SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 33-80443
WILLOWBRIDGE STRATEGIC TRUST
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(Exact name of Registrant as specified in its charter)
Delaware 13-7075398
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One New York Plaza, 13th Floor, New York, New York 10292
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 778-7866
N/A
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Former name, former address and former fiscal year, if changed since last report
Indicate by check CK 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 _CK_ No __
Part I. FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
June 30, December 31,
1996 1995
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ASSETS
Equity in commodity trading accounts:
Cash $15,459,594 $ 1,000
Net unrealized gain on open commodity positions 199,963 --
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Net equity 15,659,557 1,000
Other receivable 7,693 --
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Total assets $15,667,250 $ 1000
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LIABILITIES AND TRUST CAPITAL
Liabilities
Management fee payable $ 39,168 $ --
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Commitments
Trust capital
Limited interests (172,440.473 and 0 interests outstanding) 15,454,967 --
General interests (1,931.566 and 10 interests outstanding) 173,115 1,000
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Total trust capital 15,628,082 1,000
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Total liabilities and trust capital $15,667,250 $ 1,000
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Net asset value per limited and general interest (``Interests'') $ 89.62 $ 100.00
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The accompanying notes are an integral part of these statements
2
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
(Unaudited)
For the period from
May 1, 1996
(commencement of
operations)
through
June 30,
1996
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REVENUES
Net realized loss on commodity transactions $ (1,405,524)
Net unrealized gain on commodity positions 199,963
Interest income 116,173
--------------------------
(1,089,388)
--------------------------
EXPENSES
Commissions 183,456
Management fees 67,829
--------------------------
251,285
--------------------------
Net loss $ (1,340,673)
--------------------------
--------------------------
ALLOCATION OF NET LOSS
Limited interests $ (1,324,788)
--------------------------
--------------------------
General interests $ (15,885)
--------------------------
--------------------------
NET LOSS PER WEIGHTED AVERAGE LIMITED
AND GENERAL INTEREST
Net loss per weighted average limited and general interest $ (8.95)
--------------------------
--------------------------
Weighted average number of limited and general interests outstanding 149,742.020
--------------------------
--------------------------
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STATEMENT OF CHANGES IN TRUST CAPITAL
(Unaudited)
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
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Trust capital--December 31, 1995 10 $ -- $ 1,000 $ 1,000
Contributions 176,112.039 16,937,500 188,000 17,125,500
Net loss -- (1,324,788) (15,885 ) (1,340,673)
Redemptions (1,750.000) (157,745) -- (157,745)
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Trust capital--June 30, 1996 174,372.039 $15,454,967 $173,115 $15,628,082
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The accompanying notes are an integral part of these statements
3
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
JUNE 30, 1996
(Unaudited)
A. General
Willowbridge Strategic Trust (the ``Trust'') was organized under the Delaware
Business Trust Statute on October 16, 1995 and commenced trading operations on
May 1, 1996. The Trust will terminate on December 31, 2015 unless terminated
sooner as provided in the Second Amended and Restated Declaration of Trust and
Trust Agreement (the ``Trust Agreement''). The Trust was formed to engage in the
speculative trading of commodity futures, options and forward contracts. The
Trustee of the Trust is Wilmington Trust Company. The managing owner is
Prudential Securities Futures Management Inc. (the ``Managing Owner''), a
wholly-owned subsidiary of Prudential Securities Incorporated (``PSI''), which,
in turn, is a wholly-owned subsidiary of Prudential Securities Group Inc. PSI is
the principal underwriter and selling agent for the Trust's interests (the
``Interests'') as well as the commodity broker (``Commodity Broker'') of the
Trust.
