SIDLEY AUSTIN BROWN & WOOD LLP
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BRUSSELS CHICAGO, ILLINOIS 60603 NEW YORK
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www.sidley.com
DALLAS SHANGHAI
FOUNDED 1866
GENEVA SINGAPORE
HONG KONG TOKYO
LONDON WASHINGTON, D.C.
WRITER'S DIRECT NUMBER WRITER'S E-MAIL ADDRESS
August 9, 2005
Mr. Owen Pinkerton
Senior Counsel
Ms. Amanda McManus
Attorney-Advisor
Division of Corporation Finance
United States Securities and
Exchange Commission
100 "F" Street, N.E.
Washington, D.C. 20549
Re: Man-AHL 130, LLC (the "Pool")
Registration Statement on Form S-1
Filed June 28, 2005
File No. 333-126172
Dear Mr. Pinkerton:
We thank the Staff for its July 28, 2005 comment letter on the
above-referenced filing. We are in the course of preparing an Amendment No. 1 to
the above-referenced Registration Statement responding to the Staff's specific
disclosure points. Pursuant to informal discussions with Mr. Pinkerton, we are
herewith submitting our response to the fundamental regulatory issue raised by
the Staff's comment letter -- whether the Pool is an "investment company"
subject to the registration and other requirements of the Investment Company Act
of 1940 (the "Investment Company Act").
By way of history, this Firm has spent over a generation as
counsel to the sponsors of publicly-offered commodity pools, and in such
capacity has repeatedly been required to address the question of when a
commodity pool has become an investment company due to the importance of its
securities positions in its overall portfolio. This question arises in the
context of the numerous public commodity pools which are offered in a "principal
protection" structure as well as those which -- like the Pool -- seek to obtain
an enhanced return on their assets (which are otherwise held entirely in reserve
in cash and cash equivalents). There is substantial SEC precedent in this area
- -- both in the form of No-Action Letters and in the form
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Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
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August 9, 2005
Page 2
of publicly-offered commodity pools which have been registered under the
Securities Act of 1933 after "full review" by the Staff.
From the outset of the internal discussions with Man
Investment (USA) Corp. ("Man"), the sponsor of the Pool, regarding the possible
structuring and offering the Pool, a principal consideration in the formulation
of the operational parameters and portfolio limitations of the Pool has been to
ensure that the Pool not constitute an "investment company." In contrast, as the
Staff is aware, Man has a different financial product -- Man-IP 220, LLC --
which contains, through a derivative instrument, a hedge fund of funds
investment very similar to the Man-Glenwood Lexington, LLC and Man-Glenwood
Lexington TEI, LLC (collectively, "Man-Glenwood") component of the Pool, as well
as a futures trading subsidiary which trades under the AHL Diversified Program
("AHL" or the "AHL Diversified Program") as does the Pool -- which does
constitute a jurisdictional "investment company" and has filed a registration
statement as a closed-end investment company under the Investment Company Act
(Registration No. 333-109858; 811-21451; filed October 21, 2003).
The technical legal analysis on which the Pool has been
structured is as follows: while constituting a "prima facie" investment company
under Section 3(a)(1)(C) of the Investment Company Act, and not qualifying for
exemption from Section 3(a)(1)(C) provided by Rule 3a-1 (because the Pool's
total assets will, at any given point in time, consist solely of interests in
Man-Glenwood and "Government Securities" so that the Pool will not meet the 40%
of total assets limitation imposed by Rule 3a-1), the Pool is nevertheless not a
definitional "investment company" under Section 3(b)(1) because the Pool is
engaged directly and primarily in a "business other than that of investing,
reinvesting, owning, holding or trading in securities" -- i.e., trading futures
contracts pursuant to the AHL Diversified Program. Ft. Tryon Futures Fund
Limited Partnership, 1990 SEC No-Act. LEXIS 1192 (August 16, 1990); Peavey
Commodity Funds I, II and III, 1983 SEC No-Act. LEXIS 2576 (June 2, 1983);
Managed Futures Association, 1996 SEC No-Act. LEXIS 623 (July 15, 1996); Tonopah
Mining Co. of Nevada, 26 S.E.C. 426 (1947).
We submit that, based on (i) extensive SEC precedent and (ii)
the restrictions imposed on the securities-based component of the Pool's
portfolio, the Pool if operated as contemplated by the Prospectus will not
constitute an "investment company."
THE ROLE OF LEVERAGE IN A MANAGED FUTURES FUND
As a threshold matter, we noted that the Staff's comment
letter seemed to attach considerable importance to the fact that 30% of the
capital of the Pool was invested in Man-Glenwood. We need, in terms of the
Section 3(b)(1) analysis to follow, to clarify that because
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Ms. Amanda McManus
United States Securities and
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Page 3
such allocation is unleveraged -- i.e., representing a 30% market exposure as
well as capital allocation -- it is in fact a very minor component of the Pool's
portfolio.
Because of the low margins required for futures trading --
generally only between 2% and 15% of the face amount of the futures contract --
a 30% market exposure could be acquired in the futures market by an allocation
of only approximately 1.5% to 4.5% of a futures fund's capital. In fact, given
the 2% margin required on the 30-year Treasury bond futures contract, with an
allocation of only 0.6% of its capital the Pool could acquire the same futures
market exposure to 30-year Treasury bonds as its 30% capital allocation to
Man-Glenwood. The Pool's exposure to the futures markets is highly leveraged,
whereas the Pool's exposure to Man-Glenwood is unleveraged (Man-Glenwood itself
uses a small degree of leverage -- approximately 20% as of July 30, 2005 -- but
the Fund's investment in Man-Glenwood is an unleveraged 30%). Furthermore, the
Treasury bond market exposure would likely have a higher price volatility and
risk of loss as well as opportunity for profit than the Man-Glenwood investment.
It is clear to us from the Staff's comments that we need, both
as a disclosure matter and in terms of the "Representations" established by
Peavey and other No-Action Letters (see page 15, below), to make the foregoing
point more clearly in the Prospectus. We thank the Staff for pointing this out
and will include a disclosure comparable to the above in our Amendment No. 1.
THE SEC PRECEDENTS
For the convenience of the Staff, we set forth below certain
pertinent excerpts of the numerous Staff No-Action Letters setting forth the
principles enumerated by the Staff in analyzing whether a commodity pool is
engaged primarily in a "business other than that of investing, reinvesting,
owning, holding or trading in securities." These are the principles we have used
in designing the portfolio limitations applicable to the Pool.
The Pool has been specifically modeled after the advice of the
Division of Investment Management in Peavey:
"In determining whether an entity which invests in futures,
including futures in exempted securities and futures on
indices of securities, and options on such futures, is
otherwise an investment company, one must determine first
whether the entity is otherwise within the definition of an
investment company contained in section 3(a) of the Investment
Company Act. Generally, this would require a determination of
whether the entity was, otherwise
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Ms. Amanda McManus
United States Securities and
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August 9, 2005
Page 4
than by its investment in such futures or options on such
futures, either primarily engaged in investing in securities
so as to be an investment company under section 3(a)(1) of the
Investment Company Act, or on an entity with more than 40
percent of its total assets (exclusive of Government
securities and cash items) in investment securities so as to
be an investment company within section 3(a)(3) of the
Investment Company Act.
If the entity was not an investment company within the meaning
of section 3(a)(1), but was within 3(a)(3), the entity would,
nevertheless, still not be an investment company if it was
excepted by section 3(b)(1) as an entity which was primarily
engaged, directly or through a wholly-owned subsidiary, in a
business or businesses other than trading in securities. In
applying this provision to an entity engaged in investing in
the aforementioned futures or options on such aforementioned
futures, we would, in accord with section 2(a)(1) of the CEA,
consider the entity not to be subject to SEC jurisdiction
under the Investment Company Act if it was directly or
indirectly primarily engaged in the business of investing in
futures including the aforementioned futures and options
thereon.
In determining an entity's primary engagement one usually
looks to the composition of its assets, the sources of its
income, the activities of its officers and employees, its
representations, and its historical development. The first two
of these factors are usually regarded as the most telling.
