<PAGE> 1
As filed with the Securities and Exchange Commission on December 23, 1998
REGISTRATION NO. 333-63129
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 6799 74-2849862
(State of Organization) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
C/O PROFUTURES, INC.
11612 BEE CAVE ROAD
SUITE 100
AUSTIN, TEXAS 78733
(800) 348-3601
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
GARY D. HALBERT
C/O PROFUTURES, INC.
11612 BEE CAVE ROAD
SUITE 100
AUSTIN, TEXAS 78733
(800) 348-3601
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------------
COPIES TO:
William D. Kerr
Bradley D. Howard
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
$60,000,000
LIMITED PARTNERSHIP UNITS
THE FUND ProFutures Long/Short Growth Fund, L.P. was organized in August
1997. The Fund's primary objective is appreciation of Fund assets through the
speculative trading of stock index futures contracts. Stock index futures are
cash settled futures contracts on the future value of a stock index such as the
S&P 500. Stock index futures trading offers several features that are not widely
available when using traditional securities, such as additional leverage, higher
liquidity in active market conditions and the potential to profit from stock
market downturns by selling short. The Fund's trading operations began on
November 20, 1997.
THE ADVISOR Hampton Investors, Inc., a professional managed futures advisor,
trades the Fund's assets in the S&P 500 Stock Index futures contract on the
Chicago Mercantile Exchange.
THE UNITS The Fund's Limited Partnership Units may be purchased at a price
equal to 101% of the Net Asset Value per Unit on the last day of each month.
Approximately 99% of the purchase price, an amount equal to 100% of Unit Net
Asset Value, is contributed to the Fund. ProFutures, Inc., the Fund's general
partner (the "General Partner"), retains 1% to pay organizational and offering
expenses. If the total amount of this offering, $60,000,000, is sold, the
proceeds to the Fund will be $59,400,000 and the proceeds to the General Partner
will be $600,000. No selling commissions are paid by investors or the Fund.
As of October 31, 1998, Units initially sold pursuant to a
private offering at $1,010 per Unit had increased in Net Asset Value to
$1,544.54 per Unit, an increase of approximately 52.93%. Past performance is not
necessarily indicative of future results.
The minimum purchase for first-time investors is $10,000; $5,000
for IRAs, other tax-exempt accounts and current investors.
THE RISKS THESE ARE SPECULATIVE SECURITIES. BEFORE YOU DECIDE WHETHER TO
INVEST, READ THIS ENTIRE PROSPECTUS CAREFULLY AND CONSIDER "THE
RISKS YOU FACE" BEGINNING ON PAGE 10.
o You could lose all or substantially all of your investment in the Fund.
o The Fund is speculative and employs initial leverage of up to three times
its total equity.
o Performance has been volatile and the Net Asset Value per Unit may
fluctuate significantly within a single day or month.
o The Units are not liquid as no secondary market exists for the Units and
redemption rights are limited.
o The use of a single advisor trading only stock index futures contracts
reduces diversification and increases risk of loss relative to a fund using
multiple advisors trading a diversified portfolio of futures contracts.
o The Fund is subject to substantial expenses regardless of profitability,
including a 3% annual management fee and brokerage, legal, audit and other
administrative expenses estimated at approximately 1.70% of average annual
net assets, as well as a quarterly incentive fee equal to 20% of net new
profits.
o In order to offset the organizational charge and Fund fees and expenses
during the first year after a Unit is sold, the Fund must earn trading
profits of approximately 1.85% of its average annual net assets (assuming
interest on its assets at an annual rate of approximately 4.20%).
o The Fund may be subject to conflicts of interest of the General Partner,
the Advisor and the Futures Broker.
SUBSCRIBERS TO THE FUND WILL BE REQUIRED TO MAKE CERTAIN REPRESENTATIONS
AND WARRANTIES IN THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY. SUBSCRIBERS
ARE ENCOURAGED TO DISCUSS THEIR INVESTMENT DECISION WITH THEIR FINANCIAL, TAX
AND LEGAL ADVISORS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
--------------------
PROFUTURES, INC.
GENERAL PARTNER
PROFUTURES FINANCIAL GROUP, INC.
SELLING AGENT
______ , 1998
<PAGE> 3
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, ADVISORY AND BROKERAGE FEES. IT MAY BE NECES SARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES 27 TO 30
AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 8.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGES 10 TO 16.
--------------------------
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE
FUND'S REGISTRATION STATEMENT. YOU CAN READ AND COPY THE ENTIRE REGISTRATION
STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC") IN WASHINGTON, D.C.
THE FUND WILL FILE QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ
AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN CHICAGO, NEW
YORK OR WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0300 FOR FURTHER
INFORMATION.
THE FUND'S FILINGS WILL BE POSTED AT THE SEC WEBSITE AT HTTP://WWW.SEC.GOV.
PROFUTURES LONG/SHORT GROWTH FUND, L.P. IS NOT A MUTUAL FUND OR ANY OTHER
TYPE OF INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF
1940, AS AMENDED, AND IS NOT SUBJECT TO REGULATION THEREUNDER.
UNTIL ___, 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS, WHETHER
OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
-------------------------
PROFUTURES, INC.
GENERAL PARTNER
11612 BEE CAVE ROAD
SUITE 100
AUSTIN, TEXAS 78733
(800) 348-3601
-1-
<PAGE> 4
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
ORGANIZATIONAL CHART
[CHART]
None of the entities indicated in this organizational chart are related
except ProFutures, Inc. and ProFutures Financial Group, Inc. See "Conflicts of
Interest" beginning on page 43. NO LOANS HAVE BEEN, ARE OR WILL BE MADE BETWEEN
A PROFUTURES ENTITY OR ANY PRINCIPAL OF A PROFUTURES ENTITY AND THE FUND.
DESCRIPTIONS OF THE DEALINGS BETWEEN THE PROFUTURES ENTITIES, THE FUND AND
INVESTORS ARE SET FORTH UNDER THE SUB-HEADINGS "-MANAGEMENT FEE" AND "--
ORGANIZATIONAL CHARGE" UNDER "ANALYSIS OF FEES AND EXPENSES PAID BY THE FUND"
BEGINNING ON PAGE 27.
-2-
<PAGE> 5
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SECTION PAGE
- ------------------ ----
<S> <C>
SUMMARY.......................................... 5
THE RISKS YOU FACE............................... 10
(1) Possible Total Loss of an Investment
in the Fund........................... 10
(2) Stock Index Futures Trading Involves
Substantial Leverage.................. 10
(3) Stock Index Futures Trading Is
Speculative, Highly Volatile and
Can Result in Large Losses............ 10
(4) The Units Are Not Liquid................. 10
(5) Investors Must Not Rely on the Past
Performance of Either the Advisor
or the Fund in Deciding Whether
to Buy Units.......................... 10
(6) The Fund May Receive Margin
Calls................................. 10
(7) Substantial Expenses Will Cause Losses
for the Fund Unless Offset by
Profits and Interest Income........... 11
(8) Unit Values Are Unpredictable
and Vary Significantly Month-
to-Month.............................. 11
(9)Importance of Market Conditions
to Profitability...................... 11
(10) Futures Markets Investments Are
Different from Securities Markets
Investments........................... 11
(11) The Large Size of the Fund's Trading
Positions Increases the Risk
of Sudden, Major Losses............... 12
(12) Illiquid Markets Could Make It
Impossible for the Fund to Realize
Profits or Limit Losses............... 12
(13) Speculative Position Limits May
Require the Advisor to Modify
Its Trading to the Detriment of
the Fund ............................. 12
(14) The Advisor Alone Directs the
Fund's Trading........................ 12
(15) The Advisor May Have Unexpected
Problems in Executing Trades.......... 12
(16) The Advisor May Not Be Successful
in "Downward" Equity Markets.......... 13
(17) Trading Suspension Policy Is Not a Limit
on Losses............................ 13
(18) Trading in Options on Stock Index
Futures Is Speculative and Highly
Leveraged............................. 13
(19) Limitation of the Markets Traded by
the Advisor Also Reduces
Diversification, Increasing the Risk
of Loss............................... 13
(20) Investing in the Units May Not
Diversify an Overall Portfolio........ 13
(21) The Advisor's Increased Equity Under
Management Could Lead to
Diminished Returns.................... 14
(22) The Advisor May Change Its Trading
Approach and/or Futures Contracts
Traded................................ 13
(23) The Fund's Cash Management
Strategies Could Lose Both Yield
and Principal........................ 14
(24) The Fund Could Lose Assets and Have
Its Trading Disrupted Due to the
Bankruptcy of Its Broker or Others... 14
(25) Units May Be Subject to Incentive Fees
Despite Having Declined in
Value................................. 14
(26) The Fund May Be Subject to Certain
Conflicts of Interest................ 15
(27) Investors Should Not Rely on the
Futures Broker's Guarantee of the
General Partner's Net Worth......... 15
(28) Investors Are Taxed Every Year on Their
Share of the Fund's Profits-- Not
Only When They Redeem as
Would Be the Case If They Held
Stocks or Bonds...................... 15
(29) The Management Fee and Incentive Fee
May Be Recharacterized as
"Investment Advisory Fees"........... 15
(30) The Fund's Trading Gains
May Be Taxed at Higher Rates......... 16
(31) Tax Could Be Due from Investors
on Their Share of the Fund's
Interest Income Despite Overall
Losses............................... 16
</TABLE>
-3-
<PAGE> 6
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
TABLE OF CONTENTS (CONT.)
<TABLE>
<CAPTION>
PROSPECTUS SECTION PAGE
- ------------------ ----
<S> <C>
FUND OPERATIONS.................................. 16
PERFORMANCE OF THE FUND.......................... 21
SELECTED FINANCIAL DATA.......................... 22
MANAGEMENT'S ANALYSIS OF OPERATIONS.............. 23
USE OF PROCEEDS; INTEREST INCOME
ARRANGEMENTS .............................. 26
ANALYSIS OF FEES AND EXPENSES PAID
BY THE FUND................................ 27
THE ADVISOR...................................... 30
THE GENERAL PARTNER.............................. 39
BROKERAGE ARRANGEMENTS........................... 42
NET ASSET VALUE.................................. 43
CONFLICTS OF INTEREST............................ 43
THE STOCK INDEX FUTURES MARKETS.................. 45
SUMMARY OF THE LIMITED PARTNERSHIP
AGREEMENT ................................ 48
TAX CONSEQUENCES................................ 49
PURCHASES BY EMPLOYEE BENEFIT PLANS.............. 51
GENERAL.......................................... 53
FINANCIAL STATEMENTS............................. 54
EXHIBIT A -- LIMITED PARTNERSHIP
AGREEMENT.................................. LPA-1
EXHIBIT B -- SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY.......................... B-1
EXHIBIT C -- REQUEST FOR
REDEMPTION................................. C-1
</TABLE>
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<PAGE> 7
SUMMARY
GENERAL
The ProFutures Long/Short Growth Fund, L.P. offers individual
investors a way to participate in the equity markets through stock index
futures, specifically, the S&P 500 Stock Index (the "Index") futures contract on
the Chicago Mercantile Exchange, under the guidance of an experienced,
professional commodity trading advisor. The Index is based on the stock prices
of 500 large-capitalization companies. The market value of the 500 companies is
equal to about 80% of the value of all stocks listed on the New York Stock
Exchange. Use of the S&P 500 stock index contract (the "S&P 500 Contract")
permits investors to trade the Index at various multiples, thus creating, in
effect, a highly-leveraged stock portfolio. The S&P 500 Contract may also offer
greater liquidity than the underlying stocks in active market conditions and the
potential to profit from stock market downturns by selling short, a trading
technique where the futures contract is first sold and then, later, bought back.
Until December 8, 1998, the Fund's name was "ProFutures Bull &
Bear Fund, L.P."
PROFUTURES, INC.
ProFutures, Inc., the General Partner and commodity pool
operator of the Fund, began operations in 1984 and specializes in the management
of speculative futures funds. The General Partner currently operates three
futures funds -- the Fund and two multi-advisor, widely diversified public
futures funds -- having an aggregate capitalization as of October 31, 1998 of
approximately $118 million.
HAMPTON INVESTORS, INC.
General
Hampton Investors, Inc., the commodity trading advisor for the
Fund, has been managing investor accounts and its own capital in the securities
markets since 1985 and began trading investor capital in the futures markets in
May 1995. The Advisor trades for the Fund pursuant to its Leverage 3 trading
program which, since July 1995, has focused on trading only the S&P 500
Contract.
Trading Strategy
The Advisor's Leverage 3 trading program uses several
indicators that examine relevant information relating to the S&P 500 Contract.
These indicators are broken down into three categories: monetary, market-action
based and price-based. The Leverage 3 trading program attempts to take a
position in the S&P 500 Contract of up to approximately three times that of a
fully-funded S&P 500 Contract. The value of a fully-funded S&P 500 Contract
equals the contract multiplier, currently $250 times the Index level. The Index
level fluctuates daily but assume for purposes of this example that it is 1,100.
In this example, a fully-funded S&P 500 Contract is worth $275,000 ($250 x
1,100). If you wanted to trade without the use of leverage, you could deposit
$275,000 in cash and buy one S&P 500 Contract. Your account would then go up and
down in line with the Index. When the Advisor's system is in its most bullish
position, the Advisor will establish a long position by buying three S&P 500
Contracts for each approximately $275,000 in the Fund. That means that when the
Index moves 1%, the value of the Fund should move approximately 3% in the same
direction. In other words, the Fund will be approximately three times leveraged.
-5-
<PAGE> 8
The Advisor's system increases and decreases the leverage of
long positions as its signal becomes stronger or weaker. If, in the above
example, a certain number of the indicators turn negative, the Advisor would
reduce its position so as to be only two times leveraged. If more indicators
turn negative, the Advisor would liquidate the entire position and be neutral
(100% cash, no S&P 500 Contract position). And if more indicators became
negative, the Advisor would "short" the market by selling S&P 500 Contracts,
again at three times leverage. In that scenario, the Fund would gain
approximately 3% for each 1% the Index falls -- assuming the Advisor remains in
the position. In summary, the program has four positions: maximum leverage long
(three times leverage long), long (two times leverage long), neutral (100% cash)
and maximum leverage short (three times leverage short).
The Advisor's program provides significant leverage, well
above what one can accomplish in a margin account with a stock broker, but well
below that of trading futures contracts at an exchange's minimum margin. While
the Fund uses considerably less margin than many futures funds, there has been
considerable short-term volatility in the program. Investors should be prepared
for sudden, substantial changes in Unit value and rates of return. Leverage
amplifies both gains and losses.
The Advisor may also trade other stock index futures
contracts, and options thereon, including the S&P 500/BARRA indices, the S&P
Midcap 400, the Dow Jones Industrial Average, the NASDAQ 100, the Russell 2000,
and similar U.S. stock index futures contracts which may become available in the
future. However, the Advisor currently expects to limit its trading to the S&P
500 Contract.
BROKERAGE ARRANGEMENTS
ING (U.S.) Securities, Futures & Options Inc. (the "Futures
Broker") currently acts as the Fund's futures clearing broker.
MAJOR RISKS OF THE FUND
o Investors must be prepared to lose all or substantially all of their
investment in the Units. The Fund utilizes substantial leverage, up
to three times its total equity when initiating a position, which
magnifies the impact of profits and losses.
o The Fund is a speculative investment. It is not possible to predict
how the Fund will perform over either the long or short term.
Investors must not rely on the past performance of either the Fund
or the Advisor in deciding whether to purchase Units.
o The Net Asset Value per Unit may vary substantially within a single
day or month. Because investors must submit irrevocable
subscriptions at least 5 days before the purchase as well as
redemption notices at least 10 days before the redemption of Units--
and can do so up to approximately a month before-- they cannot know
the Net Asset Value at which they will acquire or redeem Units. The
Fund could incur material losses between the time investors
subscribe and the time they receive their Units. In addition,
investors, when redeeming, cannot control losses on their Units
because they cannot be sure of the redemption value of their Units
after requesting redemption.
o The Units are not liquid as no secondary market exists for the Units
and none will develop. Redemptions may be made only as of a month
end.
o The use of a single trading advisor trading only one type of
contract reduces diversification and increases risk of loss relative
to a fund using multiple advisors trading a diversified portfolio of
futures contracts.
-6-
<PAGE> 9
o The Fund is subject to substantial charges regardless of
profitability, including a 3% annual management fee and brokerage,
legal, audit and other administrative expenses estimated at
approximately 1.70% of average annual net assets, as well as a 20%
quarterly incentive fee. During the first year of an investor's
participation in the Fund, the Fund must earn trading profits of
approximately 1.85% of its average Net Asset Value (assuming
interest on its assets at a 4.2% annual rate) simply to break even
after all fees and expenses.
o The General Partner and the Advisor manage other funds and accounts
and may have an incentive to favor such funds or accounts over the
Fund's account. The Futures Broker guarantees the net worth of the
General Partner. Thus the General Partner has an incentive to retain
the Futures Broker as the Fund's futures broker.
o As limited partners, investors have no voice in the operation of the
Fund; they are entirely dependent on the management of the General
Partner and the Advisor for the success of their investment.
USE OF PROCEEDS
Substantially all of the Fund's assets are held in the Fund's
trading account at the Futures Broker and are available to support the Fund's
trading. The Futures Broker invests the Fund's assets and credits the account
with interest at the average 91-day Treasury bill rate for the month on the
average equity in the Fund's account for the month. Any interest earned on such
assets in excess of such amount, not expected to exceed 0.50% per annum, is
retained by the Futures Broker for its own account. The Fund may engage a cash
manager to manage the Fund's assets not required to be deposited with the
Futures Broker to margin the Fund's futures positions. If it does, a portion of
the Fund's assets will be held in a custodial account at a major U.S. bank and
will be invested in U.S. Treasury instruments and similar, highly liquid,
interest bearing investments.
NET ASSET VALUE
The Net Asset Value of the Fund equals its assets less its
liabilities. The Net Asset Value of a Unit is determined by dividing the Net
Asset Value of the Fund by the total number of Units outstanding. The General
Partner's interest is treated on a Unit-equivalent basis.
FEES AND EXPENSES
A breakdown and description of the Fund's fees and expenses is
set forth in the Break-Even Table and Explanatory Notes on the following page.
The incentive fee payable to the Advisor is calculated on a quarterly basis and
could be substantial even in a break-even or losing year. The Fund's other
expenses are its management fees, brokerage commissions, and operating and
administrative expenses -- estimated at approximately $725,000 per year if no
additional Units are sold and at approximately $3,200,000 if the total amount of
this offering is sold. Further, investors pay a one-time organizational charge.
If the Fund's Net Asset Value increases, the absolute dollar amount of any
percentage-of-assets fees will also increase, but they will have the same effect
on the Fund's rate of return. Other than as disclosed in this Summary section,
and more fully described on the following page and under "Fund Operations"
beginning on page 16, "Use of Proceeds; Interest Income Arrangements" beginning
on page 26 and "Analysis of Fees and Expenses Paid by the Fund" beginning on
page 27, there are no fees, expenses or items of compensation paid or received
in connection with this offering of the Units or the operation of the Fund.
-7-
<PAGE> 10
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
BREAK-EVEN TABLE
- --------------------------------------------------------------------------------
Twelve-month TWELVE-MONTH
Dollar PERCENTAGE
Break-Even BREAK-EVEN
EXPENSES ($10,000
Initial
Investment)(1)
- --------------------------------------------------------------------------------
<S> <C> <C>
Organizational and offering(2) $ 100.00 1.00%
expenses
- --------------------------------------------------------------------------------
Management fee(3) $ 312.37 3.12%
- --------------------------------------------------------------------------------
Accounting, audit and legal $ 65.96 0.66%
expenses(4)
- --------------------------------------------------------------------------------
Administrative expenses(5) $ 50.00 0.50%
- --------------------------------------------------------------------------------
Round-turn brokerage commissions
and other transactional charges(6) $ 50.00 0.50%
- --------------------------------------------------------------------------------
Incentive fee(7) $ 27.08 0.27%
- --------------------------------------------------------------------------------
Interest income(8) $(420.00) (4.20)%
- --------------------------------------------------------------------------------
TWELVE MONTH
BREAK-EVEN $185.41 1.85%
- --------------------------------------------------------------------------------
</TABLE>
SEE "ANALYSIS OF FEES AND EXPENSES PAID BY THE FUND" AT PAGE 27.
Explanatory Notes:
(1) The foregoing break-even analysis is an approximation only. It
assumes that the Units have constant month-end Net Asset Value. All fees and
expenses summarized herein are described more fully under "Analysis of Fees and
Expenses Paid by the Fund." Calculations are based on $10,000 as the Net Asset
Value of the Units.
(2) Units are sold at 101% of Net Asset Value, and are subject to
an organizational charge of 1% of Net Asset Value which also must be recovered
for an investor to break-even after 12 months since investing. This break-even
table assumes that the gross subscription price of Units was $10,100. The
organizational charge of $100 was calculated by multiplying $10,000 by 1%.
(3) The Fund pays a management fee to the General Partner equal to
3% per annum of month-end Net Assets. The amount shown above includes the
management fee payable on Fund income earned in a break-even year.
(4) The Fund pays its ongoing accounting, auditing and legal
expenses. The General Partner estimates that these expenses will not exceed
$100,000 per annum. Actual expenses could, however, substantially exceed this
level. The amount shown above is based on the Fund's October 31, 1998 Net Asset
Value of $15,161,529.
(5) The Fund pays its other administrative and operating expenses.
The General Partner does not expect these expenses to exceed 0.50% per annum of
average annual Net Assets assuming the Fund's Net Asset Value is at least equal
to the Fund's October 31, 1998 Net Asset Value of $15,161,529. Actual expenses
could, however, exceed this level.
(6) The Fund pays round-turn brokerage commissions to the Futures
Broker of $8.00 per round-turn trade, plus National Futures Association ("NFA")
fees and any "give-up" fees. The General Partner estimates round-turn
commissions and related charges at approximately 0.50% of average annual Net
Assets based on the Advisor's historical and anticipated trading velocity.
Actual round-turn commissions could, however, substantially exceed this level.
(7) The Fund pays the Advisor a quarterly incentive fee equal to
20% of the Fund's net new profits, excluding interest income, after subtraction
of brokerage commissions paid or accrued during the quarter. The $27.08
incentive fee figure shown above reflects the incentive fee that would be earned
on the $185.41 trading profits needed to break-even minus the $50 brokerage
commissions (20% x ($185.41 - $50)) and assumes a break-even year.
(8) The General Partner estimates interest income at 4.20% of
average month-end Net Assets per annum based on current Treasury bill rates.
Actual interest income could be more or less than this level.
-8-
<PAGE> 11
PRINCIPAL TAX ASPECTS OF OWNING UNITS
Investors are taxed each year on any gains recognized by the
Fund whether or not they redeem any Units or receive any distributions from the
Fund.
40% of any trading profits on U.S. exchange-traded futures
contracts are taxed as short-term capital gains at the individual investor's
ordinary income tax rate (39.6% maximum), while 60% of such gains are taxed as
long-term capital gain at a 20% maximum rate for individuals. The Fund's trading
gains from other contracts, if any, will likely be primarily short-term capital
gain. This tax treatment applies regardless of how long an investor holds Units.
If, on the other hand, an investor held a stock or bond for longer than 12
months, all the gain realized on its sale would generally be taxed at a 20%
maximum rate.
Losses on the Units may be deducted against capital gains. Any
losses in excess of capital gains may only be deducted against ordinary income
by individuals to the extent of $3,000 per year. Consequently, investors could
pay tax on the Fund's interest income even though they have lost money on their
Units. See "Tax Consequences" beginning at page 49.
LIQUIDITY OF THE UNITS
Units may be redeemed at any month-end upon 10 days' written
notice to the General Partner. There is no required minimum holding period;
however, the General Partner believes that investors should consider the Units
at least a 3-year commitment.
There are no redemption charges.
IS THE FUND A SUITABLE INVESTMENT FOR YOU?
You should consider investing in the Fund only if you are an
aggressive investor interested in a leveraged exposure to up or down U.S. stock
market movements. You should be prepared to risk significant losses, up to the
total amount of your investment plus undistributed profits, and to withstand
sudden and substantial variation in monthly rates of return.
No one should invest more than 10% of his or her liquid net
worth in the Fund.
State law investor suitability standards apply. See Exhibit B
- -- Subscription Agreement and Power of Attorney, beginning at page B-3.
-9-
<PAGE> 12
THE RISKS YOU FACE
SET FORTH BELOW ARE THE PRINCIPAL RISKS ASSOCIATED WITH AN
INVESTMENT IN THE FUND. YOU SHOULD CONSIDER THESE RISKS IN MAKING YOUR
INVESTMENT DECISION.
(1) POSSIBLE TOTAL LOSS OF AN INVESTMENT IN THE FUND
You could lose all or substantially all of your investment in
the Fund.
(2) STOCK INDEX FUTURES TRADING INVOLVES SUBSTANTIAL LEVERAGE
Stock index futures are typically traded on margin. This means
that a small amount of capital can be used to invest in contracts of much
greater total value. The initial margin on the S&P 500 Contract is currently
approximately 6% of contract value. The resulting leverage enhances the Fund's
sensitivity to market movements which can result in greater profits when the
Advisor anticipates the direction of the move correctly, or greater losses when
the Advisor is incorrect. The Advisor generally uses leverage of up to three
times the Fund's equity when initiating a position. For example, if the market
price of the S&P 500 Contract were to change by 1% and the Fund was fully
leveraged, the Fund would likely experience a gain or loss of 3%. The exact
leverage level of the Fund varies, however, with the gains or losses in the
Fund's position. A losing position may cause the Fund's leverage level to
increase above three times the Fund's equity, and a winning position may cause
the leverage level to decrease.
(3) STOCK INDEX FUTURES TRADING IS SPECULATIVE, HIGHLY VOLATILE AND CAN
RESULT IN LARGE LOSSES
A principal risk in stock index futures trading is the rapid
fluctuation in the market prices of stock index futures contracts. If the
Advisor incorrectly predicts the movement of futures prices, the Fund could
experience large losses. For example, a 20% drop in the Index in a single day
could cause a drawdown of 60% for the Fund had the Advisor predicted that the
market would rise. Price movements of futures contracts are influenced by such
factors as: changing supply and demand relationships; government trade, fiscal,
monetary and exchange control programs and policies; national and international
political and economic events; and speculative frenzy and the emotions of the
marketplace.
(4) THE UNITS ARE NOT LIQUID
The Units are not a liquid investment as no market exists for
the Units and none will develop. However, redemptions may be made as of a
month-end on 10 days' written notice.
(5) INVESTORS MUST NOT RELY ON THE PAST PERFORMANCE OF EITHER THE ADVISOR
OR THE FUND IN DECIDING WHETHER TO BUY UNITS
The future performance of the Fund is entirely unpredictable,
and the past performance of the Fund as well as of the Advisor is not
necessarily indicative of their future results.
(6) THE FUND MAY RECEIVE MARGIN CALLS
If the Fund's futures position shows a loss in excess of the
minimum margin amount required by the Futures Broker to maintain the position,
the Fund, but not the investors, will be required to deposit additional margin
money with the Futures Broker. If the Fund fails or is unable to do so, the
Futures Broker will close the Fund's position and the Fund will realize losses.
-10-
<PAGE> 13
(7) SUBSTANTIAL EXPENSES WILL CAUSE LOSSES FOR THE FUND UNLESS OFFSET BY
PROFITS AND INTEREST INCOME
In addition to the one-time 1% organizational charge payable
by investors, the Fund pays annual expenses (net of interest income) of
approximately 1% of its average annual Net Asset Value. Additionally, the Fund
is subject to a 20% quarterly incentive fee during its profitable quarters.
Because the incentive fee is calculated quarterly, it could represent a
substantial expense to the Fund even in a break-even or losing year. The Fund's
expenses could, over time, result in significant losses. Except for the
incentive fee, these expenses are not contingent and are payable whether or not
the Fund is profitable. See "Summary -- Fees and Expenses" at page 7 and
"Analysis of Fees and Expenses Paid by the Fund" beginning on page 27.
It will be necessary for the Fund to achieve gains from
trading and interest income in excess of its charges in order for limited
partners to realize increases in the Net Asset Value of their Units. No
assurance can be given that the Fund will be able to achieve such, or any,
appreciation of its assets.
(8) UNIT VALUES ARE UNPREDICTABLE AND VARY SIGNIFICANTLY MONTH-TO-MONTH
The Net Asset Value per Unit varies significantly from
month-to-month. For example, in August 1998 there was over a 30% change in the
value of a Unit. Investors cannot know at the time they submit a redemption
request what the redemption value of their Units will be.
The only way to take money out of the Fund is to redeem Units.
You can only redeem Units at month-end upon at least 10 days' advance notice.
The restrictions imposed on redemptions limit your ability to protect yourself
against major losses by redeeming part or all of your Units.
In addition, because investors must subscribe for Units in
advance of their issue date investors are unable to know whether they are
purchasing Units after the Fund has suffered significant losses.
(9) IMPORTANCE OF MARKET CONDITIONS TO PROFITABILITY
Although there can be no assurance that they will, most
futures traders are more likely to trade profitably during periods when major
price movements occur. Such movements generally occur in any given market only
infrequently. During periods of static markets or markets with frequent, rapid
reversals which cause the Advisor incorrectly to identify major price movements,
it is unlikely that the Advisor will achieve profits for the Fund and the Fund
may suffer significant losses. Overall market or economic conditions may have a
material effect on performance.
(10) FUTURES MARKETS INVESTMENTS ARE DIFFERENT FROM SECURITIES MARKETS
INVESTMENTS
An investment in the Fund is very different from a typical
securities investment (stocks and/or bonds) in which there is an expectation of
some consistency of yield (in the case of bonds) or participation over time in
general economic growth (in the case of stocks). Futures trading is a "zero-sum"
economic activity, meaning for every gain there is an equal and offsetting loss
(without considering transaction costs). See "The Stock Index Futures Markets"
beginning at page 45.
-11-
<PAGE> 14
(11) THE LARGE SIZE OF THE FUND'S TRADING POSITIONS INCREASES THE RISK OF
SUDDEN, MAJOR LOSSES
The Fund takes positions with face values up to as much as
approximately 3 times its total equity. Consequently, even small price movements
against the Fund's position can cause major losses.
(12) ILLIQUID MARKETS COULD MAKE IT IMPOSSIBLE FOR THE FUND TO REALIZE
PROFITS OR LIMIT LOSSES
It is not always possible to execute a buy or sell order at
the desired price, or to close out an open position, due to market conditions.
Daily price fluctuation limits are established by the exchanges and approved by
the Commodity Futures Trading Commission (the "CFTC"). When the market price of
a futures contract reaches its daily price fluctuation limit, no trades can be
executed at prices outside such limit. The holder of a commodity futures
contract (including the Fund) may therefore be locked into an adverse price
movement for several days or more and lose considerably more than the initial
margin put up to establish the position. Another instance of difficult or
impossible execution occurs in thinly traded or illiquid markets. While the S&P
500 Contract is generally considered to be an extremely liquid contract, no
assurance can be given that Fund orders will be executed at or near the desired
price.
(13) SPECULATIVE POSITION LIMITS MAY REQUIRE THE ADVISOR TO MODIFY ITS
TRADING TO THE DETRIMENT OF THE FUND
The exchanges have established and the CFTC has approved
speculative position limits (referred to as "position limits") on the maximum
futures position which any person, or group of persons acting in concert, may
hold or control in particular futures contracts. For stock index futures
contracts, such position limits are set by the exchanges. The position limit for
the S&P 500 Contract is currently 10,000 contracts, which is very high in
comparison to other stock indices. While unlikely, the Advisor may be required
to reduce the size of the futures positions which would otherwise be taken in
order to avoid exceeding such limits. Such modification of the Fund's trades, if
required, could adversely affect the operations and profitability of the Fund.
(14) THE ADVISOR ALONE DIRECTS THE FUND'S TRADING
As the sole advisor to the Fund, the Advisor alone directs the
Fund's futures trading. The application of a single trading program to the
leveraged and volatile futures markets involves a greater risk of loss than the
diversified, multi-advisor approach employed by many futures funds, often
specifically for risk control purposes. In addition, if the Advisor were for any
reason unable to continue to manage the Fund's assets, although the General
Partner most likely would attempt to replace the Advisor after due notice to the
limited partners, there can be no assurance that a replacement advisor would be
found or that a replacement advisor would manage the Fund's assets on the same
compensation terms as the Advisor.
(15) THE ADVISOR MAY HAVE UNEXPECTED PROBLEMS IN EXECUTING TRADES
The Advisor relies on computer, telephone and related
electronic equipment for the execution of its trades. If such equipment fails
and/or the firms handling the Advisor's computer and communications facilities
are adversely affected due to uncontrollable factors such as weather problems,
the Advisor may not be able to execute trades for the Fund, which could cause
the Fund to incur losses. The Advisor intends to use back-up systems to try to
minimize the impact of such potential execution problems.
-12-
<PAGE> 15
(16) THE ADVISOR MAY NOT BE SUCCESSFUL IN "DOWNWARD" EQUITY MARKETS
The Advisor's past performance record has been compiled during
a period of predominantly rising equity markets. A static leveraged long
position in such markets would have been certain to generate substantial
profits. While the Advisor can and does take short positions, there is no
assurance that its strategy will be successful in down or "bear" markets.
(17) TRADING SUSPENSION POLICY IS NOT A LIMIT ON LOSSES
The Fund's trading suspension policy provides no assurance
that the Net Assets of the Fund will not drop below fifty percent (50%) of its
previous month-end level, since there can be no assurance that the Fund will not
incur additional losses in attempting to liquidate open positions. Should the
Fund liquidate its positions pursuant to the trading suspension policy and the
market were to subsequently recover, the Fund would realize losses it would not
have realized in the absence of the trading suspension policy.
(18) TRADING IN OPTIONS ON STOCK INDEX FUTURES IS SPECULATIVE AND HIGHLY
LEVERAGED
Although it does not do so at present, the Advisor may trade
options on stock index futures contracts. An option is a right, purchased for a
certain price, to either buy or sell the underlying stock index futures contract
during a certain period of time for a fixed price. Trading options on stock
index futures is speculative and highly leveraged. Specific market movements of
the stock index futures contracts underlying an option cannot accurately be
predicted. If the Fund purchases an option, it will be subject to the risk of
losing the entire purchase price of the option. On the other hand, if the Fund
writes (sells) an option it will be subject to the risk of loss resulting from
the difference between the amount received for the option and the price of the
futures contract underlying the option which the Fund must purchase or deliver
upon exercise of the option.
(19) LIMITATION OF THE MARKETS TRADED BY THE ADVISOR ALSO REDUCES
DIVERSIFICATION, INCREASING THE RISK OF LOSS
The Advisor's program currently concentrates on only one
contract -- the S&P 500 Stock Index futures contract on the Chicago Mercantile
Exchange. Market concentration increases the risk of major losses and unstable
Unit values relative to diversification in multiple commodities markets.
Further, the S&P 500 Contract has historically been quite volatile relative to
many other futures contracts.
As it is impossible to predict when price trends will occur,
certain futures managers attempt to maximize the chance of exploiting such
trends by taking positions in as many different markets and market sectors as
feasible. The Fund does not follow this approach and, as a result, will not
capture trends occurring in other markets which might have been highly
profitable.
(20) INVESTING IN THE UNITS MAY NOT DIVERSIFY AN OVERALL PORTFOLIO
Because the Fund focuses on the S&P 500 Contract, its returns
may be correlated with equity market returns. The use of leverage and short
selling may reduce this correlation at certain times, especially in a falling
market. An investment in the Fund may or may not result in diversification of an
investor's overall portfolio, depending on what other assets the investor owns
and the Advisor's ability to correctly react to stock market trends.
-13-
<PAGE> 16
(21) THE ADVISOR'S INCREASED EQUITY UNDER MANAGEMENT COULD LEAD TO
DIMINISHED RETURNS
The more money the Advisor manages, the more difficult it may
be for the Advisor to trade profitably because of the potential difficulty of
trading larger positions without adversely affecting prices and performance.
Large trades generally result in more price slippage than do smaller orders.
(22) THE ADVISOR MAY CHANGE ITS TRADING APPROACH AND/OR FUTURES CONTRACTS
TRADED
The Advisor may change its trading approach and/or the stock
index futures contracts traded. If the Advisor adds additional stock index
futures contracts, or options thereon, to its program, there can be no assurance
that its methods will be successful in trading such other contracts.
Under the terms of the Fund's Limited Partnership Agreement,
any material change to the Fund's basic investment policies or structure
requires the approval of a majority of Units. The addition of additional stock
index futures contracts and options thereon to the Advisor's program would not
be considered to be a material change to the Fund's basic investment policies or
structure so no limited partner approval would be required.
(23) THE FUND'S CASH MANAGEMENT STRATEGIES COULD LOSE BOTH YIELD AND
PRINCIPAL
If a cash manager is engaged by the Fund, the cash manager
will try to generate yields on non-margin assets in excess of the 91-day
Treasury bill rate. However, there can be no assurance that the securities the
cash manager invests in for the Fund will not lose value. If this occurs, the
Fund could lose not only the interest it hopes to gain, but also a portion of
the principal it originally invested with the cash manager.
(24) THE FUND COULD LOSE ASSETS AND HAVE ITS TRADING DISRUPTED DUE TO THE
BANKRUPTCY OF ITS BROKER OR OTHERS
The Fund is subject to the risk of broker, exchange or
clearinghouse insolvency. Fund assets could be lost or impounded in such an
insolvency during lengthy bankruptcy proceedings. Were a substantial portion of
the Fund's capital tied up in a bankruptcy, the General Partner might suspend or
limit trading, perhaps causing the Fund to miss significant profit
opportunities.
(25) UNITS MAY BE SUBJECT TO INCENTIVE FEES DESPITE HAVING DECLINED IN VALUE
Investors will purchase Units at different times and will,
accordingly, recognize different amounts of profit and loss on their
investments. However, incentive fees are calculated on the basis of the
cumulative trading profits recognized by the Fund as a whole and will reduce the
Net Asset Value of all Units equally. Consequently, certain Units could have
their Net Asset Value reduced by an incentive fee despite having actually
declined in value since their date of purchase. Additionally, Units may incur
losses generating a loss carryforward for purposes of calculating subsequent
incentive fees. The benefit of any such loss carryforward will be diluted by the
admission of new limited partners. Similarly, Units purchased during a calendar
quarter at a Net Asset Value reduced by accrued incentive fees will benefit from
any reversal of such accruals, and the benefit of such reversals to Units
outstanding at the time of such intra-quarter purchase will be diluted.
-14-
<PAGE> 17
(26) THE FUND MAY BE SUBJECT TO CERTAIN CONFLICTS OF INTEREST
The General Partner and the Advisor may have a conflict of
interest in rendering advice to the Fund because their respective benefits from
managing some other commodity pool or account may exceed their benefit from
managing the Fund's account and thus provide an incentive to favor such other
accounts. In addition, the Futures Broker serves as the primary futures broker
for other commodity pools the General Partner manages, and has agreed, so long
as it remains the futures brokers for these commodity pools, to purchase, under
specified conditions, shares of common stock of the General Partner. Thus, the
General Partner has an incentive to retain the Futures Broker as the primary
futures broker for the Fund.
Additional conflicts of interest may arise because: (1) the
General Partner, the Advisor or their respective principals may trade in the
futures markets for their own accounts and may take positions similar to or
opposite from the Fund's positions; (2) the Selling Agent has an incentive to
sell Units because the General Partner, its affiliate, receives a percentage of
assets management fee; (3) an investment adviser affiliate of the General
Partner recommends the Advisor's mutual fund trading program to its advisory
clients and receives a fee for doing so; and (4) the Futures Broker may have an
incentive to favor some other account over the account of the Fund or may have
conflicting duties with respect to the Fund and the exchanges or clearinghouses
of which the Futures Broker is a member. See "Conflicts of Interest" beginning
on page 43.
(27) INVESTORS SHOULD NOT RELY ON THE FUTURES BROKER'S GUARANTEE OF THE
GENERAL PARTNER'S NET WORTH
In order to meet certain states' net worth requirements with
respect to general partners of publicly offered commodity pools, the General
Partner has entered into an agreement with the Futures Broker which requires the
Futures Broker to purchase shares of the General Partner's common stock under
certain specified conditions. Investors in the Fund acquire no interest in the
General Partner, and, moreover, the net worth of the General Partner is
irrelevant to the tax status of the Fund or the legality of its securities.
Therefore, prospective investors are not beneficiaries of this agreement with
the Futures Broker and should not rely on it in making their investment
decision.
(28) INVESTORS ARE TAXED EVERY YEAR ON THEIR SHARE OF THE FUND'S PROFITS --
NOT ONLY WHEN THEY REDEEM AS WOULD BE THE CASE IF THEY HELD STOCKS OR
BONDS
Investors are taxed each year on their investment in the Fund,
irrespective of whether they redeem any Units. In contrast, an investor holding
stocks or bonds generally pays no tax on their capital appreciation until the
securities are sold. Over time, the deferral of tax on stock and bond
appreciation has a compounding effect.
All performance information included in this Prospectus is
presented on a pre-tax basis; the investors who experienced such performance had
to pay the related taxes from other sources.
(29) THE MANAGEMENT FEE AND INCENTIVE FEE MAY BE RECHARACTERIZED AS
"INVESTMENT ADVISORY FEES"
Investors could be required to treat the management and
incentive fees, as well as certain other expenses of the Fund, as "investment
advisory fees," which are subject to substantial restrictions on deductibility
for individual taxpayers. The General Partner has not, to date, been classifying
the management and incentive fees or such expenses as "investment advisory
fees," a position to which the Internal Revenue Service (the "IRS") might
object. Should the IRS
-15-
<PAGE> 18
recharacterize the management and incentive fee or other expenses as "investment
advisory fees," investors may be required to pay additional taxes, interest and,
possibly, penalties. See "Tax Consequences -- Limited Deductibility for Certain
Expenses" at page 49.
(30) THE FUND'S TRADING GAINS MAY BE TAXED AT HIGHER RATES
Investors are taxed on their share of any trading profits of
the Fund at both short-and long-term capital gain rates. These tax rates are
determined irrespective of how long an investor holds Units. Consequently, the
tax rate on the Fund's trading gains may be higher than those applicable to
other investments held by an investor for a comparable period.
(31) TAX COULD BE DUE FROM INVESTORS ON THEIR SHARE OF THE FUND'S INTEREST
INCOME DESPITE OVERALL LOSSES
Investors may be required to pay tax on their allocable share
of the Fund's interest income, even if the Fund incurs overall losses. Trading
losses can only be used by individuals to offset trading gains and $3,000 of
interest income each year. Consequently, if an investor were allocated $5,000 of
interest income and $10,000 of net trading losses, the investor would owe tax on
$2,000 of interest income even though the investor would have a $5,000 loss for
the year. The remaining $7,000 capital loss would carry forward, but subject to
the same limitation on its deductibility against interest income.
FUND OPERATIONS
BUYING UNITS
You may buy whole Units (or fractions thereof calculated to
eight decimal places) as of the last business day of any month at Net Asset
Value plus a 1% organizational charge. Your subscription should be submitted by
the 25th day of such month. Subscriptions submitted after the 25th day of the
month may be applied to Unit sales as of the end of the following month. In
order to purchase Units initially, you must mail or deliver the following items
to ProFutures Financial Group, Inc. (the "Selling Agent"): (1) a completed and
executed copy of the Subscription Agreement and Power of Attorney (attached as
Exhibit B); and (2) a check for the amount of your investment, plus the 1%
organizational charge, made payable to ProFutures Long/Short Growth Fund, L.P.
Investors whose subscriptions are accepted will receive written purchase
confirmations.