The Trust is offering a maximum of $100,000,000 of limited interests. On May
1, 1996, the Trust completed its initial offering with gross proceeds of
$12,686,200 from the sale of 125,352 limited interests and 1,510 general
interests. Additional Interests are being offered monthly at the then current
net asset value per Interest until no later than two years from the date of the
prospectus (February 7, 1996) but in no event after $100,000,000 in limited
interests are sold (the ``Continuous Offering Period''). A minimum initial
contribution of $5,000 ($2,000 for an IRA account) is required for each new
limited owner unless the Managing Owner, in its sole discretion, approves a
contribution of a lesser amount. Existing limited owners are permitted to make
additional contributions in increments of not less than $100 during the
Continuous Offering Period.
Redemptions are permitted monthly, on at least 10 days' prior written notice,
commencing with the end of the first full month of Trust trading activity, May
31, 1996. Redemptions will be at the net asset value per Interest, however,
Interests redeemed on or prior to the end of the first and second successive
six-month periods after their purchase are subject to a redemption charge of 4%
and 3%, respectively, of the net asset value at which they are redeemed. These
redemption charges will be paid to the Managing Owner. Partial redemptions are
permitted.
The Managing Owner is required to maintain at least a 1% interest in the
Trust so long as it is acting as the Managing Owner. Therefore, it must
contribute to the Trust between $101,000 and $1,010,000 depending upon the total
number of limited interests sold during the Initial & Continuous Offering
Periods. In return, it is entitled to a proportionate number of general
interests with at least a 1% interest in the profits and losses of the Trust.
The Managing Owner, on behalf of the Trust, entered into an agreement (the
``Advisory Agreement'') with Willowbridge Associates Inc., an independent
commodity trading manager (the ``Trading Manager''). The Managing Owner has made
100% of the Trust's assets available for trading by the Trading Manager;
however, the Managing Owner retains the authority to override trading
instructions that violate the Trust's trading policies. The Advisory Agreement
is for an initial term of approximately one year and may be renewed thereafter
for additional successive one-year terms. The Managing Owner retains the right
to retain additional or substitute commodity trading managers at its discretion.
These financial statements have been prepared without audit. In the opinion
of management, the financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position of the Trust as of June 30, 1996 and the results of its operations for
the period ended June 30, 1996. However, the operating results for the interim
period may not be indicative of the results expected for the full year.
B. Summary of Significant Accounting Policies
Basis of Accounting
The books and records of the Trust are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
4
Income Taxes
The Trust is not required to provide for, or pay, any federal or state income
taxes. Income tax attributes that arise from its operations will be passed
directly to the individual limited owners and the Managing Owner. The Trust may
be subject to other state and local taxes in jurisdictions in which it operates.
Profit and loss allocations and distributions
The Trust allocates profits and losses for both financial and tax reporting
purposes to the limited owners and the Managing Owner monthly on a pro-rata
basis based on each owner's Interests outstanding during the month.
Distributions (other than on redemptions of Units) are made at the sole
discretion of the Managing Owner on a pro rata basis in accordance with the
respective capital accounts of the owners. No distributions have been made since
inception.
C. Fees
Organizational, Offering, General and Administrative Costs
PSI or its affiliates pay the costs of organizing the Trust and offering its
Interests as well as administrative costs incurred by the Managing Owner or its
affiliates for services it performs for the Trust. These costs include, but are
not limited to, those discussed in Note D below. Routine legal, audit, postage,
and other third party costs are also paid by PSI or its affiliates.
Management and Incentive fees
The Trust pays the Trading Manager a monthly management fee of 1/4 of 1% (3%
per annum) of the Trust's Net Asset Value as of the last day of each month and a
quarterly incentive fee of 20% of ``New High Net Trading Profits'' (as defined
in the Advisory Agreement).
Commissions
The Managing Owner, on behalf of the Trust, entered into an agreement (the
``Brokerage Agreement'') with PSI to act as Commodity Broker whereby the Trust
pays a fixed monthly fee for brokerage services rendered. The monthly fee is
equal to .64583 of 1% (7.75% per annum) of the Trust's Net Asset Value as of the
first day of each month. From this fee, PSI pays all of the Trust's execution
(i.e., floor brokerage expenses, give-up charges and NFA, clearing and exchange
fees) and account maintenance costs, as well as compensation to employees who
sell Interests in the Trust.