However, it has been recognized that with respect to a
commodity pool, a snapshot picture of its balance sheet
contrasting the value of its futures contracts (unrealized
gain on such contracts) with the value of its other assets,
e.g., its reserves and margin deposits, which often are in the
form of United States government notes, may not reveal the
primary nature of the business. In other words, the fact that
such an entity, otherwise than by reason of its investment in
futures, has more than 50 percent of its assets in securities
would not necessarily indicate that it is primarily engaged in
investing in securities. See, Alpha-Delta Fund (pub. avail.
May 4, 1976).
In determining whether an entity investing in futures was
otherwise primarily engaged in the business of investing in
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Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
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August 9, 2005
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securities, we would consider of first importance the area of
business in which the entity anticipates realization of the
greatest gains and exposure to the largest risk of loss. Thus,
at least with respect to such a company, a company's
intentions are of great importance in determining its primary
business. However, a company's real intentions may be revealed
by its operations and, therefore, its gains and losses in
futures trading, in comparison to its gains and losses on its
government securities and other securities would be relevant
to a determination of the company's primary business. Such a
comparison on an annual, or other suitable basis, may be more
revealing of a company's primary business than a comparison of
the company's net gains or losses in futures and options of
[on] futures trading with its net gains or losses in investing
in securities, otherwise than by reason of investing in
futures and options and options on futures, which figures
would be affected by the company's relative degree of success
in these different areas."
In Managed Futures Association, the Staff articulated the
analysis required to determine the primary business of a commodity pool very
clearly.
"Many commodity pools that are held out to the public as such
can meet the definition of investment company in Section
3(a)(3) in view of the nature of their business. A commodity
pool that meets the definition of investment company in
Section 3(a)(3) nonetheless may be excluded by Section 3(b) of
the Investment Company Act. Section 3(b)(1) excludes from the
definition of investment company any issuer engaged primarily
in a business or businesses other than investing, reinvesting,
owning, holding or trading in securities, either directly or
through wholly-owned subsidiaries.
In Tonopah Mining Co. of Nevada ("Tonopah"), the Commission
adopted a five factor analysis for determining an issuer's
primary business for purposes of assessing the issuer's status
under the Investment Company Act. Although the Commission
decided Tonopah under Section 3(b)(2) of the Investment
Company Act, the same factors are relevant to determining an
issuer's primary business under Section 3(b)(1). These factors
are: (1) the company's historical development; (2) its public
representations of
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United States Securities and
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policy; (3) the activities of its officers and directors; (4)
the nature of its present assets; and (5) the source of its
present income. In Tonopah, the Commission accorded the fourth
and fifth factors the most weight.
The staff has recognized that a commodity pool's balance sheet
may not necessarily be a useful indicator of the pool's
primary business for purposes of assessing the pool's status
under the Investment Company Act. The staff has taken the
position, therefore, that in determining the primary business
of a commodity pool, the most important factor to be
considered is the portion of the pool's business with respect
to which it anticipates realization of the greatest gains and
exposure to the largest risk of loss. In our view, therefore,
a commodity pool's primary business should be deemed to be
investing or trading in commodity interests if (1) the pool
looks primarily to commodity interests as its principal
intended source of gains, (2) the pool anticipates that
commodity interests present the primary risk of loss, and (3)
the pool's historical development, public representations of
policy (in its prospectus or offering circular and in
marketing materials), and the activities of those charged with
management of the pool demonstrate that the pool's primary
business is investing or trading in commodity interests,
rather than securities."
The foregoing effectively constituted the Staff's elaboration
on its clarification of the Alpha-Delta Fund letter in response to the protest
of the Committee on Federal Regulation of Securities of the Business Law Section
of the American Bar Association regarding the initial Alpha-Delta Fund letter.
In such response, the Staff took essentially the same position as above under
Section 3(a)(1) -- as opposed to 3(b)(1) -- of the Investment Company Act:
"I have your letter asking that we reconsider the position set
forth in our response of July 29, 1975 to a letter from Moses,
Gibbons, Abramson & Fox, Esq. concerning Alpha-Delta Fund (the
"Fund"). In support of your request you state that limited
partnerships, such as the Fund, which organize for the purpose
of trading in commodities, are structured solely with that
purpose in mind, and they even have significantly higher
suitability requirements for the purchase of partnership
interests than generally apply for the purchase of investment
company securities; the purchase of U.S. Treasury bills by
such partnership is solely for
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Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 7
cash utilization purposes, to produce such additional income
as is possible under the circumstances in order to offset
commission charges and other expenses; and, in that
connection, it is strictly fortuitous that the same funds
while being used to facilitate trading in commodities can also
produce additional income for the partnership by being
invested in securities (Treasury bills). You also state that
investors in such a partnership do not purchase partnership
interests with the intent of participating in a "money market"
fund, and the fortuitous dual use of the partnership's funds
should not be deemed to alter its primary purpose.
I do not disagree with the general import of your suggestions.
Where it can be demonstrated that the primary business of a
partnership is trading in commodities, not the business of
trading in securities, then such partnership would not be an
investment company as defined in Section 3(a)(1) of the
Investment Company Act of 1940. Such primary engagement may be
shown, for example, by demonstrating that most of the
partnership's income comes from sources other than securities
activities, and that the business risks of the partnership
relate principally to such other activities."
E. F. Hutton and Company, Inc., 1983 SEC No-Act. LEXIS 2655
(July 22, 1983) confirmed that the Peavey test applied equally to a commodity
pool which traded equity securities (in the case of the Pool, the equity
interest which it holds in Man-Glenwood).
"See Peavey Commodity Futures Fund I, II, and III (pub. avail.
June 2, 1983) for a discussion of the applicability of the
Investment Company Act of 1940 and the Investment Advisers Act
of 1940 ("Advisers Act") to commodity pools and commodity
trading advisors. The approach indicated in that letter would
also apply to a commodity pool which invests in equity
securities. In determining the primary business of such a
pool, its investment in equity securities should be added to
whatever other investments in securities other than futures
contracts on securities and options on such futures the pool
has made or contemplates making, and the income and gains or
losses on such investments should be added to the income and
gains or losses on the pool's investments in securities other
than futures contracts on securities and options on such
futures. In addition, any person whose business would be
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 8
providing the pool with advice concerning securities other
than securities referred to in section 202(a)(11)(E) of the
Advisers Act and futures contracts on securities and options
on such futures, would have to register under the Investment
Advisers Act of 1940 unless otherwise exempted therefrom."
The SEC Staff has consistently acknowledged that an entity with
investment securities exceeding 40 per centum of the value of its total assets
can nevertheless qualify under Section 3(b)(1) if the proper factual basis
exists.(1)
We understand that the fact that the Pool holds "investment securities"
(i.e., its interest in Man-Glenwood) prima facie raises the question of whether
the Pool is primarily engaged in the business of trading or investing in such
securities -- as "investment securities" are inherently more likely to represent
a business purpose than Treasury securities held as cash equivalents.(2) This is
the reason that we have restricted not only the extent of the Pool's investment
in "investment securities" to 30%, but also the type of investment securities in
which the Pool can invest to a comparatively low expected return/comparatively
low expected risk "fund of funds." A commodity pool which allocated 30% of its
capital to a high risk/high profit potential directional equity strategy (for
example) might well risk being deemed to be primarily engaged in its equity
trading (or, at least, not clearly primarily engaged in futures trading) for
purposes of Section 3(b)(1), but a Man-Glenwood investment does not have
anywhere near the anticipated risk/reward profile of such a strategy. Even were
one to adopt a conservative reading of the Investment Company Act and read
"primarily" not to equate to a portfolio being 51% committed to futures and 49%
to securities trading but required that a fund in order not to be an "investment
- ----------
(1) See, Cone Mills Corporation v. Western Pacific Industries, Inc. (M.D.N.C.
1983); See McCulloch Oil & Gas Corporation, 1979 SEC No-Act. LEXIS 3161 (July
14, 1979); GPI, Inc., 1973 SEC No-Act. LEXIS 3142 (July 12, 1973); Hearings of
Subcommittee of the Senate Committee on Banking and Currency on S.3580, 76
Congress, 3rd Session, p. 176 (1940).
