ITEM 1. BUSINESS
Campbell Strategic Allocation Fund, L.P. (the "Registrant") 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 buy, hold and trade in commodity futures and options contracts and other commodity interests, with primary emphasis on financial futures (including interest rates, foreign exchange and stock indices) and metals and energy contracts, and with limited allocations to grains, meats and softs contracts. The objective is appreciation of assets through speculative trading. 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 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 Interests to a maximum of approximately $270,000,000. 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 Interests 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 $200,552,643 has been raised in the initial and continuing offering periods through December 31, 1997.
In addition to making all trading decisions in its capacity as trading advisor, Campbell & Company controls 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 Agreement of Limited Partnership; or (d) 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 ("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 Commodity Broker to be registered and to comply with various reporting and recordkeeping requirements. Campbell & Company and the Commodity Broker are members of the NFA. The CFTC may suspend a commodity pool operator's or trading advisor's registration if it finds that its trading practices tend to disrupt orderly market conditions or in certain other situations. 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 commodity futures contract prices that may occur during a single trading day. The Registrant also trades in dealer markets for forward contracts, which is 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," "Risk Factors," "Investment Factors," "Campbell & Company, Inc.," "Conflicts of Interest," and "The Futures and Forwards Markets," and such description is incorporated herein by reference from the Prospectus.
The Registrant conducts its business in one industry segment, the speculative trading of commodity futures 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 control all aspects of trading funds such as the Registrant (except trading decisions), (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 up to approximately 40 financial instrument contracts on domestic and international markets. Campbell & Company utilizes its Financial, Metal and Energy Large Portfolio (75% allocation of Fund assets) and the Global Diversified Large Portfolio (25% allocation) in trading the Registrant's assets. As of February, 1998, the Fund's assets are allocated to the different market sectors in approximately the following manner: 46% to currencies, 22% to interest rates, 15% to stock indices, 11% to energy products, 4% to metals and 2% to agricultural. The contracts traded by the Registrant will fluctuate from time to time
The Registrant may, in the future, experience increased competition for the commodity 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.
ITEM 2. PROPERTIES
The Registrant does not use any physical properties in the conduct of its business. Its assets currently consist of commodity futures and other contracts and cash.
ITEM 3.
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.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
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 Agreement of Limited Partnership. As of December 31, 1997, there were 7,298 Limited Partners in the Registrant and 146,732.843 Units of 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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
DOLLARS IN THOUSANDS, EXCEPT PER UNIT AMOUNTS
NOTE: The Fund commenced trading in April 1994; financial information is provided since that inception date.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Introduction
The offering of its Units of Limited Partnership Interests commenced on January 12, 1994. The initial offering terminated on April 15, 1994 and the Registrant commenced operations on April 18, 1994. The continuing offering period commenced at the termination of the initial offering period and is ongoing.
Capital Resources
The Registrant 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 Registrant'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 liquidated. Commodity futures prices have occasionally moved the daily limit for several consecutive days with little or no trading. Similar occurrences could prevent the Registrant from promptly liquidating unfavorable positions and subject the Registrant 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 Registrant 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 Registrant's commodity futures trading operations, the Registrant's assets are expected to be highly liquid.
RESULTS OF OPERATIONS
The returns for the years ended December 31, 1997 and 1996 were 14.31% and 30.46%, respectively. For 1997, the majority of the 14.31% increase occurred in the second half of the year, when approximately 90% of the total trading gains for the year were posted. Unprecedented volatility in global equity markets provided good trading opportunities, particularly in the stock indices and interest rates futures. The long positions maintained in the S&P500 Index and natural gas futures contracts proved to be the best performing markets for the year. Trading in the currencies sector also provided significant contributions to the positive performance. The Registrant continues to benefit from new capital management strategies and more diverse portfolios. The 14.31% increase was the result of an approximate 19.22% increase due to trading gains (before commissions) and an approximate 4.76% increase due to interest income, offset by an approximate 9.67% decrease as a result of brokerage fees, performance fees, and operating costs borne by the Registrant.