D. Related Parties
The Managing Owner or its affiliates perform services for the Trust which
include but are not limited to: brokerage services, accounting and financial
management, registrar, transfer and assignment functions, investor
communications, printing and other administrative services.
One hundred percent of the proceeds of this offering are received in the
Trust's name and deposited in cash in segregated trading accounts at PSI and
will remain there for as long as the Trust's Brokerage Agreement with PSI
remains in effect. PSI credits the Trust monthly with 80% of the interest it
earns on the equity in these accounts and retains the remaining 20%.
When the Trust engages in forward foreign currency transactions, it trades
with PSI who simultaneously engages in back-to-back transactions with an
affiliate who, pursuant to the Trust's prospectus, is obligated to charge a
competitive price.
E. Credit and Market Risk
Since the Trust's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level of volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in the Trust's unrealized
gain (loss) on open commodity positions reflected in the statements of financial
condition. The Trust's exposure to market risk is influenced by a number
of factors including the relationships among the contracts held by the
Trust as well as the liquidity of the markets in which the
contracts are traded.
5
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, the Trust must rely solely on the credit of its broker (PSI) with
respect to forward transactions.
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust's Trading Manager to abide by various trading limitations
and policies. The Managing Owner monitors compliance with these trading
limitations and policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties (currently, PSI is the sole
counterparty or broker); limiting the amount of margin or premium required for
any one commodity or all commodities combined; and generally limiting
transactions to contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. The Managing Owner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the Trading Manager as it, in good faith, deems
to be in the best interests of the Trust.
PSI, when acting as the Trust's futures commission merchant in accepting
orders for the purchase or sale of domestic futures and options contracts, is
required by Commodity Futures Trading Commission (``CFTC'') regulations to
separately account for and segregate as belonging to the Trust all assets of the
Trust relating to domestic futures and options trading and not to commingle such
assets with other assets of PSI. At June 30, 1996, such segregated assets
totalled $6,920,259. Part 30.7 of the CFTC regulations also requires PSI to
secure assets of the Trust related to foreign futures and options trading which
totalled $8,739,298 at June 30, 1996. There are no segregation requirements for
assets related to forward trading.
As of June 30, 1996, all open futures contracts mature within six months.
As of June 30, 1996, gross contract amounts of open futures contracts are:
June 30,
1996
-----------
Financial Futures Contracts:
Commitments to purchase $ 9,123,704
Commitments to sell $ 1,623,469
Currency Futures Contracts:
Commitments to purchase $ 7,688,300
Commitments to sell $42,280,200
Other Futures Contracts:
Commitments to purchase $19,732,820
Commitments to sell $ 9,424,055
The gross contract amounts represent the Partnership's potential involvement
in a particular class of financial instrument (if it were to take or make
delivery on an underlying futures or options contract). The gross contract
amounts significantly exceed the future cash requirements as the Partnership
intends to close out open positions prior to settlement and thus is generally
subject only to the risk of loss arising from the change in the value of the
contracts. As such, the Partnership considers the ``fair value'' of its futures,
forward and options contracts to be the net unrealized gain or loss on the
contracts (plus premiums on options). Thus, the amount at risk associated with
counterparty nonperformance of all contracts is the net unrealized gain included
in the statements of financial condition. The market risk associated with the
Partnership's commitments to purchase commodities is limited to the gross
contract amounts involved, while the market risk associated with its commitments
to sell is unlimited since the Partnership's potential involvement is
to make delivery of an underlying commodity at the contract price; therefore,
it must repurchase the contract at prevailing market prices.
6
At June 30, 1996 the fair values of futures contracts were:
Assets Liabilities
----------- -----------
Domestic exchanges
Financial $ 71,125 $ 10,844
Currencies 147,112 177,880
Other 490,161 321,630
Foreign exchanges
Financial 22,221 --
Other -- 20,302
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$ 730,619 $ 530,656
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The following table presents the average fair value of futures contracts for
the period from May 1, 1996 (the commencement of operations) through June 30,
1996.