(2) In Futures Portfolio Fund, Inc., SEC File No. 812-7487 (April 11, 1990), in
which the SEC Staff specifically commented in rejecting an application for an
exemptive order under either 3(b)(2) or 6(c) of the Act: "Peavey, however, is
distinguishable from the pending application in that the commodity pool in
Peavey held securities for margin purposes only, whereas the Fund holds both
margin securities and limited partnership interests. While the argument that a
commodity pool's assets are securities only in the `technical balance sheet
sense' may have some validity when the pool's only securities are those used for
margin purposes, it loses its force when the pool has chosen from its inception
to invest approximately half of its assets in limited partnership interests in
other commodity pools, i.e. investment securities." (Futures Portfolio Fund,
Inc. was in large part overruled by the Managed Futures Association letter six
years later.)
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 9
company" unambiguously have as its predominant activity the trading of futures,
we submit that this is clearly the case with the Pool. (3)
The Ft. Tryon letter appears dispositive of the non-
"investment company" status of the Pool:
"Although the Partnership may invest up to 25 percent of its
assets in securities (i.e., units of limited partnership
interest), you do not believe that the Partnership would be an
investment company within the meaning of Section 3(a)(1) of
the 1940 Act. You do not believe that the Partnership is
engaged primarily in the business of investing, reinvesting,
or trading in securities, but rather is engaged primarily in
the business of speculative trading of commodity interests. In
reaching this conclusion you state that (1) most of the
Partnership's assets will be available for and exposed to the
risks of commodity futures trading; (2) the gains and losses
in the Partnership's direct commodity trading accounts are
expected to exceed the indirect gain or loss from commodity
trading reflected in the net asset value of the limited
partnership units of other commodity pools [Note: as these
commodity pools were single-manager pools, Ft. Tryon's
investment in them had materially greater risk of loss as well
as profit potential than the Pool's investment in
Man-Glenwood]; (3) the activities of the officers and
- ----------
(3) By way of completing the framework for the legal analysis of the Pool, we
should point out that the SEC Staff has made it clear that an entity coming
within Section 3(b)(1) would also not be an investment company within the
meaning of Section 3(a)(1) [now Section 3(a)(1)(A)]. "A resolution of AIDC's
status under one of these sections will also resolve its status under the other
section." Australian Industry Development Corporation, 1980 SEC No-Act. LEXIS
3581 (August 11, 1980). Consequently, if the Pool qualifies for the Section
3(b)(1) exclusion from "investment company" status under Section 3(a)(3) [now
Section 3(a)(1)(C)], the Pool should also not constitute an "investment company"
under Section 3(a)(1) [now Section 3(a)(1)(A)]. Section 3(b)(1) is, by its
terms, more expansive than Section 3(a)(1) [now Section 3(a)(1)(A)] in that the
exclusion of Section 3(b)(1) applies to entities which are primarily engaged in
a business other than "investing, reinvesting, owning, holding, or trading, in
securities" (emphasis added), whereas Section 3(a)(1) [now Section 3(a)(1)(A)]
refers only to "investing, reinvesting, or trading, in securities." The Staff
has recognized that this difference in language can support a finding that an
entity is not an investment company under Section 3(a)(1) [now Section
3(a)(1)(A)] because its primary business would be owning or holding securities
rather than investing, reinvesting, or trading in them. See, Dean Witter
Principal Guaranteed Fund III L.P., 1992 SEC No-Act. LEXIS 889 (July 23, 1992).
As Section 3(b)(1) is more expansive than Section 3(a)(1) [now Section
3(a)(1)(A)], if an issuer qualifies for the Section 3(b)(1) exclusion from
Section 3(a)(3) "investment company" status, such issuer should also be excluded
from the Section 3(a)(1) [now Section 3(a)(1)(A)] definition of "investment
company."
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 10
employees of [HCC] are largely related to the selection of
trading advisors, administration of accounts and preparation
of reports to the limited partners; the Partnership's officers
and employees will take no actions whatsoever with respect to
the management of the other commodity pools; and (4) the
Partnership's sources of income will be gains realized on the
trading of its assets used to margin its commodity accounts,
interest on these assets, and the increase in net asset value
of the units.
On the basis of your facts and representations, we would not
recommend that the Commission take any enforcement action
under Section 3(a)(1) of the 1940 Act solely because the
Partnership proceeds as described in your letter and invests
up to 25 percent of its assets in limited partnership units of
other commodity pools. In particular, we note that the
Partnership has undertaken to (1) monitor on a monthly basis
the percentage of its assets invested in the units of limited
partnership interest of other commodity pools, and (2) reduce
its holdings, if necessary, to 25 percent of its assets as of
the date or dates on which redemptions are permitted by the
other commodity pools."
THE POOL IS NOT ONLY PRIMARILY, BUT PREDOMINANTLY, ENGAGED IN FUTURES TRADING
We analyze each of the Peavey/Ft. Tryon/Managed Futures
Association indicia of "primary engagement" separately below. However, in our
view the most fundamental factor in determining whether a commodity pool is also
a definitional "investment company" is from which activity the Pool derives its
primary hope of profit or risk of loss. Peavey took the same position ("In
determining whether an entity investing in futures was otherwise primarily
engaged in the business of investing in securities, we would consider of first
importance the area of business in which the entity anticipates realization of
the greatest gains and exposure to the largest risk of loss"; see page 3,
supra), and in Granite Fund, 1983 SEC No-Act. LEXIS 2947 (October 31, 1983), the
Staff re-emphasized the primacy of the "anticipated realization of greatest
gains and exposure to the largest risk of loss" criterion of the Peavey test,
stating:
"In determining whether an entity investing in CFTC futures
and options is otherwise primarily engaged in the business of
investing in securities, we would consider of first importance
the area of business in which the entity anticipates
realization of the greatest gains and exposure to the largest
risks of loss."
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 11
(See Hallwood Industries Incorporated, 1991 SEC No-Act. LEXIS 826 (June
19, 1991), in which the SEC Staff cited the Ft. Tryon Futures Fund letter,
discussed infra, for the importance in determining the primary business of an
entity of identifying the area of business in which the entity anticipates
realization of the greatest gains and exposure to the largest risks of loss.)
Man has adjusted the Man-IP 220 Program to the Man-AHL 130,
LLC product so that the Pool's AHL Diversified Program is unquestionably the
component of its portfolio from which the Pool anticipates its greatest profit
potential as well as risk of loss.
The AHL Diversified Program is a highly-leveraged, speculative
futures strategy (which has no securities component whatsoever). Not only will
the Pool participate in the AHL Diversified Program on the same basis as if 100%
of its assets had been committed to the Program (i.e., with no investment in
Man-Glenwood), but also such participation will result in the notional amount of
the Pool's future positions typically equaling as much as 500% to 700% of the
Pool's total net equity. The profit potential and risk exposure of this
highly-leveraged futures market exposure is to be contrasted with the Pool's 30%
commitment to an unleveraged Man-Glenwood. We need to make clear that due to the
low margin requirements applicable to futures trading, the Pool's Man-Glenwood
investment in no respect reduces the Pool's 100% commitment to the AHL
Diversified Program (an AHL managed futures account trading at "full throttle"
generally only requires 12%-18% of its capital to margin its "full positions";
accordingly, the Pool has a significant amount of "excess capital" not required
to support its AHL Diversified Program trading). The Pool's 500% to 700%
exposure to the volatile price movements of futures contracts dwarfs in both
profit potential and risk exposure the Man-Glenwood investment which represents
only 4.3%-6% of the Pool's futures exposure.