Proceeds from the sale of Units received prior to the closing
date will be held in a Fund account with a major financial institution until the
last business day of the month. All interest earned on subscriptions pending
their month-end acceptance will be paid to the Fund, not the individual
subscribers. Similarly, if the subscription is rejected, in whole or in part (in
the sole discretion of the General Partner), the subscription funds or the
rejected portion thereof will be returned within 20 days to the subscriber along
with any interest. No sale of Units will be completed until at least five (5)
business days after delivery of this Prospectus to the investor.
Only first-time investors need to submit Subscription
Agreements, unless the Selling Agent believes it is necessary to reconfirm an
investor's suitability in writing. To purchase additional Units, contact the
General Partner or the Selling Agent.
The minimum purchase for first-time investors is $10,000;
$5,000 for IRAs, other tax-exempt accounts and current investors.
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<PAGE> 19
The Subscription Agreement and Power of Attorney requires you
to make the following representations and warranties. Accompanying the text of
each representation and warranty below is an explanation of the Fund's and/or
the General Partner's intent in requiring such representation and warranty and
the circumstances under which the Fund and/or the General Partner would assert
such representation and warranty.
(1) You have received the current Prospectus of the Fund along
with a recent monthly report. The Regulations of the CFTC require the
General Partner to receive from a prospective investor a signed
acknowledgment of receipt of the Fund's Prospectus before accepting
funds from such investor. The General Partner will assert this
representation in the event that the investor, or any other person,
claims that the investor did not receive the Prospectus.
(2) You are of legal age and legally competent to execute the
Subscription Agreement. Because contracts with minors or other legally
incompetent persons are generally not enforceable, the Fund and the
General Partner require the assurance that the investor will, in fact,
be bound by the Subscription Agreement and the Limited Partnership
Agreement. The General Partner will assert this representation in the
event that the investor, or any other person, claims that the investor
was not legally competent to enter into a contract.
(3) You satisfy all the applicable requirements relating to
net worth and annual income set forth in the Subscription Agreement;
and (4) your subscription, if made as custodian for a minor, is a gift
you have made to such minor or, if not a gift, the representations as
to net worth and annual income apply to such minor personally. State
securities regulators require that investors in publicly-offered
commodity funds meet minimum net worth and/or income standards. The
Fund and the General Partner require the assurance that the investor
does, in fact, meet the applicable standard. The General Partner will
assert this representation in the event that the investor, or any other
person, claims that the investor was not qualified on the basis of net
worth and/or income to invest in the Fund.
(5) If you are subscribing in a representative capacity, you
have full power and authority to purchase the Units on behalf of the
entity for which you are acting, and such entity has full power and
authority to purchase such Units. Because entities can only act through
their representatives, the Fund and the General Partner require the
assurance that the representative is, in fact, authorized to cause the
entity to invest in the Fund and, further, that investing in the Fund
is not beyond the scope of the powers of the entity investor. The
General Partner will assert this representation in the event that the
investor, or any other person, claims that the representative was not
authorized to cause the entity to invest in the Fund or that an
investment in the Fund was not a permitted investment for the entity.
(6) If required to be, you are registered with the CFTC or a
member of the NFA. The Bylaws of the NFA prohibit members from doing
business with persons required to be but who are not CFTC registrants
or NFA members. The General Partner, as a member of NFA, requires the
assurance that the investor or representative of an entity investor, if
required to be, is a CFTC registrant or NFA member. The General Partner
will assert this representation in the event that the investor, or any
other person, claims that the investor or representative of an entity
investor is required to be but is not a CFTC registrant or NFA member.
You should carefully read Exhibit B --Subscription Agreement
and Power of Attorney and the Subscription Agreement and Power of Attorney
Signature Page which accompanies
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<PAGE> 20
this Prospectus in addition to reviewing this entire Prospectus carefully before
you decide whether to invest in the Fund.
SELLING AGENT COMPENSATION
The Selling Agent will use its best efforts to sell the Units.
Neither the Fund nor any investor pays a sales commission to the Selling Agent.
However, the General Partner will pay to the Selling Agent the excess of the 1%
organizational charge over the actual expense of conducting this offering of the
Units. The General Partner estimates such offering expense to be approximately
$400,000. The amount paid to the Selling Agent may be deemed by the National
Association of Securities Dealers to be underwriting compensation.
The Selling Agent, with the consent of the General Partner,
may engage Additional Selling Agents to sell the Units. Neither the Fund nor any
investor pays a sales commission to an Additional Selling Agent, and purchases
through an Additional Selling Agent will not increase the cost of an investment
in the Fund. Each Additional Selling Agent will receive an upfront selling
commission of up to 3% of the Net Asset Value of the Units it sells. The General
Partner will pay the selling commission, through the Selling Agent, from its own
funds.
If an Additional Selling Agent is registered with the NFA as a
futures commission merchant or introducing broker and its registered
representatives engaged in the sale of the Fund's Units are registered as
associated persons of the futures commission merchant or introducing broker,
such Additional Selling Agent may receive ongoing compensation if it and its
registered representatives agree to provide additional services to the
purchasers of Units sold by them. Such services include, but are not limited to:
(1) inquiring of the General Partner, at the request of Limited Partners, as to
the Net Asset Value of a Unit; (2) inquiring of the General Partner, at the
request of the Limited Partners, as to the stock index futures markets and the
activities of the Fund; (3) assisting, at the request of the General Partner, in
the redemption of Units; (4) responding to questions of Limited Partners with
respect to reports and financial statements furnished to Limited Partners; and
(5) providing such other services as the General Partner may request. Ongoing
compensation may range up to 2% per annum of the Net Asset Value of Units, which
remain outstanding after one year, sold by such Additional Selling Agent.
Ongoing compensation, if any, will be paid by the General Partner, through the
Selling Agent, from its own funds. The receipt of ongoing compensation is an
incentive for an Additional Selling Agent not to advise an investor who
purchased Units from such Additional Selling Agent to redeem the Units, even if
doing so would be in the best interests of the investor.
If the Additional Selling Agent is not registered with the
CFTC or if its registered representatives engaged in the sale of Units are not
registered as associated persons of a CFTC registrant or do not agree to provide
the services described above, the Additional Selling Agent may receive
installment selling commissions. Installment selling commissions will be
calculated on the same basis as the continuing compensation described above.
However, no Additional Selling Agent may receive upfront selling commissions
plus installment selling commissions in excess of 9% of the initial Net Asset
Value of the Units sold by such Additional Selling Agent. Installment selling
commissions are paid by the General Partner, through the Selling Agent, from its
own funds.
If a wholesaler introduces an Additional Selling Agent to the
Selling Agent, The General Partner will compensate the wholesaler, through the
Selling Agent, with a portion of the upfront selling commissions, ongoing
compensation or installment selling commissions otherwise payable to such
Additional Selling Agent. The wholesaler's compensation shall not exceed 9% of
the initial Net Asset Value of the Units sold by such Additional Selling Agent.
If Additional Selling Agents utilize correspondent selling agents, such
correspondents will be compensated by the Additional Selling Agents from their
own funds.
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<PAGE> 21
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SELLING AGENT COMPENSATION TABLE
- --------------------------------------------------------------------------------
RECIPIENT NATURE AND AMOUNT OF COMPENSATION
--------- ---------------------------------
<S> <C>
The Selling Agent The excess of the 1% organizational charge over the
actual costs of conducting this offering -- paid by
the General Partner.
Additional Selling Upfront selling commissions of up to 3% of the Net
Agents Asset Value of Units sold by such Additional Selling
Agents -- paid by the General Partner.
If CFTC qualified: ongoing compensation of up to 2%
per annum of the Net Asset Value of Units sold by
such Additional Selling Agents which remain
outstanding after one year -- paid by the General
Partner.
If not CFTC qualified: installment selling
commissions of up to 2% per annum of the Net Asset
Value of Units sold by such Additional Selling
Agents which remain outstanding after one year not
to exceed 9%, when aggregated with upfront selling
commissions, of the initial Net Asset Value of such
Units -- paid by the General Partner.
Wholesalers A portion of the compensation otherwise payable to
an Additional Selling Agent not to exceed 9% of the
initial Net Asset Value of the Units sold by the
Additional Selling Agent -- paid by the General
Partner.
Correspondents A portion of the compensation paid to Additional
Selling Agents -paid by Additional Selling Agents.
</TABLE>
The Selling Agent anticipates engaging few, if any, Additional
Selling Agents.
USE OF PROCEEDS; INTEREST INCOME
After payment of the 1% organizational charge, approximately
99% of all subscription proceeds, an amount equal to 100% of the Net Asset Value
of all Units sold, are invested directly into the Fund. All of the Fund's assets
are available to margin its speculative futures trading, as well as to pay
trading losses, fees and expenses.
Currently, substantially all of the Fund's assets are held in
the Fund's trading account at the Futures Broker. The Futures Broker invests the
Fund's assets and credits the account with interest as if 100% of the average
monthly cash balance of the account was invested in Treasury bills paying 100%
of the average 91-day Treasury bill rate for the month. The Fund may engage a
cash manager, registered with the SEC as an investment adviser, to manage the
Fund's assets not required to be deposited with the Futures Broker to margin the
Fund's futures positions. If it does, the Fund will receive 100% of the interest
earned on its assets managed by such cash manager minus a management fee and
minor incidental charges.
REDEEMING UNITS
You can redeem Units at each month-end upon ten (10) days'
advance written notice by forwarding the completed Request for Redemption
(included herein as Exhibit C) to the General
-19-
<PAGE> 22
Partner, Attention: Fund Administration, ProFutures, Inc., 11612 Bee Cave Road,
Suite 100, Austin, Texas 78733. There are no redemption charges or penalties.
The General Partner will make redemption payments by mailing a
check as promptly as practicable after the effective date of redemption, but in
no event more than thirty (30) days thereafter, barring unusual circumstances.
UNCERTAIN SUBSCRIPTION AND REDEMPTION VALUE OF UNITS
The Fund sells and redeems Units at subscription or redemption
date Net Asset Value (plus the 1% organizational charge in the case of
subscriptions), not at the Net Asset Value as of the date that subscriptions or
redemption requests are submitted. Investors must submit irrevocable
subscriptions and redemption requests at least 10 days prior to the effective
date of subscription or redemption. Because of the volatility of Unit values,
this delay means that investors cannot know the value at which they will
purchase or redeem their Units. Materially adverse changes in the Fund's
financial position could occur between the time an investor irrevocably commits
to acquire or redeem Units and the time the purchase or redemption is made.
MANDATORY TRADING SUSPENSION IF UNIT VALUE FALLS 50% SINCE LAST MONTH-END
In the event that the Net Asset Value per Unit declines 50% or
more since the last month-end, the Fund must attempt to liquidate all open
positions, suspend trading and offer all limited partners an opportunity to
redeem their Units before trading resumes. Only if sufficient capital remained
in the Fund after any such special redemption date would the Fund continue
operations.
DISTRIBUTIONS
The Fund does not anticipate making any distributions to
investors. No distributions have been made to date.
SMALL MINIMUM INVESTMENT
The current minimum size for an individually managed account
with the Advisor is generally $500,000. By investing in the Fund, you
participate in the Advisor's trading program with a minimum investment of only
$10,000; $5,000 for IRAs, other tax-exempt accounts and existing investors.
LIMITED LIABILITY FOR FUND INVESTORS
Investors who open individual futures accounts are personally
liable for all losses, including margin calls potentially in excess of their
investment. As a limited partner of the Fund, you can never lose more than your
investment in the Fund and your share of the Fund's profits.
ADMINISTRATIVE CONVENIENCE
The General Partner provides all administrative services
needed for the Fund, including financial and tax reporting. Investors receive
monthly financial summaries and annual audited financials. Investors may
telephone the General Partner during its normal business hours at (800) 348-3601
for the Net Asset Value per Unit.
-20-
<PAGE> 23
PERFORMANCE OF THE FUND
The following are the monthly rates of return from the
inception of the Fund through October 31, 1998. The Fund was privately offered
through August 1998. THERE CAN BE NO ASSURANCE THAT THE FUND WILL CONTINUE TO
PERFORM IN THE FUTURE THE WAY IT HAS IN THE PAST.
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOVEMBER 1997-OCTOBER 1998
TYPE OF POOL: PUBLICLY OFFERED
INCEPTION OF TRADING: NOVEMBER 1997
AGGREGATE SUBSCRIPTIONS: $12,490,566
CURRENT NET ASSET VALUE: $15,161,530
WORST MONTHLY DRAWDOWN (MONTH/YEAR): (16.80)% (9/98)
WORST PEAK-TO-VALLEY DRAWDOWN (MONTH/YEAR): (16.80)% (9/98)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MONTH MONTHLY RATES OF RETURN
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
January 2.77% --
- --------------------------------------------------------------------------------
February 10.43% --
- --------------------------------------------------------------------------------
March 9.56% --
- --------------------------------------------------------------------------------
April 2.44% --
- --------------------------------------------------------------------------------
May 0.37% --
- --------------------------------------------------------------------------------
June (0.84)% --
- --------------------------------------------------------------------------------
July (2.26)% --
- --------------------------------------------------------------------------------
August 30.56% --
- --------------------------------------------------------------------------------
September (16.80)% --
- --------------------------------------------------------------------------------
October 19.87% --
- --------------------------------------------------------------------------------
November 1.92%
- --------------------------------------------------------------------------------
December (6.06)%
- --------------------------------------------------------------------------------
61.32% (4.25)%
- --------------------------------------------------------------------------------
COMPOUND RATE OF RETURN (10 months) (2 months)
- --------------------------------------------------------------------------------
</TABLE>
THE FUND'S PERFORMANCE DURING 1998 HAS RESULTED FROM A COMBINATION OF
HIGHLY VOLATILE EQUITY MARKETS AND GENERALLY ACCURATE PREDICTIONS OF MARKET
MOVEMENTS BY THE ADVISOR'S PROGRAM. THERE CAN BE NO ASSURANCE THAT EITHER SUCH
VOLATILITY OR ACCURATE PREDICTIONS WILL CONTINUE. BOTH THE GENERAL PARTNER AND
THE ADVISOR BELIEVE THE FUND'S 1998 RETURNS HAVE BEEN SUBSTANTIALLY ABOVE THE
RETURNS ONE CAN REASONABLY EXPECT FROM AN INVESTMENT SUCH AS THE FUND.
THE FUND IS SPECULATIVE AND INVOLVES SUBSTANTIAL RISK OF LOSS.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
NOTES TO PERFORMANCE OF THE FUND
MONTHLY RATES OF RETURN are calculated by dividing the Fund's net
performance during a month by the Fund's Net Asset Value as of the beginning of
such month.
COMPOUND RATE OF RETURN is calculated by compounding the monthly
rates of return. For example, the compound rate of return of (4.25)% for 1997
was calculated by multiplying (1.0192 x 0.9394) -1 = (4.25)%.
DRAWDOWN means losses experienced by the Fund over a specified
period.
WORST PEAK-TO-VALLEY DRAWDOWN means the greatest cumulative
percentage decline in month-end Net Asset Value due to losses sustained by the
Fund during any period in which the initial month-end Net Asset Value is not
equaled or exceeded by a subsequent month-end Net Asset Value.
-21-
<PAGE> 24
SELECTED FINANCIAL DATA
The following selected financial data is derived from the
audited financial statements of the Fund as of December 31, 1997 and for the
period August 21, 1997 (inception of the Fund, but not commencement of
operations) to December 31, 1997 and the unaudited financial statements of the
Fund as of and for the nine months ended September 30, 1998. The Fund commenced
trading operations on November 20, 1997 under the name "ProFutures Bull & Bear
Fund, L.P." See "Financial Statements" beginning at page 54.
--------------------
<TABLE>
<CAPTION>
January 1, 1998 August 21, 1997
to to
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
TOTAL ASSETS $ 12,833,654 $ 2,932,764
============== ==============
TOTAL PARTNERS' CAPITAL $ 12,788,885 $ 2,914,736
============== ==============
INCOME
Trading gains (losses)
Realized $ 1,588,994 $ (116,342)
Change in unrealized (978,675) 2,175
-------------- --------------
Gain (loss) from trading 610,319 (114,167)
Interest income 254,997 19,520
-------------- --------------
Total gain (loss) 865,316 (94,647)
-------------- --------------
EXPENSES
Brokerage commissions 6,138 564
General Partner management fee 140,053 9,826
Advisor incentive fee 171,310 0
Operating expenses 42,262 11,704
-------------- --------------
Total expenses 359,763 22,094
-------------- --------------
NET INCOME (LOSS) $ 505,553 $ (116,741)
============== ==============
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNER UNIT
(based on weighted average number
of Units outstanding during the period
of 4,959.2859 and 2,421.6801, respectively) $ 101.94 $ (48.21)
============== ==============
INCREASE (DECREASE) IN
NET ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNIT $ 331.10 $ (42.55)
============== ==============
</TABLE>
-22-
<PAGE> 25
MANAGEMENT'S ANALYSIS OF OPERATIONS
RESULTS OF OPERATIONS
General
The Advisor utilizes a totally technical and mechanical
trading system by which it speculatively trades the S&P 500 Contract. The theory
behind a technical trader's strategy is that a study of the markets themselves
will provide a means of anticipating future prices. Thus, the Advisor does not
engage in fundamental economic supply or demand analysis to attempt to identify
mispricings in the stock market, nor does it conduct a macroeconomic assessment
of the relative strengths of the national economy or economic sectors. Instead,
the Advisor's trading program applies a proprietary computer model to analyze
historical stock market data and certain monetary indicators, and from this
information alone attempts to determine whether the stock market is in position
to trend. If the Advisor's model anticipates a trend, it signals the resulting
position. When the model identifies the trend as likely to end or reverse, the
position is either closed out or reversed. The Advisor's program is not designed
to forecast the long-term direction of the stock market or whether it will be
higher or lower at the end of a year than it was at the beginning. Rather, its
objective is to anticipate price trends in the S&P 500 Stock Index futures
market and to profit from them by taking either a long or short position
consistent with the anticipated trend.
Only historical market data and certain monetary factors are
directly relevant to the Advisor's trading results. There is no direct
connection between particular market conditions and price trends. The likelihood
of the Advisor's strategy being profitable is materially diminished during
periods when events external to the markets themselves, rather than historical
market data, have an important impact on prices. In such instances, the
Advisor's historical price analysis, as opposed to its monetary indicators,
could indicate positions on the wrong side of the price movements caused by such
external events.
The performance summary set forth below is an outline
description of how the Fund performed in the past trading only the S&P 500
Contract. Futures contract prices are marked-tomarket every trading day, and the
Fund's trading account is credited or debited with its daily gains or losses.
Accordingly, there is no material economic distinction between realized gains or
losses on closed positions and unrealized gains or losses on open positions. The
Fund's past performance is not necessarily indicative of how it will perform in
the future.
Performance Summary
1998 (10 MONTHS)
The Fund had a very successful first quarter of 1998 as the
Advisor's trading model correctly anticipated a strongly rising stock market and
remained in the leveraged long position that had been initiated in December
1997. The Fund showed a profit in all three months of the first quarter and the
Net Asset Value per Unit climbed over 24%. In the second quarter of 1998, the
stock market began showing signs of instability and the Fund earned only a small
gain of approximately 2%. As the third quarter began in July, the Fund remained
in a long position, resulting in a small loss when the stock market began to
fall. In late July, the Advisor's system issued a sell-short signal in
anticipation of further market declines. The months of August and September saw
considerable volatility in both the stock market and the performance of the
Fund. During August, as the stock market fell sharply, the Fund was in a short
position and realized a gain of 30.56%. During early September, the Fund
remained in its short position as the stock market rose resulting in loss of
16.80%. In late September, the Fund established a long position in anticipation
of higher market prices, although the Fund continued to lose value trough
October 8, 1998. At that point, the Fund
-23-
<PAGE> 26
was up 8.7% for the year. Early in the fourth quarter, the stock market
continued to be volatile as it began a strong up-trend. The Fund remained in its
long position during October and realized a gain of 19.87% for the month and a
61.32% gain for the first ten months of 1998.
1997 (2 MONTHS)
The Fund commenced trading in November 1997 with a short
position in the S&P 500 Contract. That initial position resulted in a small
profit in the Fund's first month of operation. However, a December stock market
rally then caused a loss on the short position. The Advisor's system reversed
and went long in the month of December, but as of month-end the Fund still
showed a loss of approximately 6%. The long position was still open and
subsequently became profitable as the stock market rallied into 1998.
LIQUIDITY AND CAPITAL RESOURCES
The amount of assets invested in the Fund generally does not
affect its performance, as typically this amount is not a limiting factor on the
positions acquired by the Advisor, and the Fund's expenses are primarily charged
as a fixed percentage of its asset base, however large.
The Fund raises additional capital only through the sale of
Units and trading profits (if any) and does not engage in borrowing. The Fund
sells no securities other than the Units.
The Fund's assets are held primarily in U.S. Treasury bills or
other high-quality, interest earning obligations, as well as in cash. The value
of the Fund's cash and financial instruments is not materially affected by
inflation. Changes in interest rates, which are often associated with inflation,
could cause the value of certain of the Fund's debt securities to decline, but
only to a limited extent. More important, changes in interest rates could cause
periods of strong up or down stock market price trends, during which the Fund's
profit potential generally increases.
The Fund's assets are held in cash and highly liquid U.S.
government securities. If the Fund employs a cash manager, as it has in the
past, the cash manager will invest up to approximately 90% of the Fund's assets
in readily marketable investments such as: U.S. Treasury securities, instruments
issued by or one-day time deposits with banks with long-term credit rating of at
least AA, money market mutual funds and/or commercial paper (rated AP-1).
Accordingly, except in very unusual circumstances, the Fund should be able to
close out any or all of its open trading positions and liquidate any cash
management investments quickly and at market prices. This permits the Advisor to
limit losses as well as reduce market exposure on short notice should its
program direct it to do so in order to reduce market exposure. In addition,
because there is a readily available market value for the Fund's positions and
assets, the Fund's monthly Net Asset Value calculations are precise.
The Fund trades exchange-traded futures and options contracts
on stock indices, currently only the S&P 500. Risk arises from changes in the
value of these contracts (market risk) and the potential inability of
counterparties or brokers to perform under the terms of their contracts (credit
risk). The General Partner seeks to control market risk by monitoring, on a
daily basis, the Advisor's trading on behalf of the Fund. The Advisor seeks to
control market risk by applying its trading program systematically and by
limiting the number of futures contracts it buys or sells for the Fund at any
time. Credit risk associated with exchange-traded contracts is generally
considered to be quite low because exchanges typically provide clearing
arrangements in which the collective credit of the clearing members is pledged
to support the financial integrity of the exchange. The General Partner seeks to
minimize credit risk associated with banks and brokers by depositing and
maintaining the Fund's assets only with large, well capitalized financial
institutions.
-24-
<PAGE> 27
THE YEAR 2000 PROBLEM
Many existing computer systems use only two digits to refer to
a year. This technique can cause the systems to treat the year 2000 as 1900, an
effect commonly known as the "Year 2000 Problem." The Fund, like other financial
and business organizations, depends on the smooth functioning of computer
systems and could be adversely affected if the computer systems on which it
relies do not properly process and calculate date-related information concerning
dates on or after January 1, 2000.
The General Partner administers the business of the Fund
through various systems and processes maintained by the General Partner. The
General Partner's modifications for Year 2000 compliance are proceeding
according to plan and are expected to be completed by June 1999. The expenses
incurred to date by the General Partner in preparing for Year 2000 compliance
have not had a material adverse impact on the General Partner's financial
position, and the expenses to be incurred in becoming fully Year 2000 compliant
are not expected to be material. The Fund itself has no systems or information
technology applications relevant to its operations and, thus, has no expenses
related to addressing the Year 2000 Problem.
In addition to the General Partner, the Fund is dependent on
the capability of the Advisor, the Chicago Mercantile Exchange, the Futures
Broker and other third parties with whom the Fund has material relationships to
prepare adequately for the Year 2000 Problem and its impact on their systems and
processes. The Advisor has taken action to identify any of its computer systems
that are Year 2000 vulnerable and has, to date, found none. The Advisor will
notify the General Partner in a timely manner if it should discover a Year 2000
vulnerable system it is unable to correct by January 1, 2000. The Chicago
Mercantile Exchange participated in the Futures Industry Association Y2K Beta
Test during September 1998 and will participate in the Futures Industry
Association Y2K industry-wide test for Year 2000 compliance during the first and
second quarters of 1999. The Futures Industry Association Y2K Tests are to test
links with outside entities. The Chicago Mercantile Exchange anticipates full
Year 2000 compliance with internal testing completed by March 31, 1999. The
Futures Broker is addressing its Year 2000 issues and has participated in Year
2000 testing with various exchanges. The Futures Broker will participate in the
Futures Industry Association Y2K industry-wide test for Year 2000 compliance
during the first and second quarters of 1999. The General Partner is monitoring
the progress of the Futures Broker and the Chicago Mercantile Exchange in
addressing their Year 2000 issues.
The most likely and most significant risk to the Fund
associated with the lack of Year 2000 readiness is the failure of third parties,
including the Advisor, the Futures Broker, the Chicago Mercantile Exchange and
various regulators to resolve their Year 2000 issues in a timely manner. This
risk could involve the temporary inability to transfer funds electronically or
to determine the Net Asset Value of the Fund, in which case sales could be
suspended and/or redemption payments delayed until the Fund's assets could be
valued and/or funds could be transferred. If the General Partner believes, prior
to December 31, 1999, that any of the Advisor, the Futures Broker or the Chicago
Mercantile Exchange has failed to resolve a Year 2000 issue likely to have a
material adverse impact on the Fund, the General Partner will direct the Advisor
to attempt to close any Fund positions and to remain out of the market until
such issue is resolved.
-25-
<PAGE> 28
USE OF PROCEEDS; INTEREST
INCOME ARRANGEMENTS
CUSTODY OF FUND ASSETS
After payment of the 1% organizational charge covering its
organization and offering expenses, substantially all of the net proceeds of
this offering are deposited in the Fund's trading account with the Futures
Broker and are maintained as segregated funds pursuant to the Commodity Exchange
Act, as amended (the "CEA"). The Fund may maintain assets with one or more
unaffiliated banks for normal payment of bills and money management purposes.
Substantially all of the Fund's assets are expected to be used for speculative
trading in financial futures contracts, currently only the S&P 500 Contract. It
is expected that 9% to 15% of the Fund's assets will be used as original margin
under the trading program currently used by the Fund.
The Fund will not: (a) invest in any debt instruments, other
than those incident to a cash manager's management of the Fund's assets and any
other CFTC-authorized investments; (b) invest in any equity security without
prior notice to limited partners; or (c) make loans to entities affiliated with
the Fund or the General Partner. The General Partner will not commingle the
Fund's property with the property of any other person or entity.
INTEREST INCOME
The Futures Broker invests the Fund's assets and credits the
Fund's account with interest as if 100% of the average monthly cash balance of
the account was invested in U.S. Treasury bills paying 100% of the average
91-day Treasury bill rate for the month. Any interest earned on such assets in
excess of such amount, not expected to exceed 0.50% per annum, is retained by
the Futures Broker for its own account. The Fund's interest income, as well as
the assets on which such interest is credited, is subject to the risk of trading
losses.
CASH MANAGEMENT
The Fund may engage a cash manager, registered with the SEC as
an investment adviser, to manage the Fund's assets not required to be held by
the Futures Broker to margin the Fund's futures positions. If it does, the Fund
will receive 100% of the interest earned on its assets managed by such cash
manager minus a management fee of between approximately 0.25% and 0.50% per
annum of the Fund's average daily assets under management and minor incidental
charges associated with maintaining a bank custodial account. The Fund will
engage a cash manager only if the General Partner determines that the interest
benefit to the Fund, after payment of such cash manager's management fee and the
costs associated with maintaining a custodial account, is likely to be greater
than the interest credit received from the Futures Broker.
If the Fund engages a cash manager, a portion of the Fund's
assets will be held in custody in a cash management account at a major U.S. bank
and will be managed by the cash manager. These assets will be committed for
margin calls on the Fund's account(s) at the Futures Broker. The cash manager,
on behalf of the Fund, may direct the investment of these funds in items such
as: (a) U.S. Treasury securities, bankers' acceptances and certificates of
deposit (banks with a long-term credit rating of at least AA); (b) time deposits
(one day only -- banks with a long-term credit rating of at least AA); (c)
interests in money market funds regulated under U.S. securities laws and
regulations; and/or (d) commercial paper (rated AP-1 of top issuers). The cash
manager's objective will be for the Fund's account to earn net interest income
and/or profits in excess of short-term Treasury bill rates, net of its fees;
however, there is no guarantee a cash manager can produce
-26-
<PAGE> 29
any income or profits on the Fund's account. The remaining assets will be held
at the Futures Broker for margin purposes and will earn interest at short-term
Treasury bill rates.
The assets held in a cash management account and/or a Fund
bank account are not subject to the segregation standards of the CEA. Such
assets are, however, subject to the risk of trading losses.
GENERAL
Subscriptions that are received on a timely basis and are
accepted become effective on the first day of the month following receipt. No
interest will be credited on subscription amounts prior to the first day of the
month.
ANALYSIS OF FEES AND EXPENSES PAID BY THE FUND
FEES AND EXPENSES TO DATE
<TABLE>
<CAPTION>
01/01/98 - 11/20/97-
Fees and Expenses 09/30/98 12/31/97
----------------- ---------- --------
<S> <C> <C>
Management fees $140,053 $ 9,826
Operating and administrative expenses 42,262 11,704
Brokerage commissions and
transactional charges 6,138 564
Incentive fees 171,310 0
TOTAL $359,763 $ 22,094
</TABLE>
FEES AND EXPENSES PAYABLE BY THE FUND
Brokerage Commissions
ING (U.S.) Securities, Futures & Options Inc. serves as the
futures broker for the Fund. Futures brokerage commissions for trades upon
exchanges are often paid only after a futures position has been both initiated
and closed-out. Such commissions are referred to as "round-turn commissions," as
they cover both the initial purchase (or sale) of a commodity futures contract
and the subsequent offsetting sale (or purchase). Under the brokerage agreement
between the Futures Broker and the Fund, the Fund pays brokerage commissions to
the Futures Broker in respect of all futures and option trades executed or
cleared on behalf of the Fund, on Chicago exchanges, at $8.00 per round-turn
plus NFA fees and any "give-up" fees. Any futures trades executed on other U.S.
exchanges would be charged at comparable rates. Give-up fees paid to executing
brokers that "give-up" the trades for clearing through the Futures Broker are
expected to range from $2.00 to $4.00 per "round-turn" trade. The Futures Broker
receives a half-turn commission on each purchase or sale of an option by the
Fund. In addition, in the event that an option contract is exercised, the Fund
pays the Futures Broker a round-turn commission just as it would upon any other
acquisition of a futures position. No commission is payable upon the expiration
of an outstanding option.
The Fund reimburses the Futures Broker for all delivery,
insurance, storage and other charges incidental to its trading (which are not
expected to be significant). The commission charge includes exchange and
clearing fees (see below) and floor brokerage charges. Although the
-27-
<PAGE> 30
Fund pays commissions on a round-turn basis, the Net Asset Value of the Fund
(for all purposes, including redemptions) reflects an accrued liability for the
round-turn commissions payable upon the liquidation of each of the Fund's open
contracts.
The Fund's brokerage commission rates do not include the
transaction fee assessed by the NFA upon all options and futures trades on U.S.
and foreign commodity exchanges. These fees have currently been established at
$0.20 per round-turn trade of each futures contract and $0.10 per each option
trade (a $0.10 fee is charged upon the purchase and upon the exercise, but not
upon the expiration, of an option, and an additional $0.20 fee upon the
liquidation of the futures position acquired upon such exercise).
The General Partner estimates round-turn commissions and
related charges to be approximately 0.50% of average annual Net Assets based on
the Advisor's historical and anticipated trading velocity. Actual round-turn
commissions could, however, substantially exceed this level.
The brokerage rates may only be increased upon notice to the
limited partners providing them sufficient time to redeem Units prior to such
increase becoming effective.
Management Fee
The General Partner is paid a management fee equal to 1/4 of
1% of month-end Net Assets (3% annually). Such fee shall be accrued monthly, and
paid as soon as practicable, but no later than the end of the month following
the month in which the fee accrued. The management fee is pro-rated for partial
periods and any interim subscriptions and redemptions. Net Assets for this
purpose are calculated after brokerage commissions, operating and administrative
expenses and incentive fees, as described below, paid or accrued as of such
month-end.
Incentive Fee
The Advisor is paid a quarterly incentive fee equal to 20% of
any New Trading Profit, as defined below, recognized during each calendar
quarter. New Trading Profit is the net profits (realized and unrealized,
determined according to generally accepted accounting principles), if any, from
the Fund's trading through the end of each calendar quarter, after subtraction
of the brokerage commissions (including the difference, positive or negative, in
accrued commissions on open positions between the end of such period and the end
of the previous period). New Trading Profit does not include interest income.
Any trading losses from prior periods must be recouped before New Trading
Profit, and thus new incentive fees to the Advisor, can again be generated. For
example, assume that the Fund paid an incentive fee at the end of the fourth
quarter of 1998 and assume that the Fund recognized trading profits of $201,000
during the first quarter of 1999. After subtracting brokerage commissions,
assumed to be $1,000, the New Trading Profit for the quarter would be $200,000
and the Advisor's incentive fee would be $40,000 (0.2 x $200,000). Now assume
that the Fund paid an incentive fee at the end of the third quarter of 1998 but
did not pay an incentive fee at the end of the fourth quarter of 1998 because it
had trading losses of $100,000. If the Fund recognized trading profits of
$201,000 at the end of the first quarter of 1999 and brokerage commissions were
$1,000, the New Trading Profit for the quarter would be $100,000 ($201,000 -
$1,000 - $100,000 loss carryforward) and the Advisor's incentive fee would be
$20,000 (0.2 x $100,000).
New Trading Profit is not reduced by operating and
administrative expenses, management fees, upfront organizational charges or any
cash manager's fee. Accordingly, the Fund may be required to pay the Advisor an
incentive fee for a quarter (based on New Trading Profit) even though the Fund
has a net loss for the quarter (after deduction of all such fees and expenses).
-28-
<PAGE> 31
Further, because the incentive fee is calculated quarterly, the Fund may pay
substantial incentive fees during a year despite having net losses for the year
as a whole.
Accrued incentive fees on redeemed Units are paid to the
Advisor. Redemption of Units will result in a reduction in any loss carryforward
existing for incentive fee purposes on the redemption date in proportion to the
percentage of the total capital redeemed.
Organizational Charge
An organizational charge of 1% of the subscription amount will
be paid to the General Partner (or the Selling Agent, its affiliated
broker-dealer) by each subscriber. The General Partner has paid for all actual
costs of organizing the Fund and conducting the public offering of Units. To the
extent that the aggregate 1% organizational charge collected is less than these
actual costs, the General Partner will pay the costs. To the extent that the
aggregate 1% organizational charge collected exceeds these actual costs, the
excess amount will be paid to the Selling Agent.
Such payment could be deemed to be a selling commission.
Operating and Administrative Expenses
The Fund pays its operating and administrative expenses, such
as ongoing accounting, audit, legal, printing, computer and other administrative
fees and expenses. The General Partner estimates that accounting, audit, and
legal expenses will not exceed $100,000 per annum and that remaining
administrative expenses will not exceed 0.50% per annum of average annual Net
Assets. Actual expenses could, however, exceed these levels, although the Fund's
administrative expenses are expected to decrease as a percentage of Net Assets
if the Fund's total assets increase.
Cash Management
The Fund has, in the past, employed the services of a cash
manager to manage Fund assets not required to be deposited with the Futures
Broker but does not do so currently. The Fund may engage a cash manager if the
General Partner determines that by doing so the interest benefit to the Fund is
likely to be greater, after fees and expenses, than the interest credited to the
Fund's account by the Futures Broker. Cash management fees would range between
0.25% and 0.50% annually of the Fund's average daily assets managed by the cash
manager and there would be minor incidental charges associated with maintaining
a custodial account.
Extraordinary Expenses
The Fund will be required to pay any extraordinary charges
(such as taxes, if any) incidental to its trading or otherwise. It is
anticipated that there will either be no extraordinary charges or that they will
not be material in amount. Extraordinary charges will be assessed to Units on a
pro rata basis.
General
It will be necessary for the Fund to experience gains from
futures trading (and interest income) in excess of such expenses in order for
limited partners to realize increases in the Net Asset Value of their Units. No
assurance can be given that the Fund will be able to achieve any appreciation of
its assets.
The General Partner will send each limited partner monthly and
annual statements, complying with applicable CFTC regulations, which will
include a description of the performance of
-29-
<PAGE> 32
the Fund and set forth, among other things, the aggregate incentive fee,
brokerage commissions, management fees, and other expenses incurred or accrued
by the Fund during the preceding month or year, as the case may be. The monthly
statements will contain unaudited and the annual statements audited financial
information.
THE ADVISOR
BACKGROUND AND PRINCIPALS
The Advisor's place of business is located at 2519 Avenue U,
Brooklyn, New York 11229. The telephone number is (800) 524-4832. All books and
records pertaining to its business will be maintained at the above address. The
Advisor, incorporated in New York in February 1985, is an investment adviser
registered with the SEC. In August 1995, the Advisor registered with the CFTC as
a commodity trading advisor and is a member of the NFA in such capacity. The
sole principals of the Advisor are Charles Mizrahi and Gary Mizrahi.
The Advisor started managing client assets in mutual funds in
1985 pursuant to its Risk Avoidance Model, a mathematical trading model. Its
expansion into futures resulted from the fact that mutual funds have certain
inherent limitations including lack of leverage and the inability at that time
to go short. Moreover, a mutual fund account could only trade once per day.
Realizing these limitations, the Advisor developed a modified version of its
model to take advantage of its stock market signals. The Advisor's specialty in
stock market trading, encompassing a period of over twelve years, found a
natural outlet in the S&P stock index futures market.
Charles Mizrahi, born 1962, has been the Advisor's President
and is responsible for its trading activities since he founded the firm in
February 1985. From January 1988 through July 1994, he was also an officer and
registered representative of Hampton Management, Inc. ("Hampton Management"), an
SEC-registered broker-dealer. Mr. Mizrahi was registered with the CFTC as a sole
proprietor commodity pool operator from July 1986 to July 1987, managing several
small pools whose assets were allocated to third- party advisors. He also was a
Vice President of Sales for Comart, Inc., an introducing broker, from June 1984
until February 1985. Mr. Mizrahi attended Brooklyn College in September 1981
prior to beginning his career as a floor trader at the New York Futures Exchange
("NYFE"), trading NYFE stock index futures.
Gary Mizrahi, born 1963, has been the Advisor's Treasurer
since February 1988 and is primarily responsible for its back office and
administrative operations. Mr. Mizrahi was the Advisor's controller from
December 1986 until February 1988. He also was Treasurer of Hampton Management
from February 1988 through July 1994. Mr. Mizrahi assists in trading execution
and is instrumental in the ongoing research and development of the Advisor's
proprietary systems.
DESCRIPTION OF TRADING METHODS AND STRATEGIES
The Advisor's Leverage 3 trading program is based on its Risk
Avoidance Model. The objective of the Advisor's Leverage 3 trading program is to
achieve appreciation of the Fund's assets through speculative trading in futures
contracts. The Advisor's system in the Leverage 3 trading program is totally
technical and mechanical. Technical analysis of the markets often includes a
study of the actual daily, weekly and monthly price, volume and open interest
data, utilizing charts and/or computers for analysis of these items.
-30-
<PAGE> 33
The Advisor currently trades only the S&P 500 Contract on the
Chicago Mercantile Exchange. An index represents a "basket" or portfolio of
stocks or commodities, grouped in a particular way. How a particular stock or
commodity index tracks the market depends on the composition of the stocks or
commodities included in the index, the percentage weight of each component, and
the method of calculating each index. The S&P 500 Stock Index has long been the
benchmark by which professionals measure equity portfolio performance. The
Standard & Poor's Corporation designed and maintains the Index to be an accurate
proxy for a diversified stock portfolio. The Index is based on the stock prices
of 500 large-capitalization companies. The market value of the 500 companies is
equal to about 80% of the value of all stocks listed on the New York Stock
Exchange. These companies' stocks are chosen for market size, liquidity and
various industry representation. The Index is capitalization weighted,
representing the market value of all outstanding common shares of the companies
listed (share price multiplied by the number of shares outstanding). This means
that a change in the price of any one stock influences the index in proportion
to the relative market value of that company's outstanding shares.
The trading of futures contracts on a stock index such as the
S&P 500 Stock Index permits an investor to trade the Index at a multiple thus
creating, in effect, a highly-leveraged stock portfolio. The S&P 500 Contract is
valued at an amount which equals the multiplier (currently $250) times the Index
level (which fluctuates daily but for these purposes is assumed to equal 1,100).
In such example the S&P 500 Contract is worth $275,000 ($250 x 1,100). The
Advisor's Leverage 3 trading program attempts to take a position in the S&P 500
Contract of up to three times the size of a fully-funded S&P 500 Contract. For
example, if the program is maximum leverage long, the program would take a
position size of up to $825,000 (3 x $275,000) for each $275,000 in Fund
capital.
There are also variations on the S&P 500 Contract, such as the
S&P 500/BARRA Growth Index and S&P 500/BARRA Value Index futures contracts, as
well as several other stock index futures contracts covering stock values in the
United States and worldwide. The Chicago Mercantile Exchange has recently
decreased the multiplier for the S&P 500 Contract from $500 to $250. It has also
introduced an electronic mini S&P 500 Stock Index futures contract (the
"E-Mini") that makes it possible to process small orders through an entirely
electronic order entry and execution system. With a multiplier of only $50 times
the S&P 500 Stock Index, the E-Mini gives more investors the opportunity to
trade the Index, theoretically creating a very liquid market. The E-Mini futures
contract features the same 500 stocks, the same benchmark standards, the same
liquid index complex, but with a $50 multiplier. Although it is not currently
anticipated, the Advisor may, in the future, trade any of these variations or
other U.S. stock index contracts on behalf of the Fund utilizing the same, or
similar, trading approach as it utilizes in trading the S&P 500 Contract. The
addition of additional stock index futures and options thereon to the Advisor's
trading program would not be considered to be a material change to the Fund's
basic policies or structure and would not require the approval of the limited
partners.
Since the Advisor employs a systematic approach to trading the
S&P 500 Contract, and signals are generated at 4:00 p.m., New York City time,
most orders are entered as "market on close." On occasion when data is not
accurate due to updates made by the exchanges after the markets close, the
Advisor will run its systems and place orders on the GLOBEX exchange overnight
or enter orders on the market open of the next day. Rollover of contracts can be
executed during the trading day. The Advisor's model uses ten key indicators
that examine three market components: price action; broader market action and
changes in monetary policy. The indicators for price action are the S&P 500, the
Kansas City Value Line and the Dow Jones industrial average. These indicators
center on selective market advances or declines, which can be pertinent to
future market activity. In addition, they help pinpoint more precise short term
entry and exit points for
-31-
<PAGE> 34
implementing trades. For example, when these markets are not trading in tandem,
the model is alerted to divergences in the marketplace which will be reflected
in the model's signals. The model evaluates broader market action by three
tertiary indicators; the number of stocks advancing versus declining, up and
down stock volume and the number of stocks reaching 52-week new highs versus new
lows. These indicators are used to determine market direction in the short term
as they tend to reflect the market's actual strength regardless of price action
and are essential in permitting the system to stay with a trend, notwithstanding
day-to-day volatility. Monetary indicators such as the prime rate, discount
rate, Federal funds rate and 90-day U.S. Treasury bill rate are used to provide
a long term view of the environment for increases or decreases in the stock
market.