Assets Liabilities
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Domestic exchanges
Financial $ 80,688 $ 14,328
Currencies 144,921 118,440
Other 334,102 453,315
Foreign exchanges
Financial 11,111 11,196
Other -- 20,314
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$570,822 $ 617,593
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The following table presents the net realized gains (losses) and the net
unrealized gains (losses) of futures and options contracts for the period from
May 1, 1996 (the commencement of operations) through June 30, 1996.
Net Realized Net Unrealized
Gains (Losses) Gains (Losses) Total
-------------- -------------- -----------
Futures Contracts:
Domestic exchanges
Financial $ (313,625) $ 60,281 $ (253,344)
Currencies 49,662 (30,768) 18,894
Other (1,028,451) 168,531 (859,920)
Foreign exchanges
Financial (53,985) 22,222 (31,763)
Other -- (20,303) (20,303)
Options Contracts:
Domestic exchanges
Currencies (47,250) -- (47,250)
Other (11,875) -- (11,875)
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$ (1,405,524) $199,963 $(1,205,561)
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7
WILLOWBRIDGE STRATEGIC TRUST
(a Delaware Business Trust)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Trust commenced operations on May 1, 1996 with gross proceeds of
$12,686,200 allocated to commodities trading. Additional Interests are offered
monthly at the then current net asset value per Interest until no later than two
years from the date of the prospectus (February 7, 1996) but in no event after
$100,000,000 in limited interests are sold.
At June 30, 1996, 100% of the Trust's net assets were allocated to commodity
trading. A significant portion of the net assets are held in cash which is used
as margin for the Trust's trading in commodities. Inasmuch as the sole business
of the Trust is to trade in commodities, the Trust continues to own such liquid
assets to be used as margin. PSI credits the Trust monthly with 80% of the
interest it earns on the equity in these accounts and retains the remaining 20%.
The commodities contracts are subject to periods of illiquidity because of
market conditions, regulatory considerations and other reasons. For example,
commodity exchanges limit fluctuations in commodity futures contract prices
during a single day by regulations referred to as ``daily limits.'' During a
single day, no trades may be executed at prices beyond the daily limit. Once the
price of a futures contract for a particular commodity has increased or
decreased by an amount equal to the daily limit, positions in the commodity can
neither be taken nor liquidated unless traders are willing to effect trades at
or within the limit. Commodity futures prices have occasionally moved the daily
limit for several consecutive days with little or no trading. Such market
conditions could prevent the Trust from promptly liquidating its commodity
futures positions.
Since the Trust's business is to trade futures, forward and options
contracts, its capital is at risk due to changes in the value of these contracts
(market risk) or the inability of counterparties to perform under the terms of
the contracts (credit risk). The Managing Owner attempts to minimize these risks
by requiring the Trust's Trading Manager to abide by various trading limitations
and policies. See Note E to the financial statements for a further discussion of
the credit and market risks associated with the Trust's futures, forward and
options contracts.
The Trust does not have, nor does it expect to have, any capital assets.
Redemptions of limited interests for the period from May 1, 1996
(commencement of operations) through June 30, 1996 were $157,745. Additional
contributions raised through the continuous offering for the period May 1, 1996
(commencement of operations) to June 30, 1996 resulted in additional gross
proceeds to the Trust of $4,440,300. Future redemptions and contributions will
impact the amount of funds available for investment in commodity contracts in
subsequent periods.
Results of Operations
The Trust commenced trading operations on May 1, 1996, and as such, no
comparative information is available for 1995.
The net asset value per Interest as of June 30, 1996 was $89.62, a decrease
of 10.38% from the May 1, 1996 initial net asset value per Interest of $100.00.
The Trust's performance was negative in the month of May. Losses were
incurred in the grains, softs, currencies, metals, energies, financials, meats,
and stock indices sectors. In the grains markets, profits in corn offset losses
in wheat and soybean by-products. Corn prices rose steadily during most of May
as heavy rains in the U.S. prevented farmers from planting their spring crops.
