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As filed with the Securities and Exchange Commission on August 4, 2000
REGISTRATION NO. 333-89507
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PROFUTURES LONG/SHORT GROWTH FUND, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 6799 74-2849862
(State of Organization) (Primary Standard Industrial (IRS Employer
Classification Code Number) Identification Number)
</TABLE>
C/O PROFUTURES, INC.
11612 BEE CAVE ROAD
SUITE 100
AUSTIN, TEXAS 78738
(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 78738
(800) 348-3601
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
William D. Kerr
Bradley D. Howard
Sidley & Austin
Bank One Plaza
Chicago, Illinois 60603
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
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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
PART ONE: DISCLOSURE DOCUMENT
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
$71,744,551
LIMITED PARTNERSHIP UNITS
THE FUND ProFutures Long/Short Growth Fund, L.P. seeks appreciation of
its assets through the speculative trading of stock index futures contracts.
Stock index futures are cash settled futures contracts on the value of a stock
index, such as the S&P 500. Unlike typical investments in stocks or bonds, where
one expects growth or predictable interest payments, for every gain from
speculative futures trading there is an equal, offsetting loss. The Fund began
trading on November 20, 1997.
THE ADVISOR Hampton Capital Management, 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. 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 is
sold, the proceeds to the Fund will be $71,034,209 and the proceeds to the
General Partner will be $710,342. As of June 30, 2000, the Net Asset Value of a
Unit was $1,146.89.
There is no scheduled termination date for, and no escrow
account will be used in connection with, this offering. The Selling Agent is not
required to sell any specific number of Units but will use its best efforts to
sell the Units.
The minimum purchase for first-time investors is $10,000;
$5,000 for IRAs, other tax-exempt accounts and current investors. No selling
commissions are paid by investors or the Fund.
THE RISKS THESE ARE SPECULATIVE SECURITIES. BEFORE INVESTING, YOU SHOULD
READ THIS ENTIRE PROSPECTUS CAREFULLY AND CONSIDER "THE RISKS YOU FACE"
BEGINNING ON PAGE 6.
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; the Net Asset Value per Unit may
fluctuate significantly.
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 1.10% of average annual net assets, as well as a
quarterly incentive fee equal to 20% of net new profits.
o To break even during the first year after a Unit is sold, the Fund must
earn trading profits of approximately 0.20% of its average annual net
assets (assuming interest on its assets at an annual rate of 5.00%).
o The Fund may be subject to conflicts of interest of the General
Partner, the Advisor and the Futures Broker.
o 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.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A
STATEMENT OF ADDITIONAL INFORMATION. THESE PARTS ARE BOUND TOGETHER, AND BOTH
CONTAIN IMPORTANT INFORMATION.
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.
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PROFUTURES, INC.
GENERAL PARTNER
PROFUTURES FINANCIAL GROUP, INC.
SELLING AGENT
AUGUST 4 , 2000
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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 NECESSARY 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 23 TO 25
AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 4.
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 6 TO 11.
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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 FILES 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.
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PROFUTURES, INC.
GENERAL PARTNER
11612 BEE CAVE ROAD
SUITE 100
AUSTIN, TEXAS 78738
(800) 348-3601
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
[CHART]
ORGANIZATIONAL CHART
None of the entities indicated in this organizational chart
are related except ProFutures, Inc. and ProFutures Financial Group, Inc. The
Fund may also retain a cash manager related to the ProFutures entities. See
"Conflicts of Interest" beginning on page 36. 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 23 and under the sub-heading "-- Cash Management" under "Use
of Proceeds; Interest Income Arrangements" on page 22.
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PROFUTURES LONG/SHORT GROWTH FUND, L.P.
TABLE OF CONTENTS
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PART ONE PAGE
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PROSPECTUS SECTION
SUMMARY .......................................................... 1
THE RISKS YOU FACE ............................................... 6
FUND OPERATIONS .................................................. 11
PERFORMANCE OF THE FUND .......................................... 15
SELECTED FINANCIAL DATA .......................................... 16
MANAGEMENT'S ANALYSIS OF OPERATIONS .............................. 18
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK ........ 20
USE OF PROCEEDS; INTEREST INCOME ARRANGEMENTS .................... 22
ANALYSIS OF FEES AND EXPENSES PAID BY THE FUND ................... 23
THE ADVISOR ...................................................... 25
THE GENERAL PARTNER .............................................. 32
BROKERAGE ARRANGEMENTS ........................................... 35
NET ASSET VALUE .................................................. 36
CONFLICTS OF INTEREST ............................................ 36
SUMMARY OF THE LIMITED PARTNERSHIP AGREEMENT ..................... 37
SUMMARY OF INCOME TAX CONSEQUENCES ............................... 38
PURCHASES BY EMPLOYEE BENEFIT PLANS .............................. 41
GENERAL .......................................................... 42
FINANCIAL STATEMENTS ............................................. 43
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PART TWO PAGE
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STATEMENT OF ADDITIONAL INFORMATION
SUPPLEMENTAL PERFORMANCE INFORMATION ............................ II-1
THE STOCK INDEX FUTURES MARKETS ................................. II-3
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> 6
SUMMARY
GENERAL
The ProFutures Long/Short Growth Fund, L.P., a Delaware
limited partnership, offers individual investors a way to participate in the
equity markets through stock index futures. The primary objective of the Fund is
long-term appreciation of its assets through the speculative trading of stock
index futures. The Fund trades 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 futures 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.