For 1996, the majority of the increase occurred in the last quarter of the year, when approximately 70% of the total trading gains for the year were posted. Upward trends in foreign and domestic bonds, coupled with a strong U.S. Dollar and British Pound were the star performers during this quarter, with bullish trends in Natural Gas and Copper also providing profits on the Registrant's long positions. The long position maintained in the S&P 500 also proved profitable in this quarter, although performance in this market was flat for the Registrant for the year. Downside volatility was well contained, and the largest draw-down for the year of 5.97% occurred in February 1996, when long U.S. and Australian bond positions were covered and reversed in sharply falling markets. The 30.46% increase was the result of an approximate 37.38% increase due to trading gains (before commissions) and an approximate 5.18% increase due to interest income, offset by an approximate 12.10% decrease as the result of brokerage fees, performance fees and operating costs borne by the Registrant.
OFF-BALANCE SHEET RISK
The Registrant trades in futures and forward 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 Registrant (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 Registrant at the same time, and if the Registrant's trading advisor was unable to offset futures interests positions of the Registrant, the Registrant 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 and forward contracts there is a risk to the Registrant (credit risk) that a counterparty will not be able to meet its obligations to the Registrant. The counterparty of the Registrant for futures contracts traded in the United States and most foreign exchanges on which the Registrant trades is the clearinghouse associated with such exchange. In general, clearinghouses are backed by the membership of the exchange and will act in the event of non-performance by one of its members or one of its members' customers, and as such, should significantly reduce this credit risk. In cases where the
Registrant trades on exchanges where the clearinghouse is not backed by the membership (i.e. some foreign exchanges) or when the Registrant enters into off-exchange contracts (i.e. forward contracts) with a counterparty, the sole recourse of the Registrant will be the clearinghouse or the counterparty as the case may be. Campbell & Company, Inc., in its business as a commodity trading advisor and through its many relationships with brokers, monitors the creditworthiness of the exchanges and the clearing members of the foreign exchanges with which it does business for the Registrant and other clients. With respect to forward contract trading, the Registrant trades with only those counterparties which the General Partner has determined to be creditworthy. All positions of the Registrant are valued each day on a mark-to-market basis. While the General Partner monitors the creditworthiness and risks involved in dealing on the various exchanges and with counterparties, there can be no assurance that an exchange or counterparty will be able to meet its obligations to the Registrant.
General
The Registrant 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 commodity futures contracts. Because the Registrant generally will use a small percentage of assets as margin, the Registrant does not believe that any increase in margin requirements, as proposed, will have a material effect on the Registrant's operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements meeting the requirements of Regulation S-X appear beginning on Page 12 of this report. The supplementary financial information specified by Item 302 of Regulation S-K is not applicable.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART II
ITEM 10.
ITEM 10. DIRECTORS AND 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, Baltimore, Maryland 21204, (410) 296-3301. Campbell & Company's directors and executive officers are as follows:
Richard M. Bell, 45, began his employment with Campbell & Company in May, 1990 and serves as a Senior Vice President -- Trading. His duties include managing daily trade execution for the assets under Campbell's management. From September, 1986 through May, 1990, Mr. Bell was the managing general partner of several partnerships registered as broker-dealers involved in market making on the floor of the Philadelphia Stock Exchange ("PHLX") and Philadelphia Board of Trade ("PBOT"). From July, 1975 through September, 1986 Mr. Bell was a stockholder and Executive Vice-President of Tague Securities, Inc., a registered broker-dealer. Mr. Bell owns a PHLX seat and a Philadelphia Currency Participation, which are leased out. Mr. Bell graduated from Lehigh University with a B.S. in Finance.
