conditions. A strong U.S. dollar amid
persistent signs of global economic weakness kept equity markets volatile, but
the widely anticipated 50-point rate cut by the Federal Reserve was priced into
the markets and had little effect when announced. The Fund made small profits in
energy and interest rates and small losses in global stock indices and currency
positions. Uncertainty plagued the global markets for the last few months of the
second quarter, and there was no emergence of a solid trend to give investors
and economists any meaningful indication of what the second half of 2001 held.
This lack of market direction kept the Fund's performance relatively flat for
the month of June and for the first half of the year. In June, the Fund was
profitable in the global equity indices and currency markets while the fixed
income and energy markets erased all of those gains.
Most of the major U.S. stock and bond exchanges were negative while the Fund
posted a positive month to
9
start the third quarter. The ability to short global equity markets made stock
indices the best performing sector for the month of July. Short-term interest
rates were also positive; however, this was mostly offset by losses in the
Japanese bond markets, which have come under pressure from fiscal instability
and uncertainty in Japan. Foreign exchange was down slightly on global concerns
about the future of the U.S. "strong dollar" policy. August was another positive
month for the Fund. The Fund profited from currency cross rates, long and
short-term interest rates and equities. The losing sector was primarily the
energy sector. September was a difficult month for most Americans and for many
others whose lives will forever be impacted by the terrorist attacks of
September 11th. However, despite the tumult, the Fund reported a positive month
and third quarter. Currencies and cross rates were profitable as short dollar
positions yielded solid returns. Long positions in both long and short-term
interest rate instruments were profitable as investors sought safety when equity
prices declined sharply. The major U.S. stock indices suffered their worst
quarterly losses since 1987. The Fund's non-correlation with equities was
evident as the Fund profited from a decline in global equity indices. Industrial
metals were also profitable, while the highly volatile energy sector was the
only unprofitable sector in September.
As the United States began to recover from the September 11th disaster, the
country demonstrated unity and fortitude in the most challenging of
circumstances. The Fund was positive during the month of October. The positive
performance was led by interest rates, which were strong throughout the month
and helped by the U.S. Treasury's announcement of the ending of the issuance of
30-year bonds. The energy and industrial metals sectors were also positive.
These gains were partly offset by losses in the currency and stock indices
sectors. In November, a sharp and totally unexpected increase in global interest
rates resulted in the Fund's largest monthly decline since its inception. While
statistically losses of this magnitude can occur, the speed of this loss caught
the Fund's trading advisor by surprise. The continuing decline in U.S. interest
rates initially accelerated after the U.S. Treasury announced it would stop
issuing 30-year Treasury Bonds. However, with good news from Afghanistan, a
sharp decline in energy prices, and a totally unexpected increase in retail
sales for October, market sentiment changed abruptly. Equity prices rallied and
interest rate instruments declined across the entire yield curve, all over the
world. The Fund rebounded with a positive return in December. The majority of
the gain for the month was made in currencies, primarily in the Japanese Yen.
These gains were offset by losses in the interest rate sectors. The Fund was
positive for the year delivering modest profitability and effective portfolio
diversification during an economically difficult year. 2001 will unfortunately
be remembered as a year that brought pain and devastation to so many.
OFF-BALANCE SHEET RISK
The term "off-balance sheet risk" refers to an unrecorded potential liability
that, even though it does not appear on the balance sheet, may result in future
obligation or loss. The Fund trades in futures, forward and swap contracts and
is therefore a party to financial instruments with elements of off-balance sheet
market and credit risk. In entering into these contracts there exists a risk to
the Fund, market risk, that such contracts may be significantly influenced by
market conditions, such as interest rate volatility, resulting in such contracts
being less valuable. If the markets should move against all of the futures
interests positions of the Fund at the same time, and if the Fund's trading
advisor was unable to offset futures interests positions of the Fund, the Fund
could lose all of its assets and the Limited Partners would realize a 100% loss.
Campbell & Company, Inc., the General Partner (who also acts as trading
advisor), minimizes market risk through real-time monitoring of open positions,
diversification of the portfolio and maintenance of a margin-to-equity ratio
that rarely exceeds 30%.
In addition to market risk, in entering into futures, forward and swap contracts
there is a credit risk that a counterparty will not be able to meet its
obligations to the Fund. The counterparty for futures contracts traded in the
United States and on most foreign exchanges is the clearinghouse associated with
such exchange. In general, clearinghouses are backed by the corporate members of
the clearinghouse who are required to share any financial burden resulting from
the non-performance by one of their members and, as such, should significantly
reduce this credit risk. In cases where the
10
clearinghouse is not backed by the clearing members, like some foreign
exchanges, it is normally backed by a consortium of banks or other financial
institutions.
In the case of forward and swap contracts, which are traded on the interbank
market rather than on exchanges, the counterparty is generally a single bank or
other financial institution, rather than a group of financial institutions; thus
there may be a greater counterparty credit risk. Campbell & Company trades for
the Fund only with those counterparties which it believes to be creditworthy.
All positions of the Fund are valued each day on a mark-to-market basis. There
can be no assurance that any clearing member, clearinghouse or other
counterparty will be able to meet its obligations to the Fund.
DISCLOSURES ABOUT CERTAIN TRADING ACTIVITIES THAT INCLUDE NON-EXCHANGE TRADED
CONTRACTS ACCOUNTED FOR AT FAIR VALUE
The Fund invests in futures, swap and forward currency contracts. The market
value of futures (exchange-traded) contracts is determined by the various
futures exchanges, and reflects the settlement price for each contract as of the
close of the last business day of the reporting period. The market value of swap
and forward (non-exchange traded) contracts is extrapolated on a forward basis
from the spot prices quoted as of 5:00 P.M. (E.T.) of the last business day of
the reporting period or based on the market value of its exchange-traded
equivalent.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTRODUCTION
Past Results Not Necessarily Indicative of Future Performance
The Fund is a speculative commodity pool. The market sensitive
instruments held by it are acquired for speculative trading purposes, and all or
a substantial amount of the Fund's assets are subject to the risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Fund's main line of business.
Market movements result in frequent changes in the fair market value of
the Fund's open positions and, consequently, in its earnings and cash flow. The
Fund's market risk is influenced by a wide variety of factors, including the
level and volatility of exchange rates, interest rates, equity price levels, the
market value of financial instruments and contracts, the diversification effects
among the Fund's open positions and the liquidity of the markets in which it
trades.
The Fund rapidly acquires and liquidates both long and short positions
in a wide range of different markets. Consequently, it is not possible to
predict how a particular future market scenario will affect performance, and the
Fund's past performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Fund's speculative trading and the recurrence in the markets
traded by the Fund of market movements far exceeding expectations could result
in actual trading or non-trading losses far beyond the indicated Value at Risk
or the Fund's experience to date (i.e., "risk of ruin"). Risk of ruin is defined
to be no more than a 5% chance of losing 20% or more on a monthly basis. In
light of the foregoing, as well as the risks and uncertainties intrinsic to all
future projections, the inclusion of the quantification included in this section
should not be considered to constitute any assurance or representation that the
Fund's losses in any market sector will be limited to Value at Risk or by the
Fund's attempts to manage its market risk.
Standard of Materiality
11
Materiality as used in this section, " Quantitative and Qualitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, taking into
account the leverage and multiplier features of the Fund's market sensitive
instruments.