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 a net asset value as of June 30, 2000 of approximately
$81 million.
HAMPTON CAPITAL MANAGEMENT, INC.
General
Hampton Capital Management, Inc., the commodity trading
advisor for the Fund, was created by Hampton Investors, Inc., the former
commodity trading advisor for the Fund, to manage all of its futures accounts.
Hampton Capital Management, Inc. has the same ownership and principals as
Hampton Investors, Inc. and employs the same trading program. Hampton Investors,
Inc. 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 divided 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 product of the contract multiplier, currently $250, and the Index
level. The Index level fluctuates daily but assume for purposes of the following
example that it is 1,400. In this example, a fully-funded S&P 500 Contract is
worth $350,000 ($250 x 1,400). If you wanted to trade without the use of
leverage, you could deposit $350,000 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 $350,000 in
the Fund. That means that when the Index moves 1%, the value of the Fund should
move approximately 3% in the same direction: the Fund would be approximately
three times leveraged.
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 turns 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
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<PAGE> 7
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 less leverage 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.
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 1.10% 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 0.20% of its average Net Asset
Value (assuming interest on its assets at a 5.00% annual rate) 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. See Risk Factors (26) and (27) on page 10.
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.
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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 of the Fund's fees and expenses is set forth in
the Break-Even Table on the following page. Each investor pays a one-time
organizational charge to the General Partner. 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 $1,400,000 per year if no additional Units are sold and at
approximately $4,400,000 if the total amount of this offering is sold. 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 under "Fund Operations" beginning on page 11, "Use of
Proceeds; Interest Income Arrangements" beginning on page 22 and "Analysis of
Fees and Expenses Paid by the Fund" beginning on page 23, 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.
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BREAK-EVEN TABLE
TWELVE-MONTH
DOLLAR
BREAK-EVEN
($10,000 TWELVE-MONTH
INITIAL NET PERCENTAGE
EXPENSES INVESTMENT)(1) BREAK-EVEN
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Organizational and offering
expenses $ 100.00 1.00%
Management fee(2) $ 312.37 3.12%
Accounting, audit and legal expenses $ 38.00 0.38%
(estimated)
Administrative expenses (estimated) $ 20.00 0.20%
Brokerage commissions and related
charges (estimated) $ 50.00 0.50%
Incentive fee(3) $ 0% 0%
Interest income (estimated) $(500.00) (5.00)%
TWELVE MONTH
BREAK-EVEN $ 20.37 0.20%
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SEE "ANALYSIS OF FEES AND EXPENSES PAID BY THE FUND" AT PAGE 23.
Explanatory Notes:
(1) The foregoing break-even analysis is an approximation
only. It assumes that the Units have a constant month-end Net Asset Value.
Calculations are based on $10,000 as the Net Asset Value of the Units (a $10,100
purchase price) and a Fund Net Asset Value of $23 million.
(2) 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.
(3) 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
incentive fee, as shown above, reflects that no incentive fee would be earned on
the $20.37 trading profits needed to break-even as brokerage commissions reduce
trading profits before incentive fees are calculated (20% x ($20.37-$50)) and
assumes a break-even year.
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.
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<PAGE> 10
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 "Summary of Income Tax Consequences" beginning at page 38.
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 daily and 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-1.
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<PAGE> 11
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 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 just less than
approximately 7% 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.
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<PAGE> 12
(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 1.10% 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 3 and
"Analysis of Fees and Expenses Paid by the Fund" beginning on page 23.
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 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 II-3.
(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 three 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
-7-
<PAGE> 13
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 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 20,000
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.
(16) THE ADVISOR MAY NOT BE SUCCESSFUL IN "DOWNWARD" EQUITY MARKETS
Some of 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 at
times, 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 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
-8-
<PAGE> 14
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 contact 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 one contract
-- the S&P 500 Stock Index futures contract. 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.
(21) THE ADVISOR'S INCREASED EQUITY UNDER MANAGEMENT COULD LEAD TO
DIMINISHED RETURNS
Large trades are generally subject to more price slippage than
small trades. 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.
(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 holders 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.
-9-
<PAGE> 15
(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.
(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. 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 broker 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 36.
(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.
-10-
<PAGE> 16
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 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 "Summary of Income Tax
Consequences -- Limited Deductibility for Certain Expenses" at page 38.
(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 be used by individuals only 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 economic
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, at the General Partner's discretion, 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 subscription, inclusive of 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.
-11-
<PAGE> 17
The minimum purchase for first-time investors is $10,000;
$5,000 for IRAs, other tax-exempt accounts and current investors.
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.
(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.
(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 assurance that the investor will, in fact, be
bound by the Subscription Agreement and the Limited Partnership
Agreement.
(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 assurance that the investor does,
in fact, meet the applicable standard.
(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
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.
(6) If required to be, you are registered with the CFTC or are
a member of the National Futures Association ("NFA"). The Bylaws of 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 assurance that the investor or representative
of an entity investor, if required to be, is a CFTC registrant or NFA
member.