Not only is the Pool's futures market exposure many times
greater than its Man-Glenwood exposure, but also the AHL Diversified Program is
inherently more speculative -- i.e., having greater profit potential as well as
greater risk of loss -- than Man-Glenwood. The AHL Diversified Program is a
single manager, unhedged, directional managed futures strategy. Man-Glenwood, on
the other hand, combines multiple strategies, some directional, some relative
value, some arbitrage and virtually all hedged to some extent. More importantly,
these strategies are chosen in part based on their non-correlation with each
other; such non-correlation being intended to reduce risk and also reducing
profit potential. The conservative (at least as compared to the Pool's AHL
account) nature of the Man-Glenwood investment is an inherent feature and
purpose of its fund of funds structure. As of August 1, 2005, Man-Glenwood was
invested in 50 managers (in 58 different investment vehicles), and had no more
than 5% of its capital invested in any single vehicle or 8% under the management
of any single manager -- a broadly diversified portfolio, the object of which is
to achieve consistent absolute returns irrespective of general bond and stock
market movements, but which is not expected to result in either major
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 12
profits or losses. Fund of funds occasionally have outlier years in which they
experience significant gains or losses, but that is neither the general
experience nor expectation. The Pool combines a 100% allocation to a highly
speculative strategy with a 30% allocation to an inherently conservative
strategy.
The return for Man-Glenwood for the three years ending
December 31, 2004 has been 2.1%, 5.1%, 2.5% -- these returns when multiplied by
the 30% (23.1%) allocation to Man-Glenwood make clear that the Man-Glenwood
investment cannot credibly be said to be the "primary business" of the Pool. (As
for the remaining 70% of the Pool's capital that will either be invested in
Treasury bills or held in cash in the Pool's AHL futures account, this is a
purely passive, "riskless" investment common to all public commodity pools; see
Futures Portfolio Fund, Inc. supra at Note 2.)
The Pool's 30% allocation (the Pool's Man-Glenwood allocation
will generally be rebalanced to 30% as of each calendar quarter-end) to
Man-Glenwood was, as you might expect, established in order to comply with the
25% securities allocation permitted under 3(b)(1) in Ft. Tryon (30/130 = 23.1%).
Moreover, in Ft. Tryon the 25% securities allocation had considerably more
profit potential as well as risk than does the Pool's investment in
Man-Glenwood, as the Ft. Tryon 25% investment was to a number of single manager,
speculative commodity pools, whereas Man-Glenwood is a single broadly
diversified, low expected return/low expected risk hedge fund "fund of funds."
On our advice, Man has limited the Man-Glenwood allocation to
30% (23.1%) in deference to Ft. Tryon, but, in fact, even were 100% of the
Pool's capital invested in Man-Glenwood, we believe that the Pool would still be
primarily engaged in futures trading, given the materially less profit potential
as well as materially less risk of the Pool's investment in Man-Glenwood as
opposed to in AHL. To put the Pool's Man-Glenwood investment in perspective, the
SEC precedent is clear that were the Pool to hold all its assets in Treasury
bills it would not be an investment company. Accordingly, for the Pool to be
considered an "investment company" while the conventional public commodity pools
are not would require the conclusion that increased risk of loss and hope of
profit generated by allocating 30% of the Pool's capital to Man-Glenwood rather
than Treasury bills tipped the balance so that the Pool's primary business had
become trading securities rather than futures (again, the Pool's allocation to
Man-Glenwood in no respects reduces the Pool's commitment to the AHL Diversified
Program). Treasury bill rates as of June 30, 2005 were 3.15% (91-day). This
means that the incremental returns over Treasury bills on the Pool's investment
in Man-Glenwood would, based on Man-Glenwood's average return of 3.47% for the
last three full years, have been 0.32%. When multiplied by 0.3 to reflect the
30% allocation to Man-Glenwood, the incremental return from the Man-Glenwood
investment -- far from approaching the level necessary to change the "primary
engagement" of the Pool approaches being de minimis.
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 13
We wish to call the Staff's attention to the fact that the
Pool is by no means the first commodity pool to seek to invest a portion of its
reserves in a manner which has greater profit potential than cash equivalents,
as the E.F Hutton and Ft. Tryon letters indicate. Because 100% of a commodity
pool's assets are held in reserve and available for investment, it has occurred
to numerous commodity pool sponsors -- especially as interest rates have
declined over the past 20 years -- to attempt to increase the return to
investors by investing the pool's reserves in low risk but nevertheless higher
return instruments than Treasury bills.
We recognize that as past results are not necessarily
indicative of future performance, the relative contribution of the Man-Glenwood
investment to the Pool's portfolio may change over time. With only 23.1% of the
Pool's overall market exposure allocable to Man-Glenwood, we do not believe that
there is any realistic likelihood that the Man-Glenwood investment could cause
what would otherwise be a conventional public commodity pool to become an
investment company. However, we are aware, as is Man, that Man must monitor the
level and performance of the Man-Glenwood investment and, if necessary, reduce
it to ensure that the Pool is at all times primarily engaged in trading futures.
This is a principal reason that prospective investors are warned:
"No prospective investor should invest in the Fund in reliance
on the Fund's investment in Man-Glenwood. The Managing Member
may at any time reduce or eliminate the Fund's Man-Glenwood
investment if the Managing Member deems doing so to be
necessary or advisable to maintain the Fund's AHL Diversified
Program trading as well as for regulatory or tax purposes
("Registration Statement," p. 13).
MAN-GLENWOOD INVESTMENT FULLY AT RISK OF AHL FUTURES LOSS
Another point which deserves emphasis is that although the
Man-Glenwood investment is not itself eligible under applicable Commodity
Futures Trading Commission regulations as margin to support the Pool's futures
trading, this investment is fully subject to the risks of such futures trading.
Indeed, the Pool's prospectus makes clear the Man-Glenwood investment will be
liquidated to the extent considered necessary or advisable to support the Pool's
futures trading. This is in marked contrast to the popular "principal protected"
futures funds in which as much as 60%-80% of a pool's assets (see above) are
isolated in a separate legal entity which is not subject to the risk of futures
trading losses, but rather invested in zero coupon bonds in order to generate an
assured return of principal at the end of a pre-defined time horizon. These
"principal protected" funds have routinely been publicly-offered as commodity
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 14
pools(4) which were not investment companies, despite the overwhelming bulk of
their capital being invested in securities and not even being subject to the
risk of the futures trading. This precedent demonstrates that a dispositive,
from the perspective of the Section 3(b)(1) analysis, level of exposure to
futures trading is possible using only a small fraction of a commodity pool's
capital to support such trading. In the case of the Pool, not only is 70% (not
20%-40%) of the Pool's capital committed to futures trading, but also all of the
Pool's capital is subject to the risk of, and available to support, such
trading.
SPECIFIC PEAVEY CRITERIA
Anticipated Realization of Greatest Gains. This component of
the Peavey analysis is covered in " -- The Pool is Not Only Primarily, But
Predominantly, Engaged in Futures Trading," above. However, by way of providing
summary empirical evidence of the predominance of the AHL Diversified Program in
the Pool's portfolio, we attach as Appendix I an analysis of the contribution of
the AHL Diversified Program to Man-IP 220 Program (the Man-AHL 130 program has
been newly designed and has no performance history), in which the portfolio
allocation to the AHL Diversified Program is the same as proposed for the Pool
but the Man-Glenwood equivalent allocation is approximately twice that of the
Pool (as a percentage of overall market exposure) and there is, in addition, a
60% exposure to zero-coupon Government Securities. (In the appendices, the
Man-Glenwood equivalent allocation is represented by Glenwood Partners L.P.
("Glenwood Partners"), a private fund of hedge funds managed by Glenwood Capital
Investments, L.L.C., the adviser to Man-Glenwood ("GCI"). Glenwood Partners is
GCI's longest running fund and has an investment strategy and objective
substantially similar to Man-Glenwood. Man is in the process of preparing
additional performance information related to AHL and Man-Glenwood to supplement
this letter.) This analysis demonstrates that historically the performance of
even the Man-IP 220 Program, with its much greater Man-Glenwood securities bias
and its zero coupon yield, has been dominated by the performance of AHL. Given
the fact that Man-Glenwood will represent only 23.1% of the Pool's market
exposure, not 44.7% as in the case of the Man-IP 220 Program and that the Pool
will not receive any incremental yield from 60% of its capital being invested in
zero-coupon Treasuries, historical performance clearly suggests that AHL will be
the overwhelming determinant of the performance of the Pool.