QUANTIFYING THE FUND'S TRADING VALUE AT RISK
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Fund's market risk
exposures contain "forward-looking statements" within the meaning of the safe
harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of historical
fact (such as the dollar amount of maintenance margin required for market risk
sensitive instruments held at the end of the reporting period).
The Fund's risk exposure in the various market sectors traded by
Campbell & Company is quantified below in terms of Value at Risk. Due to the
Fund's mark-to-market accounting, any loss in the fair value of the Fund's open
positions is directly reflected in the Fund's earnings (realized or unrealized).
Exchange maintenance margin requirements have been used by the Fund as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95% - 99% of any one-day
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. Maintenance margin
has been used rather than the more generally available initial margin, because
initial margin includes a credit risk component which is not relevant to Value
at Risk.
In the case of market sensitive instruments which are not
exchange-traded (which includes currencies and some energy products and metals
in the case of the Fund), the margin requirements for the equivalent futures
positions have been used as Value at Risk. In those cases in which a
futures-equivalent margin is not available, dealers' margins have been used.
In the case of contracts denominated in foreign currencies, the Value
at Risk figures include foreign margin amounts converted into U.S. Dollars with
an incremental adjustment to reflect the exchange rate risk inherent to the
Dollar-based Fund in expressing Value at Risk in a functional currency other
than Dollars.
In quantifying the Fund's Value at Risk, 100% positive correlation in
the different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been aggregated to determine each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the Fund's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
Value at Risk as calculated herein may not be comparable to similarly
titled measures used by others.
THE FUND'S TRADING VALUE AT RISK IN DIFFERENT MARKET SECTORS
12
The following tables indicate the trading Value at Risk associated with
the Fund's open positions by market category as of December 31, 2003, 2002 and
2001 and the trading gains/losses by market category for the years then ended.
All open position trading risk exposures of the Fund have been included in
calculating the figures set forth below. As of December 31, 2003, 2002 and 2001,
the Fund's total capitalization was approximately $2,828 million, $1,618 million
and $943 million, respectively.
DECEMBER 31, 2003
-----------------
% OF TOTAL TRADING
MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN/(LOSS)*
- ------------- ---------------- ------------- ------------
Currencies $ 123.33 million 4.36% 26.22 %
Interest Rates $ 91.50 million 3.23% (3.32)%
Stock Indices $ 83.05 million 2.94% 5.70 %
Energy $ 27.94 million 0.99% (0.80)%
Metals $ 0.73 million 0.03% (0.34)%
---------------- ----- ------
Total $ 326.55 million 11.55% 27.46 %
================ ===== ======
* - Of the 17.68% return for the year ended December 31, 2003, approximately
27.46% was due to trading gains (before commissions) and approximately 0.98% was
due to interest income, offset by approximately 10.76% due to brokerage fees,
performance fees and operating and offering costs borne by the Fund.
DECEMBER 31, 2002
-----------------
% OF TOTAL TRADING
MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN/(LOSS)*
- ------------- ---------------- -------------- ------------
Currencies $ 52.32 million 3.23% 6.20 %
Energy $ 39.05 million 2.41% (1.96)%
Interest Rates $ 23.75 million 1.47% 14.98 %
Stock Indices $ 13.28 million 0.82% 3.42 %
Metals $ 3.00 million 0.19% (0.34)%
---------------- ----- -----
Total $ 131.40 million 8.12% 22.30 %
================ ===== =====
* - Of the 13.12% return for the year ended December 31, 2002, approximately
22.30% was due to trading gains (before commissions) and approximately 1.62% was
due to interest income, offset by approximately 10.80% due to brokerage fees,
performance fees and operating and offering costs borne by the Fund.
13
DECEMBER 31, 2001
-----------------
% OF TOTAL TRADING
MARKET SECTOR VALUE AT RISK CAPITALIZATION GAIN/(LOSS)*
- ------------- -------------- -------------- ------------
Currencies $44.57 million 4.72% 8.14 %
Stock Indices $13.76 million 1.46% 1.46 %
Interest Rates $12.33 million 1.31% 5.70 %
Energy $10.03 million 1.06% (6.18)%
Metals $ 0.71 million 0.08% (0.57)%
-------------- ---- -----
Total $81.40 million 8.63% 8.55 %
============== ==== =====
* - Of the 2.91% return for the year ended December 31, 2001, approximately
8.55% was due to trading gains (before commissions) and approximately 3.63% was
due to interest income, offset by approximately 9.27% due to brokerage fees,
performance fees and operating and offering costs borne by the Fund.
MATERIAL LIMITATIONS ON VALUE AT RISK AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by the Fund is
typically many times the applicable maintenance margin requirement (maintenance
margin requirements generally ranging between approximately 1% and 10% of
contract face value) as well as many times the capitalization of the Fund. The
magnitude of the Fund's open positions creates a "risk of ruin" not typically
found in most other investment vehicles. Because of the size of its positions,
certain market conditions -- unusual, but historically recurring from time to
time -- could cause the Fund to incur severe losses over a short period of time.
The foregoing Value at Risk tables -- as well as the past performance of the
Fund -- give no indication of this "risk of ruin."
NON-TRADING RISK
The Fund has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances (as well as the market risk they
represent) are immaterial. The Fund also has non-trading market risk as a result
of investing a substantial portion of its available assets in U.S. Treasury
Bills. The market risk represented by these investments is immaterial.
QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES
The following qualitative disclosures regarding the Fund's market risk
exposures -- except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Fund manages its primary market risk
exposures -- constitute forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act. The
Fund's primary market risk exposures as well as the strategies used and to be
used by Campbell & Company for managing such exposures are subject to numerous
uncertainties, contingencies and risks, any one of which could cause the actual
results of the Fund's risk controls to differ materially from the objectives of
such strategies. Government interventions, defaults and expropriations, illiquid
markets, the emergence of dominant fundamental factors, political upheavals,
changes in historical price relationships, an influx of new market participants,
increased regulation and many other factors could result in material losses as
well as in material changes to the risk exposures and the risk management
strategies of the Fund. There can be no assurance that the Fund's current market
exposure and/or risk management strategies will not change materially or that
any such strategies will be effective in either the short- or long-term.
Investors must be prepared to lose all or substantially all of their investment
in the Fund.
14
The following were the primary trading risk exposures of the Fund as of
December 31, 2003, by market sector.
Currencies
Exchange rate risk is the principal market exposure of the Fund. The
Fund's currency exposure is to exchange rate fluctuations, primarily
fluctuations which disrupt the historical pricing relationships between
different currencies and currency pairs. These fluctuations are influenced by
interest rate changes as well as political and general economic conditions. The
Fund trades in a large number of currencies, including cross-rates -- i.e.,
positions between two currencies other than the U.S. Dollar. Campbell & Company
does not anticipate that the risk profile of the Fund's currency sector will
change significantly in the future.
Interest Rates
Interest rate risk is a significant market exposure of the Fund.
Interest rate movements directly affect the price of the sovereign bond
positions held by the Fund and indirectly the value of its stock index and
currency positions. Interest rate movements in one country as well as relative
interest rate movements between countries materially impact the Fund's
profitability. The Fund's primary interest rate exposure is to interest rate
fluctuations in the United States and the other G-7 countries. However, the Fund
also takes positions in the government debt of Switzerland. Campbell & Company
anticipates that G-7 interest rates will remain the primary market exposure of
the Fund for the foreseeable future. The changes in interest rates which have
the most effect on the Fund are changes in long-term, as opposed to short-term
rates. Most of the speculative positions held by the Fund are in medium- to
long-term instruments. Consequently, even a material change in short-term rates
would have little effect on the Fund were the medium- to long-term rates to
remain steady.