The Advisor's program tries to anticipate trends in the stock
market and indicates a trade only when it identifies a high probability of a
trend. The Advisor effects the trades indicated by its system in a wholly
systematic and non-discretionary manner. The system has four positions: maximum
leverage long (+3 leverage), long (+2 leverage), neutral (100% cash) and maximum
leverage short (-3 leverage). The system requires the Advisor to scale up into a
long position as the number of indicators indicating a buy increase or scale
down out of a long position as indicators indicating a buy turn negative. For
example, if the Advisor's system is giving a buy signal, but not a strong buy
signal, the Advisor will enter the market using +2 leverage. If more indicators
turn positive, the Advisor will increase the position to +3 leverage. Likewise,
if the system generates a strong buy signal and a +3 position, but subsequently
some of the indicators turn negative, the position may be reduced to +2
leverage. Thus, the leverage on the long side may be adjusted from +2 to +3 and
vice versa from time to time. On the short side, since market downturns tend to
be of shorter duration but greater magnitude, the Advisor's trading strategy
attempts to take advantage of major downturns by executing a maximum -3 leverage
position whenever it takes a short position.
The trading methods utilized by the Advisor are proprietary
and confidential. The description set forth herein is not intended to be
exhaustive. Also, the trading methods used by the Advisor for an account may
differ from those used with respect to other accounts managed by the Advisor or
the trading methods used by the Advisor in trading its own account or those of
its principals.
THE ADVISORY AGREEMENT
The First Amendment and Restatement to Advisory Contract (the
"Advisory Agreement") between the Fund and the Advisor terminates on August 31,
1999 and is subject to one-year renewals on the same terms, at the option of the
Fund unless terminated by the Advisor or the Fund as set forth herein. The
Advisory Agreement terminates automatically without notice in the event that:
(i) the Fund is terminated or liquidated; or (ii) the registration of the
Advisor as a commodity trading advisor or the membership in the NFA is
terminated or suspended. In addition, the Fund may terminate the Advisory
Agreement at any time for any reason by providing the Advisor with at least
thirty (30) days' advance notice of its intent to terminate. Further, the Fund
may terminate the Advisory Agreement immediately if there has been any material
breach by the Advisor of any provision of the Advisory Agreement, in particular,
without limitation, a material breach of any of the representations and
warranties set forth therein. The Advisor may terminate the Advisory Agreement
(i) immediately if there has been any material breach of the Advisory Agreement
by the Fund or (ii) at its discretion upon ninety (90) days' notice following
the initial one- year term of the Advisory Agreement. In addition, the Advisor
may terminate the Agreement upon thirty (30) days' notice to the Fund as of any
month-end if (i) the Advisor notifies the General Partner of a proposed material
change to the strategy to be used in trading the Fund's assets and the General
Partner has instructed the Advisor not to implement such change or (ii) the
Advisor has determined to cease managing customer accounts pursuant to the
Leverage 3 trading strategy used on behalf of the Fund.
-32-
<PAGE> 35
The Fund has agreed to indemnify the Advisor and related
persons for any claims or proceedings involving the business or activities of
the Fund, provided that the conduct of such persons does not constitute
negligence, misconduct or breach of the Advisory Agreement or of any fiduciary
obligation to the Fund and was done in good faith and in a manner reasonably
believed to be in, or not opposed to, the best interests of the Fund.
The Advisor and related persons will not be liable to the Fund
or any of the partners in connection with its management of the Fund's assets
except (i) by reason of acts or omissions in breach of the Advisory Agreement,
(ii) due to their misconduct or negligence, or (iii) by reason of not having
acted in good faith and in the reasonable belief that such actions or omissions
were in, or not opposed to, the best interests of the Fund.
YEAR 2000 COMPLIANCE
The Advisor has taken action to identify any of its computer
systems that are Year 2000 vulnerable and, to date, has found none. If the
Advisor should identify a system problem likely to affect its services (e.g.,
trade details, fee information), the Advisor will take immediate action to
correct the problem, extensively test the systems internally and with other
parties (if appropriate) to ensure that system interdependencies have been
adequately addressed, and establish contingency plans and implement such plans
in the event of a malfunction of any part of the systems. If the Advisor learns
that it has a Year 2000 vulnerable system which is material to the Fund and
which is unable to be corrected by the year 2000, it will notify the General
Partner in a timely manner and the General Partner will promptly notify
investors.
LITIGATION
There has not been any material administrative, civil or
criminal action (whether pending, on appeal or concluded) against the Advisor or
its principals within the five-year period preceding the date of this
Prospectus, except as follows: On September 20, 1995, the Advisor, acting as a
registered investment adviser, entered into a Consent Order with and agreed to
the imposition of a Cease and Desist Order and a fine of $10,000 by the Arizona
Corporation Commission (neither admitting nor denying the findings of fact and
conclusions of law) at Docket No. 3080-I. The order stemmed from an alleged
improper use of solicitors who were registered as investment advisers with the
SEC but who had not previously been qualified as investment adviser
representatives with the Arizona Corporation Commission.
PERFORMANCE OF THE ADVISOR
Capsule A below reflects the performance of the Leverage 3
trading program managed by the Advisor as of October 31, 1998 for the entire
history of the program (July 1995 through October 1998), on a monthly and annual
basis (year-to-date for partial years). Management fees are charged at rates of
0% to 0.5% (2% annually) of month-end or quarter-end account equity. Incentive
fees are charged at rates of 20% to 30% of trading profits.
Capsule A presents the composite performance of all accounts
managed by the Advisor in the Leverage 3 trading program, including both the
Fund and other investors. While the performance of the Fund has been similar,
investors should not expect the Fund to always experience the same gains or
losses as the Leverage 3 composite performance summary. There can be significant
differences between the two for reasons such as differing fee structures for
other clients, leverage, use of notional funds, and cash flows into and out of
the Fund or the composite. For example, in early 1998 the Fund received
substantial additional investments from limited partners, which the Advisor was
unable to add to a profitable futures trade that was already in place. The
presence of this uninvested cash had the effect of reducing the Fund's overall
leverage and therefore
-33-
<PAGE> 36
the returns. Of course, had that particular trade experienced a loss, the
uninvested cash might have reduced the Fund's overall loss.
Capsule B below reflects the performance of the Leverage 2
trading program managed by the Advisor as of October 31, 1996 for the entire
history of the program (May 1995 through October 1996), on a monthly and
year-to-date basis. The Leverage 2 trading program has been terminated and is no
longer offered to clients. The management fee was charged at a rate of 0.5% (2%
annually) of quarter-end account equity. The incentive fee was charged at a rate
of 20% of trading profits.
The accounts reflected in the capsules were charged different
fees than the Fund and the capsules have not been adjusted to reflect the fees
and expenses payable by the Fund.
In the following capsules "Drawdown" means losses experienced
by an account over a specified period and "Worst Peak-to-Valley Drawdown" means
the greatest cumulative percentage decline in month-end net asset value due to
losses sustained by any account during any period in which the initial month-end
net asset value is not equaled or exceeded by a subsequent month-end net asset
value. Monthly "Rate of Return" is calculated, pursuant to the Fully-Funded
Subset method, by dividing the aggregate of net monthly performance of each
account funded entirely with actual funds by the aggregate net asset value of
all such accounts as of the beginning of the month for which performance is
being calculated.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT THE PERFORMANCE
INFORMATION SET FORTH BELOW IS NOT NECESSARILY INDICATIVE OF, AND HAS NO
NECESSARY BEARING ON, ANY TRADING RESULTS WHICH MAY BE ATTAINED IN THE FUTURE BY
THE ADVISOR, SINCE PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS. THERE CAN BE NO ASSURANCE THAT A PARTICIPATING INVESTOR WILL MAKE ANY
PROFITS AT ALL OR AVOID INCURRING SUBSTANTIAL LOSSES. FURTHER, THE RATES OF
RETURN EARNED WHEN AN ADVISOR IS MANAGING A LIMITED AMOUNT OF EQUITY MAY BEAR
LITTLE RELATIONSHIP TO THOSE WHICH SUCH ADVISOR IS ABLE TO ACHIEVE MANAGING
GREATER AMOUNTS OF EQUITY.
-34-
<PAGE> 37
CAPSULE A
COMMODITY TRADING ADVISOR: Hampton Investors, Inc.
NAME OF PROGRAM: Leverage 3 Program
INCEPTION OF TRADING CLIENT ACCOUNTS: May 1995
INCEPTION OF TRADING PROGRAM: July 1995
NUMBER OF OPEN ACCOUNTS: 21
TOTAL ACTUAL ASSETS UNDER MANAGEMENT OVERALL: $29,662,705
TOTAL ASSETS INCLUDING NOTIONAL FUNDS UNDER MANAGEMENT OVERALL: $38,050,232
TOTAL ACTUAL ASSETS UNDER MANAGEMENT IN PROGRAM: $29,662,705
TOTAL ASSETS INCLUDING NOTIONAL FUNDS UNDER MANAGEMENT IN PROGRAM: $38,050,232
WORST MONTHLY DRAWDOWN: (19.27)% (9/98)
WORST PEAK-TO-VALLEY DRAWDOWN: (19.27)% (9/98)
ACCOUNTS CLOSED WITH POSITIVE NET PERFORMANCE: 2
ACCOUNTS CLOSED WITH NEGATIVE NET PERFORMANCE: 1
<TABLE>
<CAPTION>
========================================================================
Rate of Return
(Computed on a compounded
monthly basis)
========================================================================
Month 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 2.85% 12.07% 11.88% --
- --------------------------------------------------------------------------------------------
February 15.79% 3.80% 0.02% --
- --------------------------------------------------------------------------------------------
March 11.90% 10.94% 3.33% --
- --------------------------------------------------------------------------------------------
April 3.51% (10.73)% 4.26% --
- --------------------------------------------------------------------------------------------
May 0.11% 9.14% 4.77% --
- --------------------------------------------------------------------------------------------
June (0.82)% 10.02% 1.81% --
- --------------------------------------------------------------------------------------------
July (2.62)% 14.57% (3.65)% (1.11)%
- --------------------------------------------------------------------------------------------
August 36.62% (9.96)% 0.57% (0.29)%
- --------------------------------------------------------------------------------------------
September (18.92)% 11.19% 9.34% 6.82%
- --------------------------------------------------------------------------------------------
October 18.09% (8.42)% 3.43% 1.61%
- --------------------------------------------------------------------------------------------
November 5.88% 4.51% (9.65)%
- --------------------------------------------------------------------------------------------
December (7.76)% (7.31)% 2.08%
============================================================================================
Year 74.46% 41.91% 36.48% (1.29)%
============================================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-35-
<PAGE> 38
CAPSULE B
COMMODITY TRADING ADVISOR: Hampton Investors, Inc.
NAME OF PROGRAM: Leverage 2 Program
INCEPTION OF TRADING CLIENT ACCOUNTS: May 1995
INCEPTION OF TRADING PROGRAM: May 1995
NUMBER OF OPEN ACCOUNTS: 0
TOTAL ACTUAL ASSETS UNDER MANAGEMENT OVERALL: $29,662,705
TOTAL ASSETS INCLUDING NOTIONAL FUNDS UNDER MANAGEMENT OVERALL: $38,050,232
TOTAL ACTUAL ASSETS UNDER MANAGEMENT IN PROGRAM: $0
TOTAL ASSETS INCLUDING NOTIONAL FUNDS UNDER MANAGEMENT IN PROGRAM: $0
WORST MONTHLY DRAWDOWN: (6.63)% 11/95
WORST PEAK-TO-VALLEY DRAWDOWN: (6.63)% 11/95
ACCOUNTS CLOSED WITH POSITIVE NET PERFORMANCE: 1
ACCOUNTS CLOSED WITH NEGATIVE NET PERFORMANCE: 0
<TABLE>
<CAPTION>
===========================================================
Rate of Return
(Computed on a compounded
monthly basis)
===========================================================
Month 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
January 8.55% --
- -------------------------------------------------------------------------------
February 0.06% --
- -------------------------------------------------------------------------------
March 1.63% --
- -------------------------------------------------------------------------------
April 2.48% --
- -------------------------------------------------------------------------------
May 3.46% (0.08)%
- -------------------------------------------------------------------------------
June 1.57% (0.04)%
- -------------------------------------------------------------------------------
July (1.92)% (0.51)%
- -------------------------------------------------------------------------------
August 0.31% (0.12)%
- -------------------------------------------------------------------------------
September 5.05% 3.43%
- -------------------------------------------------------------------------------
October 1.52% 0.87%
- -------------------------------------------------------------------------------
November (6.63)%
- -------------------------------------------------------------------------------
December 1.10%
===============================================================================
Year 16.59% (2.25)%
===============================================================================
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-36-
<PAGE> 39
SUPPLEMENTAL PERFORMANCE INFORMATION
The performance shown below is the actual results, net of
fees, of the Fund, for the period from November 20, 1997 through November 30,
1998. Performance from July 1, 1995 through October 31, 1997 is the pro forma
composite performance of all fully-funded accounts traded pursuant to the
Advisor's Leverage 3 trading program during the period presented. The historical
performance of the Leverage 3 trading program composite has been retroactively
adjusted on a pro forma basis approximately to reflect the cost/fee structure of
the Fund. The purpose of this pro forma presentation is to provide an
approximation of the rates of return such composite accounts would have achieved
had they been traded pursuant to the Fund's cost/fee structure from July 1,
1995. However, there are material limitations inherent in pro forma comparisons.
It is not feasible to make all the pro forma adjustments necessary to reflect
the effect of all the business terms of the Fund on the actual performance of
the accounts in the composite. The pro forma performance of the composite
accounts should not be considered to be indicative of how any one account in the
composite would have performed had it been subject to the Fund's cost/fee
structure.
The pro forma calculations were made on a month-to-month
basis. That is, the adjustments to fees and income in one month do not affect
the actual figures used in the following month for making similar pro forma
calculations. Accordingly, the pro forma performance does not reflect on a
cumulative basis the effect of the differences between the fees charged and
interest earned by the Fund and the fees charged and interest earned by the
accounts in the composite. The following assumptions were made in calculating
the pro forma rates of return: a General Partner management fee of 3% per annum
of month-end Net Assets; a quarterly Advisor incentive fee of 20% of New Trading
Profits; operating and administrative expenses of 1% per annum of average annual
Net Assets; actual brokerage commissions, ranging from $13.00 to $30.00 per
contract per round-turn trade, and actual interest income earned by the accounts
in the Leverage 3 trading program composite. PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
ADVISOR'S PRO FORMA COMPOSITE AND FUND
PERFORMANCE FROM JULY 1, 1995 THROUGH
NOVEMBER 30, 1998
[CHART]
DATA POINTS FOR MOUNTAIN CHART
<TABLE>
<S> <C>
6/95 $1000.00
7/95 987.20
8/95 982.76
9/95 1046.54
10/95 1061.29
11/95 957.71
12/95 976.00
1/96 1088.93
2/96 1086.97
3/96 1121.10
4/96 1166.50
5/96 1219.70
6/96 1239.46
7/96 1192.93
8/96 1199.03
9/96 1311.02
10/96 1351.92
11/96 1409.65
12/96 1300.26
1/97 1451.74
2/97 1501.97
3/97 1660.73
4/97 1478.55
5/97 1609.40
6/97 1764.70
7/97 2014.94
8/97 1808.21
9/97 2003.85
10/97 1829.12
11/97 1864.26
12/97 1751.29
1/98 1799.72
2/98 1987.50
3/98 2177.44
4/98 2230.48
5/98 2238.73
6/98 2220.02
7/98 2169.81
8/98 2832.94
9/98 2356.91
10/98 2825.15
11/98 3160.26
</TABLE>
-37-
<PAGE> 40
<TABLE>
<CAPTION>
ADVISOR'S PRO FORMA COMPOSITE AND FUND
PERFORMANCE FROM JULY 1, 1995 THROUGH
NOVEMBER 30, 1998
- --------------------------------------------------------------------------
1998 1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 2.8% 11.7% 11.6%
- --------------------------------------------------------------------------
February 10.4% 3.5% (0.2)%
- --------------------------------------------------------------------------
March 9.6% 10.6% 3.1%
- --------------------------------------------------------------------------
April 2.4% (11.0)% 4.1%
- --------------------------------------------------------------------------
May 0.4% 8.9% 4.6%
- --------------------------------------------------------------------------
June (0.8)% 9.7% 1.6%
- --------------------------------------------------------------------------
July (2.3)% 14.2% (3.8)% (1.3)%
- --------------------------------------------------------------------------
August 30.6% (10.3)% 0.6% (0.5)%
- --------------------------------------------------------------------------
September (16.8)% 10.8% 9.3% 6.5%
- --------------------------------------------------------------------------
October 19.9% (8.7)% 3.1% 1.4%
- --------------------------------------------------------------------------
November 11.9% 1.9% 4.3% (9.8)%
- --------------------------------------------------------------------------
December (6.1)% (7.8)% 1.9%
- --------------------------------------------------------------------------
Year 80.5% 34.7% 33.2% (2.4)%
(11 mos.) (6 mos.)
- --------------------------------------------------------------------------
</TABLE>
ADVISOR'S PRO FORMA COMPOSITE AND FUND
PERFORMANCE FROM JULY 1, 1995 THROUGH
NOVEMBER 30, 1998
PERFORMANCE VS. INDEX
---------------------
<TABLE>
<CAPTION>
Composite S&P
and Fund 500*
--------- ----
<S> <C> <C>
Total Return 216.0% 127.4%
Annualized Return 40.0% 27.2%
Worst Drawdown (16.8)% (15.4)%
Average Month 3.2% 2.1%
Best Month 30.6% 8.1%
Worst Month (16.8)% (14.5)%
Best 12 Months 69.5% 51.9%
Worst 12 Months 7.7% 8.1%
Positive Months 28 32
Negative Months 13 9
*Dividends reinvested
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-38-
<PAGE> 41
THE GENERAL PARTNER
BACKGROUND AND PRINCIPALS
ProFutures, Inc., a Texas corporation, began operations in
December 1984 and specializes in the management of speculative managed futures
accounts and funds. The General Partner has been registered with the CFTC as a
commodity pool operator since January 1987 and as a commodity trading advisor
and introducing broker since December 1984. The General Partner is a member of
the NFA in such capacities. Its office address is 11612 Bee Cave Road, Suite
100, Austin, Texas 78733. Its telephone numbers are (800) 348-3601 and (512)
263-3800. The principals of the General Partner are Gary D. Halbert, Debi B.
Halbert and Patrick W. Watson. The General Partner is also the commodity pool
operator of two multi-advisor, diversified public commodity pools.
Gary D. Halbert, born 1952, is a Director, President and
majority stockholder of the General Partner. Mr. Halbert is also the Chairman,
President and controlling stockholder of: (a) the Selling Agent; (b) ProFutures
Fund Management, Inc., which serves as a co-general partner in private
investment companies primarily engaged in the trading of securities; (c)
ProFutures Capital Management, Inc. ("PCM"), a registered investment adviser;
and (d) ProFutures International, Ltd., a Bahamian corporation. Mr. Halbert has
22 years of continuous experience in the futures industry. Mr. Halbert, who has
served as an arbitrator on several occasions for the NFA, holds a Master's
degree in International Management from the American Graduate School
(Thunderbird) and a Bachelor of Science degree from Texas Tech University.
Debi B. Halbert, born 1955, is a Director, the Chief Financial
Officer, Treasurer and minority shareholder of the General Partner. She is also:
(a) the Chief Financial Officer and Treasurer of ProFutures Fund Management,
Inc.; and (b) the Chief Financial Officer, Treasurer and Director of ProFutures
Financial Group, Inc., the Selling Agent, and ProFutures Capital Management,
Inc. Ms. Halbert, the wife of Gary D. Halbert, attended Richland College
(Texas). She has over 15 years of experience in the futures industry. Ms.
Halbert's principal responsibility is serving as Chief Financial Officer and
compliance officer. She manages back-office operations and administration of the
Fund and other accounts.
Patrick W. Watson, born 1964, is Vice President of the General
Partner and is involved in business development, management information systems
and investor relations. Mr. Watson joined the General Partner in October 1991.
He has also served as Vice President of the Selling Agent and ProFutures Capital
Management, Inc. since February 1996. Mr. Watson has a Bachelor of Arts degree
from Howard Payne University and a Master of Arts degree from Rice University.
YEAR 2000 COMPLIANCE
The General Partner's modifications for Year 2000 systems
compliance are proceeding according to plan and are expected to be completed on
or before June 30, 1999. These modifications will include all systems which
substantially affect the operations of the Fund. Based on information currently
available, the remaining expenditures are estimated at less than $5,000 and will
cover any hardware and software upgrades, systems consulting and computer
maintenance. These expenditures are not expected to have a material adverse
impact on the General Partner's financial position, results of operations or
cash flows in future periods. However, the failure of the General Partner's
futures exchanges, clearing organizations, vendors, clients or regulators to
resolve their own processing issues in a timely manner could result in a
material financial risk. The General Partner is devoting the necessary resources
to address its Year 2000 issues in a timely manner.
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<PAGE> 42
GENERAL PARTNER'S INVESTMENT
The General Partner, together with its principals and
affiliates, is required by the Limited Partnership Agreement to maintain an
aggregate investment in the Fund equal to at least 1% of the total contributions
of all partners to the Fund. The General Partner, its principals and affiliates
may make withdrawals of such investment as of the end of any month, but at all
times their aggregate capital accounts must equal at least 1% of the Fund's Net
Assets. The General Partner's general partnership interest in the Fund will, for
purposes of allocating Fund expenses, be treated as Units.
As of October 31, 1998, the value of the General Partner's
investment in the Fund was approximately $94,639, and the principals of the
General Partner owned Units with an aggregate value of approximately $316,702.
PERFORMANCE OF THE FUND AND THE GENERAL PARTNER
The past performance of the Fund is set forth on page 21. The
past performance of the General Partner's other commodity pools is set forth
below.
The General Partner is a co-general partner of ATA
Research/ProFutures Diversified Fund, L.P. (the "Diversified Fund") and is the
general partner of Alternative Asset Growth Fund, L.P. (the "Alternative Fund").
These pools are multi-advisor, widely-diversified commodity pools that have
previously sold interests on a public basis. The CFTC requires commodity pool
operators to disclose the performance of other pools they operate for only the
past five years, although the CFTC permits older performance to be included on a
supplemental basis. The past performance of the General Partner's other
commodity pools since inception through October 31, 1998 is set forth in the
capsule performance table on the following page.
Each of the following funds is a materially different
investment than the Fund. CFTC regulations require their performance to be
included in this Prospectus.
In the following capsules "Drawdown" means losses experienced
by the pool over a specified period and "Worst Peak-to-Valley Drawdown" means
the greatest cumulative percentage decline in month-end net asset value due to
losses sustained by the pool during any period in which the initial month-end
net asset value is not equaled or exceeded by a subsequent month-end net asset
value.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURES RESULTS
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<PAGE> 43
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
SUMMARY OF CAPSULE PERFORMANCE OF OTHER POOLS
OPERATED BY PROFUTURES, INC.
AS OF OCTOBER 31, 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ATA Research/ProFutures Alternative Asset
Name of Pool Diversified Fund L.P. Growth Fund, L.P.
- --------------------------------------------------------------------------------------------------------
Type of Pool: Publicly Offered Publicly Offered
- --------------------------------------------------------------------------------------------------------
Inception of Trading: August 1987 March 1990
- --------------------------------------------------------------------------------------------------------
Aggregate Subscriptions: $128,636,643 $37,373,069
- --------------------------------------------------------------------------------------------------------
Current Net Asset Value: $86,309,999 $16,811,876
- --------------------------------------------------------------------------------------------------------
Largest Monthly Percentage (7.26)% (4/98) (6.72)% (2/96)
Drawdown: (Inception of Trading to Date) (Inception of Trading to Date)
- --------------------------------------------------------------------------------------------------------
(7.26)% (4/98) (6.72)% (2/96)
(Past Five Years and Year-to-Date) (Past Five Years and Year-to-Date)
- --------------------------------------------------------------------------------------------------------
Worst Peak-to-Valley (17.23)% (7/93 to 10/95) (16.13)% (7/93 to 10/95)
Drawdown: (Inception of Trading to Date) (Inception of Trading to Date)
- --------------------------------------------------------------------------------------------------------
(17.23)% (7/93 to 10/95) (16.13)% (7/93 to 10/95)
(Past Five Years and Year-to-Date) (Past Five Years and Year-to-Date)
- --------------------------------------------------------------------------------------------------------
Rates of Return:
- --------------------------------------------------------------------------------------------------------
1998 through October 9.73% 11.04%
- --------------------------------------------------------------------------------------------------------
1997 9.92% 9.43%
- --------------------------------------------------------------------------------------------------------
1996 11.13% 4.83%
- --------------------------------------------------------------------------------------------------------
1995 0.73% (3.49)%
- --------------------------------------------------------------------------------------------------------
1994 (0.50)% 0.85%
- --------------------------------------------------------------------------------------------------------
1993 6.54% 8.09%
- --------------------------------------------------------------------------------------------------------
1992 2.83% (4.86)%
- --------------------------------------------------------------------------------------------------------
1991 7.65% 6.05%
- --------------------------------------------------------------------------------------------------------
1990 38.66% 12.44%
- --------------------------------------------------------------------------------------------------------
1989 11.57% --
- --------------------------------------------------------------------------------------------------------
1988 2.18% --
- --------------------------------------------------------------------------------------------------------
1987 1.36% --
- --------------------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
THE GENERAL PARTNER'S COMMODITY POOLS INCLUDED IN THE FOREGOING
TABLE ARE MATERIALLY DIFFERENT INVESTMENTS THAN THE FUND.
-41-
<PAGE> 44
BROKERAGE ARRANGEMENTS
The Fund's brokers are responsible for holding and maintaining
the Fund's funds, securities, commodities and other assets on deposit, the
execution or clearance of transactions, the recordkeeping, preparation and
transmittal to the Fund of daily confirmations of transactions and monthly
statements of account, the calculation of the balance and margin requirements of
the Fund's accounts maintained at such brokers, and similar administrative
functions.
Substantially all of the Fund's assets are deposited primarily
in one brokerage account with the Futures Broker. Such assets may, however, be
deposited in more than one brokerage account with various futures commission
merchants. The General Partner has sole responsibility for selection of the
Fund's futures brokers. The designation of clearing brokers may change at any
time and limited partners will receive notice of such change in the Fund's
monthly reports. The General Partner also has the sole authority to negotiate
brokerage rates for the Fund.
The Futures Broker is a duly registered futures commission
merchant and a member of the NFA. The Futures Broker is also registered as a
broker-dealer and is a member of the NASD. The Futures Broker, which was formed
in 1990, operates under the trade name ING BARINGS Futures & Options Clearing
Services and is a clearing firm of each of the principal U.S. futures exchanges
and the Chicago Board of Options Exchange. The Futures Broker is a wholly-owned
subsidiary of ING Bank N.V. in Amsterdam, one of the largest financial
institutions in the world. The Futures Broker is an Illinois corporation with a
principal place of business at 233 South Wacker Drive, Suite 5200, Chicago,
Illinois 60606; telephone (312) 496-7000.
At any given time, the Futures Broker may be involved in legal
actions, some of which may seek significant damages. With the exception of the
action noted below, during the past five years preceding the date hereof, there
have been no administrative, civil or criminal actions against the Futures
Broker or any of its principals -- whether pending, on appeal or concluded --
which is material in light of all the circumstances.
In 1998, a former client filed a demand for arbitration at the
NFA seeking a significant award. It is alleged that the claimants' liquidation
of positions on a foreign futures exchange in the volatile period of October
1997 resulted in losses. The Futures Broker is vigorously defending the claim,
which it believes to be baseless.
Under the customer agreement between the Futures Broker and
the Fund, the Fund has agreed to maintain at all times such collateral and/or
margin in accordance with exchange minimum margin requirements as established by
the exchange on which the transaction is executed and has agreed to pay
immediately on demand any amount owing with respect to any of the Fund's
accounts. Margin requirements may be increased at the Futures Broker's sole and
absolute discretion, and may differ from those established by the exchange on
which the transaction is executed. If the Fund fails to deposit sufficient funds
to pay for any commodities and/or to satisfy any demands for original and/or
variation margin, or whenever in the Futures Broker's sole and absolute
discretion the Futures Broker considers it necessary, the Futures Broker may,
without prior demand or notice, when and if it deems appropriate,
notwithstanding any rule of any exchange, liquidate the positions in the Fund's
account(s), hedge and/or offset those positions in the cash market or otherwise,
sell any property belonging to the Fund or in which the Fund has an interest,
cancel any open orders for the purchase and sale of any property, or borrow or
buy any property required to make delivery against any sales, including a short
sale, effected for the Fund, all for the Fund's sole account and risk. The Fund
has agreed that the Futures Broker has no duty and is not required to liquidate
positions in the Fund's account(s).
-42-
<PAGE> 45
The Fund has obtained the foregoing information from the
Futures Broker. Other than providing this information, the Futures Broker is not
a party to and has not reviewed or passed upon the merits of this Prospectus nor
will the Futures Broker participate in the Fund beyond its clearing duties
pursuant to a brokerage agreement, so long as that agreement is in effect.
NET ASSET VALUE
The Net Asset Value of the Fund equals its assets less its
liabilities, as determined in accordance with Generally Accepted Accounting
Principles, including any unrealized profits and losses on its open positions.
More specifically, the Net Asset Value of the Fund equals the sum of all cash,
the liquidating value (or cost of liquidation, as the case may be) of all
futures and options on futures positions and the fair market value of all other
assets of the Fund, less all liabilities of the Fund (including accrued
liabilities, irrespective of whether such liabilities -- for example, incentive
fees -- may in fact never be paid), in each case, as determined by the General
Partner generally in accordance with Generally Accepted Accounting Principles.
The Net Asset Value of a Unit equals the Net Asset Value of the Fund divided by
the total number of Units outstanding. The General Partner's investment is
treated on a Unit-equivalent basis.
CONFLICTS OF INTEREST
Neither the General Partner, the Advisor, nor their respective
principals and affiliates (the "Associated Parties") has established any formal
procedures to resolve the following conflicts of interest. Consequently,
investors cannot rely on an independent control on how the Associated Parties
will resolve these conflicts to ensure that the Fund is treated equitably with
other clients of the Associated Parties.
Because no formal procedures are in place for resolving
conflicts, they may be resolved by the Associated Parties in a manner which
causes the Fund losses. The value of limited partners' investment may be
diminished by actions or omissions which independent third parties could have
prevented or corrected.
Although the following conflicts of interest are present in
the operation of the Fund, the General Partner does not believe that they are
likely to have a material adverse effect on its performance.
This belief is based on a number of factors, including the following:
(i) The Advisor trades all similarly situated accounts in
parallel, placing bulk orders which are allocated among the
Advisor's accounts pursuant to pre-established procedures.
Consequently, the Advisor has little opportunity to prefer
another client over the Fund.
(ii) The Futures Broker simply receives and executes the Advisor's
bulk orders based on pre-established procedures. The Futures
Broker has no ability in allocating positions to favor one
account over another.
(iii) The General Partner, as a fiduciary, is prohibited from
benefiting itself at the expense of the Fund.
Any of the Associated Parties are free to manage and advise
commodity pools and commodity trading accounts in addition to the Fund's
account. The General Partner or the Advisor may
-43-
<PAGE> 46
have a conflict of interest in rendering advice to the Fund because their
respective benefit from managing some other commodity pools or commodity
accounts may exceed their benefit from managing the Fund's account and,
therefore, may provide an incentive to favor such other accounts. Moreover, if
any of the Associated Parties makes trading decisions for such other accounts
and the Fund's account at or about the same time, the Fund may be competing
with such other pools or accounts for the same or similar positions. No
Associated Party will enter into transactions where it knowingly and
deliberately favors itself or another client over the Fund; however, the
Associated Parties each have considerable flexibility to trade for other
accounts, and each intends to do so to a significant extent. Accordingly, no
assurance is given that the performance of all accounts controlled and managed
by the Associated Parties will be identical or even similar.
The Associated Parties may trade in the futures markets for
their own accounts. An Associated Party may, as a result of a neutral allocation
system or testing a new trading system, trade proprietary accounts more
aggressively, or take any other actions that would not constitute a violation of
applicable duties to the Fund, which includes taking positions in their
proprietary accounts which are the same as, similar to or opposite from those
positions taken for a client, including the Fund. The records of such trading
will not be made available to limited partners.
The Selling Agent will have an incentive to sell Units
(despite receiving no direct compensation other than possibly any excess of the
aggregate organizational charge) since the management fee received by the
General Partner (its affiliate) will be greater should the Fund's capitalization
increase.
The General Partner is an affiliate of PCM, a registered
investment adviser. Under its AdvisorLink program, PCM has selected the
Advisor's mutual fund trading program as one of a few it recommends to its
clients. PCM receives a portion of the fees paid to the Advisor by clients which
PCM referred to the Advisor's mutual fund trading program.
The General Partner operates two multi-advisor, diversified
commodity pools. The General Partner is a co-general partner of the Diversified
Fund and is the general partner of the Alternative Fund. The General Partner has
selected the Futures Broker to serve as the primary futures broker for both of
these pools. The Futures Broker has agreed, so long as it remains the futures
broker for these pools and the Fund, to purchase, under specified conditions,
shares of common stock of the General Partner sufficient to meet the net worth
requirement imposed on the General Partner in connection with its
publicly-offered funds (including the Fund). Accordingly, there is an incentive
for the General Partner to retain the Futures Broker as the primary futures
broker for the Fund. In addition, the Advisor is a trading advisor to the
Diversified Fund and the Alternative Fund.
The Futures Broker acts as commodity broker for accounts other
than the Fund, including accounts of the Futures Broker's affiliates and of
limited partnerships of which the Futures Broker or one of its affiliates is
general partner, and may have financial and other incentives to favor certain of
such accounts over the Fund. The compensation received by the Futures Broker
from such accounts may be more or less than the compensation the Futures Broker
will receive for its services to the Fund.
Certain employees of the Futures Broker are, and will in the
future be, members of United States commodities exchanges and are and will serve
on the governing bodies and standing committees of such exchanges and of their
clearinghouses. In such capacities, these employees have a fiduciary duty to the
exchanges and their clearinghouses which will compel such employees to act in
the best interests of these entities, perhaps to the detriment of the Fund.
-44-
<PAGE> 47
THE STOCK INDEX FUTURES MARKETS
STOCK INDEX FUTURES CONTRACTS
Stock index futures contracts are contracts made on a
commodity exchange and call for cash settlement, at the close of business on the
expiration date of the contract, based on the level of the index in question at
such time. In addition, under the daily marked-to-market procedure employed by
commodity exchanges, there is a cash settlement each day that a trader holds an
open position whereby the trader either pays or receives variation margin based
on the change in the value of his position since the close of trading on the
previous day.
STOCK INDEX OPTIONS
An option on a stock index futures contract gives the
purchaser of the option the right (but not the obligation) to take a position at
a specified price (the "striking," "strike" or "exercise" price) in the
underlying stock index futures contract. Options have limited life spans,
usually tied to the delivery or settlement date of the underlying futures
contract. The value of an option at any given point in time is a function of
market volatility and the price level of the underlying stock index futures
contract.
STOCK INDEX FUTURES MARKET PARTICIPANTS
The two broad classifications of persons who trade in stock
index futures are "hedgers" and "speculators." Financial institutions, pension
plans and corporations with large equity portfolios use the stock index futures
markets to hedge such portfolios against declines in overall stock index levels.
In doing so, such hedgers typically accept the "delta" risk -- i.e., the risk
that their actual equity portfolio will perform somewhat differently from the
overall market -- for their own account. A pension plan might, for example,
decide during a run-up in the S&P 500 Stock Index, that it is prudent to hedge
50% of a $100 million stock portfolio against the risk of the S&P 500 Stock
Index level dropping below a certain level. Accordingly, the plan would acquire
short positions in the S&P 500 Contract with an aggregate face value of $50
million when the market was at such pre-determined level. For every decline of
the Index below such level, the plan would earn $1 on its short futures position
for every $2 it lost in its equity portfolio -- plus or minus the extent to
which such portfolio overperformed or underperformed the S&P 500 Stock Index.
The objective of the hedger is to protect all or a portion of the value of his
equity holdings from price declines, rather than to profit from his futures
trading. The speculator, on the other hand, risks his capital with the hope of
making profits from fluctuations in the price of stock index futures contracts.
The speculator is, in effect, the risk bearer who assumes the risks which the
hedger seeks to avoid.
The stock index futures markets are also used by a number of
market participants as a means of establishing "proxy" or "surrogate" equity
portfolios which will be replaced in due course by the acquisition of actual
stocks. For example, a money manager might determine that it was appropriate to
rebalance an investment company's portfolio by allocating 10% of such fund's
overall holdings out of fixed income instruments and into common stocks. To
purchase stocks comprising the S&P 500 Stock Index and in a manner which will
minimize execution costs might take several days, whereas the manager may
believe that a major stock market movement is imminent. In such circumstances,
the manager could acquire stock index futures contracts with a gross value equal
to 10% of the investment company's portfolio, thereby immediately positioning
the fund to take advantage of upward movements in overall equity price levels,
and gradually close out futures positions as the fund's brokers gradually
acquired the "cash" equity positions in what they considered to be the most
advantageous manner.
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<PAGE> 48
Another group of market participants in the stock index
futures markets are institutions which engage in the arbitrage strategy
commonly referred to as "program trading." Program trading involves the
purchase or sale of a cash equity portfolio and the simultaneous offsetting
sale or purchase of stock index futures contracts of the same aggregate face
value. The purpose is to capture the pricing differentials which develop
between the cash and the futures markets, whereby one is from time to time
over- or under-priced with respect to the other, after taking into account the
dividends one earns on actual stocks (as opposed to futures) held and the
interest one earns on the assets which one would otherwise have to spend to
acquire a "cash" equity position, but which one is able to retain if such
position is established in the futures markets, in which it is not necessary to
acquire any actual stocks. Barring execution "slippage" the arbitrage position
established in a classic program trade should be riskless because upon the
expiration of the stock index futures contracts acquired, the value of such
contracts would equal the value of the "cash" stock index, thereby causing the
program traders' futures and cash positions exactly to offset each other.
SPECULATIVE POSITION LIMITS
The exchanges have established, and the CFTC has approved,
limits, referred to as "speculative position limits," on the maximum net long or
net short position that any person (other than a hedger) may hold or control in
stock index futures contracts. The position limit for the S&P 500 Contract is
very high relative to other stock indices. The principal purpose of speculative
position limits is to prevent a "corner" on a market or undue influence on
prices by any single trader or group of traders.
DAILY LIMITS
The exchanges have established, and the CFTC has approved,
regulations which limit the amount of fluctuation in stock index futures
contract prices during a single trading day. These regulations specify what are
referred to as "daily price fluctuation limits" or more commonly "daily limits."
The daily limits establish the maximum amount by which the price of a stock
index futures contract may vary either up or down from the previous day's
settlement price at the end of the trading session. Once the daily limit has
been reached in a particular commodity for delivery in a particular month, it
may be difficult, costly or impossible to liquidate positions in that futures
contract. Since "daily limits" restrict price movements only for a given trading
day, they do not limit ultimate losses.
REGULATION
Commodity exchanges in the United States, and trading thereon,
are subject to regulation by the CFTC under the CEA. In addition, the various
commodity exchanges themselves exercise regulatory and supervisory authority
over their members.
The CFTC also regulates the activities of "commodity trading
advisors" and "commodity pool operators" and has adopted regulations with
respect to certain of such persons' activities. Under the CEA, a registered
commodity pool operator, such as the General Partner, is required to make annual
filings with the CFTC describing its organization, capital structure, management
and controlling persons. In addition, the CEA authorizes the CFTC to require the
maintenance of specified books and records and the preparation of disclosure
documents by registered commodity pool operators. Pursuant to such authority,
the CFTC requires a commodity pool operator to keep accurate, current and
orderly records with respect to each pool it operates. The CFTC has delegated
substantial authority to review such books, records and documents to the NFA.
The CFTC may suspend the registration of a commodity pool operator (i) if the
CFTC finds that the operator's trading practices tend to disrupt orderly market
conditions, (ii) if any controlling person of the pool operator is subject to an
order of the CFTC denying such person trading privileges on any exchange and
(iii) in certain other circumstances.
-46-
<PAGE> 49
Suspension or termination of the General Partner's registration as a commodity
pool operator would prevent it, until such time (if any) as such registration
were reinstated, from acting as general partner of the Fund, and would be
likely to result in the termination of the Fund.
The CEA gives similar authority to the CFTC with respect to
the activities of "commodity trading advisors," such as the Advisor. If the
Advisor's registration as a commodity trading advisor were to be terminated or
suspended, it would be unable, until such time (if any) as such registration was
reinstated, to render trading advice to the Fund and the Fund's trading
activities would be suspended unless the General Partner selected another
trading advisor, which would be unlikely.
The CEA requires all "futures commission merchants," such as
the Futures Broker, to meet and maintain specified financial requirements,
account separately for all customers' funds and positions, and maintain
specified books and records open to inspection by the staff of the CFTC. The
CFTC has, in effect, delegated responsibility to audit compliance with such
financial requirements to the commodity exchanges and the NFA. The CEA
authorizes the CFTC to regulate trading by futures commission merchants and
their officers and directors, permits the CFTC to require action by exchanges in
the event of market emergencies, and establishes a reparations procedure under
which commodity customers may institute complaints for damages arising from
alleged violations of the CEA by persons required to be registered thereunder.
The CEA also gives the states certain powers to enforce its provisions and the
regulations of the CFTC.
Limited partners are afforded certain rights to institute
reparation proceedings under the CEA for violations of the CEA or of any rule,
regulation or order of the CFTC by the General Partner, the Advisor or the
Futures Broker.
The NFA is a "registered futures association" under Section 17
of the CEA. At the present time, the NFA is the only non-exchange,
self-regulatory organization for commodities industry professionals. The NFA
also arbitrates disputes between members and their customers and conducts
registration and fitness screening of applicants for membership.
The regulations of the CFTC and the NFA prohibit any
representation by a person registered with the CFTC or by a member of the NFA,
respectively, that such registration or membership in any respect indicates that
the CFTC or the NFA, as the case may be, has approved or endorsed such person or
such person's trading program or objectives. The registrations and memberships
described above must not be considered as constituting any such approval or
endorsement.
The regulation of futures contract trading in the United
States and other countries is a constantly changing area of the law. The various
statements made herein are subject to modification by legislative action and
changes in the rules and regulations of the CFTC, the NFA, commodity exchanges
and other regulatory bodies.
MARGIN
Initial margin is the minimum amount of funds that must be
deposited by a commodity futures trader with his commodity broker in order to
initiate futures trading. Maintenance margin is the minimum which must remain on
deposit with the broker to maintain the trader's open positions in futures
contracts. A margin deposit, like a cash performance bond, helps assure the
commodity trader's performance of his obligations under his open positions. The
initial margin on the S&P 500 Contract is currently set at approximately 6% of
contract value.
-47-
<PAGE> 50
The minimum amount of margin required to acquire or maintain a
particular futures contract is set from time to time by the exchange upon which
such commodity futures contract is traded and may be modified from time to time
by the exchange during the term of the contract. Brokerage firms carrying
accounts for traders in commodity futures contracts may increase the amount of
margin required as a matter of policy in order to further protect themselves.
Such increased margin requirements may apply to existing positions held by the
Fund as well as to positions acquired in the future.
When the market value of a particular open commodity futures
or option position changes to a point where the margin on deposit does not
satisfy maintenance margin requirements, a margin call will be made by the
trader's commodity broker. If the margin call is not met within a reasonable
time, the broker is generally required to close out the trader's position.
Margin requirements are computed each day by the trader's commodity broker. With
respect to the Fund's trading, the Fund, and not the limited partners
personally, will be subject to margin calls.