The Fund and/or the General Partner will assert the
appropriate foregoing representation or warranty in the event the investor, or
any other person on behalf of the investor, should make a claim contradictory to
such representation or warranty. You should carefully read Exhibit B
--Subscription Agreement and Power of Attorney and the Subscription Agreement
and Power of Attorney Signature Page which accompanies 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 is deemed by the National
Association of Securities Dealers, Inc. ("NASD") to be a sales commission.
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. Additional Selling Agents will receive sales commissions paid by
the General Partner, through the Selling Agent, from its own funds. Additional
Selling Agents introduced by wholesalers may not receive selling commissions in
an amount that exceeds 7% of the gross proceeds of the Units they sell. If no
wholesaler introduced an Additional Selling Agent, then such Additional Selling
Agent may not receive selling commissions in an amount that exceeds 9% of the
gross proceeds of the Units it sells.
-12-
<PAGE> 18
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 selling commissions otherwise payable to
such Additional Selling Agent. The wholesaler's compensation shall not exceed 2%
of gross proceeds of the sale of 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.
The Selling Agent anticipates engaging few, if any, Additional
Selling Agents. In compliance with NASD Conduct Rule 2810 regarding selling
agent compensation, the total sales commission or underwriting compensation paid
in respect of the sale of the Units shall not exceed 10% of the gross proceeds
of the sale of the Units, including maximum sales commissions of 1% to the
Selling Agent and 9% to Additional Selling Agents (including a 2% wholesaling
commission).
Further, 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 to advise an investor who purchased
Units from such Additional Selling Agent not to redeem the Units, even if doing
so would be in the best interests of the investor.
<TABLE>
<CAPTION>
SELLING AGENT COMPENSATION TABLE
--------------------------------
RECIPIENT NATURE AND AMOUNT OF COMPENSATION
--------- ---------------------------------
<S> <C>
The Selling Agent An amount not to exceed 1% of the gross
proceeds of this offering-- paid by the
General Partner.
Additional Selling An amount not to exceed 7% of the gross
Agents proceeds of this offering if introduced by a
wholesaler; otherwise an amount not to exceed
9% of the gross proceeds of this offering--
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.
Wholesalers An amount not to exceed 2% of the gross
proceeds of this offering-- paid by the
General Partner.
Correspondents A portion of the compensation paid to
Additional Selling Agents -- paid by
Additional Selling Agents.
</TABLE>
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, the Fund deposits substantially all of its assets
in its 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
-13-
<PAGE> 19
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, if
applicable, 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 Partner, Attention: Fund
Administration, ProFutures, Inc., 11612 Bee Cave Road, Suite 100, Austin, Texas
78738. 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. This suspension level does not protect the Fund from experiencing
losses in excess of 50% if they occur over a series of months.
DISTRIBUTIONS
The Fund does not anticipate making any distributions to
investors, and has made none 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 financial statements. Investors
may telephone the General Partner during its normal business hours at (800)
348-3601 for the estimated Net Asset Value per Unit.
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<PAGE> 20
PERFORMANCE OF THE FUND
The following are the monthly rates of return from the
inception of the Fund through June 2000. The Fund was privately offered through
August 1998. MONTHLY RETURNS DO NOT ILLUSTRATE THE SUBSTANTIAL VOLATILITY THAT
OCCURS ON A DAY TO DAY AND INTRA-DAY BASIS. THERE CAN BE NO ASSURANCE THAT THE
FUND WILL PERFORM IN THE FUTURE THE WAY IT HAS IN THE PAST.
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOVEMBER 1997- JUNE 2000
TYPE OF POOL: PUBLICLY OFFERED
INCEPTION OF TRADING: NOVEMBER 20, 1997
AGGREGATE SUBSCRIPTIONS: $41,440,884
CURRENT NET ASSET VALUE: $23,179,946
WORST MONTHLY DRAWDOWN (MONTH/YEAR): (16.80)% (9/98)
WORST PEAK-TO-VALLEY DRAWDOWN (MONTH/YEAR): (41.75)% (7/99 - 6/00)
<TABLE>
<CAPTION>
MONTH MONTHLY RATES OF RETURN
----- -----------------------
2000 1999 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
January (9.61)% 2.45% 2.77% --.--
February (4.28)% (0.44)% 10.43% --.--
March 6.51 (2.14)% 9.56% --.--
April (16.12)% 1.87% 2.44% --.--
May (5.15)% (5.57)% 0.37% --.--
June (5.37)% 8.00% (0.84)% --.--
July --.-- (9.95)% (2.26)% --.--
August --.-- 0.00% 30.56% --.--
September --.-- 7.65% (16.80)% --.--
October --.-- (4.62)% 19.87% --.--
November --.-- 0.02% 11.86% 1.92%
December --.-- (9.23)% 9.90% (6.06)%
(30.62)% (12.95)% 98.31% (4.25)%
COMPOUND RATE OF RETURN (6 months) (2 months)
</TABLE>
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.