Stock Indices
The Fund's primary equity exposure is to equity price risk in the G-7
countries and several other countries (Hong Kong, Spain and Taiwan). The stock
index futures traded by the Fund are limited to futures on broadly based
indices. As of December 31, 2003, the Fund's primary exposures were in the DAX
(Germany), Euro STOXX 50, FTSE (U.K.), S&P 500 (USA), NASDAQ (USA) and IBEX
(Spain) stock indices. The Fund is primarily exposed to the risk of adverse
price trends or static markets in the major U.S., European and Japanese indices.
(Static markets would not cause major market changes but would make it difficult
for the Fund to avoid being "whipsawed" into numerous small losses.)
Energy
The Fund's primary energy market exposure is to gas and oil price
movements, often resulting from political developments and ongoing conflicts in
the Middle East. As of December 31, 2003, crude oil, heating oil and unleaded
gas are the dominant energy market exposures of the Fund. Oil and gas prices can
be volatile and substantial profits and losses have been and are expected to
continue to be experienced in this market.
Metals
The Fund's metals market exposure is to fluctuations in the price of
aluminum, copper, gold, nickel and zinc. The risk allocation to the metal sector
has not exceeded 3% of the Fund portfolio's during 2003.
QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE
The following were the only non-trading risk exposures of the Fund as
of December 31, 2003.
15
Foreign Currency Balances
The Fund's primary foreign currency balances are in Japanese Yen,
British Pounds and Euros. The Fund controls the non-trading risk of these
balances by regularly converting these balances back into dollars (no less
frequently than twice a month, and more frequently if a particular foreign
currency balance becomes unusually large).
Treasury Bill Positions
The Fund's only market exposure in instruments held other than for
trading is in its Treasury Bill portfolio. The Fund holds Treasury Bills
(interest bearing and credit risk-free) with durations no longer than six
months. Violent fluctuations in prevailing interest rates could cause immaterial
mark-to-market losses on the Fund's Treasury Bills, although substantially all
of these short-term investments are held to maturity.
QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE
The means by which the Fund and Campbell & Company, severally, attempt
to manage the risk of the Fund's open positions is essentially the same in all
market categories traded. Campbell & Company applies risk management policies to
its trading which generally limit the total exposure that may be taken per "risk
unit" of assets under management. In addition, Campbell & Company follows
diversification guidelines (often formulated in terms of the balanced volatility
between markets and correlated groups), as well as imposing "stop-loss" points
at which open positions must be closed out.
Campbell & Company controls the risk of the Fund's non-trading
instruments (Treasury Bills held for cash management purposes) by limiting the
duration of such instruments to no more than six months.
GENERAL
The Fund is unaware of any (i) anticipated known demands, commitments
or capital expenditures; (ii) material trends, favorable or unfavorable, in its
capital resources; or (iii) trends or uncertainties that will have a material
effect on operations. From time to time, certain regulatory agencies have
proposed increased margin requirements on futures contracts. Because the Fund
generally will use a small percentage of assets as margin, the Fund does not
believe that any increase in margin requirements, as proposed, will have a
material effect on the Fund's operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements meeting the requirements of Regulation S-X appear
beginning on Page 23 of this report. The supplementary financial information
specified by Item 302 of Regulation S-K is included in Item 6. Selected
Financial Data.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
16
ITEM 9A. CONTROLS AND PROCEDURES
Campbell & Company, Inc., the general partner of the Fund, with the
participation of the general partner's chief executive officer and chief
financial officer, has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures (as defined in the Securities Exchange
Act of 1934 Rules 13a-15(e) or 15d-15(e)) with respect to the Fund as of the end
of the period covered by this annual report. Based on their evaluation, the
chief executive officer and chief financial officer have concluded that these
disclosure controls and procedures are effective. There were no changes in the
general partner's internal control over financial reporting applicable to the
Fund identified in connection with the evaluation required by paragraph (d) of
Exchange Act Rules 13a-15 or 15d-15 that occurred during the last fiscal quarter
that have materially affected, or is reasonably likely to materially affect,
internal control over financial reporting applicable to the Fund.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Registrant has no directors or executive officers. The Registrant
has no employees. It is managed by Campbell & Company in its capacity as general
partner. Campbell & Company has been registered as a commodity pool operator
(CPO) since September 1982. Its main business address is 210 West Pennsylvania
Avenue, Towson, Maryland 21204, (410) 296-3301. Campbell & Company's directors
and executive officers are as follows:
THERESA D. BECKS, born in 1963, joined Campbell & Company in June 1991 and has
served as the CHIEF FINANCIAL OFFICER and TREASURER since 1992, and Secretary
and a DIRECTOR since 1994. In addition to her role as CFO, Ms. Becks also
oversees administration, compliance and trade operations. Ms. Becks is currently
a member of the Board of Directors of the Managed Funds Association. From 1987
to 1991, she was employed by Bank Maryland Corp, a publicly held company, as a
Vice President and Chief Financial Officer. Prior to that time, she worked with
Ernst & Young. Ms. Becks is a C.P.A. and has a B.S. in Accounting from the
University of Delaware. Ms. Becks is an Associated Person of Campbell & Company.
D. KEITH CAMPBELL, born in 1942, has served as the CHAIRMAN OF THE BOARD OF
DIRECTORS of Campbell & Company since it began operations, was President until
1994, and was Chief Executive Officer until 1997. Mr. Campbell is the majority
voting stockholder of Campbell & Company. From 1971 to 1978, he was a registered
representative of a futures commission merchant. Mr. Campbell has acted as a
commodity trading advisor since 1972 when, as general partner of the Campbell
Fund, a limited partnership engaged in commodity futures trading, he assumed
sole responsibility for trading decisions made on behalf of the Fund. Since
then, he has applied various technical trading models to numerous discretionary
futures trading accounts. Mr. Campbell is registered with the CFTC and NFA as a
commodity pool operator. Mr. Campbell is an Associated Person of Campbell &
Company.
WILLIAM C. CLARKE, III, born in 1951, joined Campbell & Company in June 1977 and
has served as an EXECUTIVE VICE PRESIDENT since 1991 and a DIRECTOR since 1984.
Mr. Clarke holds a B.S. in Finance from Lehigh University where he graduated in
1973. Mr. Clarke currently oversees all aspects of research, which involves the
development of proprietary trading models and portfolio management methods. Mr.
Clarke is an Associated Person of Campbell & Company.
BRUCE L. CLELAND, born in 1947, joined Campbell & Company in January 1993 and
has served as PRESIDENT and a DIRECTOR since 1994, and CHIEF EXECUTIVE Officer
since 1997. Mr. Cleland has worked in the international derivatives industry
since 1973, and has owned and managed firms engaged in global clearing, floor
brokerage, trading and portfolio management. Mr. Cleland is currently a member
of the Board of Directors of the National Futures Association, and previously
served as a member of the Board of Directors of the Managed Funds Association
and as a member of the Board of Governors of the COMEX, in New York. Mr. Cleland
is a graduate of Victoria University in Wellington, New Zealand where he earned
a Bachelor of Commerce and Administration degree. Mr. Cleland is an Associated
Person of Campbell & Company.