THE FOREGOING DESCRIPTION OF THE STOCK INDEX FUTURES MARKETS
IS INTENDED TO PROVIDE ONLY A SUMMARY OF SELECTED ASPECTS OF THIS INDUSTRY AND
SHOULD NOT BE VIEWED AS BEING EITHER COMPREHENSIVE OR EXHAUSTIVE. PROSPECTIVE
INVESTORS SHOULD HAVE A GENERAL FAMILIARITY WITH THE STOCK INDEX FUTURES MARKETS
AND MAY CONSULT AN INDEPENDENT ADVISER OR CONTACT THE GENERAL PARTNER FOR
FURTHER INFORMATION.
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT
The Fund's Limited Partnership Agreement effectively gives the
General Partner full control over the management of the Fund. Limited partners
have no voice in its operations. In addition, the General Partner in its
operation of the Fund is specifically authorized to engage in the transactions
described herein, and is exculpated and indemnified by the Fund against claims
sustained in connection with the Fund, provided that such claims were not the
result of the General Partner's negligence or misconduct and that the General
Partner determined that such conduct was in the best interests of the Fund.
Although limited partners have no right to participate in the
control or management of the Fund, they are entitled to: (i) vote on a variety
of different matters; (ii) receive annual audited financial statements,
unaudited monthly reports and timely tax information; (iii) inspect the Fund's
books and records; (iv) redeem Units; and (v) not have the business terms of the
Fund changed in a manner which increases the compensation received by the
General Partner or its affiliates without the consent of a majority of the
limited partners.
Limited partners' voting rights extend to any proposed change
in the Limited Partnership Agreement which would adversely affect them, as well
as to their right to terminate the Fund's contracts with affiliates of the
General Partner. Limited partners also have the right to call meetings of the
Fund in order to permit limited partners to vote on any matter on which they are
entitled to vote, including the removal of the General Partner as general
partner of the Fund.
Limited partners or their duly authorized representatives may
inspect the Fund's books and records, for a purpose related to their status as
limited partners in the Fund, during normal business hours upon reasonable
written notice to the General Partner. They may also obtain copies of such
records upon payment of reasonable reproduction costs; provided, however, that
such limited partners represent that the inspection and/or copies of such
records will not be for commercial purposes unrelated to such limited partners'
interest in the Fund.
-48-
<PAGE> 51
The Limited Partnership Agreement provides for the economic
and tax allocations of the Fund's profit and loss. Economic allocations are
based on investors' capital accounts, and the tax allocations generally attempt
to equalize tax and capital accounts by, for example, making a priority
allocation of taxable income to limited partners who redeem at a profit.
The General Partner may amend the Limited Partnership
Agreement in any manner not adverse to the limited partners without need of
obtaining their consent.
TAX CONSEQUENCES
The following constitutes the opinion of Sidley & Austin and
summarizes the material federal income tax consequences to United States
taxpayers who are individuals.
PARTNERSHIP TAX STATUS OF THE FUND
The Fund is a partnership for federal income tax purposes and,
based on the type of income expected to be earned by the Fund, it will not be
treated as a "publicly-traded partnership." Therefore, the Fund will not pay
federal income tax.
TAXATION OF PARTNERS ON PROFITS OR LOSSES OF THE FUND
Each Partner must pay tax on his share of the Fund's income
and gains. Such share must be included each year in a Partner's taxable income
whether or not such Partner has redeemed Units. In addition, a Partner may be
subject to paying taxes on the Fund's interest income even though the Net Asset
Value per Unit has decreased due to trading losses. See "-- Tax on Capital Gains
and Losses; Interest Income," below.
The Fund provides each Partner with an annual schedule of his
share of tax items. The Fund generally allocates these items equally to each
Unit. However, when a Partner redeems Units, the Fund allocates capital gains or
losses so as to reduce or eliminate any difference between the redemption
proceeds and the tax accounts of such Units.
LIMITED DEDUCTIBILITY OF FUND LOSSES AND DEDUCTIONS
A Partner may not deduct Fund losses or deductions in excess
of his tax basis in his Units as of year-end. Generally, a Partner's tax basis
in his Units is the amount paid for such Units reduced (but not below zero) by
his share of any Fund distributions, losses and deductions and increased by his
share of the Fund's income and gains.
LIMITED DEDUCTIBILITY FOR CERTAIN EXPENSES
Individual taxpayers are subject to material limitations on
their ability to deduct investment advisory fees, unreimbursed expenses of an
employee, and certain other expenses of producing income not resulting from the
conduct of a trade or business. There is substantial uncertainty as to whether
various expenses incurred in connection with the type of trading strategies
conducted by the Fund should be considered investment expenses or business
expenses in applying this tax provision. For tax reporting purposes, the General
Partner currently intends to treat the ordinary expenses of the Fund as ordinary
business expenses not subject to the limitations described below. However, the
IRS might contend that the management fees, the incentive fee and other expenses
of the Fund constitute "investment advisory fees" subject to the limitations.
-49-
<PAGE> 52
For individuals who itemize deductions, the expenses of
producing income, including "investment advisory fees," are to be aggregated
with unreimbursed employee business expenses and certain other expenses of
producing income (collectively, the "Aggregate Investment Expenses"), and such
Aggregate Investment Expenses will be deductible only to the extent in excess
of 2% of the individual's adjusted gross income. In addition, Aggregate
Investment Expenses in excess of the 2% threshold, when combined with certain
other itemized deductions, are subject to a reduction generally equal to 3% of
the individual's adjusted gross income in excess of a certain threshold amount.
Moreover, such Aggregate Investment Expenses are miscellaneous itemized
deductions, which are not deductible by an individual in calculating his or her
alternative minimum tax liability.
If the management fees, the incentive fee and other expenses
of the Fund were determined to constitute "investment advisory fees," an
individual Partner's pro rata share of the amounts so characterized would be
included in Aggregate Investment Expenses potentially subject to the deduction
limitations described above. In addition, each individual Partner's share of
income from the Fund would be increased (solely for tax purposes) by such
Partner's pro rata share of the amounts so characterized. Any such
characterization by the IRS could require Partners to file amended tax returns
and pay additional taxes, plus interest. It is unlikely that tax penalties would
be imposed on account of such an IRS characterization.
YEAR-END MARK-TO-MARKET OF OPEN POSITIONS
Section 1256 Contracts are futures, futures options traded on
U.S. exchanges and stock index options. Currently, all of the Fund's open
positions are Section 1256 Contracts. Section 1256 Contracts that remain open at
the end of each year are treated for tax purposes as if such positions had been
sold and any gain or loss recognized. The gain or loss on Section 1256 Contracts
is characterized as 40% short-term capital gain or loss and 60% long-term
capital gain or loss regardless of how long any given position has been held.
Non-U.S. exchange-traded futures are generally non-Section 1256 Contracts. Gain
or loss on any non-Section 1256 Contracts will be recognized when sold by the
Fund and will be primarily short-term gain or loss.
TAX ON CAPITAL GAINS AND LOSSES; INTEREST INCOME
As described under "-- Year-End Mark-to-Market of Open
Positions," the Fund's trading, not including its cash management which
generates primarily ordinary income, generates 60% long-term capital gains or
losses and 40% short-term capital gains or losses from its Section 1256
Contracts and primarily short-term capital gain or loss from any non-Section
1256 Contracts. Individuals pay tax on long-term capital gains at a maximum rate
of 20%. Short-term capital gains are subject to tax at the same rates as
ordinary income, with a maximum rate of 39.6% for individuals.
Individual taxpayers may deduct capital losses only to the
extent of their capital gains plus $3,000. Accordingly, the Fund could incur
significant losses but a limited partner could be required to pay taxes on his
share of the Fund's interest income.
If an individual taxpayer incurs a net capital loss for a
year, he may elect to carry back (up to three years) the portion of such loss
which consists of a net loss on Section 1256 Contracts. A taxpayer may deduct
such losses only against net capital gain for a carryback year to the extent
that such gain includes gains on Section 1256 Contracts. To the extent that a
taxpayer could not use such losses to offset gains on Section 1256 Contracts in
a carryback year, the taxpayer may carry forward such losses indefinitely as
losses on Section 1256 Contracts.
-50-
<PAGE> 53
SYNDICATION EXPENSES
Neither the Fund nor any limited partner will be entitled to
any deduction for the Fund's syndication expenses, including the one-time
upfront organizational charge paid to the General Partner and any amount paid by
the General Partner to any Additional Selling Agents, nor can such expenses be
amortized by the Fund or any limited partner.
UNRELATED BUSINESS TAXABLE INCOME
Tax-exempt limited partners will not be required to pay tax on
their share of income or gains of the Fund, provided that such limited partners
do not purchase Units with borrowed funds.
IRS AUDITS OF THE FUND AND ITS PARTNERS
The IRS is required to audit Fund-related items at the Fund
level rather than the partner level. The General Partner is the Fund's "tax
matters partner" with general authority to determine the Fund's responses to a
tax audit. If an audit of the Fund results in an adjustment, all partners may be
required to pay additional taxes plus interest as well as penalties.
STATE AND OTHER TAXES
In addition to the federal income tax consequences described
above, the Fund and the partners may be subject to various state and other
taxes.
--------------------
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
BEFORE DECIDING WHETHER TO INVEST.
PURCHASES BY EMPLOYEE BENEFIT PLANS
IN GENERAL
This section sets forth certain consequences under the
Employee Retirement Income Security Act of 1974 ("ERISA") and the Code which a
fiduciary of an "employee benefit plan" as defined in and subject to ERISA or of
a "plan" as defined in Section 4975 of the Code who has investment discretion
should consider before deciding to invest the plan's assets in the Fund (such
"employee benefit plans" and "plans" being referred to herein as "Plans," and
such fiduciaries with investment discretion being referred to herein as "Plan
Fiduciaries"). Furthermore, all potential investors should read the following
disclosure because it describes certain issues that could affect the Fund as a
consequence of Plans purchasing Units. The terms "employee benefit plans" and
"plans" include, but are not limited to, corporate pension and profit sharing
plans, "simplified employee pension plans," KEOGH plans for self-employed
individuals (including partners), individual retirement accounts described in
Section 408 of the Code and medical benefit plans.
SPECIAL INVESTMENT CONSIDERATIONS
Each Plan Fiduciary must give appropriate consideration to the
facts and circumstances that are relevant to an investment in the Fund,
including the role that an investment in the Fund plays or would play in the
Plan's overall investment portfolio. Each Plan Fiduciary, before deciding to
invest in the Fund, must be satisfied that such investment is prudent for the
Plan, that the investments of the Plan,
-51-
<PAGE> 54
including the investment in the Fund, are diversified so as to minimize the
risk of large losses and that an investment in the Fund complies with the terms
of the Plan and related trust.
THE FUND SHOULD NOT BE DEEMED TO HOLD "PLAN ASSETS"
A regulation issued under ERISA (the "ERISA Regulation")
contains rules for determining when an investment by a Plan in an equity
interest of a limited partnership will result in the underlying assets of the
partnership being assets of the Plan for purposes of ERISA and Section 4975 of
the Code (i.e., "plan assets"). Those rules provide in pertinent part that
assets of a limited partnership will not be plan assets of a Plan which
purchases an equity interest in the partnership if (i) investment by all
"benefit plan investors" is not significant (the "Participation Exception"), or
(ii) the equity interest purchased is a "publicly-offered security" (the
"Publicly-Offered Security Exception"). If the underlying assets of a
partnership are considered to be assets of any Plan for purposes of ERISA or
Section 4975 of the Code, the operations of such partnership would be subject
to and, in some cases, limited by, the provisions of ERISA and Section 4975 of
the Code.
The Participation Exception applies if, immediately after the
most recent acquisition of an equity interest of the partnership, "benefit plan
investors" (defined as any Plan, any other employee benefit plan as defined in,
but not subject to, ERISA and any entity deemed for any purpose of ERISA or
Section 4975 of the Code to hold assets of any employee benefit plan or plan)
own, in the aggregate, less than 25% of the value of each class of equity
interests of the partnership (determined by not including the investments of
persons with discretionary authority or control over the assets of such
partnership, certain other persons and their "affiliates" (as defined in the
ERISA Regulation)).
The Publicly-Offered Security Exception applies if the equity
interest is a security that is (1) "freely transferable" (determined based on
the applicable facts and circumstances), (2) part of a class of securities that
is "widely held" (meaning that the class of securities is owned by 100 or more
investors independent of the issuer and of each other) and (3) either (a) part
of a class of securities registered under Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, or (b) sold to the Plan as part of a public
offering pursuant to an effective registration statement under the Securities
Act of 1933 and the class of which such security is a part is registered under
the Securities Exchange Act of 1934 within 120 days (or such later time as may
be allowed by the Securities and Exchange Commission) after the end of the
fiscal year of the issuer in which the offering of such security occurred.
Prior to the date of this Prospectus, the General Partner
relied upon the Participation Exception to avoid having the underlying assets of
the Fund be plan assets. As of the date of this Prospectus, the General Partner
believes that the Publicly-Offered Security Exception will apply with respect to
the Units and, accordingly, will rely upon such exception, instead of the
Participation Exception, to avoid having the underlying assets of the Fund be
plan assets.
In the event that the number of investors holding Units who
are independent of the Fund and of each other drops below 100, the
Publicly-Offered Security Exception may no longer apply and, therefore, the
General Partner intends, in such situation, to thereafter comply with the
Participation Exception. In addition, if it is determined for any other reason
that the Units do not qualify as publicly-offered securities under the ERISA
Regulation, the General Partner intends to thereafter comply with the
Participation Exception. Such Exception would require the General Partner to
restrict the aggregate investment by benefit plan investors to under 25% of the
total capital of each class of equity interests of the Fund (not including any
investments of the General Partner, the Advisor, any cash manager and certain
other persons). Furthermore, because the 25% test is ongoing, it not only
restricts additional investment by benefit plan investors, but also can cause
the General Partner to require that existing benefit plan investors withdraw
from the Fund in the event that other investors withdraw.
-52-
<PAGE> 55
If rejection of subscriptions or such mandatory withdrawals are necessary, as
determined by the General Partner, so that the assets of the Fund will not be
plan assets, the General Partner will effect such rejections or withdrawals in
such manner as the General Partner, in its sole discretion, determines.
INELIGIBLE PURCHASERS
Units may not be purchased with the assets of a Plan if the
General Partner, the Advisor, the Selling Agent, any Additional Selling Agents,
the Futures Broker, any cash manager or any of their respective affiliates
either: (a) has investment discretion with respect to the investment of such
plan assets; (b) has authority or responsibility to give or regularly gives
investment advice with respect to such plan assets, for a fee, and pursuant to
an agreement or understanding that such advice will serve as a primary basis for
investment decisions with respect to such plan assets and that such advice will
be based on the particular investment needs of the plan; or (c) is an employer
maintaining or contributing to such Plan.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF ANY PLAN IS IN NO
RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR THE ADVISOR THAT AN
INVESTMENT IN THE UNITS IS APPROPRIATE OR AUTHORIZED FOR SUCH PLAN. EACH PLAN
FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT WITH ITS OWN LEGAL AND TAX
ADVISERS BEFORE DOING SO.
GENERAL
Sidley & Austin has advised the General Partner on the
offering of the Units. Sidley & Austin drafted "Tax Consequences." Sidley &
Austin does not serve as counsel to the Fund or to the limited partners.
The balance sheet of the General Partner as of June 30, 1998
and the financial statements of the Fund as of December 31, 1997 and for the
period August 21, 1997 (inception) to December 31, 1997 included herein have
been audited by Arthur F. Bell, Jr. & Associates, L.L.C.
-53-
<PAGE> 56
FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
Independent Auditor's Report..........................................................................55
Statements of Financial Condition as of September 30, 1998 (Unaudited)
and December 31, 1997 (Audited)....................................................................56
Statements of Operations for the Nine Months Ended September 30, 1998 (Unaudited)
and For the Period August 21, 1997 (Inception) to December 31, 1997 (Audited)......................57
Statements of Changes in Partners' Capital (Net Asset Value)
For the Nine Months Ended September 30, 1998 (Unaudited) and
For the Period August 21, 1997 (Inception) to December 31, 1997 (Audited)..........................58
Notes to Financial Statements For the Nine Months Ended September 30, 1998 (Unaudited)
and For the Period August 21, 1997 (Inception) to December 31, 1997 (Audited)......................59
PROFUTURES, INC.
Independent Auditor's Report..........................................................................63
Balance Sheets as of September 30, 1998 (Unaudited) and June 30, 1998 (Audited) ......................64
Notes to Balance Sheets...............................................................................65
</TABLE>
----------------------
Schedules are omitted for the reason that they are not required
or are not applicable or that equivalent information has been included
in the financial statements or notes thereto.
---------------
-54-
<PAGE> 57
INDEPENDENT AUDITOR'S REPORT
TO THE PARTNERS
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
We have audited the accompanying statement of financial condition of ProFutures
Long/Short Growth Fund, L.P. as of December 31, 1997, and the related statements
of operations and changes in partners' capital (net asset value) for the period
August 21, 1997 (inception) to December 31, 1997. These financial statements are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 ProFutures Long/Short Growth
Fund, L.P. as of December 31, 1997, and the results of its operations and the
changes in its net asset value for the period August 21, 1997 (inception) to
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
March 9, 1998, except for Note 7,
as to which the date is December 8, 1998.
Lutherville, Maryland
-55-
<PAGE> 58
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
September 30, 1998 (unaudited) and December 31, 1997 (audited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited) (Audited)
-------------- --------------
<S> <C> <C>
ASSETS
Equity in broker trading account
Cash $ 2,383,550 $ 585,732
Unrealized gain (loss) on open contracts (976,500) 2,175
-------------- --------------
Deposits with broker 1,407,050 587,907
Cash and cash equivalents 11,426,604 2,275,163
Subscriptions receivable 0 69,694
-------------- --------------
Total assets $ 12,833,654 $ 2,932,764
============== ==============
LIABILITIES
Accounts payable $ 11,322 $ 11,744
Commissions and other trading fees
on open contracts 1,271 189
General Partner management fee 32,176 6,095
-------------- --------------
Total liabilities 44,769 18,028
-------------- --------------
PARTNERS' CAPITAL (NET ASSET VALUE)
General Partner - 61.4461 and 30.6159 units outstanding
at September 30, 1998 and December 31, 1997 79,176 29,313
Limited Partners - 9,863.6045 and 3,013.6483 units
outstanding at September 30, 1998 and December 31, 1997 12,709,709 2,885,423
-------------- --------------
Total partners' capital
(Net Asset Value) 12,788,885 2,914,736
-------------- --------------
Total liabilities and partners' capital $ 12,833,654 $ 2,932,764
============== ==============
</TABLE>
See accompanying notes.
--------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-56-
<PAGE> 59
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF OPERATIONS
for the nine months ended September 30, 1998 (unaudited) and
for the period August 21, 1997 (inception) to December 31, 1997 (audited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine
Months Ended Period Ended
September 30, December 31,
1998 1997
(Unaudited) (Audited)
-------------- --------------
<S> <C> <C>
INCOME
Trading gains (losses)
Realized $ 1,588,994 $ (116,342)
Change in unrealized (978,675) 2,175
-------------- --------------
Gain (loss) from trading 610,319 (114,167)
Interest income 254,997 19,520
-------------- --------------
Total gain (loss) 865,316 (94,647)
-------------- --------------
EXPENSES
Brokerage commissions 6,138 564
General Partner management fee 140,053 9,826
Advisor incentive fee 171,310 0
Operating expenses 42,262 11,704
-------------- --------------
Total expenses 359,763 22,094
-------------- --------------
NET INCOME (LOSS) $ 505,553 $ (116,741)
============== ==============
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period of
4,959.2859 and 2,421.6801, respectively) $ 101.94 $ (48.21)
============== ==============
INCREASE (DECREASE) IN NET
ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNIT $ 331.10 $ (42.55)
============== ==============
</TABLE>
See accompanying notes.
----------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-57-
<PAGE> 60
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
for the nine months ended September 30, 1998 (unaudited) and
for the period August 21, 1997 (inception) to December 31, 1997 (audited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Total Partners' Capital
Number of ------------------------------------------------
Units General Limited Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Audited
Balances at
August 21, 1997 (inception) 0.0000 $ 0 $ 0 $ 0
Additions 3,044.2642 30,198 3,001,279 3,031,477
Net (loss) for the period
August 21, 1997 (inception)
to December 31, 1997 (885) (115,856) (116,741)
------------ ------------ ------------ ------------
Balances at
December 31, 1997 3,044.2642 29,313 2,885,423 2,914,736
Unaudited
Net income for the nine months
ended September 30, 1998 12,932 492,621 505,553
Additions 6,959.8881 36,931 9,422,159 9,459,090
Redemptions (79.1017) 0 (90,494) (90,494)
------------ ------------ ------------ ------------
Balances at
September 30, 1998 9,925.0506 $ 79,176 $ 12,709,709 $ 12,788,885
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Net Asset Value Per Unit
--------------------------------
September 30, December 31,
1998 1997
----------- -----------
(Unaudited) (Audited)
<S> <C> <C>
$ 1,288.55 $ 957.45
=========== ===========
</TABLE>
See accompanying notes.
----------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-58-
<PAGE> 61
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
For the nine months ended September 30, 1998 (unaudited) and
for the period August 21, 1997 (inception) to December 31, 1997 (audited)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL DESCRIPTION OF THE FUND
ProFutures Long/Short Growth Fund, L.P. (the "Fund"),
(formerly ProFutures Bull & Bear Fund, L.P.) (see Note 7) is a
Delaware limited partnership which operates as a commodity
investment pool. It 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 commodity exchanges and Futures Commission
Merchants (brokers) through which the Fund trades.
The Fund was organized on August 21, 1997 and commenced
trading on November 20, 1997.
B. METHOD OF REPORTING
The Fund's financial statements are presented in accordance
with generally accepted accounting principles, which require
the use of certain estimates made by the Fund's management.
Transactions are accounted for on the trade date. Gains or
losses are realized when contracts are liquidated. Unrealized
gains or 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. For purposes of both financial reporting and
calculation of redemption value, Net Asset Value per Unit is
calculated by dividing Net Asset Value by the total number of
Units outstanding.
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash and short-term
investments in fixed income securities.
D. BROKERAGE COMMISSIONS
Brokerage commissions include other trading fees and are
charged to expense when contracts are opened.
----------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-59-
<PAGE> 62
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
for the nine months ended September 30, 1998 (unaudited) and
for the period August 21, 1997 (inception) to December 31, 1997 (audited)
- --------------------------------------------------------------------------------
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
E. INCOME TAXES
The Fund prepares calendar year U.S. and state information tax
returns and reports to the partners their allocable shares of
the Fund's income, expenses and trading gains or losses.
F. ORGANIZATIONAL CHARGE
The General Partner pays all organizational and offering costs
of the Fund. As reimbursement for such costs, the General
Partner (or the Distributor, ProFutures Financial Group, Inc.,
a broker/dealer affiliate of the General Partner) receives an
organizational charge of 1% of the subscription amount of each
subscriber to the Fund. Additions are reflected in the
statement of changes in partners' capital (net asset value)
net of such organizational charge totaling $94,591 for the
nine months ended September 30, 1998 and $30,315 for the
period August 21, 1997 (inception) to December 31, 1997.
G. STATEMENTS OF CASH FLOWS
The Fund has elected not to provide statements of cash flows
as permitted by Statement of Financial Accounting Standards
No. 102 -- "Statement of Cash Flows -- Exemption of Certain
Enterprises and Classification of Cash Flows from Certain
Securities Acquired for Resale."
NOTE 2. GENERAL PARTNER
The General Partner of the Fund is ProFutures, Inc., which conducts
and manages the business of the Fund. The Limited Partnership
Agreement requires the General Partner to maintain a capital account
equal to at least 1% of the total capital of the Fund.
The General Partner is paid a monthly management fee equal to 1/4 of
1% (3% annually) of month-end Net Assets (as defined in the Limited
Partnership Agreement).
NOTE 3. COMMODITY TRADING ADVISOR
The Fund has an advisory contract with Hampton Investors, Inc.
("Hampton") pursuant to which the Fund pays a quarterly incentive fee
equal to 20% of New Trading Profits (as defined in the advisory
contract).
----------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-60-
<PAGE> 63
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
for the nine months ended September 30, 1998 (unaudited) and
for the period August 21, 1997 (inception) to December 31, 1997 (audited)
- --------------------------------------------------------------------------------
NOTE 4. DEPOSITS WITH BROKER
The Fund deposits funds with ING (U.S.) Securities, Futures & Options
Inc. to act as broker subject to Commodity Futures Trading Commission
regulations and various exchange and broker requirements. The Fund
earns interest income on its cash deposited with the broker. Margin
requirements are satisfied by the deposit of cash with such broker,
and at September 30, 1998 and December 31, 1997, substantially all of
the cash deposited with the broker was used to satisfy such margin
requirements.
NOTE 5. SUBSCRIPTIONS, DISTRIBUTIONS AND REDEMPTIONS
Investments in the Fund are made by subscription agreement, subject
to acceptance by the General Partner. The subscriptions receivable at
December 31, 1997 of $69,694 were received by the Fund on or before
January 7, 1998.
The Fund is not required to make distributions, but may do so at the
sole discretion of the General Partner. A Limited Partner may require
the Fund to redeem any or all of such Limited Partner's units at the
Net Asset Value as of the close of business on the last day of any
month upon advance written notice to the General Partner. The Limited
Partnership Agreement contains a complete description of the Fund's
redemption policies and procedures.
NOTE 6. TRADING ACTIVITIES AND RELATED RISKS
The Fund engages in the speculative trading of stock index futures
contracts ("derivatives") on U.S. exchanges. The Fund 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. Additional deposits may be necessary for any loss on
contract value. 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 Fund has a substantial portion of its assets on deposit with
financial institutions in connection with its cash management
activities. In the event of a financial institution's insolvency,
recovery of Fund assets on deposit may be limited to account
insurance or other protection afforded such deposits. In the normal
course of business, the Fund does not require collateral from such
financial institutions.
----------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-61-
<PAGE> 64
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
for the nine months ended September 30, 1998 (unaudited) and
for the period August 21, 1997 (inception) to December 31, 1997 (audited)
- --------------------------------------------------------------------------------
NOTE 6. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
For derivatives, risks arise from changes in the market value of the
contracts. Theoretically, the Fund is exposed to a market risk equal
to the value of futures contracts purchased and unlimited liability
on such contracts sold short.
The fair value of derivatives represents unrealized gains and losses
on open futures contracts. The average fair value of derivatives for
the nine months ended September 30, 1998 and for the period November
20, 1997 (commencement of trading) to December 31, 1997 was
approximately $340,000 and $30,000, respectively, and the related
values at September 30, 1998 and December 31, 1997 were approximately
$(977,000) and $2,000, respectively.
Net trading results from derivatives for the nine months ended
September 30, 1998 and for the period August 21, 1997 (inception) to
December 31, 1997 are reflected in the statement of operations and
equal gain (loss) from trading less brokerage commissions. Such
trading results reflect the net gain (loss) arising from the Fund's
speculative trading of futures contracts.
Open contracts generally mature within three months; however, the
Fund intends to close all contracts prior to maturity. At September
30, 1998, the maturity date for all open contracts is December 1998,
and at December 31, 1997, the maturity date for all open contracts is
March 1998.
At September 30, 1998 and December 31, 1997, the notional amount of
open contracts to purchase totaled approximately $40,700,000 and
$5,600,000, respectively, and there were no open contracts to sell.
These amounts do not represent the Fund's risk of loss due to market
and credit risk, but rather represent the Fund'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, although there can be no
assurance that they will, in fact, succeed in doing so. The General
Partner's basic market risk control procedures consist of
continuously monitoring Hampton's trading activity with the actual
market risk controls being applied by Hampton itself. The General
Partner seeks to minimize credit risk primarily by depositing and
maintaining the Fund's assets at financial institutions and brokers
which the General Partner believes to be credit worthy. 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.
----------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-62-
<PAGE> 65
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (continued)
for the nine months ended September 30, 1998 (unaudited) and
for the period August 21, 1997 (inception) to December 31, 1997 (audited)
- --------------------------------------------------------------------------------
NOTE 7. SUBSEQUENT EVENTS
The General Partner of the Fund commenced procedures to register the
Fund's units with the Securities and Exchange Commission under the
Securities Act of 1933. The General Partner filed an initial
Registration Statement on Form S-1 in September 1998. In connection
with this registration, the General Partner anticipates amending and
restating the Limited Partnership Agreement to comply with state law
guidelines regarding publicly offered commodity pools. No substantive
changes to the provisions of the existing Limited Partnership
Agreement are anticipated in connection with its amendment and
restatement. On December 8, 1998, the Fund changed its name from
ProFutures Bull & Bear Fund, L.P. to ProFutures Long/Short Growth
Fund, L.P.
NOTE 8. INTERIM FINANCIAL STATEMENTS
The statement of financial condition as of September 30, 1998 and the
statements of operations and changes in partners' capital (net asset
value) for the nine months ended September 30, 1998 are unaudited. In
the opinion of management, such financial statements reflect all
adjustments, which were of a normal and recurring nature, necessary
for a fair presentation of financial position as of September 30,
1998 and the results of operations for the nine months ended
September 30, 1998.
----------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-63-
<PAGE> 66
INDEPENDENT AUDITOR'S REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
PROFUTURES, INC.
We have audited the accompanying balance sheet of ProFutures, Inc. as of June
30, 1998. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of ProFutures, Inc. as of June 30,
1998, in conformity with generally accepted accounting principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
August 21, 1998
Lutherville, Maryland
-64-
<PAGE> 67
PROFUTURES, INC.
BALANCE SHEETS
September 30, 1998 (Unaudited) and June 30, 1998 (Audited)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1998 1998
(UNAUDITED) (AUDITED)
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 346,089 $ 420,231
Management fees receivable 276,858 237,248
General partner interests in commodity pools 350,435 308,679
Other assets 20,115 8,574
------------ ------------
993,497 974,732
------------ ------------
Fixed Assets
Furniture and fixtures 40,018 13,866
Office equipment 135,332 122,124
Leasehold improvements 28,398 1,900
------------ ------------
203,748 137,890
Less: Accumulated depreciation 141,258 128,906
------------ ------------
62,490 8,984
------------ ------------
Total assets $ 1,055,987 $ 983,716
============ ============
LIABILITIES
Accounts payable $ 148,558 $ 14,952
Franchise tax payable 28,457 17,530
------------ ------------
Total liabilities 177,015 32,482
------------ ------------
STOCKHOLDERS' EQUITY
Common stock - no par value; 1,000,000 shares
authorized; 5,251 shares issued and outstanding 1,000 1,000
Retained earnings 877,972 950,234
------------ ------------
Total stockholders' equity 878,972 951,234
------------ ------------
Total liabilities and stockholders' equity $ 1,055,987 $ 983,716
============ ============
</TABLE>
See accompanying notes.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-65-
<PAGE> 68
PROFUTURES, INC.
NOTES TO BALANCE SHEETS
--------------------
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
ProFutures, Inc. (the "Company") is a Texas corporation,
organized on December 3, 1984, which specializes in
speculative managed futures accounts. The Company is a
Commodity Trading Advisor, Commodity Pool Operator and a
Guaranteed Introducing Broker registered with and subject to
the regulations of the Commodity Futures Trading Commission,
an agency of the United States government which regulates most
aspects of the commodity futures industry. It is also a member
of and subject to the rules of the National Futures
Association, an industry self-regulatory organization.
B. METHOD OF ACCOUNTING
The balance sheets are presented in accordance with generally
accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that effect the reported amounts of assets and
liabilities and disclosures of contingent assets and
liabilities at the date of the balance sheets. Actual results
could differ from those estimates, and such differences may be
material to the financial statements.
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and a money market
mutual fund account.
D. MANAGEMENT FEES
Management fees are accrued based on the terms of the related
agreements.
E. GENERAL PARTNER INTERESTS IN COMMODITY POOLS
The Company is the general partner or co-general partner of
several commodity pools formed as limited partnerships,
collectively referred to as partnerships. The Company's
investments in partnerships are carried at its share of the
underlying equity in the net asset value of the limited
partnerships. The partnerships carry their assets and
liabilities at fair value as required by generally accepted
accounting principles for such entities.
As a general partner, the Company has a fiduciary
responsibility to the limited partnerships and potential
liability beyond amounts recognized as an asset in the balance
sheets.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-66-
<PAGE> 69
PROFUTURES, INC.
NOTES TO BALANCE SHEETS (CONTINUED)
--------------------
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
F. FIXED ASSETS
Fixed assets are stated at cost. Depreciation and amortization
is provided for using straight-line and accelerated methods
with lives that range from 5 to 31 years.
G. INCOME TAXES
The Company has elected "S" corporation status under the
Internal Revenue Code, pursuant to which the Company does not
pay U.S. corporate income tax on its taxable income. Instead,
the stockholders are liable for individual income tax on the
Company's taxable income. However, the Company is liable for
Texas Franchise tax, which has been reflected in the balance
sheets.
NOTE 2. GENERAL PARTNER INTERESTS IN COMMODITY POOLS
ProFutures, Inc. is a general partner and commodity pool operator of
ATA Research/ProFutures Diversified Fund, L.P., Alternative Asset
Growth Fund, L.P. and ProFutures Long/Short Growth Fund, L.P.
(formerly, ProFutures Bull & Bear Fund, L.P.), collectively referred
to as partnerships.
Summarized activity for the Company's investments in partnerships is
as follows:
<TABLE>
<CAPTION>
ATA Research/ Alternative ProFutures
ProFutures Diversified Asset Growth Long/Short Growth
Fund, L.P. Fund, L.P. Fund, L.P.
---------------------- ------------ -----------------
<S> <C> <C> <C>
Net asset value at
December 31, 1997 $ 131,712 $ 119,749 $ 29,313
Additions 0 0 37,158
Net income (loss) for the six
months ended June 30, 1998 (9,790) (7,570) 8,107
------------ ------------ ------------
Net asset value at
June 30, 1998 $ 121,922 $ 112,179 $ 74,578
Net income for the three
months ended September 30, 1998 19,350 17,808 4,598
------------ ------------ ------------
Net asset value at
September 30, 1998 $ 141,272 $ 129,987 $ 79,176
============ ============ ============
</TABLE>
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-67-
<PAGE> 70
PROFUTURES, INC.
NOTES TO BALANCE SHEETS (CONTINUED)
NOTE 2. GENERAL PARTNER INTERESTS IN COMMODITY POOLS (CONTINUED)
Summarized financial information with respect to the
partnerships as of and for the nine months ended September 30,
1998 and the six months ended June 30, 1998 is as follows:
<TABLE>
<CAPTION>
September 30, 1998
-------------------------------------------------------------
ATA Research/ Alternative ProFutures
ProFutures Diversified Asset Growth Long/Short Growth
Fund, L.P. Fund, L.P. Fund, L.P.
---------------------- ------------ -----------------
<S> <C> <C> <C>
Balance Sheet Data
Assets $ 87,830,751 $ 17,101,285 $ 12,833,654
Liabilities (2,763,430) (592,579) (44,769)
-------------- -------------- --------------
Net Asset Value $ 85,067,321 $ 16,508,706 $ 12,788,885
============== ============== ==============
Operating Data
Total income $ 14,183,494 $ 3,241,634 $ 865,316
Total expenses (8,770,137) (1,980,946) (359,763)
-------------- -------------- --------------
Net income $ 5,413,357 $ 1,260,688 $ 505,553
============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
June 30, 1998
------------------------------------------------------
<S> <C> <C> <C>
Balance Sheet Data
Assets $ 78,935,514 $ 15,423,257 $ 7,403,045
Liabilities (2,189,548) (776,391) (39,154)
-------------- -------------- --------------
Net Asset Value $ 76,745,966 $ 14,646,866 $ 7,363,891
============== ============== ==============
Operating Data
Total income (loss) $ (1,145,101) $ 194,655 $ 1,088,962
Total expenses (5,266,614) (1,217,047) (265,123)
-------------- -------------- --------------
Net income (loss) $ (6,411,715) $ (1,022,392) $ 823,839
============== ============== ==============
</TABLE>
For managing the businesses of the partnerships, the Company earns
management fees and administrative fees based on the terms of the
respective limited partnership agreements. September 30, 1998 and
June 30, 1998 management fees receivable represent management fees
owed by the partnerships for the months of September, 1998 and June,
1998, respectively.
The agreements of limited partnership of ATA Research/ProFutures
Diversified Fund, L.P. and Alternative Asset Growth Fund, L.P.
requires the Company to maintain in the aggregate a net worth not
less than the sum of (i) the lesser of $250,000 or 15% of the
aggregate capital contributions of any limited partnership for which
it acts as a general partner or co-general partner if such
contributions are equal to or less than $2,500,000; and (ii) 10% of
the aggregate capital contributions of any limited partnership for
which it shall act as a general partner or co-general partner if such
contributions exceed $2,500,000.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-68-
<PAGE> 71
PROFUTURES, INC.
NOTES TO BALANCE SHEETS (CONTINUED)
----------------
NOTE 2. GENERAL PARTNER INTERESTS IN COMMODITY POOLS (CONTINUED)
The Company has callable subscription agreements with Internationale
Nederlanden (U.S.) Securities, Futures & Options Inc. (ING), whereby
ING agrees to purchase or subscribe, up to $14,000,017, for the
number of shares of common stock of the Company necessary to maintain
these general partner net worth requirements. In the opinion of the
Company's management, ING has the ability to meet its obligations
under such callable subscription agreements and, accordingly, the
Company is in compliance with such net worth requirements as of
September 30, 1998 and June 30, 1998. ING is the broker for the
partnerships for which the Company is the general partner.
The agreements of limited partnership also require the Company to
maintain minimum investments in the partnerships.
NOTE 3. RELATED PARTIES
The Company is one of a group of corporations that are commonly
controlled. The Company shares facilities and other resources with
these corporations, which are related through common ownership and
management. A portion of the costs for these shared facilities and
other resources are paid for by the Company and allocated to such
affiliated entities.
NOTE 4. TRADING ACTIVITIES AND RELATED RISKS
The partnerships for which the Company is either the sole general
partner or co-general partner engage in the speculative trading of
U.S. and foreign futures contracts and options on U.S. and foreign
futures contracts (collectively, "derivatives"). These derivatives
include both financial and non-financial contracts held as part of a
diversified trading strategy. ProFutures Long/Short Growth Fund, L.P.
engages primarily in the speculative trading of stock index futures
contracts. The partnerships are 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. Theoretically, the partnerships and the
Company, as a general partner are exposed to a market risk equal to
the notional value of futures contracts purchased and unlimited
liability on such contracts sold short. As both a buyer and seller of
options, the partnerships pay or receive a premium at the outset and
then bear the risk of unfavorable changes in the price of the
contract underlying the option. Written options expose the
partnerships and the Company, as a general partner, to potentially
unlimited liability, and purchased options expose the partnerships to
a risk of loss limited to the premiums paid.
The average fair value of derivatives held by the partnerships during
the nine months ended September 30, 1998 was approximately
$3,210,000, and the fair values as of September 30, 1998 and June 30,
1998 are approximately $6,188,000 and $1,245,000, respectively. The
fair value of derivatives represents unrealized gains and losses on
open futures contracts and long and short options at market value.
At September 30, 1998 June 30, 1998, the notional amounts of the
partnerships' open contracts are as follows:
<TABLE>
<CAPTION>
September 30, 1998 June 30, 1998
--------------------------------- ---------------------------------
Contracts to Contracts to Contracts to Contracts to
Purchase Sell Purchase Sell
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Derivatives (excluding
purchased options) $ 952,500,000 $ 330,000,000 $ 914,000,000 $ 673,150,000
Purchased options 3,700,000 2,500,000 15,200,000 8,500,000
</TABLE>
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-69-
<PAGE> 72
PROFUTURES, INC.
NOTES TO BALANCE SHEETS (CONTINUED)
----------------
NOTE 4. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
The above amounts do not represent the partnerships' risk of loss due
to market and credit risk, but rather represent the partnerships'
extent of involvement in derivatives at the balance sheet dates.
The Company, as general partner or co-general partner, has
established procedures to actively monitor and minimize market and
credit risks.
NOTE 5. LEASE COMMITMENT
The Company leases space in an office building in Austin, Texas under
a lease expiring September 30, 2003.
At September 30, 1998, the annual minimum future lease payments are
$84,429, totaling $422,147 over the term of the lease.
NOTE 6. INTERIM FINANCIAL STATEMENTS
The balance sheet as of September 30, 1998 is unaudited. In the
opinion of management, such financial statement reflects all
adjustments, which were of a normal and recurring nature, necessary
for a fair presentation of financial position as of September 30,
1998.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-70-
<PAGE> 73
EXHIBIT A
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
FORM OF
SECOND AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF
______, 1998
PROFUTURES, INC.
GENERAL PARTNER
<PAGE> 74
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
FORM OF
SECOND AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Continuation and Name.................................................................... LPA-1
2. Principal Office......................................................................... LPA-1
3. Business................................................................................. LPA-1
4. Term, Fiscal Year and Net Assets......................................................... LPA-1
(a) Term............................................................................. LPA-1
(b) Fiscal Year...................................................................... LPA-2
(c) Net Assets....................................................................... LPA-2
5. Net Worth of General Partner............................................................. LPA-2
6. Capital Contributions.................................................................... LPA-2
7. Allocation of Profits and Losses......................................................... LPA-3
(a) Capital Accounts ................................................................ LPA-3
(b) Allocations; Valuation Dates..................................................... LPA-3
(c) Allocation of Profit and Loss for Federal Income Tax Purposes.................... LPA-3
(d) Expenses......................................................................... LPA-5
(e) Limited Liability of Limited Partners............................................ LPA-6
8. Management of the Fund................................................................... LPA-6
(a) General.......................................................................... LPA-6
(b) Fiduciary Duties................................................................. LPA-7
(c) Brokerage Arrangements........................................................... LPA-8
(d) Loans; Investments............................................................... LPA-8
(e) Certain Conflicts of Interest Prohibited......................................... LPA-8
(f) Certain Agreements.............................................................. LPA-8
(g) No "Pyramiding".................................................................. LPA-8
(h) Other Activities................................................................. LPA-8
9. Audits and Reports........................................................................ LPA-8
10. Assigning Units........................................................................... LPA-9
11. Redeeming Units........................................................................... LPA-10
12. Offering of Units ........................................................................ LPA-11
13. Power of Attorney......................................................................... LPA-11
14. Withdrawal of a Partner................................................................... LPA-11
15. Standard of Liability; Indemnification.................................................... LPA-12
(a) Standard of Liability for the General Partner.................................... LPA-12
(b) Indemnification of the General Partner by the Fund............................... LPA-12
(c) Indemnification of the Fund by the Partners...................................... LPA-13
16. Amendments; Meetings...................................................................... LPA-14
(a) Amendments with Consent of the General Partner................................... LPA-14
(b) Amendments and Actions without Consent of the General Partner.................... LPA-14
(c) Meetings; Other Voting Matters................................................... LPA-14
17. Benefit Plan Investors.................................................................... LPA-15
18. GOVERNING LAW............................................................................. LPA-16
19. Miscellaneous............................................................................. LPA-16
(a) Notices......................................................................... LPA-16
(b) Binding Effect................................................................... LPA-16
(c) Captions......................................................................... LPA-16
(d) Close of Business................................................................ LPA-16
</TABLE>
----------------------------------------------
PROFUTURES, INC.
GENERAL PARTNER
LPA-(i)
<PAGE> 75
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
SECOND AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
THIS SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
(this "Agreement") is made as of _________, 1998, by and among PROFUTURES, INC.,
a Texas corporation, as general partner (the "General Partner"), and each other
party who shall execute a counterpart of this Limited Partnership Agreement as a
limited partner or who becomes a party to this agreement as a limited partner by
execution of a Subscription Agreement and Power of Attorney or other instrument
or otherwise and who is shown on the books and records of the Partnership as a
limited partner (individually, a "Limited Partner" and collectively, "Limited
Partners") (the General Partner and Limited Partners are collectively referred
to herein as "Partners").