Anticipated Risk of Loss. In terms of assessing the Pool's
greatest exposure to risk, managed futures trading is typically highly volatile
- -- volatility being one commonly used measure of risk. In addition, single
manager products are typically much more volatile than the multi-manager
product. Certainly, the volatility of AHL has far exceeded that of Man-Glenwood,
which is designed -- as are many hedge fund funds of funds -- with the express
objective of reducing volatility. Appendix II hereto sets forth the monthly
returns of AHL and Glenwood Partners by way of demonstrating the materially
greater risk (as measured by performance volatility, a widely-accepted measure
of risk) of AHL. To the materially greater
- ----------
(4) The Four Seasons Fund L.P. (Registration No.: 33-20264); Dean Witter
Principal Guaranteed Fund L.P. (Registration No.: 33-25041), Dean Witter
Principal Guaranteed Fund II L.P. (Registration No.: 33-225041), Dean Witter
Principal Guaranteed Fund III L.P. (Registration No.: 33-26076), ML Principal
Protection Plus L.P. (Registration No.: 33-73914).
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 15
volatility of the AHL Diversified Program must be added the fact that the Pool's
AHL exposure will represent over 3 times its exposure to Man-Glenwood. Even were
the AHL Diversified Program less volatile than Man-Glenwood, the extent to which
the Pool's portfolio is weighted toward the AHL Diversified Program would still
result in the Pool's futures risk exceeding its Man-Glenwood risk, and just the
opposite is the case.
In addition, as mentioned above, 100% of the Pool's capital
(including Man-Glenwood investment) is subject to the risks of futures trading
- -- the Pool has not reduced the risk of loss on its futures trading by
insulating any of its capital from such risk (as do the "principal protected"
commodity pools).
It also bears mentioning in terms of assessing anticipated
exposure to risk, that the Pool will trade the AHL Diversified Portfolio through
a managed account in respect of which the Pool has unlimited liability. The
Pool's Man-Glenwood exposure, however, is a strictly limited liability
investment.
Historical Development. The historical development of the Pool
points clearly to its intention to be a commodity pool, not an investment
company. In fact, the entire purpose of the Pool's historical development has
been precisely that the Pool should operate as a commodity pools which is not
also an "investment company" for regulatory purposes. In contrast, the Man-IP
220 Program was intended to offer a different investment product, one which
constituted an investment company. The "principal protection" feature of the
Man-IP 220 Program -- initially proposed for the Pool -- was eliminated due to
such "principal protection" requiring that 60% of the Pool's assets be invested
in a "futures trading risk remote" portfolio of zero-coupon Treasury bonds. Both
the fact that these Treasury bonds (bearing long-term interest rates) would
provide a significant yield and that they would be insulated from futures
trading risk were factors considered in removing this securities-based feature
from the Pool's operations. We also materially reduced the Pool's allocation to
Man-Glenwood from 100%/220% (45.4%) of the overall market exposure of the Pool
to only 23.1% (again, expressly designed to be below the Ft. Tryon level).
Furthermore, we required that the Pool maintain the full 100% AHL Diversified
Program exposure as the Man-IP 220 program. Finally, we required the Pool's
allocation to Man-Glenwood to be static (much more so than the 25% "investment
securities" allocation in Ft. Tryon), as imputing any sort of "strategy" to the
Pool's Man-Glenwood allocation could, in our view, be seen to make that
allocation more part of the "business" of the Pool than a static 30% allocation
(see also " -- Activities of Management," below). The Pool was developed to
constitute a commodity pool and not an investment company on the basis of the
principles articulated in the relevant No-Action Letters.
Representations. The Pool is being represented to prospective
investors as a commodity pool which attempts to increase the yield on a portion
of its reserve assets and
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 16
perhaps obtain limited diversification from AHL by investing in Man-Glenwood.
Given the constraints imposed on the Pool's investment in Man-Glenwood and the
low risk/low return profile of the Man-Glenwood investment, we feel that any
other representations of the nature of the Pool's investment program would risk
being misleading.
We have been at pains to downplay references to Man-Glenwood
in the Prospectus, as is entirely appropriate in the case of a 30% (23.1%)
allocation of a speculative futures fund's reserve assets to a conservative,
unleveraged "fund of funds" investment. In fact, one of the issues raised in the
Staff's comment letter which we need to resolve is the appropriate extent of the
disclosures regarding Man-AHL. We strongly believe that a significant level of
disclosure is not appropriate. Although 30% is clearly above the level of
materiality in a balance sheet sense, the effect of the Pool's Man-Glenwood
investment on the basic "speculative commodity pool" nature of an investment in
the Pool is immaterial, as described above. The Man-Glenwood investment seems an
obvious choice to add incremental return and diversification to the Pool's
reserve assets, as it is a Man proprietary product and is an "alternative
investment" product. However, the Man-Glenwood investment can never be expected
to be more than an enhancement to the Pool's core futures trading portfolio. To
put matters in perspective, the average annual return of Man-Glenwood (and its
predecessor) has been approximately 3.25% for the past 3 full calendar years,
which would have resulted in an average contribution to the Pool's return of
approximately 1% per annum (given the Pool's 30% commitment to Man-Glenwood).
The average return of the AHL Diversified Program over the same period was
approximately 11.25%, so that the AHL contribution would have been 11.25% (given
the Pool's 100% commitment to AHL).
It must also be relevant in considering how the Pool
represents itself to prospective investors that the Prospectus makes clear that,
if necessary, the Pool will reduce or eliminate its Man-Glenwood investment if
considered necessary or advisable to support the Pool's AHL trading or for
regulatory, tax or other reasons. An investment component which is positioned to
investors as being "expendable" in support of another such component can hardly
be considered the business in which the Pool is primarily engaged at all times.
It is Man's intent to represent the Pool as a commodity pool
to the same full extent as has been done with other publicly-offered commodity
pools, and we look forward to working with the Staff to fashion the appropriate
disclosures.
Activities of Management. The Pool's management will devote
essentially none of their time to the Pool's Man-Glenwood investment. Indeed, we
would expect the management activities of the Pool to be directed towards
Man-Glenwood to a disproportionately low degree even given the comparatively low
23.1% of the Pool's overall market exposure represented by Man-Glenwood. The
Pool's allocation to Man-Glenwood will typically be reset
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 17
to 30% of the Pool's Net Asset Value as of the beginning of each calendar
quarter. This is intended to constitute an essentially passive allocation. It is
not part of management's strategy for the Pool to determine how much of its
portfolio to allocate to Man-Glenwood. Furthermore, Man-Glenwood is
comprehensively regulated under the Investment Company Act and has its own
management and independent board of directors. In Ft. Tryon, the 25% equity
securities allocation was made to multiple funds, with the clear intent that Ft.
Tryon's management would devote considerable time and energy to actively
allocating and reallocating Ft. Tryon's capital among these funds. In the case
of the Pool, on the other hand, the Man-Glenwood allocation is completely
static, and the operation of Man-Glenwood itself entirely independent of the
management of the Pool.
In marked contrast to the Man-Glenwood investment, there is no
independent board of directors responsible for the management of the Pool's
investment in AHL, and AHL, as a systematic trader, will simply continue to
implement the trading signals generated by its system -- the only monitor of the
Pool's AHL investment is the Pool's management. We would expect the Pool's
management regularly to review the performance of the AHL Diversified Program,
given the degree of leverage involved and the rapid turnover of the AHL
portfolio of futures exposures. From time to time, there have been sustained
periods when systematic trading systems such as the AHL Diversified Program have
been consistently unprofitable. The management of the Pool will monitor the
performance of the AHL Diversified Program in an attempt to determine if the
Pool is entering into such a period. In unusual circumstances, the Pool's
management may feel it appropriate to intervene in the Pool's AHL allocations.
Balance Sheet. As discussed above, the balance sheet of the
Pool will contain only securities, likely Treasury bills, cash and the
Man-Glenwood investment. However, the balance sheet will differ from that of a
conventional commodity pool in that 30% of the Pool's assets will be held in
Man-Glenwood interests rather than Treasury bills and cash, and it has been
clear since Alpha Delta that a conventional commodity pool is not an investment
company. In terms of the balance sheet analysis, we reiterate that the
importance of the Pool's entire balance sheet is exposed to the risk of futures
trading losses. Again, this is in material contrast to the many "principal
protected" commodity pools in which up to 60%-80% of their capital is allocated
to a bankruptcy-remote entity not subject to any risk of futures trading in
order to fund the "principal protection." The "principal protection" pools, with
only 20%-40% of their balance sheet available to managed futures trading,
operate as commodity pools and not as investment companies. It is hard to see
how the 3(b)(1) balance sheet analysis of the Pool could be anything but
significantly more favorable than the same analysis of the "principal
protection" pools.
