For the individual or instititutional investor who is simultaneously performance oriented and risk-conscious, the key question is how best to achieve a higher overall rate of return with acceptable risk.

The answer may be a diversified investment portfolio with some portion of the total assets invested in a managed account. That is, an account that utilizes the abilities of a professional Commodity Trading Advisor who is able to bring experience, discipline, and a history of past success to the trading of futures contracts. Past results are not necessarily indicative of future results.

By providing plain language answers to plain language questions, the following can be helpful in deciding whether a managed futures account can help achieve specific investment goals, particularly in today's volatile and increasingly challenging investment markets.

Q. What exactly is a managed futures account?
A . It is like any other brokerage account established to trade in futures except that responsibility for determining what trades to make and at what time, including discretionary authority to direct trading for the account, is delegated to a professional trading advisor. In this sense, the advisor is an account "manager." As will be discussed later, the advisor's compensation is normally a management fee based on the size of the account plus an incentive fee contingent on profitability.

Q. What types of investors utilize managed futures accounts?
A. It has traditionally been individual investors seeking the profit opportunities of futures trading but without the responsibility and demands of day-to-day account management. Recently, however, growing numbers of corporate and institutional investors have been allocating some portion of their total portfolio assets to specially designed and professionally managed futures trading programs. The total amount of capital in managed futures programs is estimated to exceed $130 billion.

Q. What's been responsible for growth in managed futures trading?
A. Variety of things. As traditional investment markets have become increasingly volatile -and vulnerable to often-unexpected events -- Institutional money management and other sophisticated investors have sought to more effectively manage overall portfolio risk through diversification. Indeed, risk and diversification are major concerns in today's market environment --- along with, of course, yield. A number of studies indicate that a portfolio that includes managed futures can yield appreciably higher and more stable return over time than a portfolio that includes only stocks and bonds.The same evidence indicates this can be achieved without added risk. (See next question.)
Still another factor in the growth of managed futures has been the tremendous broadening of futures markets to encompass stock indexes, debt instruments, currencies, and options as well as conventional commodities. This has created whole new categories of profit opportunities. There is also a substantial risk of loss.

The increasingly global nature of today's futures markets also has expanded the scope of investment opportunities. Finally, from the standpoint of an individual investor, managed futures accounts have proven to be considerably more profitable on the average than accounts that individuals trade on their own.

Q: How are profitability, volatility and risk affected when managed futures are included in an investment portfolio?
A. Harvard Business School Professor John E. Lintner found that including managed futures in a portfolio "reduces volatility while enhancing return." And that such portfolios "have substantially less risk at every possible level of return than portfolios of stocks, or stocks and bonds."

Q. All things considered, why can investment portfolio performance be improved by including managed futures?
A. There's no single reason, but high on the list is that managed futures may perform best when other investments are performing relatively poorly. An important advantage of futures is the opportunity they provide to respond swiftly on a highly leveraged basis whenever and wherever in the financial and commodity markets major price movements occur ---either upward or downward -- and to do so without liquidating other investment holdings or adding to overall portfolio risk.