17
KEVIN M. HEERDT, born in 1958, joined Campbell & Company in March 2003 as
Executive Vice President-Research and was appointed EXECUTIVE VICE
PRESIDENT-RESEARCH AND INFORMATION TECHNOLOGY in November 2003. His duties
include risk management, research, and the development of quantitatively based
hedge fund and options strategies, as well as providing managerial oversight of
the information technology team. From February 2002 to March 2003, he was
self-employed through Integrity Consulting. Previously, Mr. Heerdt worked for
twelve years at Moore Capital Management, Inc., where he was a Director until
1999, and a Managing Director from 2000 to 2002. Mr. Heerdt holds a B.A. in
Economics and in International Relations from the University of Southern
California. Mr. Heerdt is an Associated Person of Campbell & Company.
JAMES M. LITTLE, born in 1946, joined Campbell & Company in April 1990 and has
served as EXECUTIVE VICE PRESIDENT-BUSINESS DEVELOPMENT and a DIRECTOR since
1992. Mr. Little holds a B.S. in Economics and Psychology from Purdue
University. From 1989 to 1990, Mr. Little was a registered representative of
A.G. Edwards & Sons, Inc. From 1984 to 1989, he was the Chief Executive Officer
of James Little & Associates, Inc., a commodity pool operator and broker-dealer.
Mr. Little is the co-author of The Handbook of Financial Futures, and is a
frequent contributor to investment industry publications. Mr. Little is an
Associated Person of Campbell & Company.
CRAIG A. WEYNAND, born in 1969, joined Campbell & Company in October 2003 as
VICE PRESIDENT and has served as GENERAL COUNSEL since November 2003. In this
capacity, he is involved in all aspects of legal affairs and regulatory
oversight, as well as managerial oversight of trade operations. From May 1990 to
September 2003, Mr. Weynand was employed by Morgan Stanley, serving as Senior
Trader for Morgan Stanley Futures and Currency Management Inc., a commodity
trading advisor, until 1998 and as Vice President - Director of Product
Origination & Analysis for the Morgan Stanley Managed Futures Department until
his departure. Mr. Weynand holds a B.S. in International Business and Marketing
and an M.B.A. in Economics from New York University, and a J.D. from the Fordham
University School of Law. Mr. Weynand is a member of the New York State Bar and
serves on the Government Relations Committee of the Managed Funds Association.
Mr. Weynand is an Associated Person of Campbell & Company.
C. DOUGLAS YORK, born in 1958, has been employed by Campbell & Company since
November 1992, was appointed a Senior Vice President-Trading in 1997, and has
served as EXECUTIVE VICE PRESIDENT-TRADING since 2003. His duties include
managing daily trade execution for the assets under Campbell & Company's
management. From 1991 to 1992, Mr. York was the Global Foreign Exchange Manager
for Black & Decker. He holds a B.A. in Government from Franklin and Marshall
College. Mr. York is an Associated Person of Campbell & Company.
Richard M. Bell, Senior Vice President-Trading, retired as of January 1, 2004.
There has never been a material administrative, civil or criminal action brought
against Campbell & Company or any of its directors, executive officers,
promoters or control persons.
No Forms 3, 4, or 5 have been furnished to the Registrant since inception. To
the best of the Registrant's knowledge, no such forms have been or are required
to be filed.
AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Directors of Campbell & Company, in its capacity as the audit
committee for the Fund, has determined that Theresa D. Becks qualifies as an
"audit committee financial expert" in accordance with the applicable rules and
regulations of the Securities and Exchange Commission. She is not independent of
management.
CODE OF ETHICS
Campbell & Company has adopted a code of ethics for its chief executive officer,
chief financial officer, controller, accounting managers and persons performing
similar functions. A copy of the code of ethics may be obtained at no charge by
written request to Campbell & Company's corporate secretary, Court Towers
Building, 210 West Pennsylvania Ave., Suite 770, Towson, Maryland 21204 or by
calling 1-800-698-7235.
18
ITEM 11. EXECUTIVE COMPENSATION
The Registrant is managed by its general partner, Campbell & Company.
Campbell & Company receives from the Registrant a Brokerage Fee equal to up to
8% of the Registrant's month-end Net Assets per year. From such 8% Brokerage
Fee, Campbell & Company remits up to 1% to the Commodity Broker for execution
and clearing costs, and 4% to the broker-dealers which engaged in the
distribution of the Units in return for ongoing services to the Limited
Partners. Campbell & Company retains the remaining 3% as management fees (2% for
providing advisory fees and 1% for acting as general partner). Campbell &
Company also receives a performance fee of 20% of the aggregate cumulative
appreciation (if any) in Net Asset Value per unit at the end of each calendar
quarter, exclusive of the appreciation attributable to interest income.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED SHAREHOLDER MATTERS
(a) Security Ownership of Certain Beneficial Owners. As of
December 31, 2003, no Units of Limited Partnership are owned
or held by an officer of Campbell & Company.
(b) Security Ownership of Management. As of December 31, 2003,
Campbell & Company owned 10,815.994 Units of General
Partnership Interest having a value of $28,460,882. Units of
General Partnership will always be owned by Campbell & Company
in its capacity as general partner.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 11, Executive Compensation and Item 12, Security Ownership of
Certain Beneficial Owners and Management.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a) Audit Fees
The aggregate fees billed for professional services rendered
by Arthur F. Bell, Jr. & Associates, L.L.C. ("AFB") for the
audit of the Fund's annual financial statements, for review of
financial statements included in the Fund's Forms 10-Q and
other services normally provided in connection with regulatory
filing or engagements for the years ended December 31, 2003
and 2002 were $38,268 and $42,834, respectively.
(b) Audit Related Fees
The aggregate fees billed by AFB for the monthly recalculation
of the Fund's net asset value for the years ended December 31,
2003 and 2002 were $9,600 and $9,600, respectively.
(c) Tax Fees
The aggregate fees billed by AFB for professional services
rendered for the preparation and filing of the Fund's Schedule
K-1s and all necessary federal and state tax returns for the
years ended December 31, 2003 and 2002 were $525,892 and
$322,898, respectively. During the years ended December 31,
2003 and 2002, a total of 59,411 and 32,857 individual
investor K-ls, respectively, were distributed to the Partners.
(d) All Other Fees
The aggregate fees and expenses billed by AFB for
professional services, and related cost reimbursements for
postage, supplies and fulfillment house expenses, rendered
for the assistance in the preparation and mailing of the
Fund's monthly account statements to Partners utilizing data,
narrative and other items provided by Campbell & Company for
the years ended December 31, 2003 and 2002 were $954,911 and
$677,926, respectively. During the years ended December 31,
2003 and 2002, a total of 618,868 and 418,790 monthly account
statements, respectively, were distributed to the Partners.
(e) The Board of Directors of Campbell & Company approved all of
the services described above. The Board of Directors has
determined that the payments made to its independent
accountants for these services are compatible with maintaining
such auditors' independence. The Board of Directors explicitly
pre-approves all audit and non-audit services and all
engagement fees and terms.
19
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) The Following documents are filed as part of this report:
(1) See Financial Statements beginning on page 23 hereof.