However, late in the month, forecasts for clear weather in these regions pushed
corn prices down thereby reducing overall profits. In the softs sector, cotton
prices also reacted to U.S. weather conditions, dropping in price late in the
month. In the coffee markets, prices reversed as anticipated freezes in Brazil
became less likely to occur. In the currencies sector, the dollar remained
strong against the German mark and Japanese yen, but at month-end a market
correction eliminated prior gains. In the energies sector, prices declined
during the month as the U.N. agreed to permit Iraqi oil in the market creating
an adverse effect on long positions in unleaded gas. In the financials sector,
U.S. bond markets remained volatile, which affected bond markets worldwide, as
8
investors struggled to interpret conflicting U.S. economic reports. Positions in
U.S. and Japanese bonds were unprofitable.
The Trust's performance was also negative in the month of June. Profits in
the energies, metals, currencies and softs sectors were outweighed by losses in
the grains, financials, meats and stock indices sectors. In the energies sector,
positions in natural gas and light crude oil were profitable. In the precious
metals sector, selling gold positions were benefited by continuing International
Monetary Fund discussions about the possibilities of gold sales. The Trust
incurred losses in the grains sector. More favorable weather conditions during
June and reports of cancellations of some grain export orders caused grain
futures to decline during the month. However, month-end prices were somewhat
boosted by new indications of tight grain supply and hot weather conditions. In
the U.S. financials markets, the Trust also incurred losses. Interest rates rose
sharply on a very strong Labor Department non-farm payroll figure. Later in the
month, the market reflected conflicting expectations of the degree of U.S.
economic strength and the level of inflation. In the currencies sector, losses
were incurred in positions in the German mark which were offset by gains in the
Japanese yen.
Interest income is earned on the equity balances held at PSI and, therefore,
varies monthly according to interest rates, trading performance, contributions
and redemptions. Interest income was approximately $116,000 for the period ended
June 30, 1996.
Commissions are calculated on the Trust's net asset value at the beginning of
the month and, therefore, vary according to trading performance, contributions
and redemptions. Commissions for the period ended June 30, 1996 were
approximately $183,000.
All trading decisions for the Trust are made by Willowbridge Associates Inc.,
the Trading Manager. Management fees are calculated on the Trust's net asset
value at the end of each month and, therefore, are affected by trading
performance, contributions and redemptions. Management fees for the period ended
June 30, 1996 were approximately $68,000.
Incentive fees are based on the New High Net Trading Profits generated by the
Trading Manager, as defined in the Advisory Agreement between the Trust, the
Managing Owner and the Trading Manager. No incentive fees were earned during the
period ended June 30, 1996.
9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--There are no material legal proceedings pending by or
against the Registrant or the Managing Owner
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. (a) Exhibits--
3.1
and
4.1--Second Amended and Restated Declaration of Trust and Trust
Agreement of the Registrant dated as of December 14, 1995
(incorporated by reference to Exhibit 3.1 to 4.1 to the
Registrant's Registration Statement on Form S-1, File No.
33-80443, dated as of December 14, 1995)
4.2--Subscription Agreement (incorporated by reference to
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-1, File No. 33-80443, dated as of December 14, 1995)
4.3--Request for Redemption (incorporated by reference to
Exhibit 4.3 to the Registrant's Registration
Statement on Form S-1, File No. 33-80443, dated as of
December 14, 1995)
27.1--Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--Registrant's Current Report on Form 8-K dated
May 14, 1996, as filed with the Securities and Exchange Commission
on May 16, 1996, relating to Item 4 regarding the change in the
Registrant's certifying accountant from Deloitte & Touche LLP to
Price Waterhouse LLP.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLOWBRIDGE STRATEGIC TRUST
By: Prudential Securities Futures Management
Inc.A Delaware corporation, Managing Owner
By: /s/ Steven Carlino Date: August 14, 1996
----------------------------------------
Steven Carlino
Vice President
Chief Accounting Officer for the
Registrant
11