As the Staff has acknowledged, the balance sheet "leg" of the
investment company analysis must, in the case of a futures fund, be analyzed in
light of the extraordinarily high degree of leverage available in these markets.
Futures margin requirements range from
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 18
only approximately 2% to only about 15% of the face value of the contract. The
margin is all that appears on the balance sheet of a futures fund; however, it
is the face amount of the futures contracts held which determines both the
profit potential and the risk of loss of the pool. A futures fund which focused
entirely in trading Treasury bond futures contracts might well have 100% of its
balance sheet invested in Treasury securities, whereas its initial exposure to
Treasury bond futures could be as much as 50 times (5000%) greater, without
being reflected in any respect on such pool's balance sheet.
As mentioned above, we anticipate that the face amount of the
Pool's futures position will typically equal 500% to 700% of the Pool's Net
Asset Value.
* * * * * * * *
In conclusion, although we understand that "primary
engagement" is ultimately a question of fact, we submit that the existing
No-Action Letters and public commodity pool precedents compel the conclusion
that the Pool, if operated as described in the Prospectus, will not be primarily
engaged in trading or investing in securities but rather in trading futures
contracts. We have given Man our opinion to such effect, and Man has given us
its assurance that it will monitor(5) the operations of the Pool (to which the
SEC will also have ready access through the Pool's 8-K, 10-Q, 10-K filings under
the Securities Exchange Act of 1934) to ensure that the Pool will at all times
be primarily engaged in the trading of futures.
We are most grateful to the Staff for its patience in
reviewing this letter as well as for the Staff's willingness to consider the
Section 3(b)(1) issue separately from the Staff's other comments.
If the Staff has any questions or would like any further
information on this or related topics, please do not hesitate to call the
undersigned (312-853-7261), Mr. James Biery (312-853-7557), Mr. Brian Kaplowitz
(212-839-5370) or Mr. John MacKinnon (212-839-5534) of this office.
- ----------
(5) In this respect the Pool will be operated in a manner consistent with, for
example, The Growth and Guarantee Fund L.P. (Registration No.: 33-13175) and The
Princeton Futures Fund L.P. (Registration No.: 2-66005)-- each of which
expressly provided for such ongoing monitoring in order to ensure that the fund
did not lapse into being an "investment company."
SIDLEY AUSTIN BROWN & WOOD LLP CHICAGO
Mr. Owen Pinkerton
Ms. Amanda McManus
United States Securities and
Exchange Commission
August 9, 2005
Page 19
Sincerely,
/s/ David R. Sawyier
David R. Sawyier
APPENDIX I
CONTRIBUTIONS OF THE AHL DIVERSIFIED PROGRAM TO THE
PERFORMANCE OF THE MAN-AHL 220 PROGRAM
<Table>
<Caption>
MAN-IP 220 LIMITED ATHENA GUARANTEED FUTURES LIMITED GLENWOOD PARTNERS L.P.
(Implementing the AHL Diversified
Program)
Valuation Change Valuation Change Valuation Change
Change on month on yr. Change on month on yr. Change on month on yr.
31 Dec, 1996 0.3% 31 Dec, 1996 -1.5% 31 Dec, 1996 1.2%
31 Jan, 1997 2.0% 31 Jan, 1997 3.5% 31 Jan, 1997 2.6%
28 Feb, 1997 4.2% 28 Feb, 1997 5.0% 28 Feb, 1997 0.8%
31 Mar, 1997 -3.2% 31 Mar, 1997 -2.2% 31 Mar, 1997 -0.2%
30 Apr, 1997 -4.8% 30 Apr, 1997 -4.8% 30 Apr, 1997 -0.7%
31 May, 1997 1.6% 31 May, 1997 -0.2% 31 May, 1997 2.7%
30 Jun, 1997 4.7% 30 Jun, 1997 3.8% 30 Jun, 1997 2.8%
31 Jul, 1997 11.6% 31 Jul, 1997 9.0% 31 Jul, 1997 4.5%
31 Aug, 1997 -8.3% 31 Aug, 1997 -5.7% 31 Aug, 1997 0.7%
30 Sep, 1997 4.8% 30 Sep, 1997 1.0% 30 Sep, 1997 3.8%
31 Oct, 1997 -2.2% 31 Oct, 1997 -0.9% 31 Oct, 1997 -0.7%
30 Nov, 1997 2.5% 30 Nov, 1997 3.0% 30 Nov, 1997 0.4%
31 Dec, 1997 5.6% 18.1% 31 Dec, 1997 7.0% 18.8% 31 Dec, 1997 1.6% 19.7%
31 Jan, 1998 -0.6% 31 Jan, 1998 2.0% 31 Jan, 1998 -1.5%
28 Feb, 1998 3.1% 28 Feb, 1998 2.1% 28 Feb, 1998 1.8%
31 Mar, 1998 6.3% 31 Mar, 1998 4.6% 31 Mar, 1998 3.3%
30 Apr, 1998 -3.5% 30 Apr, 1998 -4.4% 30 Apr, 1998 1.1%
31 May, 1998 5.5% 31 May, 1998 6.5% 31 May, 1998 -0.3%
30 Jun, 1998 0.4% 30 Jun, 1998 1.7% 30 Jun, 1998 -0.6%
31 Jul, 1998 0.6% 31 Jul, 1998 2.1% 31 Jul, 1998 -1.4%
31 Aug, 1998 13.6% 31 Aug, 1998 18.4% 31 Aug, 1998 -3.6%
30 Sep, 1998 4.0% 30 Sep, 1998 5.4% 30 Sep, 1998 -2.3%
31 Oct, 1998 -4.2% 31 Oct, 1998 -1.8% 31 Oct, 1998 -2.6%
30 Nov, 1998 2.0% 30 Nov, 1998 1.4% 30 Nov, 1998 1.8%
31 Dec, 1998 3.0% 33.1% 31 Dec, 1998 3.4% 48.2% 31 Dec, 1998 1.2% -3.3%
31 Jan, 1999 -4.2% 31 Jan, 1999 -5.2% 31 Jan, 1999 1.3%
28 Feb, 1999 2.3% 28 Feb, 1999 1.7% 28 Feb, 1999 0.3%
31 Mar, 1999 -1.9% 31 Mar, 1999 -3.2% 31 Mar, 1999 1.5%
30 Apr, 1999 8.6% 30 Apr, 1999 7.5% 30 Apr, 1999 2.6%
31 May, 1999 -4.7% 31 May, 1999 -5.3% 31 May, 1999 0.6%