-15-
<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data is derived from the
audited financial statements of the Fund as of December 31, 1999, 1998 and 1997
and for the years ended December 31, 1999 and 1998 and for the period August 21,
1997 (inception of the Fund, but not commencement of operations) to December 31,
1997, respectively and the unaudited financial statements of the Fund as of and
for the six months ended June 30, 2000 and 1999. The Fund commenced trading
operations on November 20, 1997 under the name "ProFutures Bull & Bear Fund,
L.P." See "Financial Statements" beginning at page 43.
----------
<TABLE>
<CAPTION>
January 1, 2000 January 1, 1999
to to
June 30, June 30,
2000 1999
--------------- ---------------
<S> <C> <C>
TOTAL ASSETS $ 24,084,462 $ 40,251,619
============ ============
TOTAL PARTNERS' CAPITAL $ 23,179,946 $ 39,775,608
============ ============
INCOME
Trading gains (losses)
Realized $(16,674,110) $ 2,636,969
Change in unrealized 5,098,500 (1,163,250)
------------ ------------
Gain (loss) from trading (11,575,610) 1,473,719
Interest income 884,628 617,092
------------ ------------
Total income (loss) (10,690,982) 2,090,811
------------ ------------
EXPENSES
Brokerage commissions 15,119 8,138
General Partner management fee 451,430 388,423
Advisor incentive fee 0 293,116
Operating expenses 41,059 48,551
------------ ------------
Total expenses 507,608 738,228
------------ ------------
NET INCOME (LOSS) $(11,198,590) $ 1,352,583
============ ============
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period of
22,192.6105 and 13,491.9490, respectively) $ (504.61) $ 100.25
============ ============
INCREASE (DECREASE) IN NET
ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNIT $ (506.06) $ 70.27
============ ============
</TABLE>
-16-
<PAGE> 22
<TABLE>
<CAPTION>
January 1, 1999 January 1, 1998 August 21, 1997
to to to
December 31, December 31, December 31,
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
TOTAL ASSETS $ 38,977,975 $ 20,024,546 $ 2,932,764
============ ============ ============
TOTAL PARTNERS' CAPITAL $ 38,637,584 $ 18,554,971 $ 2,914,736
============ ============ ============
INCOME
Trading gains (losses)
Realized $ 1,522,130 $ 6,818,869 $ (116,342)
Change in unrealized (7,168,725) 1,161,075 2,175
------------ ------------ ------------
Gain (loss) from trading (5,646,595) 7,979,944 (114,167)
Interest income 1,625,573 439,168 19,520
------------ ------------ ------------
Total income (loss) (4,021,022) 8,419,112 (94,647)
------------ ------------ ------------
EXPENSES
Brokerage commissions 35,908 8,363 564
General Partner management fee 986,328 267,508 9,826
Advisor incentive fee 293,116 1,571,370 0
Operating expenses 102,937 55,126 11,704
------------ ------------ ------------
Total expenses 1,418,289 1,902,367 22,094
------------ ------------ ------------
NET INCOME (LOSS) $ (5,439,311) $ 6,516,745 $ (116,741)
============ ============ ============
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period of
17,843.6687, 6,179.3557, and
2,421.6801, respectively) $ (304.83) $ 1,054.60 $ (48.21)
============ ============ ============
INCREASE (DECREASE) IN NET
ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNIT $ (245.81) $ 941.31 $ (42.55)
============ ============ ============
</TABLE>
-17-
<PAGE> 23
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-to-market 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
2000 (6 MONTHS)
On January 11, the Advisor's model showed the market was strengthening
and changed positions to +2. During the entire first quarter, the Fund remained
long at either +2 or +3. An extreme level of market volatility caused these
positions to result in further losses for the quarter, cushioned by a 6.5% gain
in March. The wide divergence between the S&P 500 index and the Nasdaq index
caused many technical models, including the Advisor's, to be "whipsawed" as the
stock market moved in unprecedented ways.
The second quarter of 2000 proved to be one of the most difficult in
the Fund's history. The biggest contributing factor to the second quarter
drawdown was the Fund's position on April 14. The S&P 500 index declined 83.95
points on that day, and the Fund was in a +3 position. This led to a one-day
loss of 19.79%. The Fund remained bullishly positioned until a sell signal on
May 19, at which time the Fund assumed a neutral position and avoided
substantial volatility until re-entering the market on June 13 at +3 long. As of
the end of the second quarter, the Advisor's model system was still bullish and
the Fund was in its worst historical drawdown. At all times during the drawdown
the Advisor continued to follow the signals issued by its model.
1999
The Fund began the year in a long position which had resulted in
substantial profits in the fourth quarter of 1998. On January 4, 1999, the
Advisor moved the Fund's account to a neutral position and then went long again
on January 28th. This position was closed on February 22 with a small loss after
expenses. The Advisor again took a long position on March 17, and at the end of
the first quarter the Fund showed a small loss of -0.18%.
-18-
<PAGE> 24
Also during first quarter, the Fund opened its public offering of Units and
began receiving substantial assets from new and existing limited partners. The
Advisor was able to quickly and effectively invest this new capital.
As the second quarter began, the Fund was still long and remained so
until June 22. At certain times during the quarter the Advisor's program moved
between a +2 and +3 long position, but remained bullish until June 22, when a
neutral position was taken. The second quarter ended with a gain of 3.89%, and
at mid-year the Fund showed a net gain of 3.70%.