D. Keith Campbell, 55, has served as the Chairman of the Board of Directors of Campbell & Company since it began operations, was President until January 1, 1994, and Chief Executive Officer until January 1, 1998. Mr. Campbell is the sole voting stockholder. From 1971 through June, 1978 he was a registered representative of a futures commission merchant. Mr. Campbell has acted as a commodity trading advisor since January, 1972 when, as general partner of the Campbell Fund, a limited partnership engaged in commodity futures trading, he assumed sole responsibility for trading decisions made on behalf
of the Fund. Since then he has applied various technical trading models to numerous discretionary commodity trading accounts. Mr. Campbell is registered with the CFTC and NFA as a commodity pool operator. He is an Associated Person of Campbell & Company.
William C. Clarke, III, 46, joined Campbell & Company in June, 1977. He is an Executive Vice President and a Director of Campbell & Company. 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, 50, joined Campbell & Company in January, 1993. Mr. Cleland serves as President, Chief Executive Officer and a Director. Prior to 1994, he was Executive Vice President. From May, 1986 through December, 1992, Mr. Cleland had served in various principal roles with the following firms: president, F&G Management, Inc., a commodity trading advisor; President, Institutional Brokerage Corp., a floor broker; President, Institutional Advisory Corp., a commodity trading advisor and commodity pool operator; President, Hewlett Trading Corporation, a commodity pool operator; Principal of Institutional Energy Corporation, an introducing broker. Prior to this, Mr. Cleland was employed by Rudolf Wolff Futures Inc., a futures commission merchant, where he served as President until 1986. Mr. Cleland graduated in 1969 from Victoria University in Wellington, New Zealand where he received a Bachelor of Commerce and Administration degree. Mr. Cleland is an Associated Person of Campbell & Company.
Xiaohua Hu, 34, serves as a Vice President - Research. He has been employed by Campbell & Company since 1994 in the Research Department, where he has a major role in the ongoing research and development of Campbell's trading systems. From 1992 to 1994 he was employed in Japan by Line System as a software engineer, where he participated in the research and development of computer software, including programs for production systems control and software development. Mr. Hu received his B.A. in Manufacturing Engineering from Changsha University of Technology in China in 1982. He went on to receive an M.A. and Ph.D. in Systems and Information Engineering from the Toyohashi University of Technology, in Japan, in 1987 and 1992 respectively. During his studies at Toyohasi, Xiaohua was also a Visiting Researcher in Computer Science and Operations Research and published several research papers.
Phil Lindner, 43, serves as Vice President - Information Technology. He has been employed by Campbell & Company since October, 1994, became the IT Director in March, 1996, and Vice President in January, 1998. He oversees Campbell & Company's computer and telecommunications systems, including a staff of programmers that program proprietary applications for Campbell's Trading, Fund Administration, and Accounting functions, and provide complete computer systems support to all Campbell & Company employees. Prior to joining Campbell & Company, Mr. Lindner worked as a programmer and manager for Amtote, a provider of race-track computer systems.
James M. Little, 51, joined Campbell & Company in April, 1990 and serves as Executive Vice President--Marketing and as a Director of Campbell & Company. Mr. Little holds a B.S. in Economics and Psychology from Purdue University. From March, 1989 through April, 1990 Mr. Little was a registered representative of A.G. Edwards & Sons, Inc. From January, 1984 through March, 1989 he was the Chief Executive Officer of James Little & Associates, Inc., a registered, commodity pool operator and registered broker-dealer. Mr. Little has extensive experience in the futures industry having worked in the areas of hedging, floor trading and managed futures. He is the co-author of The Handbook of Financial Futures, and is a frequent contributor to investment industry publications. Mr. Little is an Associated Person of Campbell & Company.
Theresa D. Livesey, 34, joined Campbell & Company in 1991 and serves as the Chief Financial Officer, Secretary, Treasurer, and a Director of Campbell & Company. In addition to her role as CFO, Ms. Livesey also oversees administration and compliance at Campbell & Company. From December, 1987 to June, 1991 she was employed by Bank Maryland Corp, a publicly held company. When she left she was Vice President and Chief Financial Officer. Prior to that time, she worked with Ernst & Young. Ms. Livesey is a C.P.A. and has a B.S. in Accounting from the University of Delaware.