(2) Schedules:
Financial statement schedules have been omitted
because they are not included in the financial
statements or notes hereto applicable or because
equivalent information has been included in the
financial statements or notes thereto.
(3) Exhibits
Exhibit Number Description of Document
- ------------- -----------------------
1.01 Form of Selling Agreement among the Registrant, Campbell &
Company, PaineWebber Incorporated and the Selling Agent.
(Incorporated by reference to the respective exhibit to
the Registrant's Registration Statement on Form S-1 (No.
333-43250) filed on August 8, 2000).
1.02 Form of Auxiliary Selling Agreement. (Incorporated by
reference to the respective exhibit to the Registrant's
Registration Statement on Form S-1 (No. 333-80933) filed
on June 17, 1999).
3.01 Agreement of Limited Partnership of the Registrant dated
May 11, 1993. (Incorporated by reference to the respective
exhibit to the Registrant's Registration Statement on Form
S-1 (No. 33-67164) filed on August 9, 1993).
3.02 Certificate of Limited Partnership of the Registrant.
(Incorporated by reference to the respective exhibit to
the Registrant's Registration Statement on Form S-1 (No.
33-67164) filed on August 9, 1993).
3.03 Amended Agreement of Limited Partnership of the
Registrant. (Incorporated by reference to the respective
exhibit to the Registrant's Registration Statement of Form
S-1 (No. 333-107696) filed on August 6, 2003).
10.01 Form of Advisory Agreement between the Registrant and
Campbell & Company. (Incorporated by reference to the
respective exhibit to the Registrant's Registration
Statement on Form S-1 (No. 33-67164) filed on August 9,
1993).
10.02 Form of Customer Agreement between the Registrant and
PaineWebber Incorporated. (Incorporated by reference to
the respective exhibit to the Registrant's Registration
Statement on Form S-1 (No. 33-67164) filed on August 9,
1993).
10.03 Subscription Agreement and Power of Attorney.
(Incorporated by reference to the respective exhibit to
the Registrant's Registration Statement of Form S-1 (No.
333-107696) filed on August 6, 2003).
10.04 Escrow Agreement between the Registrant and Mercantile
Safe Deposit & Trust Company. (Incorporated by reference
to the respective exhibit to the Registrant's Registration
Statement on Form S-1 (No. 33-67164) filed on August 9,
1993).
10.05 International Swap Dealers Association, Inc. Master
Agreement between the Registrant and ABN AMRO Bank, N.V.
(Incorporated by reference to the respective exhibit to
the Registrant's Registration Statement of Form S-1 (No.
333-61274) filed on May 18, 2001).
10.06 International Swap Dealers Association, Inc. Master
Agreement between the Registrant and Deutsche Bank AG.
(Incorporated by reference to the respective exhibit to
the Registrant's Registration Statement of Form S-1 (No.
333-61274) filed on May 18, 2001).
31.01 Certification of Bruce L. Cleland, Chief Executive
Officer, pursuant to Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934.
31.02 Certification of Theresa D. Becks, Chief Financial
Officer, pursuant to Rules 13a-14 and 15d-14 of the
Securities Exchange Act of 1934.
20
(3) Exhibits (continued)
Exhibit Number Description of Document
- -------------- -----------------------
32.01 Certification of Bruce L. Cleland, Chief Executive
Officer, pursuant to 18 U.S.C. Section 1350, as enacted by
Section 906 of The Sarbanes-Oxley Act of 2002.
32.02 Certification of Theresa D. Becks, Chief Financial
Officer, pursuant to 18 U.S.C. Section 1350, as enacted by
Section 906 of The Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 24, 2004.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
By: CAMPBELL & COMPANY, INC.
General Partner
By: /s/ Theresa D. Becks
-----------------------------
Theresa D. Becks
Chief Financial Officer, Secretary,
Treasurer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities indicated on March 24, 2004.
Signature Capacity
--------- --------
/s/ D. Keith Campbell
- ----------------------------
D.Keith Campbell Chairman of the Board
/s/ William C. Clarke, III
- ----------------------------
William C. Clarke, III Executive Vice President and Director
/s/ Bruce L. Cleland
- ----------------------------
Bruce L. Cleland President, Chief Executive Officer and Director
/s/ Theresa D. Becks
- ----------------------------
Theresa D. Becks Chief Financial Officer, Secretary,
Treasurer and Director
/s/ James M. Little
- ----------------------------
James M. Little Executive Vice President and Director
/s/ C. Douglas York
- ----------------------------
C. Douglas York Executive Vice President
22
CAMPBELL STRATEGIC ALLOCATION
FUND, L.P.
ANNUAL REPORT
December 31, 2003
23
CAMPBELL STRATEGIC ALLOCATION FUND, L.P
INDEX
PAGES
-----
INDEPENDENT AUDITOR'S REPORT 25
FINANCIAL STATEMENTS
Statements of Financial Condition
December 31, 2003 and 2002 26
Condensed Schedule of Investments
December 31, 2003 27
Statements of Operations For the Years
Ended December 31, 2003, 2002 and 2001 28
Statements of Cash Flows For the Years
Ended December 31, 2003, 2002 and 2001 29
Statements of Changes in Partners' Capital (Net Asset Value)
For the Years Ended December 31, 2003, 2002 and 2001 30
Notes to Financial Statements 31-36
24
INDEPENDENT AUDITOR'S REPORT
To the Partners
Campbell Strategic Allocation Fund, L.P.
We have audited the accompanying statements of financial condition of Campbell
Strategic Allocation Fund, L.P. as of December 31, 2003 and 2002, including the
December 31, 2003 condensed schedule of investments, and the related statements
of operations, cash flows and changes in partners' capital (net asset value) for
the years ended December 31, 2003, 2002 and 2001. These financial statements are
the responsibility of the Fund's management. 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 management, 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 Campbell Strategic Allocation
Fund, L.P. as of December 31, 2003 and 2002, and the results of its operations,
cash flows and the changes in its net asset values for the years ended December
31, 2003, 2002 and 2001, in conformity with accounting principles generally
accepted in the United States of America.
/s/ Arthur F. Bell, Jr. & Associates, L.L.C.
- ---------------------------------------------
Hunt Valley, Maryland
January 27, 2004
25
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
December 31, 2003 and 2002
2003 2002
---- ----
ASSETS
Equity in broker trading accounts
Cash $ 189,245,425 $ 41,776,698
United States government securities 1,024,483,288 734,598,883
Unrealized gain on open futures contracts 43,858,230 16,807,266
---------------- --------------
Deposits with broker 1,257,586,943 793,182,847
Cash and cash equivalents 627,405,479 314,337,785
United States government securities 899,206,764 518,161,351
Unrealized gain on open swap contracts 0 5,108,650
Unrealized gain on open forward contracts 93,767,551 23,639,509
---------------- --------------
Total assets $ 2,877,966,737 $1,654,430,142
================ ==============
LIABILITIES
Accounts payable $ 773,818 $ 604,807
Brokerage fee 16,243,599 8,840,252
Commissions and other trading fees
on open contracts 373,638 196,576
Performance fee 16,492,232 0
Offering costs payable 1,387,938 666,954
Redemptions payable 14,594,887 8,965,508
Subscription deposits 0 17,206,853
---------------- --------------
Total liabilities 49,866,112 36,480,950
---------------- --------------
PARTNERS' CAPITAL (NET ASSET VALUE)
General Partner - 10,815.994 and 7,262.904 units
outstanding at December 31, 2003 and 2002 28,460,882 16,240,216
Limited Partners - 1,063,947.539 and 716,313.085 units
outstanding at December 31, 2003 and 2002 2,799,639,743 1,601,708,976
---------------- --------------
Total partners' capital
(Net Asset Value) 2,828,100,625 1,617,949,192
---------------- --------------
$ 2,877,966,737 $1,654,430,142
================ ==============
See accompanying notes.