The third quarter began with the Fund again neutral, until July 6, when
the Advisor took a +2 long position. The Advisor's indicators became more
bullish and the position was increased to +3 long on August 4, then, one day
later, weakened and the Fund was again in a neutral position. The Fund endured a
significant loss in July and early August. On August 17, the Fund assumed a -3
short position, the first short trade in over a year. This position initially
led to a further loss, but the Advisor's indicators remained firmly bearish and
by late September the stock market had turned negative resulting in a profit.
The Fund ended the third quarter still in the short position and with a loss of
3.40% for the quarter.
In the fourth quarter, the Fund encountered a number of false signals
on both the long and short sides. Short trades in October and December were the
major contributors to the Fund's performance record in these months, although
the Fund was bullish at times during the quarter as well. On December 15 the
Fund entered the market with a -3 position. As the market moved higher at
year-end, this resulted in losses and the Fund ended the year still in a short
position, with a total loss for the year of 12.95%.
1998
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 through October 8, 1998. At
that point, the Fund 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 throughout the fourth quarter. On December 21, the
Advisor reduced this position as several indicators indicated a weakening in the
stock market. In the fourth quarter the Fund gained 47.4% and was up 98.3% for
calendar year 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%.
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.
-19-
<PAGE> 25
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 ratings 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
INTRODUCTION
The Fund operates as a commodity investment pool engaged in the
speculative trading of stock index futures. All, or substantially all, of the
Fund's assets are, accordingly, subject to the risk of trading loss. Unlike an
operating company, the risks involved in trading market sensitive derivative
instruments are integral, not incidental, to the Fund's business.
Market movements result in frequent changes in the fair market value of
the Fund's open positions and, consequently, in its earnings and cash flow. The
Fund's market risk is influenced by a wide variety of factors, including general
economic conditions, equity price levels, the market value of financial
instruments and contracts and the liquidity of the markets in which it trades.
The Fund acquires and liquidates, generally on a short-term basis, both
long and short positions in stock index futures. Consequently, it is not
possible to predict how a particular market scenario projected into the future
will affect performance, and the Fund's past performance is not necessarily
indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Fund's speculative trading and the recurrence in the markets
traded by the Fund of market movements far exceeding expectations could result
in actual trading or non-trading losses far beyond the indicated Value at Risk
or the Fund's experience to date. In light of the foregoing, as well as the
risks and uncertainties intrinsic to all future projections, the inclusion of
the quantitative disclosure included in this section should not be considered to
constitute any assurance or representation that the Fund's losses in any market
sector will be limited to the Value at Risk or by the Fund's attempts to manage
its market risk.
Materiality, as used in this section, is based on an assessment of
reasonably possible market movements and the potential losses caused by such
movements, taking into account the leverage and multiplier features of the
Fund's market sensitive positions.
-20-
<PAGE> 26
QUANTITATIVE DISCLOSURES ABOUT TRADING RISK
The following quantitative disclosures regarding the Fund's market risk
exposures contain "forward-looking statements" within the meaning of the safe
harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of historical
fact (such as the terms and amounts related to particular contracts held during
or at the end of the reporting period).
Risk exposure in the market sector traded by the Fund's Advisor is
quantified below in terms of Value at Risk. Contract interests are recorded in
the financial statements at fair market value; therefore, any loss in the fair
value of the Fund's open positions is directly reflected in the Fund's earnings
(realized or unrealized) and cash flow.
The Fund has used commodity exchange maintenance margin requirements as
the measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95% - 99% of any one-day
intervals. The maintenance margin levels are established by brokers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide for the S&P 500 contract
is a probabilistic estimate of the maximum expected near-term one-day price
fluctuation. Maintenance margin has been used rather than the more generally
available initial margin, because initial margin includes a credit risk
component which is not relevant to Value at Risk.
The trading Value at Risk associated with the Fund's open positions in
stock index futures as of December 31, 1999 is $6,918,750, which includes all
open position trading risk exposures of the Fund. It represents 17.9% of the
Fund's total capitalization of approximately $38.6 million as of December 31,
1999.
There has been no material change during the six months ended June 30,
2000, in the sources of the Fund's exposure to market risk. The relationship of
the total Value at Risk as a percentage of total capitalization declined from
17.9% at December 31, 1999 to 10.1% at March 31, 2000, and to 11.2% at June 30,
2000.
The face value of the open positions held by the Fund is typically many
times the applicable maintenance margin requirement (the maintenance margin
requirements for the S&P 500 contract generally range between approximately 1%
and 10% of contract face value) as well as many times the capitalization of the
Fund. The magnitude of the Fund's open positions creates a risk of loss not
typically found in most other financial instruments. Because of the size of its
positions, certain market conditions could cause the Fund to incur severe losses
over a short period of time (as has in fact happened to the Fund in the past).
The foregoing Value at Risk disclosure -- as well as the past performance of the
Fund -- give no indication of the magnitude of this risk of loss.