V. Todd Miller, 35, serves as a Vice President - Research. He has been employed by Campbell & Company since 1994 in the Research Department, where he has a major role in the ongoing research and
development of Campbell's trading systems. From 1993 to 1994, Mr. Miller was an assistant professor in the department of Computer Information Science at the University of Florida, where he taught classes in object oriented programming, numerical analysis, and programming in C, C++ and LISP. Mr. Miller holds a variety of degrees from the University of Florida, beginning with an Associates degree in architecture. He followed that in 1986 with a B.A. in Business with a concentration in computer science. In 1988 he received his M.A. in Engineering with a concentration in artificial intelligence. He completed his education in 1993 with a Ph.D. in Engineering with a concentration in computer simulation.
Albert Nigrin, 36, serves as a Vice President - Research. He has been employed by Campbell & Company since 1995 in the Research Department, where he has a major role in the ongoing research and development of Campbell's trading systems. From 1991-1995 Mr. Nigrin was an assistant professor in the department of Computer Science and Information Systems at American University in Washington D.C., where he taught classes in artificial intelligence, computer programming and algorithms to both graduate and undergraduate students. While teaching, he also wrote and published a book with MIT Press, Neural Networks for Pattern Recognition. Mr. Nigrin received a B.A. in Electrical Engineering in 1984 from Drexel University. He than proceeded directly to a Ph.D. program and received his degree in Computer Science in 1990 from Duke University, where his doctoral studies concentrated in the areas of artificial intelligence and neural networks.
Markus Rutishauser, 36, serves as Vice President - Trading, and has been employed by Campbell & Company since October, 1993, with responsibility for day-to-day foreign exchange trading. Prior to joining Campbell, Mr. Rutishauser worked two years at Maryland National Bank in Baltimore as an Assistant Vice President in Foreign Exchange trading. Prior to that, he was employed by Union Bank of Switzerland, spending four years in their Zurich office and another four years in their New York office, in the Foreign Exchange Department. Mr. Rutishauser graduated from the University of Fairfield with a degree in Finance. He subsequently completed his MBA at the University of Baltimore in January,1996.
David M. Salmon, 56, is a Director of Campbell & Company. Since January, 1976 Mr. Salmon has participated actively as a consultant in the development and implementation of research and trading software at Campbell & Company. During this time, Mr. Salmon has not been an employee of Campbell, but has worked under a consulting contract with his own computer consulting firm, David Salmon, Inc. Prior to his work with Campbell & Company, Mr. Salmon worked in the field of systems development and optimization with Systems Control, Inc. and Stanford Research Institute. Mr. Salmon holds a B.S.E.E. from the University of Auckland, New Zealand, an M.S.E.E. from Northeastern University and a Ph.D. in Electrical Engineering from the University of Illinois, Urbana.
C. Douglas York, 39, has been employed by Campbell & Company since November, 1992. He serves as a Senior Vice President - Trading. His duties include managing daily trade execution for foreign exchange markets and forward contracts on precious metals and energy markets. From January 1991 to November 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 registered as an Associated Person of Campbell & Company.
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.
ITEM 11.
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners. As of December 31, 1997, no Units of Limited Partnership are owned or held by an officer of Campbell & Company.
(b) Security Ownership of Management. As of December 31, 1997, Campbell & Company owned 1,473.323 Units of General Partnership Interest having a value of $2,135,788. Units of General Partnership will always be owned by Campbell & Company in its capacity as general partner.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 11, Executive Compensation and Item 12, Security Ownership of Certain Beneficial Owners and Management.
PART IV
ITEM 14.
ITEM 14. 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 13 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) The exhibits listed in the "Index to Exhibits."
(b) Reports on Form 8-K
None.
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, 1998.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P.
By: CAMPBELL & COMPANY, INC. General Partner
By: /s/ Theresa D. Livesey ----------------------------- Theresa D. Livesey 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, 1998.