WITNESSETH:
1. CONTINUATION AND NAME.
The parties hereby form and continue PROFUTURES LONG/SHORT
GROWTH FUND, L.P. (the "Fund"), formerly, ProFutures Bull & Bear Fund, L.P.,
under the Delaware Revised Uniform Limited Partnership Act (the "Act"). This
Agreement amends and restates all previous Limited Partnership Agreements of the
Fund.
2. PRINCIPAL OFFICE.
The principal office of the Fund is c/o the General Partner,
11612 Bee Cave Road, Suite 100, Austin, Texas 78733. The registered office and
agent for service of process in the State of Delaware is c/o Corporation Service
Company, 1013 Centre Road, Wilmington, New Castle County, Delaware 19805.
3. BUSINESS.
The Fund's business and purpose is to trade, buy, sell or
otherwise acquire, hold or dispose of futures contracts on commodities,
financial instruments and currencies, spot and forward currency contracts,
commodities and options on any of the foregoing, and to engage in all activities
incidental thereto on domestic and foreign exchanges and/or through
over-the-counter markets. The objective of the Fund's business is appreciation
of its assets through speculative trading. The Fund may engage in such business
directly or through partnerships, joint ventures or similar arrangements;
provided, however, that the Limited Partners' rights granted under this
agreement shall not be impaired should the Fund enter any partnership, joint
venture or similar business arrangement.
4. TERM, FISCAL YEAR AND NET ASSETS.
(a) Term. The Fund began on August 21, 1997 and will dissolve
on the earlier of: (1) December 31, 2035; (2) receipt by the General Partner of
90 days' notice to dissolve from Limited Partners owning more than 50% of the
outstanding Units; (3) withdrawal, insolvency or dissolution of the General
Partner, or any other event that causes the General Partner to cease to be a
general partner of the Fund unless (i) at the time of such event there is at
least one remaining general partner of the Fund who carries on the business of
the Fund, or (ii) within 90 days after such event a majority in interest of the
Limited Partners agree in writing to continue the business of the Fund and to
the appointment, effective as of the date of such event, of one or more general
partners of the
LPA-1
<PAGE> 76
Fund; (4) dissolution of the Fund as otherwise provided in this Agreement; or
(5) any other event requiring dissolution.
Upon dissolution of the Fund, the General Partner, or another
person approved by a majority of the Units, shall act as liquidator trustee.
(b) Fiscal Year. January 1 through December 31.
(c) Net Assets. The "Net Assets" of the Fund are its assets
less its liabilities, determined in accordance with Generally Accepted
Accounting Principles, including any unrealized profits and losses on its open
positions. More specifically, the Net Asset Value of the Fund equals the sum of
all cash, the liquidating value (or cost of liquidation, as the case may be) of
all futures and options on futures positions and the fair market value of all
other assets of the Fund, less all liabilities of the Fund (including accrued
liabilities, irrespective of whether such liabilities -- for example, incentive
fees -- may in fact never be paid), in each case as determined by the General
Partner generally in accordance with Generally Accepted Accounting Principles.
The General Partner's interest in the Fund shall be represented by Units of
General Partnership Interest. Interests in the Fund, other than the Units of
General Partnership Interest of the General Partner, shall be Units of Limited
Partnership Interest ("Units" or, individually, a "Unit"). The "Net Asset Value
per Unit" shall mean the Net Assets divided by the number of Units outstanding.
The Fund may issue an unlimited number of Units of Limited Partnership Interest
at the Net Asset Value per Unit.
5. NET WORTH OF GENERAL PARTNER.
The General Partner agrees that it will maintain a net worth
of not less than the greater of $50,000 or at least 5% of the total
contributions to the Fund and all other partnerships of which the General
Partner is general partner. For these purposes, Net Worth shall be calculated in
accordance with generally accepted accounting principles, consistently applied,
with all current assets valued at then current fair market values, and may
include promissory notes or stock subscriptions issued to the General Partner by
its affiliates or other persons, including the Fund's commodity broker. In no
event shall the General Partner be required to maintain a net worth in excess of
$1,000,000. This net worth agreement may be modified if such change meets
applicable state securities laws or guidelines.
6. CAPITAL CONTRIBUTIONS.
The General Partner and/or its principals and affiliates shall
make contributions to the capital of the Fund in amounts which equal at least 1%
of the aggregate capital contributions to the Fund (including the General
Partner's contribution). The General Partner and/or its principals and
affiliates shall not reduce by withdrawal the aggregate interest in the capital
of the Fund to less than a 1% interest in the capital, income and losses of the
Fund from time to time. The General Partner and/or its principals and affiliates
may withdraw any portion of its interest in the Fund which is in excess of its
required interest described above. The Partners' contributions to the capital of
the Fund shall be as shown in the books and records of the Fund.
The General Partner may on behalf of the Fund admit additional
Limited Partners to the Fund in compliance with applicable law and may issue and
sell Units to them. After the admission of each new Partner, the General
Partner's (and its principals and affiliates) interest in the capital, income
and losses of the Fund shall always be at least 1%. The General Partner is
authorized to take such action and make such arrangements for the issue and sale
of such Units, if any, as it deems appropriate.
LPA-2
<PAGE> 77
All Units subscribed for upon receipt of a check or draft of
the subscriber are issued subject to the collection of the funds represented by
such check or draft. In the event a check or draft of a subscriber for Units
representing payment for Units is returned unpaid, the Fund shall cancel the
Units issued to such subscriber represented by such returned check or draft. Any
losses or profits sustained by the Fund in connection with the Fund's commodity
trading allocable to such canceled Units shall be deemed an increase or decrease
in Net Assets and allocated among the remaining Partners as described in Section
7. The Fund may require a Partner to reimburse the Fund for any expense or loss
(including any trading loss) incurred in connection with the issuance and
cancellation of any such Limited Partnership Interests issued to him.
The Partners' respective capital contributions shall be as
shown on the books and records of the Fund.
7. ALLOCATION OF PROFITS AND LOSSES.
(a) Capital Accounts. A capital account shall be established
for each Partner. The initial balance of each capital account shall be the
amount initially contributed to the Fund with respect to Units allocated to that
account, net of organizational or other similar charges. For purposes of this
Section, the general partnership interest of the General Partner shall be
treated on a Unit-equivalent basis.
(b) Allocations; Valuation Dates. As of the close of business
(as determined by the General Partner) on the last day of each month and on each
redemption date (including any Special Redemption Date), the following
determinations and allocations shall be made.
(1) The Net Assets of the Fund shall be determined.
(2) Any increase or decrease in the Net Assets of the
Fund as compared to the last such determination of Net Assets shall be
credited or charged to the capital accounts of each Partner in the
ratio that the balance of each account bears to the balance of all
accounts.
(3) The amount of any distribution to a Partner, any
amount paid upon redemption of Units and any amount paid to the General
Partner on withdrawal of its interest in the Fund shall be charged to
the Partner's capital account.
(4) The Net Asset Value of a Unit shall be
determined.
(c) Allocation of Profit and Loss for Federal Income Tax
Purposes. As of the end of each fiscal year, the Fund's profit or loss shall be
allocated among the Partners for federal income tax purposes pursuant to the
following subparagraphs. If the allocations contained herein were determined to
lack "substantial economic effect," each Limited Partner's distributive share of
items of Fund income, gain, loss, deduction or credit shall be determined in
accordance with such Partner's interest in the Fund (taking into account all the
facts and circumstances).
(1) Items of operating income, including, without
limitation, interest and items of operating expense, including, if
applicable, legal, accounting and administrative expenses shall be
allocated to each Partner by allocating such items which accrued during
each month among the persons who were Partners during such month in the
ratio that each such Partner's capital account bears to all such
Partners' capital accounts at the end of such month.
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(2) Net realized capital gain or loss and any net
gain or loss from Section 988 of the Internal Revenue Code of 1986, as
amended (the "Code"), transactions associated with the Fund's trading
activities shall be allocated in the following manner:
(aa) For the purpose of allocating the Fund's net
realized capital gain or loss and any net gain or loss from
Code Section 988 among the Partners, there shall be
established a tax allocation account with respect to each
outstanding Unit. The initial balance of each allocation
account shall be the amount paid to the Fund for the Units
(net of any organization and offering charges). Allocation
accounts shall be adjusted as of the end of each fiscal year
as follows.
(i) Each allocation account shall be
increased by the amount of income allocated to the
holder of the Unit with respect to the Unit pursuant
to subparagraph (c)(1) above and subparagraphs (bb)
and (cc) below.
(ii) Each allocation account shall be
decreased by the amount of expense or loss allocated
to the holder of the Unit with respect to the Unit
pursuant to subparagraphs (c)(1) above and
subparagraphs (dd) and (ee) below and by the amount
of any distribution the holder of the Unit has
received with respect to the Unit (other than on
redemption of the Unit).
(iii) When a Unit is redeemed, the
allocation account with respect to such Unit shall be
eliminated.
(bb) Net realized capital gain shall be allocated
first to each Partner who has redeemed a Unit during the
fiscal year up to the excess, if any, of the amount received
upon redemption of the Unit over the allocation account
attributable to the redeemed Unit. If the gain to be so
allocated to all Partners who have redeemed Units during a
fiscal year is less than the excess of all such amounts
received upon redemption over all such allocation accounts,
the entire capital gain for such fiscal year shall be
allocated among all such Partners in the ratio that each such
Partner's excess bears to the aggregate excess of all such
Partners who redeemed Units during such fiscal year.
(cc) Net realized capital gain remaining after the
allocation thereof pursuant to subparagraph (bb) shall be
allocated next among all Partners whose capital accounts are
in excess of the Units' tax allocation accounts (after the
adjustments in subsection (bb)) in the ratio that each such
Partner's excess bears to all such Partners' excesses. In the
event that gain to be allocated pursuant to this subsection
(cc) is greater than the excess of all such Partners' capital
accounts over all such allocation accounts, the excess will be
allocated among all Partners in the ratio that each Partner's
capital account bears to all Partners' capital accounts.
(dd) Net realized capital loss shall be allocated
first to each Partner who has redeemed a Unit during the
fiscal year up to the excess, if any, of the allocation
account attributable to the redeemed Unit over the amount
received upon redemption of the Unit. If the loss to be so
allocated to all Partners who have redeemed Units during a
fiscal year is less than the excess of all such allocation
accounts over all such amounts received upon redemption, the
entire capital loss for such fiscal year shall be allocated
among all such Partners in the ratio that each such
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Partner's excess bears to the aggregate excess of all such
Partners who redeemed Units during such fiscal year.
(ee) Net realized capital loss remaining after the
allocation thereof pursuant to subsection (dd) shall be
allocated next among all Partners whose tax allocation
accounts (after the adjustments in subsection (dd)) are in
excess of their capital accounts in the ratio that each such
Partner's excess bears to all such Partners' excesses. In the
event that loss to be allocated pursuant to this subsection
(ee) is greater than the excess of all such allocation
accounts over all such Partners' capital accounts, the excess
loss will be allocated among all Partners in the ratio that
each Partner's capital account bears to all Partners' capital
accounts.
(ff) In the event that Units have been assigned with
the consent of the General Partner, the allocations prescribed
by this Section 7(c) shall be made with respect to such Units
without regard to the assignment except that in the year of
assignment the allocations prescribed by Section 7(c)(1) shall
be divided between the assignor and the assignee based on the
number of whole months each held the assigned Units. For
purposes of this Section 7(c), tax allocations shall be made
to the General Partner's general partnership interest on a
Unit-equivalent basis.
(gg) The allocations of profit and loss to the
Partners in respect of the Units shall not exceed the
allocations permitted under Subchapter K of the Code, as
determined by the General Partner, whose determination shall
be binding. The purpose of the foregoing allocations is to
allocate taxable income so as nearly as possible to have
Limited Partners' tax basis accounts equal to their capital
accounts as provided by the Code, including without limitation
a "Qualified Income Offset."
(3) For the purposes of this Section 7(c), net realized
capital gain or loss shall include any gain or loss required to be taken into
account under Section 1256 of the Code.
(d) Expenses. Operating, administration and all other expenses
and liabilities of the Fund shall be paid by the Fund. The General Partner shall
be reimbursed for any such expenses incurred on behalf of the Fund. The Fund
shall pay any extraordinary charges (such as taxes) incidental to its trading or
otherwise.
The General Partner shall be entitled to charge Limited
Partners upon admission to the Fund an organizational charge of 1% of Net Asset
Value to reimburse the General Partner or an affiliate thereof for any and all
costs and expenses paid by it which are related to the organization of the Fund,
as well as the initial and any future offering of Units. Such organizational and
offering expenses shall include all expenses incurred by the Fund in connection
with and in preparing the Fund's Units for registration or exemption therefrom,
and subsequently offering and distributing its Units to investors, on a public
or private basis including, but not limited to, expenses for printing,
engraving, mailing, charges of transfer agents, registrars, trustees, escrow
holders, depositories, experts, expenses of qualification of the sale of its
Units under federal and state law, including taxes and fees, accountants' and
attorneys' fees.
The Fund shall pay to the General Partner a management fee
equal to 1/4 of 1% of month-end Net Assets (3% annually). Net Assets for this
purpose are calculated after brokerage commissions, operating and administrative
expenses and incentive fees paid or accrued as of such month-end. The management
fee shall be accrued as required herein and paid as soon as practicable, but no
later than the end of the month following the month in which the fee accrued.
The
LPA-5
<PAGE> 80
management fee will be pro-rated for partial periods and any interim capital
contributions and capital withdrawals.
The Fund shall pay all routine charges incidental to trading
(including, without limitation, brokerage commissions, exchange, clearinghouse,
regulatory, floor brokerage and "give-up" fees) and any extraordinary charges
incidental to trading (for example insurance or delivery charges). The General
Partner shall be reimbursed promptly for any operating, administration and other
expenses and liabilities incurred on behalf of the Fund. None of the General
Partner's "overhead" expenses (including, but not limited to, salaries, rent and
travel expenses) may be charged to the Fund.
The General Partner pays the costs of the continuous offering
of the Units. The General Partner pays the selling commissions (if any) and
ongoing compensation due on the Units.
Any goods and services provided to the Fund by the General
Partner shall be provided at rates and terms at least as favorable as those
which may be obtained from third parties in arm's-length negotiations. All of
the expenses which are for the Fund's account shall be billed directly to the
Fund.
The Fund will pay any taxes applicable to it and any charges
incidental to its trading.
The Fund's brokerage commissions shall not exceed 14% of the
Fund's average month-end Net Assets during the preceding year.
The Fund's organizational and offering expenses, including
underwriting compensation paid to selling agents, shall not exceed 15% of the
capital contributions to the Fund.
No item of compensation, as described in Section IV.C. of the
North American Securities Administrators Association, Inc. Guidelines (the
"NASAA Guidelines"), paid by the Fund to any party may be increased without
prior written notice to Limited Partners within sufficient time for them to
redeem prior to such increase becoming effective. Such notification shall
contain a description of Limited Partners' voting and redemption rights as well
as a description of any material effect of such increase.
(e) Limited Liability of Limited Partners. Each Unit, when
purchased in accordance with this Agreement, shall be fully-paid and
nonassessable, except as otherwise provided by law. Any provisions of this
Limited Partnership Agreement to the contrary notwithstanding, no Limited
Partner shall be liable for Fund obligations in excess of the capital
contributed by him, plus his share of undistributed profits and assets
(including his obligation, as required by law, under certain circumstances to
return to the Fund distributions and returns of contributions).
8. MANAGEMENT OF THE FUND.
(a) General. The General Partner shall manage the
business of the Fund.
The General Partner shall determine what distributions, if
any, shall be made to the Partners.
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The General Partner may take such actions relating to the
business of the Fund as the General Partner deems necessary or advisable and
which are consistent with the terms of this Agreement.
In addition to any specific contract or agreements described
herein, the Fund, and the General Partner on behalf of the Fund, may enter into
any other contracts or agreements specifically described in or contemplated by
the Prospectus for the Units current at the time the General Partner entered
into such contract (the "Prospectus") without any further act, approval or vote
of any Partner other than the General Partner, notwithstanding any other
provisions of this Agreement, the Act or any applicable law, rule or
regulations; provided, however, that such contracts or agreements are entered
only in the normal course of the Fund's business as described in the Prospectus.
The General Partner is specifically authorized, without
limitation, by each Limited Partner to enter into the cash management
arrangements described under "Use of Proceeds, Interest Income Arrangements" in
the Prospectus.
The General Partner is hereby specifically authorized to enter
into, deliver and perform on behalf of the Fund, the business arrangements
referred to in the Prospectus.
The General Partner may engage such persons as the General
Partner in its sole judgment shall deem advisable for operating the business of
the Fund; provided, that no such arrangement shall allow brokerage commissions
above those described in the Prospectus or permitted under applicable NASAA
Guidelines in effect as of the date of the Prospectus, whichever is higher.
Any material change in the Fund's basic investment policies or
structure requires the approval of a majority of the Units.
The General Partner is the "tax matters partner" of the Fund.
The General Partner has authority to cause the Fund to take
such actions as it may deem appropriate, subject to the fiduciary obligations
and other restrictions applicable to the General Partner as general partner of
the Fund.
(b) Fiduciary Duties. The General Partner shall be under a
fiduciary duty to conduct the affairs of the Fund in the best interests of the
Fund, provided that the General Partner shall not be obligated to engage in any
conduct on behalf of the Fund to the detriment of any other commodity pool to
which the General Partner owes similar fiduciary duties. The Limited Partners
will under no circumstances be deemed to have contracted away the fiduciary
obligations owed to them by the General Partner under the common law.
The General Partner shall have fiduciary responsibility for,
among other things, the safekeeping and use of all Fund assets, whether or not
in its immediate control; and the General Partner shall not employ, or permit
another to employ, such assets other than for the benefit of the Fund. The
interest arrangements with the Futures Broker shall not be deemed a violation of
the General Partner's fiduciary duties provided they comply with NASAA Guideline
IV.C.4.a (2).
The General Partner shall at all times act with integrity and
good faith and exercise due diligence in all activities relating to the conduct
of the business of the Fund and in resolving conflicts of interest. The General
Partner will take no actions with respect to the property of the Fund which do
not benefit the Fund.
LPA-7
<PAGE> 82
(c) Brokerage Arrangements. The Fund's brokerage arrangements
shall be non-exclusive, and the brokerage commissions paid by the Fund shall be
competitive. The Fund shall seek the best price and services available for its
commodity transactions.
The brokerage fees paid by the Fund may not exceed the amount
permitted under applicable NASAA Guidelines in effect as of the date hereof.
(d) Loans; Investments. The Fund shall not make loans, and the
funds of the Fund will not be commingled with the funds of any other person or
entity (deposit of funds with a commodity or securities broker or clearinghouse
or entering into joint ventures or partnerships shall not be deemed to
constitute "commingling" for these purposes).
(e) Certain Conflicts of Interest Prohibited. No person or
entity may receive, directly or indirectly, any advisory fees or incentive fees
from entities in which the Fund participates, for investment advice or
management who shares or participates in any commodity brokerage commissions
paid by the Fund; and no broker may pay, directly or indirectly, rebates or
give-ups to any trading advisor, the General Partner or any of their respective
affiliates. Such prohibitions may not be circumvented by any reciprocal business
arrangements. No trading advisor for the Fund shall be affiliated with the
Fund's commodity broker, the General Partner or any of their affiliates.
(f) Certain Agreements. Any agreements between the Fund and
the General Partner or any affiliate of the General Partner shall be terminable
by the Fund on no more than 60 days' written notice.
All trading advisors used by the Fund must satisfy the
experience requirements of the NASAA Guidelines.
The maximum period covered by any contract entered into by the
Fund, except for the various provisions of the Selling Agreement which survive
the final closing of the sale of the Units, shall not exceed one year.
(g) No "Pyramiding." The Fund is prohibited from
"pyramiding," as such term is defined in section I.B. of the NASAA Guidelines.
(h) Other Activities. The General Partner engages in other
business activities and shall not be required to refrain from any such
activities, whether or not in competition with the Fund. Neither the Fund nor
any of the Partners shall have any rights in such activities. Limited Partners
may similarly engage in any such other business activities.
The General Partner shall devote to the Fund such time as the
General Partner deems advisable to conduct the Fund's business.
9. AUDITS AND REPORTS.
The Fund's books shall be audited annually by an independent
certified public accountant. The Fund will use its best efforts to cause each
Limited Partner to receive (i) within 90 days after the close of each fiscal
year certified financial statements of the Fund for the fiscal year then ended,
(ii) in no event later than March 15 of each year all tax information relating
to the prior fiscal year necessary to complete his federal income tax return and
(iii) such other information as the CFTC may by regulation require.
LPA-8
<PAGE> 83
The General Partner shall include in the annual financial
statements sent to Limited Partners an estimate of the brokerage rate paid by
the Fund during the preceding year as a percentage of average Net Assets.
The Fund will seek the best price and services available on
its commodity brokerage transactions and will, with the assistance of the Fund's
commodity broker, make an annual review of the Fund's commodity brokerage
arrangements. In connection with such review, the General Partner will
determine, to the extent practicable, the commodity brokerage rates charged to
other major commodity pools whose trading and operations are, in the opinion of
the General Partner, comparable to those of the Fund, in order to assess whether
the rates charged to the Fund are reasonable in light of the services it
receives. If, as a result of such review, the General Partner determines that
such rates are not so reasonable, the General Partner will notify the Limited
Partners, describing the rates charged to the Fund and several funds which are,
in the General Partner's opinion, comparable to the Fund.
Limited Partners or their duly authorized representatives may
inspect the Fund's books and records, for any purpose reasonably related to
their status as Limited Partners in the Fund, during normal business hours upon
reasonable written notice to the General Partner. They may also obtain copies of
such records upon payment of reasonable reproduction costs; provided, however,
that such Limited Partners shall represent that the inspection and/or copies of
such records will not be for commercial purposes unrelated to such Limited
Partners' interest in the Fund.
The General Partner shall calculate the Net Asset Value per
Unit on a daily basis and furnish such information upon request to any Limited
Partner.
The General Partner will send written notice to each Limited
Partner within seven days of (i) any decline in the Fund's Net Asset Value per
Unit to 50% or less of such Net Asset Value as of the previous month-end, (ii)
any material change in its agreement with the Advisor or any modification in
connection with the method of calculating the incentive fee due to the Advisor
or (iii) any material change affecting the compensation of any party. Any such
notice shall contain a description of Limited Partners' voting rights.
The General Partner shall maintain and preserve all Fund
records for a period of not less than 6 years. In particular, and not by way of
limitation, the General Partner will retain all Subscription Agreement and Power
of Attorney Signature Pages submitted by persons admitted as Limited Partners,
and all other records necessary to substantiate that Units are sold only to
purchasers for whom the Units are a suitable investment, for at least six (6)
years after Units are sold to such persons.
10. ASSIGNING UNITS.
Each Limited Partner agrees that he will not assign, transfer
or otherwise dispose of any interest in his Units in violation of any applicable
federal or state securities laws or without giving written notice to the General
Partner. No assignment, transfer or disposition of Units shall be effective
against the Fund or the General Partner until the first day of the month
following the month in which the General Partner receives such notice. The
General Partner may, in its sole discretion, waive any such notice. The General
Partner will send written confirmation to both the transferors and transferees
of Units that the transfers in question have been duly recorded on the Fund's
books and records.
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<PAGE> 84
Each Limited Partner agrees that any transferee may become a
substituted Limited Partner without the consent of any Limited Partner.
11. REDEEMING UNITS.
Units may be redeemed as of the close of business (as
determined by the General Partner) in Austin, Texas on the last day of any
month, provided that (i) all liabilities, contingent or otherwise, of the Fund
have been paid or there remains property of the Fund sufficient to pay them and
(ii) the Fund has received written notice of redemption at least ten (10) days
before the last day of such month, or such lesser period as shall be acceptable
to the General Partner.
Any number of whole Units may be redeemed. Fractional Units
may only be redeemed upon redemption of a Limited Partner's entire interest in
the Fund. Redemption requests must be in writing, unless the General Partner
determines otherwise.
In the event that the Net Assets of the Fund has, as of the
close of business on any business day, declined to a level equal to less than
fifty percent (50%) of the Net Assets of the Fund at the end of the preceding
month (adjusted for contributions, redemptions and distributions), the General
Partner shall so notify the Limited Partners within seven (7) business days
thereafter and shall suspend new trading and liquidate all positions as promptly
as practicable. The General Partner, in its notification, will set a date ten
(10) business days after the notice date as of which Limited Partners may redeem
their Units. The General Partner shall mail notice of such date to each Limited
Partner and assignee of Units of whom it has received written notice, by first
class mail, postage prepaid, together with instructions as to the procedure such
Limited Partner or assignee must follow to have such Limited Partner's or
assignee's interest (only entire, not partial, interests may be so redeemed
unless otherwise determined by the General Partner) in the Fund redeemed on such
date. Upon redemption pursuant to a Special Redemption Date, a Limited Partner
or any other assignee of whom the General Partner has received written notice,
shall receive from the Fund an amount equal to the Net Asset Value of such
Limited Partner's interest, determined as of the close of business (as
determined by the General Partner) on such Special Redemption Date. No
redemption charges shall be assessed on any such Special Redemption Date. As in
the case of a regular redemption, an assignee shall not be entitled to
redemption on any Special Redemption Date until the General Partner has received
written notice of the assignment, transfer or disposition under which the
assignee claims an interest in the Units to be redeemed. After such Special
Redemption Date, the Fund may, in the discretion of the General Partner, resume
trading. If the General Partner determines not to resume trading, the Fund will
be terminated.
The General Partner may, in its discretion, declare additional
regular redemption dates for Units, permit certain Limited Partners to redeem at
other than month-end and waive the 10- day notice period otherwise required to
effect redemptions.
The General Partner may declare additional Special Redemption
Dates upon notice to the Partners and assignees of whom the General Partner has
received notice. In the event the General Partner does, in its discretion,
declare a Special Redemption Date, the General Partner may, in its notice of
such Special Redemption Date modify the circumstances under which the General
Partner is again required to declare a Special Redemption Date, as set forth in
the preceding paragraph.
The General Partner may require a Limited Partner to redeem
all or part of such Limited Partner's Units if the General Partner considers
doing so to be desirable for the protection of the Fund, and will use best
efforts to do so to the extent necessary to prevent the Fund from being
LPA-10
<PAGE> 85
deemed to hold "plan asset" under the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA") or the Code.
Payment in respect of Units redeemed will be made (by mailing
a check) as promptly as practicable after the effective date of redemption or
the Special Redemption Date, but in no event more than thirty (30) days
thereafter. However, under special circumstances including, but not limited to,
inability to liquidate commodity positions due to the operation of daily limits
or otherwise as of such redemption or Special Redemption Date, or default or
delay in payments due the Fund from futures brokers, banks, dealers or other
persons, the Fund may, in turn, delay payment to Partners requesting redemption
of Units of the proportionate part of the Net Asset Value of the Units being
redeemed represented by the sums which are the subject of such circumstances.
All redemptions will be made at Net Asset Value as of the
effective day of redemption.
12. OFFERING OF UNITS.
The General Partner may, in its discretion, continue or
terminate the offering of the Units on a public or private basis.
All sales of Units in the United States will be conducted by
registered brokers.
13. POWER OF ATTORNEY.
Each Limited Partner hereby irrevocably appoints the General
Partner and each officer of the General Partner, with full power of
substitution, as his true and lawful attorney-in-fact, in his name, place and
stead, to execute, acknowledge, swear to, deliver and file, record in public
offices and publish: (i) this Agreement, including any amendments; (ii)
certificates of limited partnership or assumed name, including amendments, with
respect to the Fund; (iii) all conveyances and other instruments which the
General Partner deems appropriate to qualify or continue the Fund in the State
of Delaware and any other jurisdictions in which the Fund may conduct business,
or which may be required to be filed by the Fund or the Partners under the laws
of any jurisdiction; and (iv) to file, prosecute, defend, settle or compromise
litigation, claims or arbitrations on behalf of the Fund. The Power of Attorney
granted herein shall be deemed to be coupled with an interest, shall survive and
shall not be affected by the subsequent incapacity, disability or death of a
Limited Partner.
14. WITHDRAWAL OF A PARTNER.
The Fund shall be dissolved upon the withdrawal, dissolution,
insolvency or removal of the General Partner, or any other event that causes the
General Partner to cease to be a general partner under the Act, unless the Fund
is continued pursuant to the terms of Section 4(a)(3). In addition, the General
Partner may withdraw from the Fund, without any breach of this Agreement, at any
time upon 120 days' written notice by first class mail, postage prepaid, to each
Limited Partner and each assignee of whom the General Partner has notice. If the
General Partner withdraws as general partner, and the Fund's business is
continued pursuant to the terms of Section 4(a)(3)(ii), the withdrawing General
Partner shall pay all expenses incurred by the Fund as a result of its
withdrawal.
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The General Partner may not assign its general partner
interest or its obligation to direct the trading of the Fund's assets without
the consent of each Limited Partner. The General Partner will notify all Limited
Partners of any change in the principals of the General Partner.
A Limited Partner ceasing to be a Limited Partner will not
terminate or dissolve the Fund. No Limited Partner, including such Limited
Partner's estate, custodian or personal representative, shall have any right to
redeem or value such Limited Partner's interest in the Fund except as provided
in Section 11. Each Limited Partner agrees that in the event of his death, he
waives on behalf of himself and of his estate, and directs the legal
representatives of his estate and any person interested therein to waive, any
inventory, accounting or appraisal of the assets of the Fund and any right to an
audit or examination of the books of the Fund; provided, however, that nothing
in this Section 14 shall waive any right for a Limited Partner, including such
Limited Partner's estate, custodian or personal representative, to be informed
of the Net Asset Value of his Units, to receive periodic reports, audited
financial statements and other pertinent information from the General Partner or
the Fund, to redeem or transfer Units or to exercise any other right granted to
Limited Partners under this Agreement.
15. STANDARD OF LIABILITY; INDEMNIFICATION.
(a) Standard of Liability for the General Partner. The General
Partner and its Affiliates, as defined below, shall have no liability to the
Fund or to any Partner for any loss suffered by the Fund which arises out of any
action or inaction of the General Partner or its Affiliates, if the General
Partner, in good faith, determined that such course of conduct was in the best
interests of the Fund, and such course of conduct did not constitute negligence
or misconduct on behalf of the General Partner or its Affiliates.
(b) Indemnification of the General Partner by the Fund. To the
fullest extent permitted by law, subject to this Section 15, the General Partner
and its Affiliates shall be indemnified by the Fund against any losses,
judgments, liabilities, expenses and amounts paid in settlement of any claims
sustained by them in connection with the Fund; provided, that such claims were
not the result of negligence or misconduct on the part of the General Partner or
its Affiliates, and the General Partner, in good faith, determined that such
conduct was in the best interests of the Fund; and provided further, that
Affiliates of the General Partner shall be entitled to indemnification only for
losses incurred by such Affiliates in performing the duties of the General
Partner and acting wholly within the scope of the authority of the General
Partner.
Notwithstanding anything to the contrary contained in the
preceding paragraph, none of the General Partner, its Affiliates or any persons
acting as selling agent for the Units shall be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws unless (1) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee and the court approves indemnification of the litigation
costs, or (2) such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular indemnitee and the court
approves indemnification of the litigation costs, or (3) a court of competent
jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made.
In any claim for indemnification for federal or state
securities law violations, the party seeking indemnification shall place before
the court the position of the Securities and Exchange Commission, the California
Department of Corporations, the Massachusetts Securities Division, the
Pennsylvania Securities Commission, the Tennessee Securities Division, the Texas
Securities Board,
LPA-12
<PAGE> 87
the Missouri Securities Division and any other state or applicable regulatory
authority with respect to the issue of indemnification for securities law
violations.
The Fund shall not bear the cost of that portion of any
insurance which insures any party against any liability the indemnification of
which is herein prohibited.
For the purposes of this Section 15, the term, "Affiliates,"
shall mean any person acting on behalf of or performing services on behalf of
the Fund who: (1) directly or indirectly controls, is controlled by, or is under
common control with the General Partner; or (2) owns or controls 10% or more of
the outstanding voting securities of the General Partner; or (3) is an officer
or director of the General Partner; or (4) if the General Partner is an officer,
director, partner or trustee, is any entity for which the General Partner acts
in any such capacity.
Advances from Fund assets to the General Partner and its
Affiliates for legal expenses and other costs incurred as a result of any legal
action initiated against the General Partner by a Limited Partner are
prohibited.
Advances from Fund assets to the General Partner and its
Affiliates for legal expenses and other costs incurred as a result of a legal
action will be made only if the following three conditions are satisfied: (1)
the legal action relates to the performance of duties or services by the General
Partner or its Affiliates on behalf of the Fund; (2) the legal action is
initiated by a third party who is not a Limited Partner; and (3) the General
Partner or its Affiliates undertake to repay the advanced funds, with interest
from the initial date of such advance, to the Fund in cases in which they would
not be entitled to indemnification under the standard of liability set forth in
Section 15(a).
In no event shall any indemnity or exculpation provided for
herein be more favorable to the General Partner or any Affiliate than that
contemplated by the NASAA Guidelines as in effect on the date of this Agreement.
In no event shall any indemnification permitted by this
Section 15(b) be made by the Fund unless all provisions of this Section for the
payment of indemnification have been complied with in all respects. Furthermore,
it shall be a precondition of any such indemnification that the Fund receive a
determination of qualified independent legal counsel in a written opinion that
the party which seeks to be indemnified hereunder has met the applicable
standard of conduct set forth herein. Receipt of any such opinion shall not,
however, in itself, entitle any such party to indemnification unless
indemnification is otherwise proper hereunder. Any indemnification payable by
the Fund hereunder shall be made only as provided in the specific case.
In no event shall any indemnification obligations of the Fund
under this Section 15(b) subject a Limited Partner to any liability in excess of
that contemplated by Section 7(e).
(c) Indemnification of the Fund by the Partners. In the event
the Fund is made a party to any claim, dispute or litigation or otherwise incurs
any loss or expense as a result of or in connection with any Limited Partner's
activities, obligations or liabilities unrelated to the Fund's business, or as a
result of or in connection with a transfer, assignment or other disposition or
an attempted transfer, assignment or other disposition by a Limited Partner or
an assignee of its Units or of any part of its right, title and interest in the
capital or profits of the Fund in violation of this Agreement, such Limited
Partner shall indemnify and reimburse the Fund for all such loss and expense
incurred, including reasonable attorneys' fees.
LPA-13
<PAGE> 88
16. AMENDMENTS; MEETINGS.
(a) Amendments with Consent of the General Partner. The
General Partner may amend this Agreement with the approval of the majority of
the Units. No meeting procedure or specified notice period is required in the
case of amendments made with the consent of the General Partner, mere receipt of
an adequate number of unrevoked written consents being sufficient. Such vote
shall be taken at least 30 but not more than 60 days after delivery by the
General Partner to each Limited Partner of record by certified mail of notice of
the proposed amendment and voting procedures. The General Partner may also amend
this Agreement without the consent of the Limited Partners in order: (i) to
clarify any clerical inaccuracy or ambiguity or reconcile any clerical
inconsistency (including any inconsistency between this Agreement and the
Prospectus); (ii) to effect the intent of the allocations proposed herein to the
maximum extent possible in the event of a change in the Code or the
interpretations thereof affecting such allocations; (iii) to attempt to ensure
that the Fund is taxed as a partnership; (iv) to qualify or maintain the
qualification of the Fund as a limited partnership in any jurisdiction; (v) to
change this Agreement as required by the Staff of the Securities and Exchange
Commission, any other federal agency or any state "Blue Sky" official or in
order to opt to be governed by any amendment or successor statute to the Act;
(vi) to make any amendment to this Agreement which the General Partner deems
advisable, provided that such amendment is not adverse to the Limited Partners;
(vii) to make any amendment that is appropriate or necessary, in the opinion of
the General Partner, to avoid causing the assets of the Fund from being
considered for any purpose of ERISA or Section 4975 of the Code to constitute
assets of any Plan; and (viii) to make any amendment to this Agreement required
by law.
(b) Amendments and Actions without Consent of the General
Partner. In any vote called by the General Partner or pursuant to Section 16(c),
upon the affirmative vote of a majority of the Units, the following actions may
be taken, irrespective of whether the General Partner concurs: (i) this
Agreement may be amended, provided, however, that the approval of all Limited
Partners shall be required in the case of amendments changing or altering this
Section 16, extending the term of the Fund or materially changing the Fund's
basic investment policies; (ii) the Fund may be dissolved; (iii) the General
Partner may be removed and replaced; (iv) a new general partner may be elected
if the General Partner withdraws from the Fund; (v) the sale of all or
substantially all of the assets of the Fund may be approved; and (vi) any
contract with the General Partner or any of its affiliates may be disapproved of
and terminated without penalty upon 60 days' notice.
No reduction of any Limited Partner's capital account or
modification of the percentage of profits, losses or distributions to which a
Limited Partner is entitled shall be made without such Limited Partner's written
consent;
(c) Meetings; Other Voting Matters. Any Limited Partner may
for a purpose related to his status as a Limited Partner obtain from the General
Partner, provided that reasonable copying and mailing costs are paid in advance,
a list of the names, addresses and number of Units held by each Limited Partner.
Such list will be mailed by the General Partner within ten days of the receipt
of the request; provided, that the General Partner may require any Limited
Partner requesting such information to submit written confirmation that such
information will not be used for commercial purposes.
Upon receipt of a written proposal, signed by Limited Partners
owning at least 10% of the Units, that a meeting of the Fund be called to vote
on any matter on which the Limited Partners are entitled to vote, the General
Partner will, by written notice to each Limited Partner of record sent by
certified mail within 15 days after such receipt, call the meeting. Such meeting
shall be held at least 30 but not more than 60 days after the mailing of such
notice, and such notice shall specify the
LPA-14
<PAGE> 89
date, a reasonable place and time for such meeting, as well as its purpose. Such
notice shall establish a record date for Limited Partners entitled to vote at
the meeting, which shall be not more than 15 days prior to the date established
for such meeting.
In determining whether a majority of the Units has approved an
action or amendment, only Units owned by Limited Partners shall be counted. Any
Units acquired by the General Partner or any of its Affiliates will be
non-voting, and will not be considered outstanding for purposes of determining
whether the majority approval of the outstanding Units has been obtained.
The General Partner may not restrict the voting rights of
Limited Partners as set forth herein.
In the event that this Agreement is to be amended in any
material respect, the amendment will not become effective prior to all Limited
Partners having an opportunity to redeem their Units.
17. BENEFIT PLAN INVESTORS.
(a) INVESTMENT IN ACCORDANCE WITH LAW. Each Limited Partner
that is an "employee benefit plan" as defined in and subject to ERISA, a "plan"
as defined in Section 4975 of the Code (collectively, a "Plan"), and each
fiduciary who has caused a Plan to become a Limited Partner (a "Plan
Fiduciary"), represents and warrants that: (a) the Plan Fiduciary has considered
an investment in the Fund in light of the risks relating thereto; (b) the Plan
Fiduciary has determined that the investment in the Fund is consistent with the
Plan Fiduciary's responsibilities under ERISA; (c) the investment in the Fund
does not violate the terms of any legal document constituting the Plan or any
trust agreement thereunder; (d) the Plan's investment in the Fund has been duly
authorized and approved by all necessary parties; (e) none of the General
Partner, the Fund's advisor(s), any cash manager, the Fund's futures broker, any
selling agents and any of their respective affiliates or any of their respective
agents or employees: (i) has investment discretion with respect to the assets of
the Plan used to purchase Units; (ii) has authority or responsibility to or
regularly gives investment advice with respect to the assets of the Plan used to
purchase Units for a fee and pursuant to an agreement or understanding that such
advice will serve as a primary basis for investment decisions with respect to
the Plan and that such advice will be based on the particular investment needs
of the Plan; or (iii) is an employer maintaining or contributing to the Plan;
and (f) the Plan Fiduciary: (i) is authorized to make, and is responsible for,
the decision of the Plan to invest in the Fund, including the determination that
such investment is consistent with the requirement imposed by Section 404 of
ERISA that Plan investments be diversified so as to minimize the risks of large
losses; (ii) is independent of the General Partner, the Fund's advisor(s), any
cash manager, the Fund's futures broker, any selling agents and any of their
respective affiliates; and (iii) is qualified to make such investment decision.
(b) DISCLOSURES AND RESTRICTIONS REGARDING BENEFIT PLAN
INVESTORS. Each Limited Partner that is a "benefit plan investor" (defined as
any Plan, any other employee benefit plan as defined in but not subject to ERISA
and any entity deemed for any purpose of ERISA or Section 4975 of the Code to
hold assets of any employee benefit plan or plan) represents that the individual
signing the Subscription Agreement and Power of Attorney has disclosed such
Limited Partner's status as a benefit plan investor in the Subscription
Agreement and Power of Attorney. Each Limited Partner that is not a "benefit
plan investor" represents and agrees that if at a later date such Limited
Partner becomes a benefit plan investor, such Limited Partner will immediately
notify the General Partner of such change of status. Notwithstanding anything
herein to the contrary, the General Partner, on behalf of the Fund, may take any
and all action including, but
LPA-15
<PAGE> 90
not limited to, refusing to admit persons as Limited Partners or refusing to
accept additional capital contributions, and requiring the redemption of the
Units of any Limited Partner in accordance with Section 11 hereof, as may be
necessary or desirable to avoid having the assets of the Fund be considered for
any purpose of ERISA or Section 4975 of the Code to constitute assets of any
Plan.
18. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW; PROVIDED, THAT THE
FOREGOING CHOICE OF LAW SHALL NOT RESTRICT THE APPLICATION OF ANY STATE'S
SECURITIES LAWS TO THE SALE OF UNITS TO ITS RESIDENTS OR WITHIN SUCH STATE.
19. MISCELLANEOUS.
(a) Notices. All notices under this Agreement must be in
writing and will be effective upon personal delivery, or if sent by first class
mail, postage prepaid, upon the deposit of such notice in the United States
mail.
(b) Binding Effect. This Agreement shall inure to and be
binding upon all of the parties hereto and all parties indemnified under Section
15, as well as their respective successors and assigns, custodians, estates,
heirs and personal representatives.
For purposes of determining the rights of any Partner or
assignee hereunder, the Fund and the General Partner may rely upon the Fund
records as to who are Partners and assignees, and all Partners and assignees
agree that their rights shall be determined and they shall be bound thereby.
(c) Captions. Captions are not part of this Agreement.
(d) Close of Business. The General Partner will decide when
the close of business occurs.
THE PARTIES HEREBY EXECUTE THIS SECOND AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT AS OF THE DAY AND YEAR FIRST ABOVE WRITTEN.
GENERAL PARTNER: LIMITED PARTNERS:
PROFUTURES, INC. PROFUTURES, INC.
Attorney-in-Fact
By /s/ GARY D. HALBERT By /s/ GARY D. HALBERT
--------------------------- -----------------------------
Gary D. Halbert Gary D. Halbert
President President
LPA-16
<PAGE> 91
EXHIBIT B
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
(TO BE EXECUTED BY ALL PURCHASERS)
SUBSCRIPTION INSTRUCTIONS
Fill in all of the boxes and blanks on pages B-6 and B-7 as follows:
Part 1 o Indicate if this is an addition to an existing
account; if so, enter your Limited Partner account number.
o Indicate if you are a Benefit Plan Investor (see page B-3).
o Enter your Social Security Number or Taxpayer ID Number
and check the appropriate box to indicate the nature of
the subscriber. In case of joint ownership, either Social
Security Number may be used.
o Enter the exact name in which the Units are to be held based
on ownership type, and other information.
o If there is a Co-Purchaser, Trustee or Custodian, complete
the applicable information. IRA OR KEOGH PLAN INVESTMENTS
MAY ONLY BE ACCEPTED IF RECEIVED FROM A THIRD PARTY
CUSTODIAN. CALL THE GENERAL PARTNER FOR DETAILS.