30 Jun, 1999 3.7% 30 Jun, 1999 0.8% 30 Jun, 1999 2.6%
31 Jul, 1999 0.8% 31 Jul, 1999 0.8% 31 Jul, 1999 1.3%
31 Aug, 1999 1.3% 31 Aug, 1999 1.0% 31 Aug, 1999 0.7%
30 Sep, 1999 1.6% 30 Sep, 1999 0.2% 30 Sep, 1999 1.5%
31 Oct, 1999 -6.6% 31 Oct, 1999 -7.2% 31 Oct, 1999 0.3%
30 Nov, 1999 8.6% 30 Nov, 1999 7.6% 30 Nov, 1999 2.9%
31 Dec, 1999 7.5% 16.9% 31 Dec, 1999 4.5% 2.0% 31 Dec, 1999 6.4% 24.1%
31 Jan, 2000 -0.6% 31 Jan, 2000 -0.7% 31 Jan, 2000 1.5%
29 Feb, 2000 2.8% 29 Feb, 2000 0.8% 29 Feb, 2000 3.9%
31 Mar, 2000 -4.2% 31 Mar, 2000 -3.1% 31 Mar, 2000 -0.7%
30 Apr, 2000 -3.7% 30 Apr, 2000 -2.2% 30 Apr, 2000 -0.6%
APP I-1
31 May, 2000 2.5% 31 May, 2000 2.4% 31 May, 2000 1.1%
30 Jun, 2000 -2.5% 30 Jun, 2000 -3.2% 30 Jun, 2000 1.1%
31 Jul, 2000 -2.4% 31 Jul, 2000 -3.0% 31 Jul, 2000 1.5%
31 Aug, 2000 4.8% 31 Aug, 2000 4.6% 31 Aug, 2000 1.6%
30 Sep, 2000 -2.1% 30 Sep, 2000 -2.6% 30 Sep, 2000 0.9%
31 Oct, 2000 3.6% 31 Oct, 2000 4.5% 31 Oct, 2000 0.4%
30 Nov, 2000 9.7% 30 Nov, 2000 10.3% 30 Nov, 2000 0.9%
31 Dec, 2000 11.0% 18.9% 31 Dec, 2000 10.8% 18.8% 31 Dec, 2000 1.8% 14.0%
31 Jan, 2001 1.9% 31 Jan, 2001 1.5% 31 Jan, 2001 0.9%
28 Feb, 2001 2.9% 28 Feb, 2001 2.6% 28 Feb, 2001 1.4%
31 Mar, 2001 11.3% 31 Mar, 2001 11.8% 31 Mar, 2001 1.4%
30 Apr, 2001 -8.9% 30 Apr, 2001 -9.0% 30 Apr, 2001 -0.2%
31 May, 2001 -2.2% 31 May, 2001 -2.5% 31 May, 2001 0.7%
30 Jun, 2001 -0.7% 30 Jun, 2001 -0.9% 30 Jun, 2001 0.0%
31 Jul, 2001 3.9% 31 Jul, 2001 4.3% 31 Jul, 2001 -0.1%
31 Aug, 2001 6.2% 31 Aug, 2001 6.5% 31 Aug, 2001 0.8%
30 Sep, 2001 9.8% 30 Sep, 2001 10.4% 30 Sep, 2001 0.3%
31 Oct, 2001 4.3% 31 Oct, 2001 4.6% 31 Oct, 2001 0.5%
30 Nov, 2001 -8.7% 30 Nov, 2001 -8.7% 30 Nov, 2001 0.2%
31 Dec, 2001 0.0% 19.1% 31 Dec, 2001 -0.7% 18.8% 31 Dec, 2001 0.8% 7.2%
31 Jan, 2002 -4.0% 31 Jan, 2002 -4.1% 31 Jan, 2002 1.1%
28 Feb, 2002 -5.9% 28 Feb, 2002 -5.7% 28 Feb, 2002 0.3%
31 Mar, 2002 -0.1% 31 Mar, 2002 -1.0% 31 Mar, 2002 0.3%
30 Apr, 2002 -2.8% 30 Apr, 2002 -2.8% 30 Apr, 2002 0.7%
31 May, 2002 1.8% 31 May, 2002 1.8% 31 May, 2002 0.8%
30 Jun, 2002 12.3% 30 Jun, 2002 13.0% 30 Jun, 2002 -0.4%
31 Jul, 2002 5.7% 31 Jul, 2002 6.3% 31 Jul, 2002 -1.4%
31 Aug, 2002 0.1% 31 Aug, 2002 0.9% 31 Aug, 2002 0.5%
30 Sep, 2002 6.5% 30 Sep, 2002 8.6% 30 Sep, 2002 -1.1%
31 Oct, 2002 -9.7% 31 Oct, 2002 -9.1% 31 Oct, 2002 0.1%
30 Nov, 2002 -4.7% 30 Nov, 2002 -5.3% 30 Nov, 2002 0.3%
31 Dec, 2002 11.0% 8.0% 31 Dec, 2002 10.7% 11.1% 31 Dec, 2002 0.8% 2.1%
31 Jan, 2003 8.3% 31 Jan, 2003 7.6% 31 Jan, 2003 1.2%
28 Feb, 2003 7.5% 28 Feb, 2003 7.8% 28 Feb, 2003 0.1%
31 Mar, 2003 -8.4% 31 Mar, 2003 -8.5% 31 Mar, 2003 -0.2%
30 Apr, 2003 1.1% 30 Apr, 2003 0.7% 30 Apr, 2003 0.4%
31 May, 2003 10.9% 31 May, 2003 10.9% 31 May, 2003 0.6%
30 Jun, 2003 -3.9% 30 Jun, 2003 -4.1% 30 Jun, 2003 0.9%
31 Jul, 2003 -0.6% 31 Jul, 2003 -0.5% 31 Jul, 2003 -0.2%
31 Aug, 2003 -1.1% 31 Aug, 2003 -1.2% 31 Aug, 2003 0.3%
30 Sep, 2003 2.4% 30 Sep, 2003 2.5% 30 Sep, 2003 0.5%
31 Oct, 2003 2.0% 31 Oct, 2003 1.4% 31 Oct, 2003 0.6%
30 Nov, 2003 -1.7% 30 Nov, 2003 -1.9% 30 Nov, 2003 0.4%
31 Dec, 2003 6.6% 23.6% 31 Dec, 2003 6.6% 21.4% 31 Dec, 2003 0.4% 5.1%
31 Jan, 2004 1.4% 31 Jan, 2004 1.0% 31 Jan, 2004 0.6%
29 Feb, 2004 4.9% 29 Feb, 2004 4.8% 29 Feb, 2004 0.6%
31 Mar, 2004 -2.4% 31 Mar, 2004 -2.3% 31 Mar, 2004 0.1%
30 Apr, 2004 -8.4% 30 Apr, 2004 -8.0% 30 Apr, 2004 0.1%
31 May, 2004 -2.6% 31 May, 2004 -2.2% 31 May, 2004 -0.4%
30 Jun, 2004 -5.9% 30 Jun, 2004 -5.8% 30 Jun, 2004 -0.9% 0.2%
30 Jul, 2004 -1.0% 30 Jul, 2004 -0.4% 30 Jul, 2004 -1.2%
30 Aug, 2004 1.1% 30 Aug, 2004 1.4% 30 Aug, 2004 0.0%
29 Sep, 2004 2.9% 29 Sep, 2004 2.6% 29 Sep, 2004 0.6%
30 Oct, 2004 4.1% 30 Oct, 2004 4.2% 30 Oct, 2004 0.8%
29 Nov-2004 7.5% 29 Nov, 2004 7.5% 29 Nov, 2004 0.9%
30 Dec-2004 0.4% 0.8% 30 Dec, 2004 -0.4% 1.3% 30 Dec, 2004 1.4% 2.5%
APP I-2
30 Jan, 2005 -5.7% 30 Jan, 2005 -5.8% 30 Jan, 2005 -0.4%
27 Feb, 2005 3.5% 27 Feb, 2005 3.3% 27 Feb, 2005 1.0%
30 Mar, 2005 -1.5% 30 Mar, 2005 -0.9% 30 Mar, 2005 -0.5%
29 Apr, 2005 -3.5% 29 Apr, 2005 -2.8% 29 Apr, 2005 -1.2%
30 May, 2005 4.1% 30 May, 2005 4.1% 30 May, 2005 0.2%
29 Jun, 2005 -4.6% 1.0% 29 Jun, 2005 3.8% 1.3% 29 Jun, 2005 2.1% 1.2%
Note that except in 1999, the performance of the Man-IP 220 Ltd. is positively
correlated (and in most cases highly positively correlated) to the performance
of the AHL Diversified Program and that in 1998 and 2004 the performance of
Man-IP 220 is negatively correlated to the performance of Glenwood Partners LP.
In no years is the performance of Man-IP 220 negatively correlated to the
performance of the AHL Diversified Program. Man is preparing additional
performance information related to AHL and Man-Glenwood to supplement this
letter.
APP I-3
APPENDIX II
COMPARATIVE RISK (AS MEASURED BY VOLATILITY) THE AHL DIVERSIFIED PROGRAM
AND THE MAN-AHL COMPONENTS OF THE POOL'S PORTFOLIO
<Table>
<Caption>
ATHENA GUARANTEED FUTURES LIMITED GLENWOOD PARTNERS L.P.