QUALITATIVE DISCLOSURES ABOUT TRADING RISK
The following qualitative disclosures regarding the Fund's market risk
exposures -- except for (i) those disclosures that are statements of historical
fact and (ii) the descriptions of how the Fund manages its primary market risk
exposures -- constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Fund's primary market risk exposures as well as the strategies used
and to be used by the Advisor for managing such exposures are subject to
numerous uncertainties, contingencies and risks, any one of which could cause
the actual results of the Fund's risk controls to differ materially from the
objectives of such strategies. Government interventions, defaults and
expropriations, illiquid markets, the emergence of dominant fundamental factors,
political upheavals, changes in historical price relationships, an influx of new
market participants, increased regulation and many other factors could result in
material losses as well as in material changes to the risk exposures and the
risk management strategies of the Fund. There can be no assurance that the
Fund's current market exposure and/or risk management strategies will not change
materially or that any such strategies will be effective in either the short- or
long-term. Investors must be prepared to lose all or substantially all of their
investment in the Fund.
The Fund's primary market risk exposure is to fluctuations in the S&P
500 Stock Index. The Fund is primarily exposed to the risk of adverse price
trends or static markets in the U.S. equity markets.
-21-
<PAGE> 27
DISCLOSURES ABOUT RISK EXPOSURE OF INSTRUMENTS NOT HELD FOR TRADING
The Fund has non-trading cash flow risk as a result of investing a
substantial portion of its assets in interest-bearing cash management accounts
and interest-bearing deposits with brokers. If short-term interest rates
decline, then cash flow from interest-income related to cash management accounts
and broker deposits will also decline.
QUALITATIVE DISCLOSURES ABOUT MANAGEMENT RISK EXPOSURE
The Fund trades exchange-traded futures and options contracts on stock
indices, currently only the S&P Contract. Risk arises from changes in the value
of these contracts (market risk) and the potential inability of 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.
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 cash 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, at any given time, 0% to 21% 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 an independent 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
-22-
<PAGE> 28
likely to be greater than the interest credit received from the Futures Broker.
Alternatively the Fund may engage an investment adviser affiliate of the General
Partner to provide cash management services to the Fund. Neither the Fund nor
any Limited Partner will be charged a management fee by such affiliated cash
manager.
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 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>
01/01/00- 01/01/99- 01/01/98- 11/20/97-
Fees and Expenses 06/30/00 12/31/99 12/31/98 12/31/97
----------------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Management fees $ 451,430 $ 986,328 $ 267,508 $ 9,826
Operating and administrative expenses 41,059 102,937 55,126 11,704
Brokerage commissions and transactional
charges 15,119 35,908 8,363 564
Incentive fees 0 293,116 1,571,370 0
TOTAL $ 507,608 $1,418,289 $1,902,367 $ 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
-23-
<PAGE> 29
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 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 $0.18 per
round-turn trade of each futures contract and $0.09 per each purchase or sale of
an option.
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
2000 and assume that the Fund recognized trading profits of $201,000 during the
first quarter of 2001. 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 2000 but did not
pay an incentive fee at the end of the fourth quarter of 2000 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 2001 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). 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.
-24-
<PAGE> 30
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 0.20% 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. If the Fund engages a cash manager affiliated with the
General Partner, such cash manager will waive its management fee in respect of
the Fund.
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 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 registered office is located at 414 Northwood Avenue,
Linden, New Jersey 07036. The telephone number is (800) 524-4832. All books and
records pertaining to its business will be maintained at 2519 Avenue U,
Brooklyn, New York 11229. Hampton Investors, Inc. ("Hampton Investors"), the
previous advisor of the Fund, organized the Advisor, incorporated in New Jersey
in December 1999, to assume the futures advisory business and commodity trading
advisor registration of Hampton Investors. Hampton Investors, incorporated in
-25-
<PAGE> 31
New York in February 1985, is an investment adviser registered with the SEC. In
August 1995, Hampton Investors registered with the CFTC as a commodity trading
advisor and the Advisor assumed this registration effective December 31, 1999
and is a member of the NFA in such capacity. References herein to the "Advisor"
refer to Hampton Investors prior to January 1, 2000 and to Hampton Capital
Management, Inc. thereafter, unless the context otherwise requires. The sole
principals of the Advisor are Charles Mizrahi and Gary Mizrahi.
Hampton Investors 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, Hampton Investors developed a modified version of
its model to take advantage of its stock market signals. Hampton Investors'
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, the Advisor's President, has been Hampton
Investors' 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, the Advisor's Treasurer, has been Hampton
Investors' Treasurer since February 1988 and is primarily responsible for its
back office and administrative operations. Mr. Mizrahi was Hampton Investors'
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 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.
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 1,400). In
such example the S&P 500 Contract is worth $350,000 ($250 x 1,400). 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 $1,050,000 (3 x $350,000) for each $350,000 in Fund
capital.
-26-
<PAGE> 32
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 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.
The Advisor's Leverage 3 trading program is based on its model. The
Advisor employs a systematic approach to trading the S&P 500 Contract, and
signals are generally generated at 4:00 p.m., New York City time, so 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 help pinpoint more
precise short-term entry and exit points for 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 91-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 initial leverage factor of +2, +3 or -3 will vary and not remain
constant while a trade is open. As a trade becomes profitable, the leverage
factor will tend to decrease because the same number of contracts will be
divided over a larger capital base. Likewise, as a trade loses money the
leverage factor will increase. In addition, when the Advisor increases the
Fund's position from +2 to +3, or, alternatively, decreases it from +3 to +2,
the Advisor adds or subtracts contracts equal to +1 leverage. Therefore the
leverage may not be exactly +2 or +3 after the trade is executed. The stated
leverage factor of +2 or +3 is an approximation only, and could be significantly
higher or lower in certain circumstances.
