Summary

Campbell & Company's trading models are designed to detect and exploit medium-term to long-term price trends, and also to apply proven risk management and portfolio management principles. The concepts on which the trading models are based were originally developed in 1976 and 1980, but since that time they have continued to evolve as a result of Campbell's continuing commitment to creative research.

Campbell believes that utilizing multiple trading models for the same client account provides diversification, and is most beneficial when numerous contracts of each commodity are traded. Five trend-following trading models and a sixth model that sometimes trades with the trend and sometimes trades against the trend are presently used. More or fewer trading models may be used in the future. Every trading model does not trade every market. The trading models are primarily different in their sensitivity to price action. One model, for example, may establish a position relatively quickly and risk a comparatively small amount of capital, while another model may establish a position less quickly and risk more capital. The models may also vary as to the time or price at which the transactions determined by them are signaled. For example, one model may establish a position at any time during the day after a price level has been reached, while another may establish a position only at the opening or closing of the market on the same day. It is possible that one model may establish a long position while another model establishes a short position in the same market. Since it is unlikely that both positions would prove profitable, in retrospect one or both trades will appear to have been unnecessary. It is Campbell's policy to follow trades signaled by each model independent of what the other models may be recommending.

Campbell applies a portfolio management strategy to measure and manage overall portfolio risk. This strategy includes portfolio structure, balance, capital allocation, and risk limitation. One objective of portfolio management is to determine periods of relatively high and low portfolio risk, and when such points are reached, the firm may reduce or increase position size accordingly. It is possible, however, that during periods of reduction in position size the return that would have been realized had the account been fully invested would be reduced