Part 2 o Enter the dollar amount of the subscription. MAKE YOUR CHECK
PAYABLE TO PROFUTURES LONG/SHORT GROWTH FUND, L.P. (THE
"FUND").
Part 3 o You must execute the Subscription Agreement and Power of
Attorney Signature Page. Each joint tenant or tenant in
common must sign in the space provided. If purchaser is a
trust, partnership, corporation or other business
association, the signing trustee, partner or officer
represents and warrants that he/she/it has full power and
authority to execute this Agreement on its behalf. IF
PURCHASER IS A TRUST OR PARTNERSHIP, PLEASE ATTACH A COPY OF
THE TRUST INSTRUMENT OR PARTNERSHIP AGREEMENT. IF PURCHASER
IS A CORPORATION, PLEASE ATTACH CERTIFIED CORPORATE
RESOLUTION AUTHORIZING SIGNATURE.
MAIL EXECUTED SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY TO:
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
C/O PROFUTURES FINANCIAL GROUP, INC.
11612 BEE CAVE ROAD, SUITE 100
AUSTIN, TEXAS 78733
B-1
<PAGE> 92
SUBSCRIPTION FOR UNITS
By executing pages B-6 and B-7 of this Subscription Agreement and
Power of Attorney (hereafter, the "Subscription Agreement"), you irrevocably
subscribe for Units of Limited Partnership Interest in the Fund. You have
enclosed the sum indicated on page B-6 (minimum $10,000 or $5,000 for IRAs and
retirement plans). Subscriptions, whether checks or wire transfers, should be
made payable to "ProFutures Long/Short Growth Fund, L.P." If this Subscription
Agreement is accepted, you agree to contribute the amount enclosed to the Fund
and to be bound by the terms of the Second Amended and Restated Limited
Partnership Agreement, as it may be amended from time to time.
You understand and agree that this subscription may be accepted or
rejected by the General Partner, in whole or in part, in its sole and absolute
discretion. You hereby acknowledge and agree that this Subscription Agreement
shall survive: (i) changes in the transactions, documents and instruments
described in the Prospectus which are not material; (ii) your death or
disability; and (iii) the acceptance of this subscription by the General
Partner.
Your subscription should be submitted by the 25th of the month
preceding the month in which you plan to invest.
REPRESENTATIONS AND WARRANTIES
By executing this Subscription Agreement, you represent and
warrant to the Fund, the General Partner and their respective affiliates (i)
that you have received the current Prospectus of the Fund together with a recent
monthly report; (ii) that you are of legal age and legally competent to execute
this Subscription Agreement; (iii) that you satisfy the applicable requirements
relating to net worth and annual income set forth below under "Investor
Suitability Requirements"; (iv) that your subscription, if made as custodian for
a minor, is a gift you have made to such minor or, if not a gift, the following
representations as to net worth and annual income apply to such minor
personally; (v) if you are subscribing in a representative capacity, that you
have full power and authority to purchase the Units on behalf of the entity for
which you are acting, and such entity has full power and authority to purchase
such Units; and (vi) if required to be, that you are registered with the
Commodity Futures Trading Commission or a member of the National Futures
Association.
The foregoing information which has been provided to the General
Partner is true and accurate as of the date hereof and shall be true and
accurate as of the date of your admission to the Fund as a limited partner. If
in any respect such representations, warranties or information shall not be true
and accurate at any time prior to your admission as a limited partner, you will
give written notice of such fact to the General Partner, specifying which
representation, warranty or information is not true and accurate and the reason
therefor.
POWER OF ATTORNEY
By executing this Subscription Agreement below, you: (i)
acknowledge the accuracy of all statements herein and (ii) appoint the General
Partner to act as your true and lawful attorney and agent to execute the Limited
Partnership Agreement and to file any documents or take any action required for
the Fund to carry out its business activities. In addition, by executing this
Subscription Agreement you waive on behalf of yourself and your estate the
furnishing of any inventory, accounting or appraisal of the assets of the Fund;
provided that such waiver does not extend to any rights granted a Limited
Partner under the Limited Partnership Agreement.
B-2
<PAGE> 93
BENEFIT PLAN INVESTORS
The undersigned must check the box on page B-6 if the Purchaser is
a "benefit plan investor." The term "benefit plan investor" refers to (i) any
"employee benefit plan" as defined in the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), regardless of whether it is subject to ERISA,
(ii) any "plan" as defined in section 4975 of the Internal Revenue Code of 1986,
as amended (the "Code"), and (iii) any entity deemed for any purpose of ERISA or
Section 4975 of the Code to hold assets of any such employee benefit plan or
plan.
If the undersigned is not a benefit plan investor, on the date
this Subscription Agreement and Power of Attorney is signed, the undersigned
agrees to notify the General Partner immediately if the undersigned becomes a
benefit plan investor.
INVESTOR SUITABILITY REQUIREMENTS
YOU UNDERSTAND THAT THE PURCHASE OF UNITS MAY BE MADE ONLY BY
PERSONS WHO, AT A MINIMUM, HAVE (I) A NET WORTH OF AT LEAST $150,000 (EXCLUSIVE
OF HOME, FURNISHINGS AND AUTOMOBILES) OR (II) AN ANNUAL GROSS INCOME OF AT LEAST
$45,000 AND A NET WORTH (SIMILARLY CALCULATED) OF AT LEAST $45,000. RESIDENTS OF
THE FOLLOWING STATES MUST MEET THE SPECIFIC REQUIREMENTS SET FORTH BELOW (NET
WORTH IS, IN ALL CASES, TO BE CALCULATED EXCLUSIVE OF HOME, FURNISHINGS AND
AUTOMOBILES).
1. Alaska -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
2. Arizona -- Net worth of at least $225,000 or a net worth of at
least $60,000 and annual taxable income of at least $60,000.
3. California -- Net worth of at least $225,000 or a net worth of
at lest $60,000 and an annual taxable income of at least $60,000.
4. Iowa -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000. Minimum purchase
for individual retirement accounts and employee benefit plans in Iowa is $2,500.
5. Kansas -- Net worth of at least $225,000 or a net worth of at
lest $60,000 and an annual taxable income of at least $60,000.
6. Maine -- Net worth of at least $200,000 or a net worth of at
least $50,000 and an annual income of at least $50,000. All Maine residents,
including existing Limited Partners in the Fund subscribing for additional
Units, must execute a Subscription Agreement and Power of Attorney Signature
Page. Maine residents must sign a Subscription Agreement and Power of Attorney
Signature Page specifically prepared for Maine residents, a copy of which shall
accompany this Prospectus and be delivered to all Maine residents.
7. Massachusetts -- Net worth of at least $225,000 or a net worth
of at least $60,000 and annual taxable income of at least $60,000.
8. Michigan -- Net worth of at least $225,000 or a net worth of at
least $60,000 and taxable income during the preceding year of at least $60,000.
B-3
<PAGE> 94
9. Minnesota -- Except as provided in the immediately following
sentence, each Minnesota purchaser must be an "accredited investor" as defined
in Regulation D under the Securities Act of 1933 and must, either alone or
together with a purchaser representative, have sufficient financial knowledge
and experience to be capable of evaluating the risks and merits of an investment
in the Units. The Fund may effect no more than 35 sales of Units to
non-accredited investors in Minnesota in any consecutive 12-month period. Each
non-accredited investor must have a net worth of at least $225,000 or a net
worth of at least $60,000 and an annual income of at least $60,000. Minnesota
residents must sign a Subscription Agreement and Power of Attorney Signature
Page specifically prepared for Minnesota residents, a copy of which shall
accompany this Prospectus delivered to Minnesota residents.
10. Mississippi -- Net worth of at least $225,000 or a net worth
of at least $60,000 and annual taxable income of at least $60,000.
11. Missouri -- Net worth of at least $225,000 or a net worth of
at least $60,000 and annual taxable income of at least $60,000.
12. New Hampshire -- Net worth of at least $250,000 or a net worth
of at least $125,000 and an annual taxable income of at least $50,000.
13. North Carolina -- Net worth of at least $225,000 or a net
worth of at least $60,000 and annual taxable income of at least $60,000.
14. Oklahoma -- Net worth of at least $225,000 or a net worth of
$60,000 and an annual income of at least $60,000.
15. Oregon -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual income of at least $60,000.
16. Pennsylvania -- Net worth of at least $175,000 or a net worth
of at least $100,000 and an annual income of at least $50,000. No individual
Pennsylvania purchaser may invest more than 10% of his or her net worth
(exclusive of home, furnishings and automobiles) in the Fund.
17. South Carolina -- Net worth of at least $100,000 or a net
income in the preceding year some portion of which was subject to maximum
federal and state income tax.
18. South Dakota -- Net worth of at least $225,000 or a net worth
of at least $60,000 and annual taxable income of at least $60,000.
19. Tennessee -- Net worth of at least $250,000 or a net worth of
at least $65,000 and annual taxable income of at least $65,000.
20. Texas -- Net worth of at least $225,000 or a net worth of at
least $60,000 and annual taxable income of at least $60,000.
-------------------------
In the case of IRA and SEP plans, the foregoing suitability
standards are applicable to the owner of the plan for whose account the Units
are being acquired.
The foregoing suitability standards are regulatory minimums only.
No one should invest more than 10% of his or her liquid net worth in the Fund.
B-4
<PAGE> 95
BINDING AGREEMENT; GOVERNING LAW
This Subscription Agreement and the representations and warranties
contained herein shall be binding upon you, your heirs, executors,
administrators and other successors. If there is more than one signatory hereto,
your obligations, representations, warranties and agreements are made jointly
and severally.
This Subscription Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware, without regard to
principles of conflicts of law.
MAIL SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY AND CHECK TO:
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
PROFUTURES FINANCIAL GROUP, INC.
11612 BEE CAVE ROAD, SUITE 100
AUSTIN, TEXAS 78733
1-800-348-3601
B-5
<PAGE> 96
SIGNATURE PAGE
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY,
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE FEDERAL SECURITIES LAWS.
PART 1 - SUBSCRIBER
Is this an addition to an existing Fund account? [ ] Yes [ ] No
If so, enter LP# _____________________________________________________
NATURE OF SUBSCRIBER (PLEASE CHECK):
<TABLE>
<S> <C>
[ ] Individual [ ] Non-Profit Organization*
[ ] Joint Tenants w/Rights of Survivorship (JTWROS)* [ ] Trust*
[ ] Joint Tenants in common (TENCOM)* [ ] UGMA (Gift to Minor)
[ ] Partnership* [ ] Pension Plan*
[ ] Corporation* [ ] Other (Specify)
</TABLE>
- ------------------------
*NOTE: Please refer to instructions on page B-1 of this Subscription Agreement.
[ ] Benefit Plan Investor? (See page B-3)
<TABLE>
<S> <C>
- ------------------------------------------------ --------------------------------
Print Purchaser's Full Name or Name of Trust or Social Security or Taxpayer ID #
Custodian Account
- ------------------------------------------------ --------------------------------
Print Name of Co-Purchaser or Authorized Person, Date of Birth of Purchaser
if an Institutional Trust
( )
- ------------------------------------------------ --------------------------------
Street Address of Purchaser Business Phone (Day)
( )
- ------------------------------------------------ --------------------------------
City, State and Zip Code Home Phone
PART 2 - SUBSCRIPTION
MAKE YOUR CHECK PAYABLE ONLY TO:
Subscription Amount $______________ PROFUTURES LONG/SHORT GROWTH FUND, L.P.
</TABLE>
B-6
<PAGE> 97
PART 3 - SIGNATURE
I have checked the box if I am subject to back up withholding
tax under the provisions of the Internal Revenue Code o. I hereby certify that
the Social Security or Taxpayer ID number above is my true and complete Social
Security or Taxpayer ID number and that the information given in the preceding
sentence is true and complete.
By executing this Subscription Agreement, you acknowledge the
representations and warranties set forth above on Page B-2.
The Units are speculative securities. No market exists for the
Units and none will develop. Redemptions may be made only as of a month-end.
DATE: _______________
Signature of Purchaser or Authorized Person Signature of Co-Purchaser
- -------------------------------------- --------------------------
TO BE COMPLETED BY REGISTERED REPRESENTATIVE LP #_________
The undersigned certifies that he has informed the Purchaser
of all pertinent facts relating to the liquidity and marketability of the Units
as set forth in the Prospectus.
The undersigned has reasonable grounds to believe on the basis
of information obtained from the Purchaser concerning his investment objectives,
other investments, financial situation and needs, and any other information
known by the undersigned, that: (i) the Purchaser is or will be in a financial
position appropriate to enable him to realize to a significant extent the
benefits described in the Prospectus; (ii) the Purchaser has a fair market net
worth sufficient to sustain the risks inherent in the Fund, including losses of
investment and lack of liquidity; and (iii) the Fund is otherwise a suitable
investment for the Purchaser.
ACCEPTED _____________ BY:
PROFUTURES FINANCIAL GROUP, INC. PROFUTURES INC.
AUSTIN, TEXAS
CRD #24328 GENERAL PARTNER OF
GARY D. HALBERT, REGISTERED REPRESENTATIVE PROFUTURES LONG/SHORT GROWTH FUND,
L.P.
- ------------------------------------------ ---------------------------------
GARY D. HALBERT, REGISTERED REPRESENTATIVE GARY D. HALBERT, PRESIDENT
B-7
<PAGE> 98
EXHIBIT C
REQUEST FOR REDEMPTION
_______________________, 199_
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
c/o ProFutures, Inc.
11612 Bee Cave Road
Suite 100
Austin, Texas 78733
The undersigned hereby requests redemption of _____ Units. The
undersigned hereby represents and warrants that he is the true and lawful owner
of the Unit(s) to which this request relates with full power and authority to
request redemption of such Unit(s). Such Unit(s) are not subject to any pledge
or otherwise encumbered in any fashion. This redemption shall be governed by the
terms of the Fund's Limited Partnership Agreement.
Please forward to the undersigned at the address below.
Name____________________________________________
Address ________________________________________
City, State, Zip Code___________________________
PARTNER'S SIGNATURE MUST BE IDENTICAL TO NAME IN WHICH UNITS ARE REGISTERED.
By: ____________________________________________
(Signature of Owner)
Name:___________________________________________
Partnership, Trust, Plan or Corporation
By: ____________________________________________
(Signature of Authorized Representative)
Name: __________________________________________
Title: _________________________________________
C-1
<PAGE> 99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
An organizational charge of 1% of the subscription amount is
paid to the General Partner (or the Selling Agent, its affiliated broker-dealer)
by each subscriber. The General Partner will pay for all actual costs of
conducting the public offering of Units. To the extent that the aggregate 1%
organizational charge collected is less than these actual costs, the General
Partner will pay the costs. To the extent that the aggregate 1% organizational
charge collected exceeds these actual costs, the excess amount will be paid to
the Selling Agent. Such payment could be deemed to be a selling commission. The
following is an estimate of such costs:
<TABLE>
<CAPTION>
Approximate Amount
------------------
<S> <C>
Securities and Exchange Commission Registration Fee.................................. $ 20,690*
National Association of Securities Dealers, Inc. Filing Fee.......................... 6,500*
Printing Expenses.................................................................... 40,000
Fees of Certified Public Accountants................................................. 25,000
Blue Sky Expenses (Excluding Legal Fees)............................................. 50,000
Fees of Counsel...................................................................... 230,000
Miscellaneous Offering Costs......................................................... 20,000
--------
Total............................................................................. $392,190
========
</TABLE>
- -----------------------
* Fees marked with an asterisk are exact rather than estimated and approximate.
--------------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 15 of the Limited Partnership Agreement (attached as Exhibit
A to the prospectus which forms a part of the Registration Statement) provides
for the indemnification of the General Partner and certain of its Affiliates by
the Registrant. "Affiliates" shall mean any person performing services on behalf
of the Partnership who: (1) directly or indirectly controls, is controlled by,
or is under common control with the General Partner; or (2) owns or controls 10%
or more of the outstanding voting securities of the General Partner; or (3) is
an officer or director of the General Partner; or (4) if the General Partner is
an officer, director, partner or trustee, is any entity for which the General
Partner acts in any such capacity. Indemnification is to be provided for any
loss suffered by the Registrant which arises out of any action or inaction, if
the party, in good faith, determined that such course of conduct was in the best
interest of the Registrant and such conduct did not constitute negligence or
misconduct. The General Partner and its Affiliates will only be entitled to
indemnification for losses incurred by such Affiliates in performing the duties
of the General Partner and acting wholly within the scope of the authority of
the General Partner.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Beginning on September 1, 1997 and until August 31, 1998, the
Registrant sold, at month-end closings, Units of Limited Partnership Interest to
accredited investors and less than 35 unaccredited investors pursuant to a
private offering which was exempt under Section 4(2) of the Securities Act of
1933. Such Units were sold by the General Partner and/or the Selling Agent.
II-1
<PAGE> 100
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents (unless otherwise indicated) are filed
herewith and made a part of this Registration Statement:
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------ -----------------------
<S> <C>
1.01 Form of Amended and Restated Selling Agreement among the Registrant, the General
Partner, the Selling Agent and the Advisor.
3.01 Amended Certificate of Limited Partnership of the Registrant
3.02 Form of Second Amended and Restated Limited Partnership Agreement of the Registrant
(included as Exhibit A to the Prospectus).
5.01 Opinion of Sidley & Austin relating to the legality of the Units.
8.01 Opinion of Sidley & Austin with respect to federal income tax consequences.
10.01 Amendment to Customer Agreement between the Registrant and the Futures Broker.
10.02 Form of Subscription Agreement and Power of Attorney (included as Exhibit B to the
Prospectus).
23.01 Consent of Sidley & Austin (included in Exhibit 5.01).
23.02 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
27.01 Financial Data Schedule
</TABLE>
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with the Registrant's
Registration Statement on Form S-1, as filed with the Commission on September
10, 1998 (Reg. No. 333-63129):
3.01 Certificate of Limited Partnership of the Registrant.
10.01 First Amendment and Restatement of Advisory Contract between
the Registrant and the Advisor.
10.02 Customer Agreement between the Registrant and the Futures
Broker.
ITEM 17.
The undersigned registrant hereby undertakes:
(a) Rule 415 Offerings
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
II-2
<PAGE> 101
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such
information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Equity Offerings of Nonreporting Registrants
Note: The Units are not certificated.
(c) Indemnification
Insofar as indemnification for liabilities under the
Securities Act of 1933 may be permitted to officers, directors or controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by an officer, director,
or controlling person of the registrant in the successful defense of any such
action, suit or proceeding) is asserted by such officer, director or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the General Partner of the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Austin in the State of Texas on the 22nd day of
December, 1998.
ProFutures Long/Short Growth Fund, L.P.
By: ProFutures, Inc.
By: /s/ GARY D. HALBERT, JR.
----------------------------------
Gary D. Halbert, Jr.
President
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following person on
behalf of ProFutures, Inc., General Partner of the Registrant, in the capacities
and on the date indicated.
<TABLE>
<S> <C> <C>
/s/ GARY D. HALBERT President and Director December 22, 1998
---------------------------------- (Principal Executive
Gary D. Halbert Officer)
/s/ DEBI B. HALBERT Chief Financial Officer, December 22, 1998
---------------------------------- Treasurer and Director
Debi B. Halbert (Principal Financial
and Accounting Officer)
(Being the principal executive officer, the principal financial and accounting officer and
a majority of the directors of ProFutures, Inc.)
PROFUTURES, INC. General Partner of Registrant
By /s/ GARY D.HALBERT December 22, 1998
-------------------------------
Gary D. Halbert
President
</TABLE>
<PAGE> 103
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
EXHIBIT INDEX
Number Description of Document
1.01 Form of Amended and Restated Selling Agreement among the Registrant, the
General Partner, the Selling Agent and the Advisor.
3.01 Amended Certificate of Limited Partnership of the Registrant
3.02 Form of Second Amended and Restated Limited Partnership Agreement of the
Registrant (included as Exhibit A to the Prospectus).
5.01 Opinion of Sidley & Austin relating to the legality of the Units.
8.01 Opinion of Sidley & Austin with respect to federal income tax
consequences.
10.01 Amendment to Customer Agreement between the Registrant and the Futures
Broker.
10.02 Form of Subscription Agreement and Power of Attorney (included as Exhibit
B to the Prospectus).
23.01 Consent of Sidley & Austin (included in Exhibit 5.01).
23.02 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
27.01 Financial Data Schedule
<PAGE> 1
EXHIBIT 1.01
FORM OF
AMENDED AND RESTATED
SELLING AGREEMENT
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
UNITS OF LIMITED PARTNERSHIP INTEREST
Dated as of ________, 1998
<PAGE> 2
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
AMENDED AND RESTATED
SELLING AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Representations and Warranties of the General Partner ...................................... 2
Section 2. Representations and Warranties of the Selling Agent.......................................... 5
Section 3. Representations and Warranties of the Trading Advisor....................................... 7
Section 4. Representations and Warranties of the Broker................................................ 9
Section 5. Offering and Sale of Units.................................................................. 11
Section 6. Covenants of the General Partner............................................................ 15
Section 7. Covenants of the Trading Advisor............................................................ 17
Section 8. Covenants of the Broker..................................................................... 17
Section 9. Payment of Expenses and Fees................................................................ 17
Section 10. Conditions of Closing...................................................................... 18
Section 11. Indemnification and Exculpation............................................................. 27
Section 12. Status of Parties........................................................................... 30
Section 13. Representations, Warranties and Agreements to Survive Delivery.............................. 31
Section 14. Termination................................................................................. 31
Section 15. Notices and Authority to Act................................................................ 31
Section 16. Parties..................................................................................... 32
Section 17. Governing Law............................................................................... 32
Section 18. Requirements of Law......................................................................... 32
</TABLE>
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<PAGE> 3
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
$60,000,000 UNITS OF LIMITED PARTNERSHIP INTEREST
(SUBSCRIPTION PRICE: 101% OF NET ASSET VALUE PER UNIT)
FORM OF
AMENDED AND RESTATED
SELLING AGREEMENT
_______, 1998
PROFUTURES FINANCIAL GROUP, INC.
11612 Bee Cave Road
Suite 100
Austin, Texas 78733
Dear Sirs:
Your affiliate, ProFutures, Inc., a Texas corporation
(referred to herein in its individual corporate capacity and as general partner
as the "General Partner"), and an initial limited partner have caused the
formation of a limited partnership pursuant to the Revised Uniform Limited
Partnership Act of the State of Delaware ("DRULPA") under the name ProFutures
Long/Short Growth Fund, L.P. (the "Fund"), for the purpose of engaging in
speculative trading of futures and forward contracts and commodity options. As
described in the Prospectus referred to below, the Fund has entered into the
First Amendment and Restatement of Advisory Contract (the "Advisory Agreement")
with Hampton Investors, Inc., a New York corporation (the "Trading Advisor").
The Fund engages in speculative trading in the commodities markets under the
direction of the Trading Advisor pursuant to its Leverage 3 Trading Program (the
"Trading Strategy"). You shall serve as lead selling agent for the Fund (herein
referred to as the "Selling Agent") and you may select, with the consent of the
General Partner, other selling agents (the "Additional Selling Agents")
(including those introduced by wholesalers ("Wholesalers")) to act as selling
agents for the Fund in accordance with the terms of the Additional Selling Agent
Agreement attached hereto as Exhibit A. In addition, the Additional Selling
Agents may also, with the consent of the Selling Agent and the General Partner,
distribute Units through the use of "introducing broker" Correspondents
("Correspondents").
<PAGE> 4
ING (U.S.) Securities, Futures & Option, Inc. (the "Broker")
acts as broker for the Fund pursuant to a customer agreement (the "Customer
Agreement") between the Broker and the Fund.
Capitalized terms used herein, unless otherwise indicated,
shall have the meanings attributed to them in the Prospectus referred to below.
Section 1. Representations and Warranties of the General
Partner. The General Partner represents and warrants to the Trading Advisor, the
Broker and the Selling Agent, as follows:
(a) The Fund has provided to the Trading Advisor and to the
Selling Agent and filed with the Securities and Exchange Commission
(the "SEC") a registration statement on Form S-1 (Registration No.
333-63129), as initially filed with the SEC on Sept. 10, 1998 and
Amendment No. 1 thereto as filed on _______, 1998 for the registration
of Units of Limited Partnership Interests (the "Units") in the Fund
under the Securities Act of 1933, as amended (the "1933 Act"), has
filed two copies thereof with the Commodity Futures Trading Commission
(the "CFTC") under the Commodity Exchange Act (the "Commodity Act")
and one copy with the National Futures Association (the "NFA") in
accordance with NFA Compliance Rule 2-13. The Registration Statement
became effective with the SEC as of the date hereof. (The Registration
Statement, in the form in which it became effective, and the Prospectus
included therein as first filed pursuant to Rule 424(b) of the rules
and regulations of the SEC under the 1933 Act (the "SEC Regulations")
are hereinafter referred to as the "Registration Statement" and the
"Prospectus," respectively.) If the Fund files a subsequent
post-effective amendment to the Registration Statement, then the term
Registration Statement shall, from and after the declaration of the
effectiveness of such post-effective amendment, refer to the
Registration Statement as amended by such post-effective amendment
thereto, and the term Prospectus shall refer to the amended prospectus
then on file with the SEC as part of the Registration Statement, or if
a subsequent prospectus is filed by the Fund pursuant to Rule 424 of
the SEC Regulations, the term Prospectus shall refer to the prospectus
most recently filed pursuant to such Rule from and after the date on
which it shall have been first used. Except as required by law, the
Fund will not file any amendment to the Registration Statement or any
amendment or supplement to the Prospectus which shall be reason ably
objected to in writing by the Trading Advisor or by counsel to the
Trading Advisor, upon reasonable prior notice.
(b) The Fund will not utilize any promotional brochure or
other marketing materials (collectively, "Promotional Material"),
including "Tombstone Ads" or other communications qualifying under Rule
134 of the SEC Regulations, which are reasonably objected to by the
Selling Agent. No reference to the Selling Agent may be made in the
Registration Statement, Prospectus or in any Promotional Material which
has not been approved in writing by the Selling Agent, which approval
the Selling Agent may withhold in its sole and absolute discretion. The
Fund will file all Promotional Material with the National Association
of Securities Dealers, Inc. (the
-2-
<PAGE> 5
"NASD"), and will not use any such Promotional Material to which the
NASD has objected without first revising such Promotional Material to
address such objection(s). The Fund will file all Promotional Material
in all state jurisdictions where such filing is required, and will not
use any such Promotional Material in any state which has expressed any
objection thereto (except pursuant to agreed-upon modifications to the
Promotional Material).
(c) The Certificate of Limited Partnership (the "Certificate
of Limited Partnership") pursuant to which the Fund has been formed and
the Second Amended and Restated Limited Partnership Agreement of the
Fund (the "Limited Partnership Agreement") each provides for the
subscription for and sale of the Units; all action required to be taken
by the General Partner and the Fund as a condition to the sale of the
Units to qualified subscribers therefor has been, or prior to the
Initial Public Closing Time and Subsequent Public Closing Times, as
defined in Section 5 hereof, will have been taken; and, upon payment of
the consideration therefor specified in all accepted Subscription
Agreements and Powers of Attorney, the Units will constitute valid
limited partnership interests in the Fund.
(d) The Fund is a limited partnership duly organized pursuant
to the Certificate of Limited Partnership, the Limited Partnership
Agreement and the DRULPA and validly existing under the laws of the
State of Delaware with full power and authority to engage in the
trading of futures, forward and option contracts, as described in the
Prospectus, and the Fund has qualified to do business in the State of
Texas.
(e) The General Partner is duly organized and validly existing
and in good standing as a corporation under the laws of the State of
Texas and in good standing as a foreign corporation in any other
jurisdiction in which the nature or conduct of its business requires
such qualification and the failure to so qualify would materially
adversely affect the Fund or the General Partner's ability to perform
its obligations hereunder.
(f) The Fund and the General Partner have partnership or
corporate power and authority under applicable law to perform their
respective obligations under the Limited Partnership Agreement, the
Customer Agreement, the Investment Advisory Agreement, the Additional
Selling Agents Agreement, the Advisory Agreement and this Agreement, as
described in the Registration Statement and Prospectus.
(g) The Registration Statement and Prospectus contain all
statements and information required to be included therein by the
Commodity Act and the rules and regulations thereunder. When the
Registration Statement became effective under the 1933 Act and at all
times subsequent thereto up to and including the Initial Public Closing
Time, the Registration Statement and Prospectus will comply in all
material respects with the requirements of the 1933 Act, the Commodity
Act and the rules and regulations under such Acts. The Registration
Statement as of its effective date did
-3-
<PAGE> 6
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not mislead ing. The Prospectus as of its date of
issue and at the Initial Public Closing Time did not and will not
contain an untrue statement of a material fact or omit to state a mate
rial fact necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
This representation and warranty shall not, however, apply to any
statement or omission in the Registration Statement or Prospectus made
in reliance upon and in conformity with information relating to the
Trading Advisor, the Broker or any cash manager and furnished or
approved in writing by the Trading Advisor, the Broker or any cash
manager.
(h) Arthur F. Bell, Jr. & Associates, L.L.C., the accountants
who certified the financial statements of the General Partner and the
Fund filed with the SEC as part of the Registration Statement, are
independent public accountants with respect to the General Partner and
the Fund as required by the 1933 Act and the SEC Regulations.
(i) The financial statements filed as part of the Registration
Statement and those included in the Prospectus present fairly the
financial position of the Fund and of the General Partner as of the
dates indicated; and said financial statements have been prepared in
conformity with generally accepted accounting principles (as described
therein), or, in the case of unaudited financial statements, in
substantial conformity with generally accepted accounting principles,
applied on a basis which is consistent in all material respects for
each balance sheet date presented.
(j) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any material adverse change in the condition, financial or
otherwise, business or prospects of the General Partner or the Fund,
whether or not arising in the ordinary course of business.
(k) The Advisory Agreement, the Limited Partnership Agreement,
the Additional Selling Agents Agreement and this Agreement have each
been duly and validly authorized, executed and delivered by the General
Partner for itself and on behalf of the Fund, and each constitutes a
legal, valid and binding agreement of the Fund and the General Partner
enforceable in accordance with its terms. The Investment Advisory
Agreement and the Customer Agreement have both been duly and validly
authorized, executed and delivered by the General Partner on behalf of
the Fund.
(l) The execution and delivery of the Limited Partnership
Agreement, the Customer Agreement, the Investment Advisory Agreement,
the Additional Selling Agents Agreement, the Advisory Agreement and
this Agreement, the incurrence of the obligations set forth in each of
such agreements and the consummation of the transactions contemplated
therein and in the Prospectus will not constitute a breach of, or
default under, any instrument by which either the General Partner or
the Fund, as the case may be, is bound or any order, rule or regulation
applicable to the General
-4-
<PAGE> 7
Partner or the Fund of any court or any governmental body or
administrative agency having jurisdiction over the General Partner or
the Fund.
(m) There is not pending, or, to the best of the General
Partner's knowledge threatened, any action, suit or proceeding before
or by any court or other governmental body to which the General Partner
or the Fund is a party, or to which any of the assets of the General
Partner or the Fund is subject, which is not referred to in the
Prospectus and which might reasonably be expected to result in any
material adverse change in the condition (financial or otherwise),
business or prospects of the General Partner or the Fund or is required
to be disclosed in the Prospectus pursuant to applicable CFTC
regulations. The General Partner has not received any notice of an
investigation or warning letter from the NFA or the CFTC regarding
non-compliance by the General Partner with the Commodity Act or the
regulations thereunder.
(n) The General Partner has all federal and state
governmental, regulatory and commodity exchange approvals and licenses,
and has effected all filings and registrations with federal and state
governmental agencies required to conduct its business and to act as
described in the Registration Statement and Prospectus or required to
perform its obligations as described under the Limited Partnership
Agreement and this Agreement (including, without limitation,
registration as a commodity pool operator under the Commodity Act and
membership in the NFA as a commodity pool operator), and the
performance of such obligations will not contravene or result in a
breach of any provision of its certificate of incorporation, by-laws or
any agreement, order, law or regulation binding upon it. The principals
of the General Partner identified in the Registration Statement are
all of the principals of the General Partner, as "principals" is
defined by the CFTC regulations. Such principals are duly registered as
such on the General Partner's commodity pool operator Form 7-R
registration.
(o) The Fund does not require any federal or state
governmental, regulatory or commodity exchange approvals or licenses,
or need to effect any filings or registrations with any federal or
state governmental agencies in order to conduct its businesses and to
act as contemplated by the Registration Statement and Prospectus and to
issue and sell the Units (other than filings relating solely to the
offering of the Units), and to trade in the commodity markets.
(p) None of the General Partner or any principal or affiliate
thereof has "operated," since January 1, 1991, any commodity pool,
within the meaning of the CFTC's Part 4 Regulations, the performance of
which is not included in the Prospectus.
Section 2. Representations and Warranties of the Selling
Agent. The Selling Agent represents and warrants to the Fund, the General
Partner, the Trading Advisor and the Broker as follows:
-5-
<PAGE> 8
(a) The Selling Agent is a corporation duly organized and
validly existing and in good standing under the laws of the State of
Texas and in good standing and qualified to do business in each
jurisdiction in which the nature or conduct of its business requires
such qualification and the failure to be duly qualified would
materially adversely affect the Selling Agent's ability to perform its
obligations hereunder. The Selling Agent has full corporate power and
authority to perform its obligations under this Agreement and as
described in the Registration Statement and Prospectus.
(b) All references to the Selling Agent and its principals in
the Registration Statement and Prospectus are accurate and complete in
all material respects, and set forth in all material respects the
information required to be disclosed therein under the Commodity Act
and the rules and regulations thereunder. As to the Selling Agent and
its principals, (i) the Registration Statement and Prospectus contain
all statements and information required to be included therein under
the Commodity Act and the rules and regulations thereunder, (ii) the
Registration Statement as of its effective date did not contain any
misleading or untrue statement of a material fact or omit to state a
material fact which is required to be stated therein or necessary to
make the statements therein not misleading and (iii) the Prospectus at
its date of issue and as of the Initial Public Closing Time did not and
will not contain an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading, in light of the circumstances under which such statements
were made.
(c) The Selling Agent has all federal and state governmental,
regulatory and commodity exchange licenses and approvals, and has
effected all filings and registrations with federal and state
governmental and regulatory agencies required to conduct its business
and to act as described in the Registration Statement and Prospectus or
required to perform its obligations under this Agreement, and the
performance of such obligations will not violate or result in a breach
of any provision of the Selling Agent's certificate of incorporation,
by-laws or any agreement, instrument, order, law or regulation binding
upon the Selling Agent.
(d) This Agreement has been duly authorized, executed and
delivered by the Selling Agent and constitutes a valid, binding and
enforceable agreement of the Selling Agent in accordance with its
terms.
(e) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as may
otherwise be stated in or contemplated by the Registration Statement
and the Prospectus, there has not been any material adverse change in
the condition, financial or otherwise, business or prospects of the
Selling Agent, whether or not arising in the ordinary course of
business.
-6-
<PAGE> 9
(f) In the ordinary course of its business, the Selling Agent
may be engaged in civil litigation and subject to administrative
proceedings. Neither the Selling Agent nor any of its principals have
been the subject of any administrative, civil, or criminal actions
within the five years preceding the date hereof that would be material
to an investor's decision to purchase the Units which are not disclosed
in the Prospectus.
(g) The execution and delivery of this Agreement, the
incurrence of the obligations set forth herein and the consummation of
the transactions contemplated herein and in the Prospectus will not
constitute a breach of, or default under, any instrument by which the
Selling Agent is bound or any order, rule or regulation applicable to
the Selling Agent of any court or any governmental body or administra
tive agency having jurisdiction over the Selling Agent.
Section 3. Representations and Warranties of the Trading
Advisor. The Trading Advisor represents and warrants to the Fund, the Selling
Agent, the Broker and the General Partner as follows:
(a) The Trading Advisor is a corporation duly organized and
validly existing and in good standing under the laws of the State of
New York and in good standing as a foreign corporation in each other
jurisdiction in which the nature or conduct of its business requires
such qualification and the failure to be duly qualified would
materially affect the Trading Advisor's ability to perform its
obligations under this Agreement and the Advisory Agreement. The
Trading Advisor has full corporate power and authority to perform its
obligations under this Agreement and the Advisory Agreement as
described in the Registration Statement and Prospectus.
(b) All references to the Trading Advisor and its principals,
and its trading systems, methods and performance in the Registration
Statement and the Prospectus are accurate and complete in all material
respects. As to the Trading Advisor, each of the principals of the
Trading Advisor, the Trading Strategy and the Trading Advisor's trading
systems, strategies and performance, (i) the Registration Statement and
Prospectus contain all statements and information required to be
included therein under the Commodity Act and the rules and regulations
thereunder, (ii) the Registration Statement (with respect to the
information relating to the Trading Advisor) as of its effective date
did not contain any misleading or untrue statement of a material fact
or omit to state a material fact which is required to be stated therein
or necessary to make the statements therein not misleading and (iii)
the Prospectus (with respect to information relating to the Trading
Advisor) at its date of issue and as of the Initial Public Closing
Time, as supplemented, did not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein not misleading, in light of the
circumstances under which such statements were made. Except as
otherwise disclosed in the Prospectus or identified in writing to the
General Partner on or prior to the date hereto, the actual performance
of each discretionary account directed by the Trading Advisor or any
principal or affiliate of the Trading Advisor for the periods covered
by the perform-
-7-
<PAGE> 10
ance summaries set forth in the Prospectus is disclosed in accordance
with the requirements of the Commodity Act and the rules and
regulations thereunder (or as otherwise permitted by the Staff of the
Division of Trading and Markets). The information, performance
summaries and monthly rates of return relating to the performance of
the Trading Advisor comply in all material respects with the disclosure
requirements of the rules and regulations of the CFTC under the
Commodity Act. The performance summaries in the Prospectus (as
applicable to the Trading Advisor) have been calculated in the manner
set forth in the notes thereto.
(c) The Advisory Agreement and this Agreement have each been
duly and validly authorized, executed and delivered on behalf of the
Trading Advisor and both constitute valid, binding and enforceable
agreements of the Trading Advisor in accordance with their terms.
(d) The Trading Advisor has all federal and state
governmental, regulatory and commodity exchange licenses and approvals
and has effected all filings and registrations with federal and state
governmental and regulatory agencies required to conduct its business
and to act as described in the Registration Statement and Prospectus or
required to perform its obligations under this Agreement and the
Advisory Agreement (including, without limitation, registration of the
Trading Advisor as a commodity trading advisor under the Commodity Act
and membership of the Trading Advisor as a commodity trading advisor in
the NFA), and the performance of such obligations will not violate or
result in a breach of any provision of the Trading Advisor's
Certificate of Incorporation, By-laws or any agreement, instrument,
order, law or regulation binding on the Trading Advisor. The principals
of the Trading Advisor are duly listed as such on the Trading Advisor's
commodity trading advisor Form 7-R registration.
(e) Management by the Trading Advisor of an account for the
Fund in accordance with the terms hereof and of the Advisory Agreement,
and as described in the Prospectus, will not require any registration
under, or violate any of the provisions of, the Investment Advisers Act
of 1940.
(f) Neither the Trading Advisor nor any principal of the
Trading Advisor will use or distribute any preliminary prospectus,
Prospectus, amended or supplemented Prospectus or selling literature
nor engage in any selling activities whatsoever in connection with the
offering of the Units.
(g) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as may
otherwise be stated in or contemplated by the Registration Statement
and the Prospectus, there has not been any material adverse change in
the condition, financial or otherwise, business or prospects of the
Trading Advisor, whether or not arising in the ordinary course of
business.
-8-
<PAGE> 11
(h) The execution and delivery of this Agreement and the
Advisory Agreement, the incurrence of the obligations herein and
therein set forth and the consummation of the transactions
contemplated herein and therein and in the Prospectus will not
constitute a breach of, or default under, any instrument by which the
Trading Advisor is bound or any order, rule or regulation applicable to
the Trading Advisor of any court or any governmental body or
administrative agency having jurisdiction over the Trading Advisor.
(i) There is not pending, or to the best of the Trading
Advisor's knowledge threatened, any action, suit or proceeding before
or by any court or other govern mental body to which the Trading
Advisor is a party, or to which any of the assets of the Trading
Advisor is subject, which might reasonably be expected to result in any
material adverse change in the condition, financial or otherwise,
business or prospects of the Trading Advisor. The Trading Advisor has
not received any notice of an investigation or warning letter from the
NFA or the CFTC regarding non-compliance by the Trading Advisor with
the Commodity Act or the regulations thereunder.
(j) The Trading Advisor has not received, and is not entitled
to receive, directly or indirectly, any commission, finder's fee,
similar fee or rebate from any person in connection with the
organization or operation of the Fund.
Section 4. Representations and Warranties of the Broker. The
Broker represents and warrants to the Fund, the General Partner, the Trading
Advisor and the Selling Agent, as follows:
(a) The Broker is a corporation duly organized and validly
existing and in good standing under the laws of the State of Illinois
and in good standing and qualified to do business in each jurisdiction
in which the nature or conduct of its business requires such
qualification and the failure to be duly qualified would materially
adversely affect the Broker's ability to perform its obligations
hereunder or under the Customer Agreement. The Broker has full
corporate power and authority to perform its obligations under the
Customer Agreement and this Agreement and as described in the
Registration Statement and Prospectus.
(b) All references to the Broker in the Registration Statement
and Prospectus are accurate and complete in all material respects, and
set forth in all material respects the information required to be
disclosed therein under the Commodity Act and the rules and regulations
thereunder. As to the Broker, (i) the Registration Statement and
Prospectus contain all statements and information required to be
included therein under the Commodity Act and the rules and regulations
thereunder, (ii) the Registration Statement as of its effective date
did not contain any misleading or untrue statement of a material fact
or omit to state a material fact which is required to be stated therein
or necessary to make the statements therein not misleading and (iii)
the Prospectus at its date of issue and as of the Initial Public
Closing Time did not and will not contain an untrue statement of a
material fact or omit to state a material fact
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<PAGE> 12
necessary to make the statements therein not misleading, in light of
the circumstances under which such statements were made.
(c) The Broker has all federal and state governmental,
regulatory and commodity exchange licenses and approvals, and has
effected all filings and registrations with federal and state
governmental and regulatory agencies required to conduct its business
and to act as described in the Registration Statement and Prospectus or
required to perform its obligations under the Customer Agreement and
this Agreement (including, without limitation, registration of the
Broker as a futures commission merchant under the Commodity Act and
membership of the Broker as a futures commission merchant in the NFA),
and the performance of such obligations will not violate or result in a
breach of any provision of the Broker's certificate of incorporation,
by-laws or any agreement, instrument, order, law or regulation binding
upon the Broker.
(d) This Agreement and the Customer Agreement have been duly
authorized, executed and delivered by the Broker, and constitute valid,
binding and enforceable agreements of the Broker in accordance with
their terms.
(e) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as may
otherwise be stated in or contemplated by the Registration Statement
and the Prospectus, there has not been any material adverse change in
the condition, financial or otherwise, business or prospects of the
Broker, whether or not arising in the ordinary course of business.
(f) In the ordinary course of its business, the Broker is
engaged in civil litigation and subject to administrative proceedings.
Neither the Broker nor any of its principals have been the subject of
any administrative, civil, or criminal actions within the five years
preceding the date hereof that would be material to an investor's
decision to purchase the Units which are not disclosed in the
Prospectus.
(g) The execution and delivery of the Customer Agreement and
this Agreement, the incurrence of the obligations set forth herein and
therein and the con summation of the transactions contemplated herein
and therein and in the Prospectus will not constitute a breach of, or
default under, any instrument by which the Broker is bound or any
order, rule or regulation applicable to the Broker of any court or any
governmental body or administrative agency having jurisdiction over the
Broker.
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<PAGE> 13
Section 5. Offering and Sale of Units.