During the term of the Fund, the Advisor's program has generated
relatively few maximum short positions (-3). However, going forward there can be
no assurance as to whether long, short or neutral positions will dominate.
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
-27-
<PAGE> 33
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 the Advisory Contract (the
"Advisory Agreement") between the Fund and the Advisor terminates on August 31,
2001 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 its 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.
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.
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 June 30, 2000 for the entire history of the
program (July 1995 through June 30, 2000), 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
-28-
<PAGE> 34
of this uninvested cash had the effect of reducing the Fund's overall leverage
and therefore 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.
-29-
<PAGE> 35
CAPSULE A
COMMODITY TRADING ADVISOR: Hampton Capital Management, Inc. and
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: 10
TOTAL ACTUAL ASSETS UNDER MANAGEMENT OVERALL: $23,902,540
TOTAL ASSETS INCLUDING NOTIONAL FUNDS UNDER MANAGEMENT OVERALL: $31,513,914
TOTAL ACTUAL ASSETS UNDER MANAGEMENT IN PROGRAM: $23,902,540
TOTAL ASSETS INCLUDING NOTIONAL FUNDS UNDER MANAGEMENT IN PROGRAM: $31,513,914
WORST MONTHLY DRAWDOWN: (19.27)% (9/98)
WORST PEAK-TO-VALLEY DRAWDOWN: (39.87)% (7/99-6/00)
ACCOUNTS CLOSED WITH POSITIVE NET PERFORMANCE: 16
ACCOUNTS CLOSED WITH NEGATIVE NET PERFORMANCE: 17
<TABLE>
<CAPTION>
===========================================================
Rate of Return
(Computed on a compounded
monthly basis)
=========================================================================================
Month 2000 1999 1998 1997 1996 1995
-------------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
January (9.46)% 2.69% 2.85% 12.07% 11.88% --.--
February (4.09)% (0.32)% 15.79% 3.80% 0.02% --.--
March 6.47% (1.98)% 11.90% 10.94% 3.33% --.--
April (15.45)% 2.33% 3.51% (10.73)% 4.26% --.--
May (4.81)% (5.45)% 0.11% 9.14% 4.77% --.--
June (5.00)% 8.07% (0.82)% 10.02% 1.81% --.--
July --.-- (9.91)% (2.62)% 14.57% (3.65)% (1.11)%
August --.-- 0.15% 36.62% (9.96)% 0.57% (0.29)%
September --.-- 7.91% (18.92)% 11.19% 9.34% 6.82%
October --.-- (4.43)% 18.09% (8.42)% 3.43% 1.61%
November --.-- 0.20% 11.09% 5.88% 4.51% (9.65)%
December --.-- (9.05)% 10.02% (7.76)% (7.31)% 2.08%
Year (29.31)% (11.04)% 113.23% 41.91% 36.48% (1.29)%
======= ====== ====== ====== ===== ======
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-30-
<PAGE> 36
CAPSULE B
COMMODITY TRADING ADVISOR: Hampton Capital Management, Inc. and
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: $23,902,504
TOTAL ASSETS INCLUDING NOTIONAL FUNDS UNDER MANAGEMENT OVERALL: $31,513,914
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 24.73% (2.25)%
====== ======
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-31-
<PAGE> 37
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 78738. Its telephone numbers are (800) 348-3601 and (512)
263-3800. The principals of the General Partner are Gary D. Halbert, Debi B.
Halbert, Patrick W. Watson, John M. Posey and Jon P. Meyer. 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, Chief
Executive Officer, 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,
Secretary, 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, Secretary and Treasurer
of ProFutures Financial Group, Inc., the Selling Agent, and ProFutures Capital
Management, Inc. Ms. Halbert is the wife of Gary D. Halbert. 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.
He is involved in research, investment strategy, business development and
investor relations. Mr. Watson joined the General Partner in October 1991. From
1986 to 1994, he also served as a military intelligence officer in the U.S. Army
Reserve, holding various staff and command positions. Mr. Watson has a Bachelor
of Arts degree from Howard Payne University and a Master of Arts degree from
Rice University.
John M. (Mike) Posey, born 1955, is Vice President of Marketing of the
General Partner. Mr. Posey joined ProFutures in March 1997 and is involved in
coordination of national sales efforts and investor relations. From March 1996
to February 1997, he was President of Life Partners, Inc., one of the largest
viatical settlement firms in the United States. From May 1987 to February 1996,
he served as President of Sterling Trust Company in Waco, Texas. Sterling Trust
is a nationwide provider of self-directed trust services for IRA and qualified
retirement plan clients. There, he was responsible for executive management of
the company as well as new business development. During his nine years of
leadership, trust assets in client accounts grew from $50 million to over $950
million. Mr. Posey is a magna cum laude graduate of Baylor University, where he
earned his Bachelor of Business Administration degree.