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. Livesey - ---------------------- Theresa D. Livesey Chief Financial Officer, Secretary, Treasurer and Director
/s/ James M. Little - ------------------- James M. Little Executive Vice President and Director
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. ANNUAL REPORT December 31, 1997
CAMPBELL STRATEGIC ALLOCATION FUND, L.P
INDEX
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
CERTIFIED PUBLIC ACCOUNTANTS
(410) 821-8000
FAX (410) 321-8359
Member: Heaver Plaza
American Institute of Certified Public Accountants Suite 200
SEC Practice Section 1301 York Road
Maryland Association of Certified Public Accountants Lutherville, Maryland 21093
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, 1997 and 1996, and the related statements of operations, cash flows and changes in partners' capital (net asset value) for the years ended December 31, 1997, 1996 and 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. 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, 1997 and 1996, and the results of its operations, cash flows and the changes in its net asset values for the years ended December 31, 1997, 1996 and 1995, in conformity with generally accepted accounting principles.
Lutherville, Maryland February 13, 1998
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. STATEMENTS OF FINANCIAL CONDITION December 31, 1997 and 1996
See accompanying notes.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, 1997, 1996 and 1995
See accompanying notes.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 1997, 1996 and 1995
See accompanying notes.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE) For the Years Ended December 31, 1997, 1996 and 1995
See accompanying notes.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. NOTES TO FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General Description of the Partnership
Campbell Strategic Allocation Fund, L.P. (the Partnership) is a Delaware limited partnership which operates as a commodity investment pool.
B. Regulation
As a registrant with the Securities and Exchange Commission, the Partnership is subject to the regulatory requirements under the Securities Acts of 1933 and 1934. As a commodity investment pool, the Partnership 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 Partnership executes transactions. Additionally, the Partnership is subject to the requirements of Futures Commission Merchants (brokers) and interbank market makers through which the Partnership trades.
C. Method of Reporting
The Partnership's financial statements are presented in accordance with generally accepted accounting principles, which require the use of certain estimates made by the Partnership's management. Gains or losses are realized when contracts are liquidated. Unrealized gains and losses on open contracts (the difference between contract purchase 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." Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. United States government and agency securities are stated at market value.
D. Cash and Cash Equivalents
Cash and cash equivalents includes cash, other demand deposits and short-term time deposits held at financial institutions.
E. Income Taxes
The Partnership prepares calendar year U.S. and state information tax returns and reports to the partners their allocable shares of the Partnership's income, expenses and trading gains or losses.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
F. Offering Costs
The General Partner has incurred total costs in connection with the initial and continuous offering of Units of the Partnership (offering costs) of $5,196,390 through December 31, 1997, $2,107,405 of which has already been reimbursed to the General Partner by the Partnership. At December 31, 1997, the Partnership reflects a liability in the statement of financial condition for offering costs payable to the General Partner of $122,785. The Partnership's liability for offering costs is limited to the maximum of total offering costs incurred by the General Partner 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 Partnership is only liable for payment of offering costs on a monthly basis as calculated based on the limitations stated above. If the Partnership terminates prior to completion of payment of the calculated amounts to the General Partner, the General Partner will not be entitled to any additional payments, and the Partnership will have no further obligation to the General Partner.
The amount of monthly reimbursement due to the General Partner is charged directly to partners' capital.
G. Foreign Currency Transactions
The Partnership'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.
Note 2. GENERAL PARTNER AND COMMODITY TRADING ADVISOR
The General Partner of the Partnership is Campbell & Company, Inc., which conducts and manages the business of the Partnership. The General Partner is also the commodity trading advisor of the Partnership. The Amended Agreement of Limited Partnership provides that the General Partner may make withdrawals of its Units, provided that such withdrawals do not reduce the General Partner's aggregate percentage interest in the Partnership to less than 1% of the net aggregate contributions.