(a) The Selling Agent is hereby appointed the principal
selling agent of the Fund (although as described herein it is
contemplated that certain Additional Selling Agents (including those
introduced to the Selling Agent by Wholesalers), Wholesalers and
Correspondents may also market Units provided each of such Additional
Selling Agents, Wholesalers and Correspondents is duly registered as a
broker-dealer in each jurisdiction in which such person markets Units)
during the term herein specified for the purpose of finding acceptable
subscribers for the Fund through a public offering. The Initial Public
Offering Period shall continue until the first full month after the
Registration Statement has been declared effective (the "Initial Public
Offering Period"; such date being hereafter referred to as the "Initial
Public Offering Termination Date"). Thereafter, Units may be sold as of
the beginning of each month, as determined by the General Partner (the
"Ongoing Public Offering Period"; such subsequent sale dates being
hereinafter referred to as "Subsequent Public Closing Times"). The
Initial Public Offering Period and the Ongoing Public Offering Period
shall be referred to herein as the "Public Offering Period." Subject to
the performance by the General Partner of all its obligations to be
performed hereunder, and to the completeness and accuracy in all
material respects of all the representations and warranties of the
General Partner, the Broker and the Trading Advisor contained herein,
the Selling Agent hereby accepts such agency and agrees on the terms
and conditions herein set forth to use its best efforts during the
Public Offering Period to find acceptable subscribers for the Units at
a public offering price of 101% of Net Asset Value (including the 1%
organizational charge referred to below), each subscriber being
required to make a minimum subscription of at least $10,000, except for
(i) trustees or custodians of eligible tax-exempt accounts and
individual retirement accounts and (ii) Limited Partners subscribing
for additional Units, where the minimum subscription is $5,000. It is
understood that the Selling Agent's agreement to use its best efforts
to find acceptable subscribers for the Units shall not prevent it from
acting as a selling agent or underwriter for the securities of other
issuers which may be offered or sold during the Public Offering Period.
(b) At the Initial Public Offering Closing Time the General
Partner shall notify the Selling Agent of the aggregate number of Units
for which the General Partner has received acceptable subscriptions and
payment of the purchase price for the Units may, if the General Partner
so elects, be made at the office of ProFutures, Inc., 11612 Bee Cave
Road, Suite 100, Austin, Texas 78733, or at such other place as shall
be agreed upon between the Selling Agent and the General Partner, at
10:00 A.M., Texas time, on the fifth full business day after the day on
which the General Partner notifies the Selling Agent of the number of
Units for which subscriptions have been accepted or such other day and
time as shall be agreed upon between the Selling Agent and the General
Partner (the "Initial Public Closing Time").
(c) An organizational charge of 1% of the Net Asset Value of
the Units subscribed for will be paid to the General Partner by each
subscriber. The General
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<PAGE> 14
Partner has paid all actual costs of organizing the Fund and conducting
the public offering of the Units. To the extent that the aggregate 1%
organizational charge is less than the actual costs, the General
Partner will pay the costs. To the extent that the aggregate 1%
organizational charge collected exceeds the actual costs, the excess
amount will be paid to the Selling Agent. Such payment could be deemed
to be a selling commission. The Additional Selling Agents, if any,
shall be compensated as set forth in the Additional Selling Agents
Agreement attached hereto as Exhibit A.
(d) The Selling Agent will compensate its own Registered
Representatives pursuant to the Selling Agent's standard compensation
procedures. The Selling Agent will pay, from funds received from the
General Partner, Additional Selling Agents initial selling commissions
of up to 3% of the Net Asset Value of each Unit sold by the Registered
Representatives of each such Additional Selling Agent. In the case of
an Additional Selling Agent introduced by a Wholesaler, the Selling
Agent will pay such Wholesaler a portion of the up to 3% per Unit
selling commissions depending upon the Wholesaler's arrangements with
the Additional Selling Agent. Ongoing compensation, of up to 2% per
annum of the month-end Net Asset Value of the Units attributable to
Units sold by a Registered Representative of the Additional Selling
Agent which remain outstanding for more than twelve months (including
the month as of the end of which such Units are redeemed) will also be
paid to the Selling Agent, from funds received from the General
Partner, provided that such Additional Selling Agent is and remains
registered with the CFTC as a futures commission merchant or
introducing broker and is a member in good standing with NFA in such
capacity and agrees to provide the additional services described below.
For purposes of determining when ongoing compensation should begin to
accrue, Units sold during the Initial Offering Period shall not be
deemed to be outstanding until the Initial Closing Time.
The ongoing compensation described in the foregoing paragraph
shall be paid only in respect of Registered Representatives registered
with the CFTC as associated persons of the Additional Selling Agent who
have satisfied all applicable proficiency requirements (including those
imposed by the NASD as a condition of receiving such ongoing
compensation) by either passing the Series 3 National Commodity Futures
Exam or the Series 31 exam or being "grandfathered" from having to do
so who sold outstanding Units in their capacity as registered
representatives of an Additional Selling Agent and who agree to provide
additional services in connection with such Units, including but not
limited to: (i) inquiring of the General Partner from time to time, at
the request of a Limited Partner, as to the Net Asset Value of a Unit;
(ii) inquiring of the General Partner from time to time, at the request
of a Limited Partner, regarding the commodities markets and the Fund;
(iii) assisting, at the request of the General Partner, in the
redemption of Units sold by such Registered Representative; and (iv)
responding to questions of Limited Partners from time to time with
respect to monthly account statements, annual reports and financial
statements furnished to Limited Partners; and (v) providing such
services to the Limited Partners as the General Partner may, from time
to time, reasonably request.
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<PAGE> 15
Ongoing compensation shall be credited and paid only in
respect of Units sold by Registered Representatives who are eligible to
receive such ongoing compensation as described above. No ongoing
compensation whatsoever shall be credited, paid or accrued on any Units
sold by Registered Representatives not then eligible to receive such
ongoing compensation. The Additional Selling Agent may receive such
ongoing compensation with respect to particular Units where substitute
Registered Representatives who are appropriately registered agree in
writing to perform the services described in this Section 5(d) above
with respect to such Units ("Substitute Registered Representatives").
Such ongoing compensation shall be paid monthly.
In the event that the payment of ongoing compensation is
restricted by the NASD, the Selling Agent's payments of such ongoing
compensation shall be limited to the maximum amount permissible
pursuant to such restrictions.
Additional Selling Agents will receive an installment selling
commission of up to 2% per annum of the month-end Net Asset Value of
Units remaining outstanding after the twelfth month following their
sale by such Additional Selling Agent if: (i) the Additional Selling
Agents are not registered with NFA as futures commissions merchants or
introducing brokers; (ii) the Registered Representatives engaged in the
sale of Units are not registered as associated persons of a futures
commissions merchant or introducing broker; or (iii) the Additional
Selling Agents or their registered representatives engaged in the sale
of Units do not agree to provide ongoing services to the purchasers of
Units. Installment selling commissions, if any, will be paid by the
Selling Agent from funds received from the General Partner. Installment
selling commissions are limited such that the sum of the initial
selling commission and the aggregate installment selling commissions
paid such Additional Selling Agents may not exceed 9% of the Net Asset
Value, at the time of sale, of Units sold by such Additional Selling
Agents.
In the case of an Additional Selling Agent introduced by a
Wholesaler, the Selling Agent will pay a portion of the up to 2% per
annum monthly ongoing compensation or installment selling commissions
to the Wholesaler depending upon the Wholesaler's arrangement with the
Additional Selling Agent; provided, however, that such wholesaler shall
not receive in excess of 9% of the initial Net Asset Value of the Units
sold by such Additional Selling Agent when aggregated with the selling
commissions and/or ongoing compensation payed to such Additional
Selling Agent.
In respect of Correspondents selected by an Additional Selling
Agent (with the consent of the General Partner and the Selling Agent),
the Selling Agent shall pay such Additional Selling Agent selling
commissions and ongoing compensation or installment sales commissions
as set forth above, a portion (as agreed between such Additional
Selling Agent and each such Correspondent) of which shall be passed on
by the Additional Selling Agent to such Correspondents.
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<PAGE> 16
(e) The Selling Agent will use its best efforts to find
eligible persons to purchase the Units on the terms stated herein and
in the Registration Statement and Prospectus. It is understood that the
Selling Agent has no commitment with regard to the sale of the Units
other than to use its best efforts. In connection with the offer and
sale of the Units, the Selling Agent represents that it will comply
fully with all applicable laws, and the rules of the NASD, the SEC, the
CFTC, state securities administrators and any other regulatory body. In
particular, and not by way of limitation, the Selling Agent represents
and warrants that it is aware of Rule 2810 of the NASD and that it will
comply fully with all the terms thereof in connection with the offering
and sale of the Units. The Selling Agent shall not execute any sales of
Units from a discretionary account over which it has control without
prior written approval of the customer in whose name such discretionary
account is maintained.
The Selling Agent agrees not to recommend the purchase of
Units to any subscriber unless the Selling Agent shall have reasonable
grounds to believe, on the basis of information obtained from the
subscriber concerning, among other things, the subscriber's investment
objectives, other investments, financial situation and needs, that the
subscriber is or will be in a financial position appropriate to enable
the subscriber to realize to a significant extent the benefits of the
Fund, including tax benefits described in the Prospectus; the
subscriber has a fair market net worth sufficient to sustain the risks
inherent in participating in the Fund, including loss of investment and
lack of liquidity; and the Units are otherwise a suitable investment
for the subscriber. The Selling Agent agrees to maintain files of
information disclosing the basis upon which the Selling Agent
determined that the suitability requirements of Section (b)(2) of Rule
2810 of the NASD were met as to each subscriber (the basis for
determining suitability may include the Subscription Agreements and
Powers of Attorney and other certificates submitted by subscribers).
The Selling Agent represents and warrants that it has reasonable
grounds to believe, based on information in the Prospectus and
information to which the Selling Agent has had access due to its
affiliation with the General Partner, that all material facts relating
to an investment in the Units are adequately and accurately disclosed
in the Prospectus. In connection with making the foregoing
representations and warranties, the Selling Agent further represents
and warrants that it has, among other things, examined the Prospectus
and obtained such additional information from the General Partner and
the Trading Advisor regarding the information set forth thereunder as
the Selling Agent has deemed necessary or appropriate to determine
whether the Prospectus adequately and accurately discloses all material
facts relating to an investment in the Fund and provides an adequate
basis to subscribers for evaluating an investment in the Units. In
connection with making the representations and warranties set forth in
this paragraph, the Selling Agent has not relied on inquiries made by
or on behalf of any other parties.
The Selling Agent agrees to inform all prospective purchasers
of Units of all pertinent facts relating to the liquidity and
marketability of the Units as set forth in the Prospectus.
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<PAGE> 17
(f) None of the Selling Agent, the Fund or the General Partner
shall, directly or indirectly, pay or award any finder's fees,
commissions or other compensation to any person engaged by a potential
investor for investment advice as an inducement to such advisor to
advise the purchase of Units; provided, however, the normal sales
commissions payable to a registered broker-dealer or other properly
licensed person for selling Units shall not be prohibited hereby.
(g) All payments for subscriptions shall be made by deposit of
check or transfer of funds to the custodial account of the Fund as
described in the Prospectus.
(h) The General Partner agrees to cause its counsel to prepare
and deliver to the Selling Agent a Blue Sky Survey which shall set
forth, for the guidance of the Selling Agent, in which United States
jurisdictions the Units may be offered and sold. It is understood and
agreed that the Selling Agent may rely, in connection with the offering
and sale of Units in any jurisdiction, on advice given by such counsel
as to the legality of the offer or sale of the Units in such
jurisdiction, provided, however, that the Selling Agent shall be
responsible for compliance with all applicable laws, rules and
regulations with respect to the actions of its employees, acting as
such, in connection with sales of Units in any jurisdiction.
Section 6. Covenants of the General Partner.
(a) The General Partner will notify the Selling Agent, the
Broker and the Trading Advisor immediately and confirm such
notification in writing (i) when any amendment to the Registration
Statement shall have become effective, (ii) of the receipt of any
comments from the SEC, CFTC or any other Federal or state regulatory
body with respect to the Registration Statement, (iii) of any request
by the SEC, CFTC or any other Federal or state regulatory body for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information relating thereto and
(iv) of the issuance by the SEC, CFTC or any other Federal or state
regulatory body of any order suspending the effectiveness of the
Registration Statement under the 1933 Act, the CFTC registration or NFA
membership of the General Partner as a commodity pool operator, or the
registration of Units under the Blue Sky or securities laws of any
state or other jurisdiction or any order or decree enjoining the
offering or the use of the then current Prospectus or of the
institution, or notice of the intended institution, of any action or
proceeding for that purpose.
(b) The General Partner will deliver to the Selling Agent, as
soon as available, a conformed copy of each amendment to the
Registration Statement as originally filed including the Exhibits
thereto, and will also deliver to the Selling Agent such additional
number of conformed copies of the Registration Statement as originally
filed and of each amendment thereto (including Exhibits) as the Selling
Agent shall reasonably require.
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<PAGE> 18
(c) The General Partner will deliver to the Selling Agent as
promptly as practicable from time to time during the period when the
Prospectus is required to be delivered under the 1933 Act, such number
of copies of the Prospectus (as amended or supplemented) as the Selling
Agent, Wholesalers, Additional Selling Agents and Correspondents may
reasonably request for the purposes contemplated by the 1933 Act or the
SEC Regulations.
(d) During the period when the Prospectus is required to be
delivered pursuant to the 1933 Act, the General Partner and the Fund
will use best efforts to comply with all requirements imposed upon them
by the 1933 Act and the Commodity Act, each as now and hereafter
amended, and by the SEC Regulations and rules and regulations of the
CFTC, as from time to time in force, so far as necessary to permit the
continuance of sales of, or dealings in, the Units during such period
in accordance with the provisions hereof and as set forth in the
Prospectus.
(e) If any event relating to or affecting the General Partner
or the Fund shall occur as a result of which it is necessary, in the
reasonable opinion of the Selling Agent, to amend or supplement the
Prospectus in order to make the Prospectus not materially misleading in
light of the circumstances existing at the time it is delivered to a
subscriber, the General Partner and the Fund will forthwith prepare and
furnish to the Selling Agent, at the expense of the General Partner, a
reasonable number of copies of an amendment or amendments of, or a
supplement or supplements to, the Prospectus which will amend or
supplement the Prospectus so that as amended or supplemented it will
not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in
light of the circumstances existing at the time the Prospectus is
delivered to a subscriber, not misleading. No such amendment or
supplement shall be filed without the approval of the Selling Agent,
the Broker and the Trading Advisor.
(f) The General Partner will use best efforts to qualify the
Units for offer and sale under applicable securities or "Blue Sky" laws
and continue such qualification throughout the Offering Period,
provided that in no event shall the General Partner or the Fund be
obligated to (i) take any action which would subject it to service of
process in suits other than those arising out of the offering or sale
of the Units, or taxes, in any jurisdiction where either is not now so
subject, (ii) change any material term in the Registration Statement or
(iii) expend a sum of money considered unreasonable by the General
Partner.
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<PAGE> 19
Section 7. Covenants of the Trading Advisor.
(a) The Trading Advisor agrees to cooperate, to the extent
reasonably requested by the General Partner, in the preparation of any
amendments or supplements relating to itself to the Registration
Statement and the Prospectus.
(b) During the period when the Prospectus is required to be
delivered under the 1933 Act, the Trading Advisor agrees to notify the
General Partner immediately upon discovery of any untrue or misleading
statement regarding it, its operations or any of its principals or of
the occurrence of any event or change in circumstances which would
result in there being any untrue or misleading statement or an omission
in the Prospectus or Registration Statement regarding it, its
operations or any of its principals or result in the Prospectus not
including all information relating to the Trading Advisor and its
principals required pursuant to CFTC regulations. During such period,
the Trading Advisor shall promptly inform the General Partner if it is
necessary to amend or supplement the Prospectus in order to make the
Prospectus not materially misleading in light of the circumstances
existing at the time the Prospectus is delivered to a subscriber.
Section 8. Covenants of the Broker.
(a) The Broker agrees to cooperate, to the extent reasonably
requested by the General Partner, in the preparation of any amendments
or supplements relating to itself to the Registration Statement and the
Prospectus.
(b) During the period when the Prospectus is required to be
delivered under the 1933 Act, the Broker agrees to notify the General
Partner immediately upon discovery of any untrue or misleading
statement regarding it, its operations or any of its principals or of
the occurrence of any event or change in circumstances which would
result in there being any untrue or misleading statement or an omission
in the Prospectus or Registration Statement regarding it, its
operations or any of its principals or result in the Prospectus not
including all information relating to the Broker and its principals
required pursuant to CFTC regulations. During such period, the Broker
shall promptly inform the General Partner if it is necessary to amend
or supplement the Prospectus in order to make the Prospectus not
materially misleading in light of the circumstances existing at the
time the Prospectus is delivered to a subscriber.
Section 9. Payment of Expenses and Fees. The General Partner
will pay all expenses incident to the performance of the obligations of the
General Partner and the Fund hereunder, including: (i) the printing and delivery
to the Selling Agent in quantities as hereinabove stated of copies of the
Registration Statement and all amendments thereto, of the Prospectus and any
supplements or amendments thereto, and of any supplemental sales materials;
(ii) the reproduction of this Agreement and the printing and filing of the
Registration Statement and the Prospectus (and, in certain cases, the exhibits
thereto) with the SEC, CFTC and NFA; (iii) the qualification of the Units
-17-
<PAGE> 20
under the securities or "Blue Sky" laws in the various jurisdictions, including
filing fees and the fees and disbursements of the General Partner's counsel
incurred in connection therewith; (iv) the services of counsel and accountants
for the General Partner and the Fund, including certain services of Arthur F.
Bell, Jr. & Associates, L.L.C. in connection with their review of the
performance records in the Prospectus; (v) the printing or reproduction and
delivery to the Selling Agent of such number of copies as it may reasonably
request of the Blue Sky Survey; and (vi) "road show" presentations (not
including the expenses of the Trading Advisor and their personnel which shall be
borne by the Trading Advisor).
The General Partner and the Selling Agent are each aware of
the limitations imposed by Rule 2810 of the NASD on the aggregate selling
commissions which may be received by the Selling Agent in connection with the
offering and sale of the Units. The General Partner will in no event make any
payments deemed by the NASD to constitute underwriting compensation to the
Selling Agent nor shall the Selling Agent make any such payments to its own
Registered Representatives or any Additional Selling Agents as described above,
which would exceed 9.9% of the gross proceeds of the Units sold to the public.
The General Partner shall not reimburse the Selling Agent for any due diligence
expenses in connection with the offering.
Section 10. Conditions of Closing. The obligations of each of
the parties hereunder are subject to the accuracy of the representations and
warranties of the other parties hereto, to the performance by such other parties
of their respective obligations hereunder and to the following further
conditions:
(a) At the Initial Public Closing Time and each Subsequent
Public Closing Time no order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or
proceeding therefor initiated or threatened by the SEC and no objection
to the content thereof shall have been expressed or threatened by the
CFTC or the NFA.
(b) At the Initial Closing Time, Sidley & Austin, counsel to
the General Partner, shall deliver to all the parties hereto its
opinion, in form and substance satisfactory to each of the parties
hereto, to the effect that:
(i) The Certificate of Limited Partnership pursuant
to which the Fund has been formed and the Limited Partnership
Agreement each provides for the subscription for and sale of
the Units; all action required to be taken by the General
Partner and the Fund as a condition to the subscription for
and sale of the Units to qualified subscribers therefor has
been taken; and, upon payment of the consideration therefor
specified in the accepted Subscription Agreements and Powers
of Attorney, the Units will constitute valid limited
partnership interests in the Fund and each subscriber who pur
chases Units will become a Limited Partner, subject to the
requirement that each such purchaser shall have duly
completed, executed and delivered to the Fund a Subscription
Agreement and Power of
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<PAGE> 21
Attorney relating to the Units purchased by such party, that
such purchaser meets all applicable suitability standards as
set forth in the Prospectus and that the representations and
warranties of such purchaser in the Subscription Agreement and
Power of Attorney are true and correct.
(ii) The Fund is a limited partnership duly organized
pursuant to the Certificate of Limited Partnership, the
Limited Partnership Agreement and DRULPA and validly existing
under the laws of the State of Delaware with partnership power
and authority to conduct the business in which it proposes to
engage as described in the Prospectus; the Fund has qualified
to do business in Texas and need not effect any other filings
or qualifications under the laws of the United States and the
States of Illinois, New York, Texas and California and the
District of Columbia in order to preserve the status of the
Fund as a limited partnership or to enable the Fund to perform
its obligations under the Advisory Agreement and this
Agreement and to conduct the business in which it proposes to
be engaged as described in the Prospectus.
(iii) The General Partner is duly organized and
validly existing and in good standing as a corporation under
the laws of the State of Texas with corporate power and
authority to act as general partner of the Fund, and is
qualified to do business and is in good standing as a foreign
corporation in each other jurisdiction in which the failure to
so qualify might, in their opinion, reasonably be expected to
result in material adverse consequences to the Fund. The
General Partner has full corporate power and authority to
perform its obligations as described in the Registration
Statement and Prospectus.
(iv) Each of the General Partner (including the
principals, as defined in the Commodity Act, of the General
Partner) and the Fund has all Federal and state governmental
and regulatory licenses and approvals and has received or made
all filings and registrations with Federal and state
governmental and regulatory agencies necessary in order for
each of the General Partner and the Fund to conduct its
business as described in the Registration Statement and
Prospectus, and, to the best of their knowledge, none of such
approvals, licenses or registrations have been rescinded or
revoked.
(v) Each of the Limited Partnership Agreement, the
Advisory Agreement, the Customer Agreement, the Investment
Advisory Agreement, the Additional Selling Agents Agreement
and this Agreement has been duly and validly authorized,
executed and delivered by or on behalf of the General Partner
or the Fund (as the case
-19-
<PAGE> 22
may be) and assuming that such agreements are legal, valid and
binding on the other parties hereto and thereto, each of the
Limited Partnership Agreement, the Advisory Agreement, the
Customer Agreement, the Investment Advisory Agreement, the
Additional Selling Agents Agreement and this Agreement
constitutes a legal, valid and binding agreement of the
General Partner or the Fund (as the case may be) enforceable
in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws of general
applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of
equity (regardless of whether enforceability is considered in
a proceeding in equity or at law).
(vi) The execution and delivery of this Agreement,
the Limited Partnership Agreement, the Customer Agreement, the
Investment Advisory Agreement, the Additional Selling Agents
Agreement and the Advisory Agreement and the incurrence of the
obligations herein and therein set forth and the consummation
of the transactions contemplated herein and therein and in the
Prospectus will not be in contravention of any of the
provisions of the General Partner's certificate of
incorporation or by-laws, of the Limited Partnership
Agreement, and, to their knowledge, will not constitute a
breach of, or default under, any instrument by which the
General Partner or the Fund is bound or any order, rule or
regulation applicable to the General Partner or the Fund of
any court or any governmental body or administrative agency
having jurisdiction over the General Partner or the Fund.
(vii) To their knowledge, there are no actions,
claims or proceedings pending or threatened in any court or
before or by any governmental or administrative body, nor have
there been any such suits, claims or proceeding within the
last five years, to which the General Partner (or any
principal of the General Partner) or the Fund is or was a
party, or to which any of their assets is or was subject,
which are required to be, but are not disclosed in, the
Registration Statement or Prospectus or which might reasonably
be expected to materially adversely affect the condition
(financial or otherwise), business or prospects of the
General Partner or the Fund.
(viii) No authorization, approval or consent of any
governmental authority or agency is necessary in connection
with the subscription for and sale of the Units, except such
as may be required under the 1933 Act, the Commodity Act, NFA
compliance rules or applicable securities or "Blue Sky" laws.
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<PAGE> 23
(ix) The terms and provisions of the Limited
Partnership Agreement, the Customer Agreement, the Advisory
Agreement, the Investment Advisory Agreement, the Additional
Selling Agents Agreement and this Agreement conforms in all
material respects to descriptions thereof contained in the
Prospectus.
(x) The Registration Statement is effective under the
1933 Act and, to the best of their knowledge, no proceedings
for a stop order are pending or threatened under Section 8(d)
of the 1933 Act.
(xi) At the time the Registration Statement initially
became effective and at the time any post-effective amendment
thereto became effective, the Registration Statement, and at
the time the Prospectus and any amendments or supplements
thereto were first issued, the Prospectus, complied as to form
in all material respects with the requirements of the 1933
Act, the SEC Regulations under the 1933 Act and CFTC
regulations. Nothing has come to their attention that would
lead them to believe that with respect to the General Partner
and the Selling Agent (a) at the time the Registration
Statement initially became effective and at the time any
post-effective amendment thereto became effective, the
Registration Statement contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein
not misleading or (b) the Prospectus as first issued or as
subsequently issued or at the Initial Public Closing Time
contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that such
counsel need express no opinion (A) as to the financial
statements, notes thereto and other financial or statistical
data set forth in the Registration Statement and Prospectus or
(B) as to any performance data set forth in the Registration
Statement, and Prospectus, including the performance summaries
(and the notes thereto) in the Registration Statement and
Prospectus, except that such counsel shall opine, without
rendering any opinion as to the accuracy of the information in
the performance summaries, that such the performance summaries
comply as to form in all material respects with applicable
CFTC rules.
(xii) Such counsel confirm their opinion, a form of
which appears as Exhibit 8.01 to the Registration Statement,
that the sum mary of Federal income tax consequences to
Limited Partners set forth under the caption "Tax
Consequences" in the Prospectus accurately describes the
material tax consequences set forth therein
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<PAGE> 24
and that such counsel further confirm their advice to the
General Partner explicitly set forth therein and in such
Exhibit 8.01.
(xiii) To the best of their knowledge, (a) there are
no contracts, indentures, mortgages, loan agreements, leases
or other documents of a character required to be described or
referred to in the Registration Statement or Prospectus or to
be filed as exhibits to the Registration Statement other than
those described or referred to therein or filed as exhibits
thereto, and with respect to the existing contracts,
indentures, mortgages, loan agreements, leases and other
documents so described, referred to or filed, the descriptions
thereof, references thereto or copies so filed are correct in
all material respects, and (b) no material default on the part
of the General Partner or the Fund exists in the due
performance or observance of any material obligation,
agreement, covenant or condition contained in any contract or
lease so described or filed.
(xiv) Assuming operation in accordance with the
Prospectus, the Fund, at Closing Time, is not an "investment
company" as that term is defined in the Investment Company Act
of 1940, as amended.
In rendering the opinions set forth above, Sidley & Austin may rely as
to certain matters relating to the General Partner on Fishman, Jones,
Walsh & Gray, P.C.
(c) Counsel to the Selling Agent shall deliver to all the
parties hereto, an opinion to the effect that:
(i) The Selling Agent is duly organized and validly
existing and in good standing as a corporation under the laws
of the State of Texas and is qualified to do business and in
good standing as a foreign corporation in each jurisdiction in
which such qualification is required and in which the failure
to so qualify might, in such counsel's opinion, reasonably be
expected to result in material adverse consequences to the
Fund. The Selling Agent has full corporate power and authority
to perform its obligations as described in the Registration
Statement and Prospectus.
(ii) This Agreement has been duly authorized,
executed and delivered by the Selling Agent, and constitutes a
legal, valid and binding agreement of the Selling Agent
enforceable in accordance with its terms, except to the extent
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws of general
applicability relating to or affecting the enforcement of
creditors' rights and by the effect of general principles of
equity (regardless of whether enforceability is considered).
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<PAGE> 25
(iii) The Selling Agent has all Federal and state
governmental and regulatory licenses and approvals and has
received or made all filings and registrations with Federal
and state governmental and regulatory agencies necessary in
order for the Selling Agent to conduct its business as
described in the Registration Statement and Prospectus, and,
to such counsel's knowledge, none of such approvals, licenses
or registrations has been rescinded or revoked.
(iv) The execution and delivery of this Agreement,
the incurrence of the obligations herein set forth and the
consummation of the transactions contemplated herein and in
the Prospectus will not, to the best of such counsel's
knowledge, constitute a breach of, or default under, any
instrument known to such counsel by which the Selling Agent is
bound or, any order, rule or regulation applicable to the
Selling Agent, of any court or any governmental body or
administrative agency having jurisdiction over the Broker.
(v) To such counsel's knowledge, there are no
actions, claims or proceedings pending or threatened in any
court or before or by a governmental or administrative body,
nor have there been any suits, claims or proceedings within
the last five years, to which the Selling Agent (or any
principal of the Selling Agent) is or was a party or to which
any of its assets is or was subject, which are required to be
disclosed in the Registration Statement or Prospectus or which
might reasonably be expected to materially adversely affect
the business of the Selling Agent.
(vi) Nothing has come to such counsel's attention
that would lead such counsel to believe that (a) at the time
the Registration Statement initially became effective and at
the time any post- effective amendment thereto became
effective, insofar as the Selling Agent and its principals are
concerned, the Registration Statement contained any untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading or (b) the Prospectus as
first filed pursuant to Rule 424(b) or as subsequently filed
pursuant to Rule 424 or at the Initial Public Closing Time
contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the
statements therein relating to the Selling Agent or its
principals, in light of the circumstances under which they
were made, not mis leading.
(d) Counsel to the Trading Advisor shall deliver to the
General Partner, the Broker and the Selling Agent an opinion as of the
Initial Public Closing Time to the effect that:
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<PAGE> 26
(i) The Trading Advisor is a corporation duly
organized, validly existing and in good standing under the
laws of the State of New York and is in good standing in each
jurisdiction in which the nature or conduct of its business
requires such qualification and in which the failure to so
qualify might reasonably be expected to materially adversely
affect the Fund, as described in the Registration Statement
and Prospectus, and its ability to discharge its obligations
under the Advisory Agreement and this Agreement.
(ii) Each of the Advisory Agreement and this
Agreement has been duly authorized, executed and delivered by
the Trading Advisor and constitutes a valid, binding and
enforceable agreement of the Trading Advisor in accordance
with its terms, subject only to bankruptcy, insolvency,
reorganization, moratorium or similar laws at the time in
effect affecting the enforceability generally of rights of
creditors and except as enforceability of the indemnification
provisions contained in such Agreements may be limited by
applicable law and the enforcement of specific terms or
remedies may be unavailable.
(iii) The Trading Advisor (including the principals
of the Trading Advisor) has all material Federal and state
governmental and regulatory licenses and approvals and has
received or made all filings and registrations with Federal
and state governmental and regulatory authorities necessary in
order for the Trading Advisor to conduct its business as
described in the Registration Statement and Prospectus
(including, without limitation, performance of this Agreement
and the Advisory Agreement) and, to the best of such counsel's
knowledge, none of such approvals, licenses or registrations
has been rescinded or revoked.
(iv) There is not pending or, to the best of such
counsel's knowledge, threatened any actions, suits or
proceedings before or by any court or other governmental or
administrative body, nor have there been any such suits,
claims or proceedings within the last five years to which the
Trading Advisor, or any of its principals, is or was a party,
or to which any of their assets is or was subject, which are
required to be, but are not disclosed in the Registration
Statement or Prospectus or which might reasonably be expected
to result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Trading
Advisor.
(v) The execution and delivery of this Agreement and
the Advisory Agreement, the incurrence of the obligations
herein and therein set forth and the consummation of the
transactions contemplated herein, therein and in the
Prospectus will not be in contraven-
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<PAGE> 27
tion of any of the provisions of the certificate of
incorporation or by-laws of the Trading Advisor, or, to the
best of such counsel's knowledge, constitute a breach of, or
default under, any instrument by which the Trading Advisor is
bound or any order, rule or regulation applicable to the
Trading Advisor of any court or any governmental body or
administrative agency having jurisdiction over the Trading
Advisor.
(vi) Nothing has come to such counsel's attention
that would lead such counsel to believe that (a) at the time
the Registration Statement initially became effective and at
the time any post-effective amendment thereto became
effective, insofar as the Trading Advisor and its principals
are concerned, the Registration Statement contained any untrue
statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading or (b) the Prospectus as
first filed pursuant to Rule 424(b) or as subsequently filed
pursuant to Rule 424 or at the Initial Public Closing Time
contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the
statements therein relating to the Trading Advisor or its
principals, in light of the circumstances under which they
were made, not misleading; provided, however, that no counsel
for the Trading Advisor need express an opinion or belief (A)
as to the financial statements, notes thereto and other
financial or statistical data and notes or descriptions
thereto set forth in the Registration Statement and Prospectus
or (B) as to the performance data and notes or descriptions
thereto set forth in the Registration Statement, except that
such counsel shall opine, without rendering any opinion as to
the accuracy of the information in such performance summaries,
that the performance summaries relating to the Trading Advisor
set forth in the Prospectus comply as to form in all material
respects with CFTC rules.
(e) At the Initial Public Closing Time, the General Partner
shall deliver a certificate to the effect that: (i) no order suspending
the effectiveness of the Registration Statement has been issued and to
the best of its knowledge no proceedings therefor have been instituted
or threatened by the SEC, the CFTC or other regulatory body; (ii) the
representations and warranties of the General Partner contained herein
are true and correct with the same effect as though expressly made at
the Initial Closing Time and in respect of the Registration Statement
as in effect at the Initial Public Closing Time; and (iii) the General
Partner has performed all covenants and agreements herein contained to
be performed on its part at or prior to the Initial Public Closing
Time. Such certificate may state that the General Partner has relied
upon the Trading Advisor to provide certain information relating to the
Trading Advisor for use in the Registration Statement.
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<PAGE> 28
(f) The Trading Advisor shall deliver a report dated as of the
Initial Public Closing Time which shall present, for the period from
the date after the last day covered by the performance summaries in the
Prospectus to the latest practicable day before the Initial Public
Closing Time, figures which shall be a continuation of such performance
records and which shall certify that such figures are accurate in all
material respects. The Trading Advisor shall also certify that such
performance summaries have been calculated in accordance with the notes
to the applicable performance summaries in the Prospectus.
(g) If requested by the General Partner, at the time the
Registration Statement initially becomes effective, Arthur F. Bell, Jr.
& Associates, L.L.C. shall have delivered a letter, substantially in
the form previously agreed upon by the Selling Agent and the General
Partner.
(h) If requested by the General Partner, at the Initial Public
Closing Time, Arthur F. Bell, Jr. & Associates, L.L.C. shall deliver a
letter in a form satisfactory to the Selling Agent and the General
Partner, substantially the same in scope and substance as the letter
described in paragraph (h) of this Section 10, dated as of Initial
Public Closing Time.
(i) At the Initial Public Closing Time, the Trading Advisor
shall make an investment in the Units in accordance with the Advisory
Agreement.
(j) At the Initial Public Closing Time, the Trading Advisor
shall deliver a certificate to the effect that (i) the representations
and warranties of contained herein are true and correct with the same
effect as though expressly made at the Initial Public Closing Time,
(ii) the Trading Advisor has performed all covenants and agreements
herein contained to be performed on its part at or prior to the Initial
Public Closing Time and (iii) since the date of the most recent
financial information relating to the Trading Advisor prior to the date
of this Agreement there has been no material adverse change, or
development involving a prospective material adverse change, in the
financial condition, business or business prospects of the Trading
Advisor.
(k) At the Initial Public Closing Time, the Broker shall
deliver a certificate to the effect that the representations and
warranties of the Broker contained herein are true and correct with the
same effect as though expressly made at the Initial Public Closing Time
and in respect of the Registration Statement as in effect at the
Initial Public Closing Time.
(l) At the Initial Public Closing Time, the Selling Agent
shall deliver a certificate to the effect that the representations and
warranties of the Selling Agent contained herein are true and correct
with the same effect as though expressly made at the Initial Public
Closing Time and in respect of the Registration Statement as in effect
at the Initial Public Closing Time.
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<PAGE> 29
(m) The parties hereto shall have been furnished with such
additional information, opinions and documents, including supporting
documents relating to parties described in the Prospectus and
certificates signed by such parties with regard to information relating
to them and included in the Prospectus as they may reasonably require
for the purpose of enabling them to pass upon the sale of the Units as
herein contemplated and related proceedings, in order to evidence the
accuracy or completeness of any of the representations or warranties or
the fulfillment of any of the conditions herein contained; and all
actions taken by the parties hereto in connection with the sale of the
Units as herein contemplated shall be reasonably satisfactory in form
and substance to counsel to the Trading Advisor, counsel to the Broker,
counsel to the Selling Agent and Sidley & Austin.
If any of the conditions specified in this Section 10 shall
not have been fulfilled when and as required by this Agreement to be
fulfilled, this Agreement and all obligations hereunder may be canceled
by any party hereto by notifying the other parties hereto of such
cancellation in writing or by telegram at any time at or prior to the
Initial Public Closing Time, and any such cancellation or termination
shall be without liability of any party to any other party except as
otherwise provided in Section 9.
(n) The representations and warranties set forth herein shall
be restated as of each Subsequent Closing Time as if made as of the
date thereof. The conditions of closing set forth in this Section 10
shall, at the option of the General Partner, apply at each Subsequent
Closing Time.
Section 11. Indemnification and Exculpation.
(a) Indemnification by the General Partner. The General
Partner agrees to indemnify and hold harmless the Selling Agent, the
Broker, any Wholesaler, any Additional Selling Agent, any
Correspondent, and the Trading Advisor and each person, if any, who
controls the Selling Agent, the Broker or the Trading Advisor within
the meaning of Section 15 of the 1933 Act, as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever arising out of any untrue
statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment
thereto) or any omission or alleged omission therefrom of a
material fact required to be stated therein or necessary in
order to make the statements therein not misleading or arising
out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus (or any amendment or
supplement thereto) or the omission or alleged omission
therefrom of a material fact necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not mislead ing, unless (a) in the case of the
Trading Advisor, such untrue
-27-
<PAGE> 30
statement or omission or alleged untrue statement or omission
was made in reliance upon and in conformity with information
relating to the Trading Advisor furnished or approved in
writing by the Trading Advisor, (b) in the case of the Selling
Agent, such untrue statement or omission or alleged untrue
statement or omission was made in reliance upon and in
conformity with information relating to the Selling Agent or
furnished or approved by the Selling Agent, (c) in the case of
the Broker, such untrue statement or omission or alleged
untrue statement or omission was made in reliance upon and in
conformity with information relating to the Broker furnished
or approved by the Broker or (d) in the case of any
Wholesaler, Additional Selling Agent or Correspondent, such
untrue statement or omission or alleged untrue statement or
omission was made in reliance upon and in conformity with
information relating to such Wholesaler, Additional Selling
Agent or Correspondent furnished or approved by such
Wholesaler, Additional Selling Agent or Correspondent;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever to the extent of the aggregate
amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body
commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission or any such alleged
untrue statement or omission (any settlement to be subject to
indemnity hereunder only if effected with the written consent
of the General Partner); and
(iii) against any and all expense whatsoever
(including the fees and disbursements of counsel) reasonably
incurred in investigating, preparing or defending against
litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under clauses
(i) or (ii) above.
In no case shall the General Partner be liable under this indemnity
agreement with respect to any claim made against any indemnified party
unless the General Partner shall be notified in writing of the nature
of the claim within a reasonable time after the assertion thereof, but
failure to so notify the General Partner shall not relieve the General
Partner from any liability which it may have otherwise than on account
of this indemnity agreement. The General Partner shall be entitled to
participate at its own expense in the defense or, if it so elects
within a reasonable time after receipt of such notice, to assume the
defense of that portion of any suit so brought relating to the General
Partner's indemnification obligations hereunder, which defense shall be
con ducted by counsel chosen by it and satisfactory to the indemnified
party or parties,
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<PAGE> 31
defendant or defendants therein. In the event that the General Partner
elects to assume the defense of any such suit and retain such counsel,
the indemnified party or parties, defendant or defendants in the suit,
shall, in the absence of conflicting claims, bear the fees and expenses
of any additional counsel thereafter retained by it or them.
In no event, however, shall the General Partner be obligated
to indemnify the Selling Agent hereunder, and the Selling Agent agrees
not to attempt to obtain any indemnity from the General Partner
hereunder, to the extent that the General Partner and the Selling Agent
are advised by counsel reasonably satisfactory to the General Partner
and the Selling Agent that payment of such indemnity could adversely
affect the classification of the Fund as a partnership for Federal
income tax purposes.
The General Partner agrees to notify the Trading Advisor, the
Broker and the Selling Agent within a reasonable time of the assertion
of any claim in connection with the sale of the Units against it or any
of its officers or directors or any person who controls the General
Partner within the meaning of Section 15 of the 1933 Act.
(b) Indemnification by the Trading Advisor. The Trading
Advisor agrees to indemnify and hold harmless the Selling Agent, the
Broker, the General Partner, the Fund and each person, if any, who
controls the Selling Agent, the Broker, the Fund or the General Partner
within the meaning of Section 15 of the 1933 Act (and, in the case of
the General Partner and the Fund, each person who signed the
Registration Statement or is a director of the General Partner), to the
same extent as the indemnity from the General Partner set forth in
Section 11(a) hereof, but only insofar as the losses, claims, damages,
liabilities or expenses indemnified against arise out of or are based
upon any untrue statement or omission or alleged untrue statement or
omission relating or with respect to the Trading Advisor or any
principal of the Trading Advisor, or their operations, trading systems,
methods or performance, which was made in any preliminary prospectus,
the Registration Statement or the Prospectus or any amendment or
supplement thereto and furnished by or approved by the Trading Advisor
for inclusion therein.
(c) Indemnification by the Broker. The Broker agrees to
indemnify and hold harmless the Selling Agent, the Trading Advisor, the
General Partner, the Fund and each person, if any, who controls the
Selling Agent, the Trading Advisor, the Fund or the General Partner
within the meaning of Section 15 of the 1933 Act (and, in the case of
the General Partner and the Fund, each person who signed the
Registration Statement or is a director of the General Partner), to the
same extent as the indemnity from the General Partner set forth in
Section 11(a) hereof, but only insofar as the losses, claims, damages,
liabilities or expenses indemnified against arise out of or are based
upon any untrue statement or omission or alleged untrue statement or
omission relating or with respect to Broker, which was made in any
preliminary prospectus, the Registration Statement or the Prospectus or
any amendment or supplement thereto and furnished by or approved by the
Broker for inclusion therein.
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<PAGE> 32
(d) Indemnification by the Selling Agent. The Selling Agent
agrees to indemnify and hold harmless the Broker, the General Partner,
the Fund, the Trading Advisor and each person, if any, who controls the
Broker, the General Partner, the Fund or the Trading Advisor within the
meaning of Section 15 of the 1933 Act (and in the case of the General
Partner and the Fund, each person who signed the Registration Statement
or is a director of the General Partner), (i) to the same extent as the
indemnify from the General Partner set forth in Section 11(a) hereof,
but only insofar as the losses, claims, damages, liabilities or
expenses indemnified against arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission relating
or with respect to the Selling Agent or any of its principals, or their
operations, which was made in any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement
thereto and furnished by or approved by the Selling Agent for inclusion
therein and (ii) against any and all loss, liability, claim, damage and
expense whatsoever resulting from a demand, claim, lawsuit, action or
proceeding relating to the actions or capacities of the Selling Agent
(including a breach of its obligations hereunder) and any Wholesaler,
Additional Selling Agent or Correspondent relating to the offering of
Units under this Agreement or any Wholesaling Agreement, Additional
Selling Agent Agreement or Correspondent Selling Agent Agreement as the
case may be.
(e) Contribution. If the indemnification provided for in this
Section 11 is not permitted under applicable law under subsection (a),
(b), (c) or (d) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages
or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Trading
Advisor, on the one hand, and, the Selling Agent, the Broker and the
General Partner, on the other, from the offering of the Units.
(f) Limitation on Certain Indemnifications and Exculpations.