26
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
CONDENSED SCHEDULE OF INVESTMENTS
December 31, 2003
UNITED STATES GOVERNMENT SECURITIES
% OF NET
FACE VALUE MATURITY DATE DESCRIPTION VALUE ASSET VALUE
---------- ------------- ----------- ----- -----------
$ 1,050,000,000 1/08/04 U.S. Treasury Bills $1,049,820,260 37.12 %
$ 350,000,000 3/18/04 U.S. Treasury Bills 349,378,653 12.35 %
$ 200,000,000 1/29/04 U.S. Treasury Bills 199,860,000 7.07 %
$ 175,000,000 2/05/04 U.S. Treasury Bills 174,843,472 6.18 %
$ 150,000,000 2/26/04 U.S. Treasury Bills 149,787,667 5.30 %
-------------- ------
TOTAL UNITED STATES GOVERNMENT SECURITIES
(COST, INCLUDING ACCRUED INTEREST, - $1,923,690,052) $1,923,690,052 68.02 %
============== ======
LONG FUTURES CONTRACTS
% OF NET
DESCRIPTION VALUE ASSET VALUE
----------- ----- -----------
Energy $ 12,526,378 0.44 %
Metals 4,106,216 0.15 %
Stock index 34,144,656 1.21 %
Short-term interest rates 5,097,901 0.18 %
Long-term interest rates (8,943,827) (0.32)%
-------------- ------
TOTAL LONG FUTURES CONTRACTS $ 46,931,324 1.66 %
============== ======
SHORT FUTURES CONTRACTS
% OF NET
DESCRIPTION VALUE ASSET VALUE
----------- ----- -----------
Metals $ (354,021) (0.01)%
Short-term interest rates 183,300 0.00 %
Long-term interest rates (2,902,373) (0.10)%
-------------- ------
TOTAL SHORT FUTURES CONTRACTS $ (3,073,094) (0.11)%
-------------- ------
TOTAL FUTURES CONTRACTS $ 43,858,230 1.55 %
============== ======
FORWARD CURRENCY CONTRACTS
% OF NET
DESCRIPTION VALUE ASSET VALUE
----------- ----- -----------
Various long forward currency contracts $ 187,420,185 6.63 %
Various short forward currency contracts (93,652,634) (3.31)%
-------------- ------
Total forward currency contracts $ 93,767,551 3.32 %
============== ======
See accompanying notes.
27
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
TRADING GAINS
Futures trading gains (losses)
Realized $ (53,295,006) $ 166,999,777 $ 82,486,335
Change in unrealized 27,050,964 16,316,663 (23,806,749)
Brokerage commissions (4,574,976) (4,799,612) (3,182,112)
------------- -------------- ---------------
Gain (loss) from futures trading (30,819,018) 178,516,828 55,497,474
------------- -------------- ---------------
Forward and swap trading gains (losses)
Realized 510,354,521 86,515,089 (29,060,556)
Change in unrealized 65,019,392 (13,885,796) 38,540,154
Brokerage commissions (1,017,503) (619,018) (510,987)
------------- -------------- ---------------
Gain from forward and swap trading 574,356,410 72,010,275 8,968,611
------------- -------------- ---------------
Total trading gains 543,537,392 250,527,103 64,466,085
------------- -------------- ---------------
EXPENSES NET OF INTEREST INCOME
Income
Interest income 21,955,515 18,774,658 27,529,282
------------- -------------- ---------------
Expenses
Brokerage fee 158,423,875 81,002,406 53,559,454
Performance fee 61,928,585 30,713,834 7,396,537
Operating expenses 2,439,006 1,606,269 1,103,317
------------- -------------- ---------------
Total expenses 222,791,466 113,322,509 62,059,308
------------- -------------- ---------------
Expenses net of interest income (200,835,951) (94,547,851) (34,530,026)
------------- -------------- ---------------
NET INCOME $ 342,701,441 $ 155,979,252 $ 29,936,059
============= ============== ===============
NET INCOME PER GENERAL AND
LIMITED PARTNER UNIT
(based on weighted average number
of units outstanding during the year) $ 385.55 $ 282.19 $ 76.29
============= ============== ===============
INCREASE IN NET ASSET VALUE
PER GENERAL AND LIMITED
PARTNER UNIT $ 395.32 $ 259.32 $ 55.92
============= ============== ===============
See accompanying notes.
28
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003, 2002 and 2001
2003 2002 2001
---- ---- ----
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES
Net income $ 342,701,441 $ 155,979,252 $ 29,936,059
Adjustments to reconcile net income to
net cash (for) operating activities
Net change in unrealized (92,070,356) (2,430,867) (14,733,405)
Increase (decrease) in accounts payable
and accrued expenses 24,241,652 3,737,680 (2,605,444)
Net (purchases) of investments in
United States government securities (670,929,818) (537,688,561) (232,452,837)
-------------- ------------- -------------
Net cash (for) operating activities (396,057,081) (380,402,496) (219,855,627)
-------------- ------------- -------------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
Addition of units 1,028,600,448 624,223,999 350,629,619
Increase (decrease) in subscription deposits (17,206,853) 16,949,122 130,685
Redemption of units (147,291,398) (98,699,321) (63,486,011)
Increase (decrease) in redemptions payable 5,629,379 4,575,613 (1,241,815)
Offering costs charged (13,859,058) (6,773,610) (4,485,807)
Increase in offering costs payable 720,984 252,491 114,963
-------------- ------------- -------------
Net cash from financing activities 856,593,502 540,528,294 281,661,634
-------------- ------------- -------------
Net increase in cash and cash equivalents 460,536,421 160,125,798 61,806,007
CASH AND CASH EQUIVALENTS
Beginning of year 356,114,483 195,988,685 134,182,678
-------------- ------------- -------------
End of year $ 816,650,904 $ 356,114,483 $ 195,988,685
============== ============= =============
End of year cash and cash equivalents consists of:
Cash in broker trading accounts $ 189,245,425 $ 41,776,698 $ 43,668,215
Cash and cash equivalents 627,405,479 314,337,785 152,320,470
-------------- ------------- -------------
Total end of year cash and
cash equivalents $ 816,650,904 $ 356,114,483 $ 195,988,685
============== ============= =============
See accompanying notes.