(Implementing the AHL Diversified
Program)
Valuation Valuation
Change Change Change Change
on month on yr. on month on yr.
31 Dec, 1996 -1.5% 31 Dec, 1996 1.2%
31 Jan, 1997 3.5% 31 Jan, 1997 2.6%
28 Feb, 1997 5.0% 28 Feb, 1997 0.8%
31 Mar, 1997 -2.2% 31 Mar, 1997 -0.2%
30 Apr, 1997 -4.8% 30 Apr, 1997 -0.7%
31 May, 1997 -0.2% 31 May, 1997 2.7%
30 Jun, 1997 3.8% 30 Jun, 1997 2.8%
31 Jul, 1997 9.0% 31 Jul, 1997 4.5%
31 Aug, 1997 -5.7% 31 Aug, 1997 0.7%
30 Sep, 1997 1.0% 30 Sep, 1997 3.8%
31 Oct, 1997 -0.9% 31 Oct, 1997 -0.7%
30 Nov, 1997 3.0% 30 Nov, 1997 0.4%
31 Dec, 1997 7.0% 18.8% 31 Dec, 1998 1.6% 19.7%
31 Jan, 1998 2.0% 31 Jan, 1998 -1.5%
28 Feb, 1998 2.1% 28 Feb, 1998 1.8%
31 Mar, 1998 4.6% 31 Mar, 1998 3.3%
30 Apr, 1998 -4.4% 30 Apr, 1998 1.1%
31 May, 1998 6.5% 31 May, 1998 -0.3%
30 Jun, 1998 1.7% 30 Jun, 1998 -0.6%
31 Jul, 1998 2.1% 31 Jul, 1998 -1.4%
31 Aug, 1998 18.4% 31 Aug, 1998 -3.6%
30 Sep, 1998 5.4% 30 Sep, 1998 -2.3%
31 Oct, 1998 -1.8% 31 Oct, 1998 -2.6%
30 Nov, 1998 1.4% 30 Nov, 1998 1.8%
31 Dec, 1998 3.4% 48.2% 31 Dec, 1998 1.2% -3.3%
31 Jan, 1999 -5.2% 31 Jan, 1999 1.3%
28 Feb, 1999 1.7% 28 Feb, 1999 0.3%
31 Mar, 1999 -3.2% 31 Mar, 1999 1.5%
30 Apr, 1999 7.5% 30 Apr, 1999 2.6%
31 May, 1999 -5.3% 31 May, 1999 0.6%
30 Jun, 1999 0.8% 30 Jun, 1999 2.6%
31 Jul, 1999 0.8% 31 Jul, 1999 1.3%
31 Aug, 1999 1.0% 31 Aug, 1999 0.7%
30 Sep, 1999 0.2% 30 Sep, 1999 1.5%
31 Oct, 1999 -7.2% 31 Oct, 1999 0.3%
30 Nov, 1999 7.6% 30 Nov, 1999 2.9%
31 Dec, 1999 4.5% 2.0% 31 Dec, 1999 6.4% 24.1%
31 Jan, 2000 -0.7% 31 Jan, 2000 1.5%
29 Feb, 2000 0.8% 29 Feb, 2000 3.9%
31 Mar, 2000 -3.1% 31 Mar, 2000 -0.7%
30 Apr, 2000 -2.2% 30 Apr, 2000 -0.6%
31 May, 2000 2.4% 31 May, 2000 1.1%
30 Jun, 2000 -3.2% 30 Jun, 2000 1.1%
31 Jul, 2000 -3.0% 31 Jul, 2000 1.5%
31 Aug, 2000 4.6% 31 Aug, 2000 1.6%
30 Sep, 2000 -2.6% 30 Sep, 2000 0.9%
APP II-1
31 Oct, 2000 4.5% 31 Oct, 2000 0.4%
30 Nov, 2000 10.3% 30 Nov, 2000 0.9%
31 Dec, 2000 10.8% 18.8% 31 Dec, 2000 1.8% 14.0%
31 Jan, 2001 1.5% 31 Jan, 2001 0.9%
28 Feb, 2001 2.6% 28 Feb, 2001 1.4%
31 Mar, 2001 11.8% 31 Mar, 2001 1.4%
30 Apr, 2001 -9.0% 30 Apr, 2001 -0.2%
31 May, 2001 -2.5% 31 May, 2001 0.7%
30 Jun, 2001 -0.9% 30 Jun, 2001 0.0%
31 Jul, 2001 4.3% 31 Jul, 2001 -0.1%
31 Aug, 2001 6.5% 31 Aug, 2001 0.8%
30 Sep, 2001 10.4% 30 Sep, 2001 0.3%
31 Oct, 2001 4.6% 31 Oct, 2001 0.5%
30 Nov, 2001 -8.7% 30 Nov, 2001 0.2%
31 Dec, 2001 -0.7% 18.8% 31 Dec, 2001 0.8% 7.2%
31 Jan, 2002 -4.1% 31 Jan, 2002 1.1%
28 Feb, 2002 -5.7% 28 Feb, 2002 0.3%
31 Mar, 2002 -1.0% 31 Mar, 2002 0.3%
30 Apr, 2002 -2.8% 30 Apr, 2002 0.7%
31 May, 2002 1.8% 31 May, 2002 0.8%
30 Jun, 2002 13.0% 30 Jun, 2002 -0.4%
31 Jul, 2002 6.3% 31 Jul, 2002 -1.4%
31 Aug, 2002 0.9% 31 Aug, 2002 0.5%
30 Sep, 2002 8.6% 30 Sep, 2002 -1.1%
31 Oct, 2002 -9.1% 31 Oct, 2002 0.1%
30 Nov, 2002 -5.3% 30 Nov, 2002 0.3%
31 Dec, 2002 10.7% 11.1% 31 Dec, 2002 0.8% 2.1%
31 Jan, 2003 7.6% 31 Jan, 2003 1.2%
28 Feb, 2003 7.8% 28 Feb, 2003 0.1%
31 Mar, 2003 -8.5% 31 Mar, 2003 -0.2%
30 Apr, 2003 0.7% 30 Apr, 2003 0.4%
31 May, 2003 10.9% 31 May, 2003 0.6%
30 Jun, 2003 -4.1% 30 Jun, 2003 0.9%
31 Jul, 2003 -0.5% 31 Jul, 2003 -0.2%
31 Aug, 2003 -1.2% 31 Aug, 2003 0.3%
30 Sep, 2003 2.5% 30 Sep, 2003 0.5%
31 Oct, 2003 1.4% 31 Oct, 2003 0.6%
30 Nov, 2003 -1.9% 30 Nov, 2003 0.4%
31 Dec, 2003 6.6% 21.4% 31 Dec, 2003 0.4% 5.1%
31 Jan, 2004 1.0% 31 Jan, 2004 0.6%
29 Feb, 2004 4.8% 29 Feb, 2004 0.6%
31 Mar, 2004 -2.3% 31 Mar, 2004 0.1%
30 Apr, 2004 -8.0% 30 Apr, 2004 0.1%
31 May, 2004 -2.2% 31 May, 2004 -0.4%
30 Jun, 2004 -5.8% 30 Jun, 2004 -0.9%
30 Jul, 2004 -0.4% 30 Jul, 2004 -1.2%
30 Aug, 2004 1.4% 30 Aug, 2004 0.0%
29 Sep, 2004 2.6% 29 Sep, 2004 0.6%
30 Oct, 2004 4.2% 30 Oct, 2004 0.8%
29 Nov, 2004 7.5% 29 Nov, 2004 0.9%
30 Dec, 2004 -0.4% 1.3% 30 Dec, 2004 1.4% 2.5%
30 Jan, 2005 -5.8% 30 Jan, 2005 -0.4%
27 Feb, 2005 3.3% 27 Feb, 2005 1.0%
30 Mar, 2005 -0.9% 30 Mar, 2005 -0.5%
29 Apr, 2005 -2.8% 29 Apr, 2005 -1.2%
30 May, 2005 4.1% 30 May, 2005 0.2%
29 Jun, 2005 3.8% 1.3% 29 Jun, 2005 2.1% 1.2%
</Table>
APP II-2