The General Partner 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 Partnership. 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.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 2. GENERAL PARTNER AND COMMODITY TRADING ADVISOR (CONTINUED)
Commencing September 1, 1997, the Partnership pays a monthly brokerage fee equal to 1/12 of 7.7% (7.7% annualized) of month-end net assets. The General Partner receives 7% of this 7.7% fee, a portion (4%) of which is used to compensate selling agents for ongoing services rendered and a portion (3%) of which is retained by the General Partner for trading and management services rendered. The remainder of the brokerage fee (0.7%) is paid directly to the broker. Prior to September 1, 1997, the monthly brokerage fee was equal to 1/12 of 8% (8% annualized) of month-end net assets, with the amount paid directly to the broker equal to 1/12 of 1% (1% annualized) of month-end net assets. During 1997, 1996 and 1995, the amounts paid directly to the broker amounted to $1,366,757, $651,216 and $317,000, respectively.
The General Partner is also paid a quarterly performance fee of 20% of the Partnership's aggregate cumulative appreciation in the Net Asset Value per Unit, exclusive of appreciation attributable to interest income.
Note 3. DEPOSITS WITH BROKER
The Partnership deposits funds 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 Partnership earns interest income on its assets deposited with the broker.
Note 4. OPERATING EXPENSES
Operating expenses of the Partnership are limited by the Amended Agreement of Limited Partnership to 0.5% per year of the average month-end Net Asset Value of the Partnership. Actual operating expenses were less than 0.5% of average month-end Net Asset Value for the years ended December 31, 1997, 1996 and 1995.
Note 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in the Partnership are made by subscription agreement, subject to acceptance by the General Partner. As of December 31, 1997 and 1996, amounts received by the Partnership by prospective limited partners who have not yet been admitted to the Partnership by the General Partner total $885,105 and $133,036, respectively.
The Partnership is not required to make distributions, but may do so at the sole discretion of the General Partner. 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.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 6. TRADING ACTIVITIES AND RELATED RISKS
The Partnership engages in the speculative trading of U.S. and foreign futures contracts and forward contracts (collectively, "derivatives"). These derivatives include both financial and non-financial contracts held as part of a diversified trading program. The Partnership 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. 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 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, 1997 and 1996 was $110,574,485 and $13,763,550, respectively, which equals 52% and 13% of Net Asset Value, respectively.
The Partnership trades forward contracts in unregulated markets between principals and assumes the risk of loss from counterparty nonperformance. Accordingly, the risks associated with forward contracts are generally greater than those associated with exchange traded contracts because of the greater risk of counterparty default. Additionally, the trading of forward contracts typically involves delayed cash settlement.
The Partnership has a substantial portion of its assets on deposit with financial institutions. In the event of a financial institution's insolvency, recovery of Partnership assets on deposit may be limited to account insurance or other protection afforded such deposits. In the normal course of business, the Partnership requires collateral for repurchase agreements.
For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short.
The fair value of derivatives represents unrealized gains and losses on open futures and forward contracts. The average fair value of derivatives during 1997, 1996 and 1995 was approximately $4,180,000, $4,850,000 and $830,000, respectively, and the related fair values as of December 31, 1997 and 1996 are approximately $9,895,000 and $1,973,000, respectively.
Net trading results from derivatives are reflected in the statement of operations and equal gain from trading less the portion of the brokerage fee paid directly to the broker. Such trading results reflect the net gain arising from the Partnership's speculative trading of futures and forward contracts.
CAMPBELL STRATEGIC ALLOCATION FUND, L.P. NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
Open contracts generally mature within three months; the latest maturity date for open contracts as of December 31, 1997 is March 1998. However, the Partnership intends to close all contracts prior to maturity. At December 31, 1997 and 1996, the notional amount of open contracts is as follows:
The above amounts do not represent the Partnership's risk of loss due to market and credit risk, but rather represent the Partnership's extent of involvement in derivatives at the date of the statement of financial condition.
The General Partner has established procedures to actively monitor and minimize market and credit risk. 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.
INDEX TO EXHIBITS
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* Incorporated by reference to the respective exhibit to the Registrant's Registration Statement No. 33-98056.
Upon request, the Registrant will furnish a copy of any Exhibit to this report upon payment of reasonable copying and mailing expenses.
** Management contract or compensatory plan or arrangement.