29
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Years Ended December 31, 2003, 2002 and 2001
Partners' Capital
----------------------------------------------------------------------------------------------------
General Limited Total
------------------------- -------------------------------- --------------------------------
Units Amount Units Amount Units Amount
----- ------ ----- ------ ----- ------
Balances at
December 31, 2000 3,306.761 $ 6,351,669 325,004.757 $ 624,273,343 328,311.518 $ 630,625,012
Net income for the year
ended December 31, 2001 303,730 29,632,329 29,936,059
Additions 1,574.959 3,039,801 179,648.673 347,589,818 181,223.632 350,629,619
Redemptions 0.000 0 (32,373.485) (63,486,011) (32,373.485) (63,486,011)
Offering costs (45,368) (4,440,439) (4,485,807)
---------- ------------ ------------- --------------- ------------- ---------------
Balances at
December 31, 2001 4,881.720 9,649,832 472,279.945 933,569,040 477,161.665 943,218,872
Net income for the year
ended December 31, 2002 1,570,353 154,408,899 155,979,252
Additions 2,440.185 5,216,038 291,759.495 619,007,961 294,199.680 624,223,999
Redemptions (59.001) (127,571) (47,726.355) (98,571,750) (47,785.356) (98,699,321)
Offering costs (68,436) (6,705,174) (6,773,610)
---------- ------------ ------------- --------------- ------------- ---------------
Balances at
December 31, 2002 7,262.904 16,240,216 716,313.085 1,601,708,976 723,575.989 1 ,617,949,192
Net income for the year
ended December 31, 2003 3,446,561 339,254,880 342,701,441
Additions 3,553.090 8,913,502 406,079.954 1,019,686,946 409,633.044 1 ,028,600,448
Redemptions 0.000 0 (58,445.500) (147,291,398) (58,445.500) (147,291,398)
Offering costs (139,397) (13,719,661) (13,859,058)
---------- ------------ ------------- --------------- ------------- ---------------
Balances at
December 31, 2003 10,815.994 $ 28,460,882 1,063,947.539 $ 2,799,639,743 1,074,763.533 $ 2,828,100,625
========== ============ ============= =============== ============= ===============
Net Asset Value Per General and Limited Partner Unit
December 31,
2003 2002 2001
---- ---- ----
$2,631.37 $2,236.05 $1,976.73
========= ========= =========
See accompanying notes.
30
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Fund
Campbell Strategic Allocation Fund, L.P. (the Fund) is a
Delaware limited partnership which operates as a commodity
investment pool. The Fund engages in the speculative trading
of futures contracts, forward contracts and swap contracts.
B. Regulation
As a registrant with the Securities and Exchange Commission,
the Fund is subject to the regulatory requirements under the
Securities Act of 1933 and the Securities Exchange Act of
1934. As a commodity investment pool, the Fund is subject to
the regulations of the Commodity Futures Trading Commission,
an agency of the United States (U.S.) government which
regulates most aspects of the commodity futures industry;
rules of the National Futures Association, an industry
self-regulatory organization; and the requirements of the
various commodity exchanges where the Fund executes
transactions. Additionally, the Fund is subject to the
requirements of futures commission merchants (brokers) and
interbank and other market makers through which the Fund
trades.
C. Method of Reporting
The Fund's financial statements are presented in accordance
with accounting principles generally accepted in the United
States of America, which require the use of certain estimates
made by the Fund's management. Investment transactions are
accounted for on the trade date. Gains or losses are realized
when contracts are liquidated. Unrealized gains and losses on
open contracts (the difference between contract trade price
and market price) are reported in the statement of financial
condition as a net gain or loss, as there exists a right of
offset of unrealized gains or losses in accordance with
Financial Accounting Standards Board Interpretation No. 39 -
"Offsetting of Amounts Related to Certain Contracts." The
market value of futures (exchange-traded) contracts is
determined by the various futures exchanges, and reflects the
settlement price for each contract as of the close of the last
business day of the reporting period. The market value of swap
and forward (non-exchange traded) contracts is extrapolated on
a forward basis from the spot prices quoted as of 5:00 P.M.
(E.T.) of the last business day of the reporting period or
based on the market value of its exchange-traded equivalent.
Any change in net unrealized gain or loss from the preceding
period is reported in the statement of operations. Brokerage
commissions include other trading fees and are charged to
expense when contracts are opened. United States government
securities are stated at cost plus accrued interest, which
approximates market value.
For purposes of both financial reporting and calculation of
redemption value, Net Asset Value per unit is calculated by
dividing Net Asset Value by the number of outstanding units.
31
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
D. Cash and Cash Equivalents
Cash and cash equivalents includes cash and short-term time
deposits held at financial institutions.
E. Income Taxes
The Fund prepares calendar year U.S. and applicable state
information tax returns and reports to the partners their
allocable shares of the Fund's income, expenses and trading
gains or losses.
F. Offering Costs
Campbell & Company, Inc. (Campbell & Company) has incurred all
costs in connection with the initial and continuous offering
of units of the Fund (offering costs). The Fund's liability
for offering costs is limited to the maximum of total offering
costs incurred by Campbell & Company or 2.5% of the aggregate
subscriptions accepted during the initial and continuous
offerings; this maximum is further limited by 30 month pay-out
schedules. The Fund is only liable for payment of offering
costs on a monthly basis as calculated based on the
limitations stated above. At December 31, 2003, the Fund
reflects a liability in the statement of financial condition
for offering costs payable to Campbell & Company of
$1,387,938. The amount of monthly reimbursement due to
Campbell & Company is charged directly to partners' capital.
If the Fund terminates prior to completion of payment of the
calculated amounts to Campbell & Company, Campbell & Company
will not be entitled to any additional payments, and the Fund
will have no further obligation to Campbell & Company. At
December 31, 2003, the amount of unreimbursed offering costs
incurred by Campbell & Company is $8,988,529.
G. Foreign Currency Transactions
The Fund's functional currency is the U.S. dollar; however, it
transacts business in currencies other than the U.S. dollar.
Assets and liabilities denominated in currencies other than
the U.S. dollar are translated into U.S. dollars at the rates
in effect at the date of the statement of financial condition.
Income and expense items denominated in currencies other than
the U.S. dollar are translated into U.S. dollars at the rates
in effect during the period. Gains and losses resulting from
the translation to U.S. dollars are reported in income
currently.
H. Reclassification
Certain amounts in the 2002 and 2001 financial statements were
reclassified to conform with the 2003 presentation.
32
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2. GENERAL PARTNER AND COMMODITY TRADING ADVISOR
The general partner of the Fund is Campbell & Company, which conducts
and manages the business of the Fund. Campbell & Company is also the
commodity trading advisor of the Fund. The Amended Agreement of Limited
Partnership provides that Campbell & Company may make withdrawals of
its units, provided that such withdrawals do not reduce Campbell &
Company's aggregate percentage interest in the Fund to less than 1% of
the net aggregate contributions.
Campbell & Company is required by the Amended Agreement of Limited
Partnership to maintain a net worth equal to at least 5% of the capital
contributed by all the limited partnerships for which it acts as
general partner, including the Fund. The minimum net worth shall in no
case be less than $50,000 nor shall net worth in excess of $1,000,000
be required.
The Fund pays a monthly brokerage fee equal to 1/12 of 7% (7%
annualized) of month-end net assets to Campbell & Company and
approximately $6 per round turn ($10 prior to January 1, 2003) to the
broker for execution and clearing costs. From the 7% fee, a portion
(4%) is used to compensate selling agents for ongoing services rendered
and a portion (3%) is retained by Campbell & Company for trading and
management services rendered. The amount paid to the broker and
interbank market makers for execution and clearing costs is limited to
1/12 of 1% (1% annualized) of month-end net assets.
Campbell & Company is also paid a quarterly performance fee of 20% of
the Fund's aggregate cumulative appreciation in the Net Asset Value per
unit, exclusive of appreciation attributable to interest income.
