The objective for the Fund is achieving capital appreciation by actively managing the allocation of the Fund's assets among individual equities (primarily U.S. equities but also some foreign equities) and U.S. exchange-traded stock index futures. Leverage of up to two times equity can be employed at the discretion of the General Partner.
For its portfolio holdings of equities, the Fund attempts to identify individual long equity investments which have the potential to outperform the Standard & Poor's 500 index ("S&P 500") on a twelve to eighteen month time frame or longer and also attempts to identify individual short equity investments that will underperform the S&P 500. In order to identify these investments, the General Partner performs in-depth fundamental research on companies that have been identified from a universe of over 2,000 equities by the General Partner's macro economic analyses and proprietary momentum-based computer program. This program identifies potential candidate companies based on statistical distributions and relative patterns of historical price performance among all companies in the universe. Companies whose primary industry classification involves tobacco, alcohol or gambling revenues are excluded from the examined universe. The General Partner then uses these research computations to assist in determining: 1) which new equities should be added to the portfolio, 2) which holdings should be eliminated and 3) which holdings should be increased or decreased in order to maintain the desired weighting of portfolio positions. Using the above selection criteria, the portfolio could hold up to approximately 100 issues at any time but typically will hold between 20 and 60 issues. However, the General Partner may, in its discretion, increase or limit the number of companies from a particular industry or economic sector depending upon inputs from its quantitative screens as well as fundamental inputs regarding the potential for various economic sectors. The Fund's equity positions may be heavily concentrated in specific market sectors in order to seek higher returns than those expected of a more diversified portfolio of securities (e.g., the S&P 500). While this approach may yield returns in excess of the general market, it will likely increase the volatility of the Fund's equity-based returns and could lead to losses greater than those of the general market.
In addition to a portfolio of individual equities, the Fund employs the use of short positions in stock index futures contracts primarily with the intention of protecting the Fund's capital during declining market phases. However, it may also use index futures, as well as ETF securities, for brief periods to increase exposure to the long side of the portfolio until individual equities are purchased. The Fund uses a combination of stock index futures including the S&P 500, the Nasdaq 100 and the Dow Jones Industrial Average. The index or combination of indices used varies based on the liquidity available in each futures contract, the potential correlation and beta of a particular index to the portfolio of individual equities owned at any particular time and the valuation of that particular index being considered. The General Partner's choice of index, and timing of order entry, for stock index futures is a discretionary decision.
Besides initiating short sales of equity index futures contracts with the primary intention of protecting the Fund's capital from losses which could be incurred due to declines in the value of individual equities owned by the Fund, the Fund also may initiate short sales of stock index futures contracts, in addition to individual stock short sales, with the goal of generating gains under the expectation of an intermediate or major market decline. In this aforementioned scenario, the aggregate contract value of short stock index futures positions and individual stock short sales may be as much as two times the value of the Fund's overall equity portfolio as a means of creating a net short position overall for the Fund. There can, of course, be no guarantee that the short stock index futures positions and individual short equities will successfully protect the portfolio from either specific portfolio risk or general market risk. In structuring the overall weighting of the portfolio, the combined value of individual equity short sales and stock index short sales, except for brief periods, will not exceed a net short position of approximately 100 percent of portfolio equity.
The Fund may also employ both long and short options on market indices, individual equities or ETFs as an additional means of hedging portfolio risks or to gain market exposure quickly.