The exculpation provisions in the Advisory Agreement shall not relieve
the Trading Advisor from any liability it may have or incur to the
Fund, the General Partner, the Selling Agent or the Broker under this
Agreement (including, without limitation, pursuant to the provisions of
Section 11(b) hereof). Nor shall the Trading Advisor be entitled to be
indemnified by the General Partner, pursuant to the indemnification
provisions contained in the Advisory Agreement, against any loss,
liability, damage, cost or expense it may incur under this Agreement.
The General Partner shall not be entitled to be indemnified by the
Fund, pursuant to the indemnification provisions contained in the
Limited Partner ship Agreement against any loss, liability, damage,
cost or expense it may incur under this Agreement.
Section 12. Status of Parties. In selling the Units for the
Fund, the Selling Agent is acting solely as an agent for the Fund and not as a
principal. The Selling Agent will use its best efforts to assist the Fund in
obtaining performance by each purchaser whose offer to purchase Units from the
Fund has been accepted on behalf of the Fund, but the Selling Agent shall not
have any
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<PAGE> 33
liability to the Fund in the event that Subscription Agreements and Powers of
Attorney are improperly completed or any such purchase is not consummated for
any reason.
Although the Trading Advisor and the Fund have entered into
the Advisory Agreement, all parties hereto acknowledge that none of such parties
has the power to act for another in any respect, except as set forth in the
Advisory Agreement, and that in no event shall the Fund be held responsible
hereunder for the acts and omissions of the Trading Advisor (or, conversely, the
Trading Advisor be held responsible for acts and omissions of the Fund) as a
consequence of the Advisory Agreement.
Section 13. Representations, Warranties and Agreements to
Survive Delivery. All representations, warranties and agreements contained in
this Agreement or contained in certificates of any party hereto submitted
pursuant hereto shall remain operative and in full force and effect, regardless
of any investigation made by, or on behalf of, the Selling Agent, the General
Partner, the Fund, the Broker, the Trading Advisor or any person who controls
any of the foregoing and shall survive the Initial Public Closing Time.
Section 14. Termination. The General Partner shall have the
right to terminate this Agreement at any time prior to the Initial Public
Closing Time by giving written notice of such termination to the Trading
Advisor, the Selling Agent and the Broker.
Section 15. Notices and Authority to Act. All communications
hereunder shall be in writing and, if sent to the Selling Agent, the General
Partner, the Broker, the Trading Advisor or the Fund, shall be mailed, delivered
or telegraphed and confirmed as set forth below and shall be effective when
actually received.
If to the General Partner:
ProFutures Inc.
11612 Bee Cave Road
Suite 100
Austin, Texas 78733
Attention: Gary Halbert
Phone: (512) 263-3800
Telecopier: (512) 263-3459
If to the Fund:
ProFutures Long/Short Growth Fund, L.P.
c/o ProFutures, Inc.
11612 Bee Cave Road
Suite 100
Austin, Texas 78733
Attention: Gary Halbert
Phone: (512) 263-3800
Telecopier: (512) 263-3459
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<PAGE> 34
If to the Selling Agent:
ProFutures Financial Group, Inc.
11612 Bee Cave Road
Suite 100
Austin, Texas 78733
Attention: Gary Halbert
Phone: (512) 263-3800
Telecopier: (512) 263-3459
If to the Broker:
ING (U.S.) Securities, Futures &
Options, Inc.
233 S. Wacker Drive
Suite 5200
Chicago, IL 60606
Attention: Legal Counsel
Phone: (312) 496-7000
Facsimile: (312) 496-7214
If to the Advisor:
Hampton Investors, Inc.
2519 Avenue U
Brooklyn, New York 11229
Attention: Charles & Gary Mizrahi
Phone: (800) 524-4832
Telecopier: (718) 891-2455
Section 16. Parties. This Agreement shall inure to the benefit
of and be binding upon the Selling Agent, the Fund, the General Partner, the
Broker, the Trading Advisor and such parties' respective successors to the
extent provided herein. This Agreement and the conditions and provisions hereof
are intended to be and are for the sole and exclusive benefit of the parties
hereto and their respective successors, assigns and controlling persons and
parties indemnified hereunder, and for the benefit of no other person, firm or
corporation. No purchaser of a Unit shall be considered to be a successor or
assign solely on the basis of such purchase.
Section 17. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES CREATED HEREBY SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF NEW YORK.
Section 18. Requirements of Law. Whenever in this Agreement it
is stated that a party will take or refrain from taking a particular action,
such party may nevertheless refrain from taking or take such action if advised
by counsel that doing so is required by law or advisable to ensure
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<PAGE> 35
compliance with law, and shall not be subject to any liability hereunder for
doing so, although such action shall permit termination of the Agreement by the
other parties hereto.
If the foregoing is in accordance with each party's
understanding of its agreement, each party is requested to sign and return to
the General Partner a counterpart hereof, whereupon this instrument along with
all counterparts will become a binding agreement among them in accordance with
its terms.
Very truly yours,
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
BY: PROFUTURES, INC., General Partner
By:
---------------------------------------
Name:
Title:
HAMPTON INVESTORS, INC., Trading Advisor
By:
---------------------------------------
Name:
Title:
ING. (U.S.) SECURITIES, FUTURES
& OPTIONS, INC., Broker
By:
---------------------------------------
Name:
Title:
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<PAGE> 36
PROFUTURES, INC., General Partner
By:
---------------------------------------
Name:
Title:
Confirmed and accepted as of
the date first above written:
PROFUTURES FINANCIAL GROUP,
INC., Selling Agent
By:
---------------------------------------
Name:
Title:
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<PAGE> 37
EXHIBIT A
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
(A DELAWARE LIMITED PARTNERSHIP)
$60,000,000 OF UNITS OF LIMITED PARTNERSHIP INTEREST
(SUBSCRIPTION PRICE: 101% OF NET ASSET VALUE PER UNIT)
FORM OF
ADDITIONAL SELLING AGENTS AGREEMENT
_________, 1998
Name of Selling Agent
Street Address
City, State, Zip Code
Dear Sirs:
ProFutures, Inc., a Texas corporation (the "General Partner"),
has caused the formation of a limited partnership pursuant to the Revised
Uniform Limited Partnership Act of the State of Delaware ("DRULPA") under the
name ProFutures Long/Short Growth Fund, L.P. (the "Fund"), for the purpose of
engaging in speculative trading of futures and forward contracts and com modity
options. As described in the Prospectus referred to below, the Fund has entered
into the First Amendment and Restatement of Advisory Contract (the "Advisory
Agreement") with Hampton Investors, Inc., a New York corporation (the "Trading
Advisor"). The Fund engages in speculative trading in the commodities markets
under the direction of the Trading Advisor pursuant to its Leverage 3 Trading
Program (the "Trading Strategy"). The Fund proposes to make a public offering of
units of limited partnership interest in the Fund (the "Units") through us,
ProFutures Financial Group, Inc. (the "Lead Selling Agent"), on a best-efforts
basis pursuant to the Selling Agreement dated as of _______, 1998 among us, the
Fund and others (the "Selling Agreement"), a copy of which has been furnished to
you. In connection with the proposed public offering, the Fund has filed with
the United States Securities and Exchange Commission (the "SEC"), pursuant to
the United States Securities Act of 1933, as amended (the "1933 Act"), a
registration statement on Form S-1 to register the Units, and as part thereof a
prospectus (Registration No. 333-63129) (which registration statement, together
with all amendments thereto, shall be referred to herein as the "Registration
Statement" and which prospectus together with all amendments and supplements
thereto in the forms filed with the SEC pursuant to Rule 424 under the Act shall
be referred to herein as the "Prospectus"). Other selling agents, including
those introduced by wholesalers ("Wholesalers") to us (the "Additional Selling
Agents" and together with the Lead Selling Agent and the Wholesalers, the
"Selling Agents"), may be selected by us with the consent of the General
Partner. We have so
<PAGE> 38
selected you as an Additional Selling Agent. We confirm our agreement with you
as follows. Capitalized terms used but otherwise not defined herein shall have
the meanings ascribed to them in the Selling Agreement unless the context
indicates otherwise.
1. Appointment and Undertakings of the Additional Selling
Agent
(a) Subject to the terms and conditions set forth in this
Agreement, the Selling Agreement and the Registration Statement, the Additional
Selling Agent is hereby appointed, and hereby accepts such appointment, as one
of the Fund's non-exclusive selling agents to offer and sell the Units on a
best-efforts basis without any commitment on the Additional Selling Agent's part
to purchase any Units. It is understood and agreed that the Lead Selling Agent,
with the consent of the General Partner, may retain other selling agents
(including those introduced by Wholesalers) and that the Additional Selling
Agent or any other Additional Selling Agent, with the consent of the Lead
Selling Agent and General Partner in their sole discretion, may retain
correspondent selling agents ("Correspondents"). The Additional Selling Agent
agrees to comply with the terms and conditions of this Agreement and any terms
and conditions of the Selling Agreement applicable to Additional Selling Agents.
The Additional Selling Agent from time to time will provide
the Lead Selling Agent with a list of prospective Correspondents. Unless the
prospective Correspondent has a verifiable preexisting relationship with the
Lead Selling Agent (including previously having approached or been approached by
the Lead Selling Agent about being an Additional Selling Agent for the Fund) as
notified to the Additional Selling Agent in writing, such Correspondent shall
only be permitted to offer Units as a Correspondent of the Additional Selling
Agent pursuant to a Correspondent Selling Agreement in a form agreed to by the
Additional Selling Agent.
(b) The Additional Selling Agent agrees to use its reasonable
efforts to procure subscriptions for the Units as long as this Agreement and the
Selling Agreement remain in effect and to make the offering of Units at the
offering price and minimum amounts and on the other terms and conditions set
forth in the Prospectus and the Selling Agreement.
(c) The Additional Selling Agent shall offer and sell Units
only to persons and entities who satisfy the suitability and/or investment
requirements set forth in the Prospectus and the subscription agreements
attached thereto and who, to the General Partner's satisfaction, complete the
subscription agreements and related subscription documents used in connection
with the offering of the Units (the "Subscription Documents") and remit good
funds for the full subscription price. The Additional Selling Agent shall
conduct a thorough review of the suitability of each subscriber for Units that
it solicits and of the Subscription Documents. The Additional Selling Agent
shall not forward to the General Partner any Subscription Documents that are not
in conformity with the requirements specified in the Prospectus and in the
Subscription Documents appropriate for the particular subscriber, or that are
illegible in any respect or are not fully completed, dated, or signed, or that
represent the subscription of a person or entity not satisfying the suitability
and/or investment requirements applicable to such person or entity. The
Additional Selling Agent shall not execute any transactions in Units in a
discretionary account over which it has control without prior written approval
of the customer in whose name such discretionary account is maintained.
-2-
<PAGE> 39
The Additional Selling Agent agrees not to recommend the
purchase of Units to any subscriber unless the Additional Selling Agent shall
have reasonable grounds to believe, on the basis of information obtained from
the subscriber concerning, among other things, the subscriber's investment
objectives, other investments, financial situation and needs, that the
subscriber is or will be in a financial position appropriate to enable the
subscriber to realize to a significant extent the benefits of the Fund,
including the tax benefits (if any) described in the Prospectus; the subscriber
has a fair market net worth sufficient to sustain the risks inherent in
participating in the Fund, including loss of investment and lack of liquidity;
and the Units are otherwise a suitable investment for the subscriber. In
addition to submitting such information to the General Partner, the Additional
Selling Agent agrees to maintain files of information disclosing the basis upon
which the Additional Selling Agent determined that the suitability requirements
of Section (b)(2) of Rule 2810 of the National Association of Securities
Dealers, Inc. ("NASD") were met as to each subscriber (the basis for determining
suitability may include the Subscription Documents and other certificates
submitted by subscribers). In connection with making the foregoing
representations and warranties, the Additional Selling Agent further represents
and warrants that it has received copies of the Registration Statement, as
amended to the date hereof, and the Prospectus and has, among other things,
examined the Prospectus and obtained such additional information from the
General Partner regarding the information set forth therein as the Additional
Selling Agent has deemed necessary or appropriate to determine whether the
Prospectus adequately and accurately discloses all material facts relating to an
investment in the Fund and provides an adequate basis to subscribers for
evaluating an investment in the Units. In connection with making the
representations and warranties set forth in this paragraph, the Additional
Selling Agent has not relied on inquiries made by or on behalf of any other
parties.
The Additional Selling Agent agrees to inform all prospective
purchasers of Units of all pertinent facts relating to the liquidity and
marketability of the Units as set forth in the Prospectus.
The Additional Selling Agent shall offer and sell Units in
compliance with the requirements set forth in the Registration Statement
(particularly the "Subscription Agreement and Power of Attorney" attached as
Exhibit B thereto), this Agreement and the Blue Sky Survey delivered to the Lead
Selling Agent by the General Partner's counsel, a copy of which has been
provided to the Additional Selling Agent. The Additional Selling Agent
represents and warrants that it shall comply fully at all times with all
applicable federal and state securities and commodities laws (including without
limitation the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), the Commodity Exchange Act, as amended (the "CEA"), and the
securities and Blue Sky laws of the jurisdictions in which the Additional
Selling Agent solicits subscriptions, all applicable rules and regulations under
such laws, and all applicable requirements, rules, policy statements and
interpretations of the NASD, and the securities and commodities exchanges and
other governmental and self-regulatory authorities and organizations having
jurisdiction over it or the offering of Units). The Additional Selling Agent
shall under no circumstances engage in any activities hereunder in any
jurisdiction (i) in which the General Partner has not informed the Additional
Selling Agent that counsel's advice has been received that the Units are
qualified for sale or are exempt under the applicable securities or Blue Sky
laws thereof or (ii) in which the Additional Selling Agent may not lawfully
engage.
-3-
<PAGE> 40
The Additional Selling Agent further agrees to comply with the
requirement under applicable federal and state securities laws to deliver to
each offeree a Prospectus and any amendments or supplements thereto. Neither the
Additional Selling Agent nor any of its employees, agents or representatives
will use or distribute any marketing material or information other than that
prepared by the Fund and the General Partner. It is, however, understood that
the Additional Selling Agent may use documents that it prepares solely for the
purpose of communicating with its Registered Representatives and Correspondents
provided that the Lead Selling Agent and the General Partner have provided the
written consent to the use of each such document.
(d) The additional services that the Additional Selling Agent
will provide on an ongoing basis to Limited Partners will include but not be
limited to: (i) inquiring of the General Partner from time to time, at the
request of Limited Partners, as to the Net Asset Value of a Unit, (ii) inquiring
of the General Partner from time to time at the request of the Limited Partners,
as to the commodities markets and the activities of the Fund, (iii) assisting,
at the request of the General Partner, in the redemption of Units sold by the
Additional Selling Agent, (iv) responding to questions of Limited Partners from
time to time with respect to monthly account statements, annual reports and
financial statements furnished to Limited Partners, and (v) providing such other
services to the owners of Units as the General Partner may, from time to time,
reasonably request.
All payments for subscriptions shall be made as described in
the Prospectus.
(e) The Additional Selling Agent (i) acknowledges that, other
than as set forth herein, it is not authorized to act as the agent of the Lead
Selling Agent in any connection or transaction and (ii) agrees not to so act or
to purport to so act.
2. Compensation
(a) In consideration for the Additional Selling Agent
performing the obligations under this Agreement, the Lead Selling Agent shall
pay the Additional Selling Agent an initial selling commission of __% of the
subscription value of the Unit(s) sold by the Additional Selling Agent. Such
commissions will be paid in respect of each subscription as promptly as
practicable after the relevant month-end closing.
(b) The Additional Selling Agent shall receive ongoing
compensation, payable monthly by the Lead Selling Agent, of __% per annum of the
month-end Net Asset Value of the Units sold by a Registered Representative of
the Additional Selling Agent which remain outstanding for more than twelve
months (including the month as of the end of which such Unit is redeemed)
assuming (i) the Additional Selling Agent's continued registration with the
Commodity Futures Trading Commission (the "CFTC") as a futures commission
merchant or introducing broker and continued membership with the National
Futures Association ("NFA") in such capacity and (ii) the Registered
Representative's compliance with the additional requirements described in
subsection 1(d), registration with the CFTC and compliance with all applicable
proficiency requirements (including those imposed by the NASD as a condition of
receiving "trailing commissions") by either passing the Series 3 National
Commodity Futures Exam or the Series 31 exam or being "grandfathered" from
having to do so. Such ongoing compensation shall begin to accrue with respect to
each Unit only
-4-
<PAGE> 41
after the end of the twelfth full month after the sale of such Unit. For
purposes of determining when ongoing compensation should begin to accrue, Units
shall not be deemed to be sold until the day Units are issued, and in either
case not the day when subscriptions are accepted by the General Partner or
subscriptions funds are deposited in escrow.
Furthermore, the Lead Selling Agent shall not compensate the
Additional Selling Agent, and the Additional Selling Agent shall not compensate
its employees or other persons, unless the recipient thereof is legally
qualified and permitted to receive such compensation. Also, such ongoing
compensation may be paid by the Lead Selling Agent to the Additional Selling
Agent and by the Additional Selling Agent to its employees or other persons,
only in respect of outstanding Units sold by such persons to Limited Partners
and only so long as the additional services described in Section 1(d) above are
provided by such person to Limited Partners. With respect to particular Units,
substitute Registered Representatives who are appropriately registered and who
agree to perform the services described in Section 1(d) above with respect to
such Units ("Substitute Registered Representatives") may also receive ongoing
compensation with respect to such Units.
Additional Selling Agents shall receive an installment selling
commission of up to __% per annum of the month-end Net Asset Value of Units
remaining outstanding after the twelfth month following their sale by such
Additional Selling Agent if: (i) the Additional Selling Agents are not
registered with the National Futures Association as futures commissions
merchants or introducing brokers; (ii) the Registered Representatives engaged in
the sale of Units are not registered as associated persons of futures
commissions merchants or introducing brokers; (iii) the Additional Selling
Agents do not agree to provide ongoing services to the purchasers of Units;
provided, that no such installment selling commissions shall be payable until
the General Partner and the Lead Selling Agent determine that the payment of
such installment selling commission is in compliance with Rule 2810 of the NASD
on aggregate compensation which may be received by Selling Agents. Installment
selling commissions, if any, will be paid by the Lead Selling Agent from funds
received from the General Partner. Installment selling commissions are limited
such that the sum of the initial selling commission and the aggregate
installment selling commissions paid such Additional Selling Agents may not
exceed 9% of the Net Asset Value, at the time of sale, of Units sold by such
Additional Selling Agents.
In respect of Correspondents, if any, selected by the
Additional Selling Agent (with the consent of the Lead Selling Agent and the
General Partner), the Lead Selling Agent shall pay to the Additional Selling
Agent selling commissions and ongoing compensation or installment sales
commissions as set forth above, a portion (as agreed between the Additional
Selling Agent and each such Correspondent) of which shall be passed on by the
Additional Selling Agent to such Correspondents.
The Additional Selling Agent agrees that it will promptly pass
on to its Registered Representatives and Correspondents the applicable portions
of the selling commissions received from the Lead Selling Agent to which such
Registered Representatives and Correspondents are entitled pursuant to,
respectively, the Additional Selling Agent's standard compensation procedures
and the Additional Selling Agent's agreement with each such Correspondent.
-5-
<PAGE> 42
The Additional Selling Agent, although otherwise entitled to
ongoing compensation, will not be entitled to receipt thereof with respect to
particular Units (but may continue to receive installment selling commissions)
for any month during any portion of which the Registered Representative who is
receiving such ongoing compensation is at any time not properly registered with
the CFTC or does not agree to provide the ongoing services described above.
However, the Lead Selling Agent agrees that Substitute Registered
Representatives may receive such ongoing compensation. The Lead Selling Agent
shall supply to the Additional Selling Agent at its reasonable request reports
concerning all currently outstanding Units sold by the Additional Selling Agent
or any Correspondent. The Additional Selling Agent shall, at the reasonable
request of the Lead Selling Agent, inform the Lead Selling Agent of currently
outstanding Units sold by the Additional Selling Agent or any Correspondent with
respect to which ongoing compensation may not be paid.
The Additional Selling Agent shall not, directly or
indirectly, pay or award any finder's fees, commissions or other compensation to
any person engaged by a potential investor for investment advice as an
inducement to such advisor to advise the purchase of Units; provided, however,
the normal sales commissions payable to a registered broker-dealer or other
properly licensed person for selling Units shall not be prohibited hereby.
(c) Notwithstanding any other provision of this Agreement to
the contrary, the General Partner shall have sole discretion to accept or reject
any subscription for the Units in whole or in part.
(d) The Lead Selling Agent agrees to make all payments from
funds received from the General Partner to the Additional Selling Agent pursuant
to this Section 2 within 15 days following the end of a monthly period in which
compensation is earned. Notwithstanding anything above to the contrary, the Lead
Selling Agent shall be liable to make ongoing compensation payments to the
Additional Selling Agent only after the Lead Selling Agent has actually received
its fee from the General Partner.
3. Representations and Warranties of the Lead Selling Agent
The Lead Selling Agent hereby represents and warrants as
follows:
(a) The Lead Selling Agent is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Texas and
has power and authority to enter into and carry out its obligations under this
Agreement.
(b) The Lead Selling Agent has all governmental and regulatory
registrations, qualifications, approvals and licenses required to perform its
obligations under this Agreement (including, but not limited to, registration as
a broker-dealer with the SEC, membership in such capacity in the NASD, and
registration or qualification under the laws of each state in which Lead Selling
Agent will offer and sell Units); the performance by the Lead Selling Agent of
its obligations under this Agreement will not violate or result in a breach of
any provision of its certificate of incorporation or by-laws or any agreement,
order, law, or regulation binding upon it.
-6-
<PAGE> 43
(c) This Agreement has been duly and validly authorized,
executed, and delivered on behalf of the Lead Selling Agent and is a valid and
binding agreement of the Lead Selling Agent enforceable against the Lead Selling
Agent in accordance with its terms, subject only to bankruptcy, insolvency,
reorganization, moratorium or similar laws at the time in effect affecting the
enforceability generally of rights of creditors except as enforceability of the
indemnification provisions contained in this Agreement may be limited by
applicable law and the enforcement of specific terms or remedies may be
unavailable.
4. Representations and Warranties of the Additional Selling
Agent
The Additional Selling Agent hereby represents and warrants as
follows:
(a) The Additional Selling Agent is a corporation duly
organized, validly existing, and in good standing under the laws of the state of
its incorporation and has power and authority to enter into and carry out its
obligations under this Agreement.
(b) The Additional Selling Agent has all governmental and
regulatory registrations, qualifications, approvals and licenses required to
perform its obligations under this Agreement (including, but not limited to,
registration as a broker-dealer with the SEC, membership in such capacity in the
NASD, registration as a futures commission merchant or introducing broker under
the CEA and membership with NFA, and registration or qualification under the
laws of each state in which Additional Selling Agent will offer and sell Units);
the performance by the Additional Selling Agent of its obligations under this
Agreement will not violate or result in a breach of any provision of its
certificate of incorporation or by-laws or any agreement, order, law, or
regulation binding upon it.
(c) This Agreement has been duly and validly authorized,
executed, and delivered on behalf of the Additional Selling Agent and is a valid
and binding agreement of the Additional Selling Agent enforceable against the
Additional Selling Agent in accordance with its terms, subject only to
bankruptcy, insolvency, reorganization, moratorium or similar laws at the time
in effect affecting the enforceability generally of rights of creditors except
as enforceability of the indemnification provisions contained in this Agreement
may be limited by applicable law and the enforcement of specific terms or
remedies may be unavailable.
(d) Neither the Additional Selling Agent nor any of its
principals have been the subject of any administrative, civil, or criminal
actions within the five years preceding the date hereof that would be material
for an investor's decision to purchase the Units which have not been disclosed
to the Fund, the General Partner or the Lead Selling Agent in writing.
(e) The information, if any, relating to the Additional
Selling Agent which the Additional Selling Agent has furnished to the Fund and
the General Partner for use in the Registration Statement is correct.
(f) In respect of purchasers of Units that are not
individuals, the Additional Selling Agent shall have received, prior to sale of
Units to each such purchaser, evidence that the purchaser
-7-
<PAGE> 44
is authorized to invest in the Units and shall provide the Lead Selling Agent
with copies of such evidence upon reasonable request of the Lead Selling Agent.
5. Authorization Under the Selling Agreement
The Additional Selling Agent agrees to be bound by any action
taken by the Lead Selling Agent or the General Partner, in accordance with the
provisions of the Selling Agreement of which the Additional Selling Agent has
received notice, to terminate the Selling Agreement or the offering of the
Units, to consent to changes in the Selling Agreement or to approve of or object
to further amendments to the Registration Statement or amendments or supplements
to the Prospectus, if, in the judgment of the Lead Selling Agent or the General
Partner, such action would be advisable, provided that the Additional Selling
Agent shall not be bound by any such action that adversely affects the
Additional Selling Agent unless the Additional Selling Agent shall have
consented to such action. The Lead Selling Agent agrees that, at the Additional
Selling Agent's request, the Lead Selling Agent will require any documents
required to be delivered to or by the Lead Selling Agent pursuant to Section 10
of the Selling Agreement to be addressed and delivered to the Additional Selling
Agent.
6. Covenants of the Lead Selling Agent
(a) The Lead Selling Agent will notify the Additional Selling
Agent immediately (i) when any amendment to the Registration Statement shall
have become effective and (ii) of the issuance by the SEC, CFTC or any other
Federal or state regulatory body of any order suspending the effectiveness of
the Registration Statement under the 1933 Act, the CFTC registration or NFA
membership of the General Partner as a commodity pool operator, the CFTC
registration or NFA membership of the Lead Selling Agent as a futures commission
merchant, or the registration of Units under the Blue Sky or securities laws of
any state or other jurisdiction or any order or decree enjoining the offering or
the use of the then current Prospectus or of the institution, or notice of the
intended institution, of any action, investigation or proceeding for that
purpose.
(b) The Lead Selling Agent will cause the General Partner to
deliver to the Additional Selling Agent as promptly as practicable from time to
time during the period when the Prospectus is required to be delivered under the
1933 Act, such number of copies of the Prospectus (as amended or supplemented)
as the Additional Selling Agent may reasonably request for the purposes
contemplated by the 1933 Act or the SEC Regulations.
(c) The Lead Selling Agent will cause the General Partner to
furnish to the Additional Selling Agent a reasonable number of copies of any
amendment or amendments of, or supplement or supplements to, the Prospectus
which will amend or supplement the Prospectus.
(d) The Lead Selling Agent will cause the General Partner to
deliver to the Additional Selling Agent copies of all written communications to
any Limited Partner (other than tax information) whose Units were sold by the
Additional Selling Agent or its Correspondents.
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<PAGE> 45
7. Indemnification and Contribution
(a) The Lead Selling Agent shall indemnify, hold harmless, and
defend the Additional Selling Agent and any person who controls the Additional
Selling Agent within the meaning of Section 15 of the 1933 Act, to the same
extent, and subject to the same conditions and procedural requirements, that the
General Partner agrees to indemnify the Lead Selling Agent pursuant to Section
11 of the Selling Agreement; provided that, in no case shall the Lead Selling
Agent be liable under this indemnity to the Additional Selling Agent if the
loss, liability, claim, damages or expense of the Additional Selling Agent
arises out of any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or the Prospectus (or any amendment
or supplement thereto) or any omission or alleged omission therefrom of a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading made in reliance upon and in conformity with
information relating to the Additional Selling Agent and furnished or approved
by the Additional Selling Agent. In addition, the Lead Selling Agent shall
indemnify, hold harmless and defend the Additional Selling Agent (and any
controlling person) for any loss, liability, claim, damage or expense incurred
by the Additional Selling Agent arising from any breach of this Agreement by the
Lead Selling Agent.
(b) Hampton Investors, Inc. (the "Trading Advisor") agrees to
indemnify and hold harmless the Additional Selling Agent, and each person, if
any, who controls the Additional Selling Agent within the meaning of Section 15
of the 1933 Act, to the same extent as the indemnity from the Trading Advisor
set forth in Section 11(b) of the Selling Agreement, but only insofar as the
losses, claims, damages, liabilities or expenses indemnified against, arise out
of or are based upon any untrue statement or omission or alleged untrue
statement or omission relating or with respect to the Trading Advisor or any
principal of the Trading Advisor, or their operations, trading systems, methods
or performance, which was made in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto and furnished
by or approved by the Trading Advisor for inclusion therein.
(c) The Additional Selling Agent shall indemnify, hold
harmless, and defend the Fund, the General Partner, the Lead Selling Agent, the
Trading Advisor, the Broker and any person who controls any of the foregoing
within the meaning of Section 15 of the 1933 Act against any and all loss,
liability, claim, damage and expense whatsoever incurred by any such party
arising from any material breach by the Additional Selling Agent of its
representations, warranties, obligations and undertakings set forth in this
Agreement. The Fund, the General Partner, the Trading Advisor and the Broker are
expressly made third party beneficiaries of this Agreement.
(d) If the indemnification provided for in this Section 7
shall not be permitted under applicable law in respect of any loss, liability,
claim, damage or expense referred to herein, then the indemnitor shall, in lieu
of indemnifying the indemnified party contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim, damage or
expense, (A) in such proportion as shall be appropriate to reflect the relative
benefits received by the Lead Selling Agent on the one hand and the Additional
Selling Agent on the other from the offering of the Units by the Additional
Selling Agent or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred
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<PAGE> 46
to in clause (A) above but also the relative fault of the Lead Selling Agent on
the one hand the Additional Selling Agent on the other with respect to the
statements or omissions which resulted in such loss, liability, claim, damage or
expense, as well as any other relevant equitable considerations. Relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Lead Selling Agent on the one hand
or the Additional Selling Agent on the other, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties agree that it would not be just
and equitable if contributions pursuant to this Section 7 were to be determined
by a pro rata allocation or by any other method of allocation which does not
take into account the equitable considerations referred to herein. The amount
paid or payable by the indemnified party as a result of the loss, liability,
claim, damage or expense referred to above in this Section 7, shall be deemed to
include, for purpose of this Section 7, any legal or other expenses reasonably
incurred by such otherwise indemnified party in connection with investigating or
defending any such action or claim.
8. Termination
(a) This Agreement shall terminate on the earlier of (i) such
date as the Lead Selling Agent may determine by giving 30 days' prior written
notice to the Additional Selling Agent, (ii) the termination of the Selling
Agreement or the offering of the Units or (iii) by the Lead Selling Agent,
without notice, upon breach by the Additional Selling Agent of, or
non-compliance by the Additional Selling Agent with, any material term of this
Agreement.
(b) The Additional Selling Agent shall have the right to
terminate its participation under this Agreement (i) at any time upon breach by
the Lead Selling Agent of or non-compliance with, any material term of this
Agreement; and (ii) at any time upon thirty business days' prior written notice
of such termination to the Lead Selling Agent and the Fund.
(c) The termination of this Agreement shall not affect (i) the
ongoing obligations of the Lead Selling Agent to pay selling commissions,
ongoing compensation or installment selling commissions with respect to Units
sold prior to the termination hereof, (ii) the Additional Selling Agent's
obligations under Section 1(d) hereof or (iii) the indemnification obligations
under Section 7 hereof.
9. Confidentiality
(a) The Lead Selling Agent hereby covenants and agrees that
under no circumstances will it solicit any of the Additional Selling Agent's
customers whose names become known to the Lead Selling Agent in connection with
the offering of the Units. The Lead Selling Agent agrees that it will take such
steps to ensure the confidentiality of the Additional Selling Agent's client
list as the Additional Selling Agent may reasonably request.
(b) The Additional Selling Agent hereby covenants and agrees
that under no circumstances will it solicit any customer of the Lead Selling
Agent or any other Additional Selling Agent for the Fund whose name becomes
known to the Additional Selling Agent in connection with the offering of the
Units. The Additional Selling Agent agrees that it will take such steps to
ensure the confidentiality of the Lead Selling Agent's or any other Additional
Selling Agent's client list as
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<PAGE> 47
the owner of such list may reasonably request. The Additional Selling Agent
further covenants and agrees not to solicit any selling agent which has been
introduced to the Lead Selling Agent by any Wholesaler or any other Additional
Selling Agent.
10. Miscellaneous
(a) This Agreement shall be binding upon and inure to the
benefit of the respective successors and permitted assigns of the parties
hereto; provided, however, that a party hereto may not assign any rights,
obligations, or liabilities hereunder without the prior written consent of the
other parties.
(b) All notices required or desired to be delivered under this
Agreement shall be in writing and shall be effective when delivered personally
on the day delivered or, when given by registered mail, postage prepaid, return
receipt requested, on the day of receipt, addressed as follows (or to such other
address as the party entitled to notice shall hereafter designate in accordance
with the terms hereof):
if to the Lead Selling Agent:
ProFutures Financial Group, Inc.
11612 Bee Cave Road
Suite 100
Austin, Texas 78733
if to the Additional Selling Agent:
---------------------
---------------------
---------------------
(c) This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York without regard to the
principles of choice of law thereof.
(d) All captions used in this Agreement are for convenience
only, are not a part hereof, and are not to be used in construing or
interpreting any aspect hereof.
(e) This Agreement may be executed in counterparts, each such
counterpart to be deemed an original, but which all together shall constitute
one and the same instrument.
(f) This Agreement may not be amended except by the express
written consent of the parties hereto. No waiver of any provision of this
Agreement may be implied from any course of dealing between or among any of the
parties hereto or from any failure by any party hereto to assert its rights
under this Agreement on any occasion or series of occasions.
(g) The provisions of this Agreement shall survive the
termination of this Agreement with respect to any matter arising while this
Agreement was in effect.
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<PAGE> 48
If the foregoing is in accordance with your understanding of
our agreement, please sign and return a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement between
us in accordance with its terms.
Very truly yours,
PROFUTURES FINANCIAL GROUP, INC.
By:
------------------------------
Name:
-------------------------
Title:
------------------------
CONFIRMED AND ACCEPTED
[ADDITIONAL SELLING AGENT]
By:
------------------------------
Name:
-------------------------
Title:
------------------------
HAMPTON INVESTORS, INC.
(with respect to Section 7(b) hereof)
By:
------------------------------
Name:
-------------------------
Title:
------------------------
-12-
<PAGE> 1
EXHIBIT 3.01
CERTIFICATE OF AMENDMENT (NO. 1)
TO THE
CERTIFICATE OF LIMITED PARTNERSHIP
OF
PROFUTURES BULL & BEAR FUND, L.P.
The undersigned, desiring to amend the Certificate of Limited
Partnership of ProFutures Bull & Bear Fund, L.P. pursuant to the provisions of
Section 17-202 of the Revised Uniform Limited Partnership Act of the State of
Delaware, does hereby certify as follows:
FIRST: Article 1 of the Certificate of Limited Partnership shall be
amended and restated as follows:
The name of the limited partnership formed pursuant to this
Certificate is "ProFutures Long/Short Growth Fund, L.P."
SECOND: Article 4 of the Certificate of Limited Partnership shall be
amended and restated as follows:
The name and business address of the general partner of the
Partnership are:
PROFUTURES, INC.
11612 Bee Cave Road - Suite 100
Austin, Texas 78733
IN WITNESS WHEREOF, the undersigned executed this Amendment (No. 1) to
the Certificate of Limited Partnership on this December 7, 1998.
PROFUTURES BULL & BEAR FUND, L.P.
By: ProFutures, Inc., the General Partner
By: /s/ Gary D. Halbert
-----------------------------
Gary D. Halbert, President
<PAGE> 1
EXHIBIT 5.01
[SIDLEY & AUSTIN LETTERHEAD]
December 22, 1998
ProFutures, Inc.
as general partner of
ProFutures Long/Short Growth Fund, L.P.
11612 Bee Cave Road
Suite 100
Austin, Texas 78733
RE: PROFUTURES LONG/SHORT GROWTH FUND, L.P.
$60,000,000 OF UNITS OF
LIMITED PARTNERSHIP INTEREST (THE "UNITS")
Dear Sir or Madam:
We refer to the Registration Statement on Form S-1 (Reg. No.
333-63129) filed by ProFutures Long/Short Growth Fund, L.P., formerly ProFutures
Bull & Bear Fund, L.P., (the "Registration Statement"), a Delaware limited
partnership (the "Partnership"), on or about September 10, 1998 with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Securities Act"), and Amendment No. 1 thereto filed with the Commission on
or about December 22, 1998 relating to the registration of $60,000,000 of Units
of the Partnership. Capitalized terms not defined herein have the meanings
specified in the Registration Statement.
We are familiar with the proceedings to date with respect to
the proposed issuance and sale of the Units pursuant to the Prospectus and have
examined such records, documents and questions of law, and satisfied ourselves
as to such matters of fact, as we have considered relevant and necessary as a
basis for this opinion.
For purposes of rendering this opinion, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as certified or photostatic copies,
and the authenticity of the originals of such copies.
Based on the foregoing, we are of the opinion that:
1. The Partnership has been duly formed and is validly
existing in good standing as a limited partnership under the Delaware Revised
Uniform Limited Partnership Act (the "Act").
2. The General Partner has taken all corporate action required
to be taken by it to authorize the issuance and sale of the Units to prospective
investors and to authorize the admission to the Partnership of the persons
purchasing Units as Limited Partners of the Partnership.
3. Assuming (i) the due authorization, execution and delivery
to the General Partner of a Subscription Agreement and Power of Attorney (the
"Subscription Agreement") by each subscriber for Units (the "Subscribers"), (ii)
the due acceptance by the General Partner of each Subscription Agreement and the
due acceptance by the General Partner of the admission of each of the
Subscribers as a Limited Partner of the Partnership, (iii) the payment by each
Subscriber to the Partnership of the full consideration due for the Units to
which such Subscriber has subscribed, (iv) that the books and
<PAGE> 2
ProFutures, Inc.
December 22, 1998
Page 2
records of the Partnership set forth all information required by the Limited
Partnership Agreement and the Act, including all information with respect to all
persons and entities to be admitted as Limited Partners and their contributions
to the Partnership, (v) that the Subscribers, as Limited Partners of the
Partnership, do not participate in the control of the business of the
Partnership within the meaning of the Act, (vi) that the Units are offered and
sold as described in the Prospectus and the Limited Partnership Agreement and
(vii) that the representations and warranties of the Subscribers in their
respective Subscription Agreements are true and correct, the Units to be issued
to the Subscribers will represent valid and legally issued limited partner
interests in the Partnership and, subject to the qualifications set forth below,
will be fully paid and nonassessable limited partner interests in the
Partnership, as to which the Subscribers, as limited partners of the
Partnership, will have no liability in excess of their obligations to make
contributions to the Partnership, their obligations to make other payments
provided for in the Limited Partnership Agreement and their share of the
Partnership's assets and undistributed profits (subject to the obligation of a
Limited Partner to repay funds distributed to such Limited Partners by the
Partnership in certain circumstances).
4. There are no provisions in the Limited Partnership
Agreement the inclusion of which, subject to the terms and conditions set forth
therein, would cause the Limited Partners, as limited partners of the
Partnership, to be deemed to be participating in the control of the business of
the Partnership within the meaning of the Act.
This opinion is limited to the Act and the General Corporation
Law of the State of Delaware. We express no opinion as to the application of the
securities or blue sky laws of the various states (including the State of
Delaware) to the sale of the Units.
We hereby consent to the filing of this opinion as an Exhibit
to the Registration Statement and to all references to our firm included in or
made a part of the Registration Statement.
Very truly yours,
SIDLEY & AUSTIN
<PAGE> 1
EXHIBIT 8.01
[SIDLEY & AUSTIN LETTERHEAD]
December 21, 1998
ProFutures, Inc.
General Partner of
ProFutures Long/Short Growth Fund, L.P.
11612 Bee Cave Road
Suite 100
Austin, Texas 78733
Re: Amendment No.1 to the Registration Statement on Form S-1
Dear Sir or Madam:
We have acted as your counsel in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended, of the Registration Statement on Form S-1 (Reg. No. 333-63129)
filed with the Securities and Exchange Commission on or about September 10, 1998
(the "Registration Statement"), and Amendment No. 1 Thereto filed with the
Commission on or about December 22, 1998 relating to Units of Limited
Partnership Interest ("Units") of ProFutures Long/Short Growth Fund, L.P.,
formerly, ProFutures Bull & Bear Fund, L.P. (the "Fund"), a limited partnership
organized under the Delaware Revised Uniform Limited Partnership Act.
We have reviewed such data, documents, questions of law and
fact and other matters as we have deemed pertinent for the purpose of this
opinion. Based upon the foregoing, we hereby confirm our opinion set forth under
the caption "Tax Consequences" in the Prospectus (the "Prospectus") constituting
a part of the Registration Statement and confirm that it accurately summarizes
(subject to the uncertainties referred to therein) the material aspects of the
federal income tax treatment to a United States individual taxpayer, as of the
date hereof, of an investment in the Fund.
Very truly yours,
SIDLEY & AUSTIN
<PAGE> 1
EXHIBIT 10.01
ING (U.S.) SECURITIES, FUTURES & OPTIONS, INC.
SEARS TOWER
233 SOUTH WACKER STREET
CHICAGO, ILLINOIS 60606
(312) 496-7000
December 8, 1998
ProFutures Long/Short Growth Fund, L.P.
Gary Halbert, President
ProFutures, Inc.
11612 Bee Cave Road -- Suite 100
Austin Texas 78733
Re: Customer Account No. Q 740R 2574020
First Amendment to Commodity Agreement
Dear Mr. Halbert:
Reference is made to the Commodity Agreement, dated October 22, 1997
(the "Agreement"). We acknowledge the new name (previously "ProFutures Bull &
Bear Fund, L.P.") and address of Customer as set forth above.
The eighth (8th) sentence of Section 10 of the Agreement is hereby
amended and restated as follows:
Customer shall be credited with an amount equal to: (a) the average of
the 91-day U.S. Treasury bill rate for such month; multiplied by (b)
the average total equity of Customer's account for such month. To the
extent that any interest earned on such total equity exceeds such
amount, ING will retain it.
Capitalized terms not otherwise defined in this Amendment shall have
the respective meanings ascribed to them in the Agreement. All other terms and
conditions set forth in the Agreement shall remain in full force and effect.
Sincerely,
ING (U.S.) SECURITIES, FUTURES & OPTIONS, INC.
By: /s/ James A. Gabriele
-------------------------------------------
Name: James A. Gabriele
Title: Controller
ACKNOWLEDGED AND AGREED:
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
By: ProFutures, Inc., its General Partner
By: /s/ Gary D. Halbert
-------------------------------------
Gary D. Halbert, President
<PAGE> 1
EXHIBIT 23.02
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of ProFutures Long/Short
Growth Fund, L.P., formerly ProFutures Bull & Bear Fund, L.P., on Amendment No.
1 to Form S-1 filed on or about December 22, 1998 of our report dated March 9,
1998, except for Note 7, as to which the date is December 8, 1998, on the
financial statements of ProFutures Long/Short Growth Fund, L.P. as of December
31, 1997 and for the period August 21, 1997 (inception) to December 31, 1997 and
of our report dated August 21, 1998 on the balance sheet of ProFutures, Inc., as
of June 30, 1998, appearing in the Prospectus, which is a part of such
Registration Statement, and to the reference to us under the heading "General"
in such Prospectus.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
December 22, 1998
Hunt Valley, Maryland
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PROFUTURES
LONG/SHORT GROWTH FUND, L.P. STATEMENTS OF FINANCIAL CONDITION AND STATEMENTS OF
OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,383,550
<SECURITIES> 11,426,604
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,833,654
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,833,654
<CURRENT-LIABILITIES> 44,769
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,788,885
<TOTAL-LIABILITY-AND-EQUITY> 12,833,654
<SALES> 0
<TOTAL-REVENUES> 865,316
<CGS> 0
<TOTAL-COSTS> 359,763
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 505,553
<INCOME-TAX> 505,553
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 505,553
<EPS-PRIMARY> 101.94
<EPS-DILUTED> 101.94
</TABLE>