Note 3. DEPOSITS WITH BROKER
The Fund deposits assets with a broker subject to Commodity Futures
Trading Commission regulations and various exchange and broker
requirements. Margin requirements are satisfied by the deposit of U.S.
Treasury bills and cash with such broker. The Fund earns interest
income on its assets deposited with the broker.
Note 4. OPERATING EXPENSES
Operating expenses of the Fund are limited by the Amended Agreement of
Limited Partnership to 0.5% per year of the average month-end Net Asset
Value of the Fund. Actual operating expenses were less than 0.5% of
average month-end Net Asset Value for the years ended December 31,
2003, 2002 and 2001.
Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in the Fund are made by subscription agreement, subject to
acceptance by Campbell & Company. In December 2002, the Fund received
deposits from prospective limited partners totaling $17,206,853. These
deposits were returned to the prospective investors in January 2003.
33
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS (CONTINUED)
The Fund is not required to make distributions, but may do so at the
sole discretion of Campbell & Company. A limited partner may request
and receive redemption of units owned, subject to restrictions in the
Amended Agreement of Limited Partnership. Redemption fees apply through
the first twelve month-ends following purchase as follows: 4% of Net
Asset Value per unit redeemed through the third month-end, 3% of Net
Asset Value per unit redeemed through the sixth month-end, 2% of Net
Asset Value per unit redeemed through the ninth month-end and 1% of Net
Asset Value per unit redeemed through the twelfth month-end. After the
twelfth month-end following purchase of a unit, no redemption fees
apply.
Note 6. TRADING ACTIVITIES AND RELATED RISKS
The Fund engages in the speculative trading of U.S. and foreign futures
contracts, forward contracts and swap contracts (collectively,
"derivatives"). The Fund is exposed to both market risk, the risk
arising from changes in the market value of the contracts, and credit
risk, the risk of failure by another party to perform according to the
terms of a contract.
Purchase and sale of futures contracts requires margin deposits with
the broker. Additional deposits may be necessary for any loss on
contract value. The Commodity Exchange Act requires a broker to
segregate all customer transactions and assets from such broker's
proprietary activities. A customer's cash and other property (for
example, U.S. Treasury bills) deposited with a broker are considered
commingled with all other customer funds subject to the broker's
segregation requirements. In the event of a broker's insolvency,
recovery may be limited to a pro rata share of segregated funds
available. It is possible that the recovered amount could be less than
total cash and other property deposited.
The amount of required margin and good faith deposits with the broker
and interbank and other market makers usually range from 10% to 30% of
Net Asset Value. The market value of securities held to satisfy such
requirements at December 31, 2003 and 2002 was $1,923,690,052 and
$1,252,760,234, respectively, which equals 68% and 77% of Net Asset
Value, respectively. The cash deposited with interbank and other market
makers at December 31, 2003 and 2002 was $535,480,647 and $176,597,790,
respectively, which equals 19% and 11% of Net Asset Value,
respectively. These amounts are included in cash and cash equivalents.
The Fund trades forward and swap contracts in unregulated markets
between principals and assumes the risk of loss from counterparty
nonperformance. Accordingly, the risks associated with forward and swap
contracts are generally greater than those associated with exchange
traded contracts because of the greater risk of counterparty default.
Additionally, the trading of forward and swap contracts typically
involves delayed cash settlement.
The Fund has a substantial portion of its assets on deposit with
financial institutions. In the event of a financial institution's
insolvency, recovery of Fund assets on deposit may be limited to
account insurance or other protection afforded such deposits.
34
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Fund is exposed to a market risk equal to
the notional contract value of futures, forward and swap contracts
purchased and unlimited liability on such contracts sold short.
The unrealized gain (loss) on open futures, forward and swap contracts
is comprised of the following:
Futures Contracts Forward and Swap Contracts
(exchange traded) (non-exchange traded)
December 31, December 31,
2003 2002 2003 2002
---- ---- ---- ----
Gross unrealized gains $ 59,494,849 $ 28,128,413 $ 200,933,202 $ 141,686,377
Gross unrealized losses (15,636,619) (11,321,147) (107,165,651) (112,938,218)
------------ ------------ -------------- -------------
Net unrealized gain $ 43,858,230 $ 16,807,266 $ 93,767,551 $ 28,748,159
============ ============ ============== =============
Open contracts generally mature within three months; as of December 31,
2003, the latest maturity date for open futures contracts is September
2004, and the latest maturity date for open forward contracts is March
2004. However, the Fund intends to close all contracts prior to
maturity.
Campbell & Company has established procedures to actively monitor
market risk and minimize credit risk, although there can be no
assurance that it will, in fact, succeed in doing so. Campbell &
Company's basic market risk control procedures consist of continuously
monitoring open positions, diversification of the portfolio and
maintenance of a margin-to-equity ratio that rarely exceeds 30%.
Campbell & Company seeks to minimize credit risk primarily by
depositing and maintaining the Fund's assets at financial institutions
and brokers which Campbell & Company believes to be creditworthy. The
limited partners bear the risk of loss only to the extent of the market
value of their respective investments and, in certain specific
circumstances, distributions and redemptions received.
35
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 7. FINANCIAL HIGHLIGHTS
The following information presents per unit operating performance data
and other supplemental financial data for the years ended December 31,
2003, 2002 and 2001. This information has been derived from information
presented in the financial statements.
2003 2002 2001
---- ---- ----
PER UNIT PERFORMANCE
(for a unit outstanding throughout the entire year)
Net asset value per unit at beginning of year $2,236.05 $1,976.73 $1,920.81
--------- --------- ---------
Income (loss) from operations:
Total trading gains (1) 636.86 442.62 155.35
Expenses net of interest income (1) (225.95) (171.05) (88.00)
--------- --------- ---------
Total income from operations 410.91 271.57 67.35
--------- --------- ---------
Offering costs (1) (15.59) (12.25) (11.43)
--------- --------- ---------
Net asset value per unit at end of year $2,631.37 $2,236.05 $1,976.73
========= ========= =========
TOTAL RETURN 17.68% 13.12% 2.91%
========= ========= =========
SUPPLEMENTAL DATA
Ratios to average net asset value:
Expenses prior to performance fee (7.15)% (7.11)% (7.21)%
Performance fee (2.75)% (2.64)% (0.98)%
--------- --------- ---------
Total expenses (9.90)% (9.75)% (8.19)%
========= ========= =========
Expenses net of interest income (2) (6.17)% (5.49)% (3.58)%
========= ========= =========
Total returns are calculated based on the change in value of a unit during the
year. An individual partner's total returns and ratios may vary from the above
total returns and ratios based on the timing of additions and redemptions.
- -------------------------
(1) Expenses net of interest income per unit and offering costs per unit are
calculated by dividing the expenses net of interest income and offering
costs by the average number of units outstanding during the year. Total
trading gains is a balancing amount necessary to reconcile the change in
net asset value per unit with the other per unit information.
(2) Excludes performance fee.
36
EXHIBIT INDEX
Exhibit Number Description of Document Page Number
- -------------- ----------------------- -----------
31.01 Certification by Chief Executive Officer E 2
31.02 Certification by Chief Financial Officer E 3
32.01 Certification by Chief Executive Officer E 4
32.02 Certification by Chief Financial Officer E 5
E 1