Jon P. Meyer, born 1964, is Vice President of Operations of the General
Partner. He joined ProFutures in September 1997. He is involved in
administration, customer service, management information systems and compliance.
Prior to his association with ProFutures, Mr. Meyer served in various executive
management positions at Sterling Trust Company from 1986 to 1997. He holds a
Bachelor of Business Administration degree from Sam Houston State University.
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
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<PAGE> 38
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 June 30, 2000, the value of the General Partner's investment in
the Fund was approximately $70,466, and the principals of the General Partner
owned Units with an aggregate value of approximately $551,354.
PERFORMANCE OF THE FUND AND THE GENERAL PARTNER
The past performance of the Fund is set forth on page 15. The past
performance of the General Partner's other commodity pools is set forth below.
The General Partner is a general partner of 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 June 30, 2000 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 FUTURE RESULTS
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<PAGE> 39
SUMMARY OF CAPSULE PERFORMANCE OF OTHER POOLS
OPERATED BY PROFUTURES, INC.
AS OF JUNE 30, 2000
<TABLE>
<CAPTION>
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: $48,353,439 $9,164,217
Largest Monthly Percentage (11.41)% (2/00) (11.54)% (2/00)
Drawdown: (INCEPTION of Trading to DATE) (INCEPTION of Trading to DATE)
(11.41)% (2/00) (11.54)% (2/00)
(PAST Five Years and Year-to-Date) (PAST Five Years and Year-to-Date)
Worst Peak-to-Valley (24.10)% (3/99 to 6/00) (25.41)% (3/99 to 6/00)
Drawdown: (INCEPTION OF TRADING TO DATE) (INCEPTION OF TRADING TO DATE)
(24.10)% (3/99 TO 6/00) (25.41)% (3/99 TO 6/00)
(PAST Five Years and Year-to-Date) (PAST Five Years and Year-to-Date)
-------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
Rates of Return:
2000 (through JUNE) (20.04)% (20.69)%
1999 (1.74)% (3.24)%
1998 10.64% 11.82%
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.
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<PAGE> 40
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).
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.
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<PAGE> 41
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 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 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.
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<PAGE> 42
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 general partner of the Diversified Fund and 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.
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.
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<PAGE> 43
The Limited Partnership Agreement provides for the economic and tax
allocations of the Fund's profits and losses. 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.
SUMMARY OF INCOME 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 fees and other
expenses of the Fund constitute "investment advisory fees" subject to the
limitations.
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
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<PAGE> 44
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 fees 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 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.
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.
TAXATION OF NON-U.S. INVESTORS
A Partner who is a non-resident alien individual, foreign corporation,
foreign partnership, foreign trust or foreign estate (a "Foreign Partner")
generally is not subject to taxation by the United States on capital gains from
commodity trading, provided that such Foreign Partner (in the case of an
individual) does not spend more than 182 days in the United States during his
taxable year, and provided further, that such Foreign Partner is not engaged
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<PAGE> 45
in a trade or business within the United States during a taxable year to which
income, gain, or loss of the Fund is treated as "effectively connected." An
investment in the Fund should not, by itself, cause a Foreign Partner to be
engaged in a trade or business within the United States for the foregoing
purposes, assuming that the trading activities of the Fund continue to be
conducted as described in this Prospectus. In the event that the Fund were found
to be engaged in a United States trade or business, a Foreign Partner would be
required to file a United States federal income tax return for such year and pay
tax at full United States rates. In the case of a Foreign Partner which is a
foreign corporation, an additional 30% "branch profits" tax might be imposed.
Furthermore, in such event the Fund would be required to withhold taxes from the
income or gain allocable to such a Partner under Section 1446 of the Code.
Even assuming the Fund meets such requirements, Foreign Partners will
be subject to withholding of United States federal income tax at a 30% rate on
their respective shares of the Fund's United States source dividend income and
any other United States source fixed or determinable annual or periodic gains,
profits or income, including any gains from the Fund's investment in money
market funds. United States source interest income (other than so-called
"contingent interest") allocable to a Foreign Partner is likewise not subject to
United States federal income tax withholding, provided that such Foreign Partner
is not engaged in a trade or business within the United States and provides the
Fund with a form W-8BEN or its equivalent.
Each non-U.S. investor is required to certify that he or she is not a
citizen or resident of the United States or, in the case of an investor that is
not an individual, the investor is not a United States corporation, partnership,
estate or trust.
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.
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<PAGE> 46
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 and subject to 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, 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, either ERISA or Section 4975 of the Code 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
total capital 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 February 16, 1999, the General Partner relied upon the
Participation Exception to avoid having the underlying assets of the Fund be
plan assets. Since that date, the General Partner believes that the
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<PAGE> 47
Publicly-Offered Security Exception applies with respect to the Units and,
accordingly, relies 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. 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 "Summary of Income 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 December 31, 1999 and
the financial statements of the Fund as of December 31, 1999, 1998 and 1997, and
for the period August 21, 1997 (inception) to December 31, 1997, for the year
ended December 31, 1998 and for the year ended December 31, 1999, respectively,
included herein have been audited by Arthur F. Bell, Jr. & Associates, L.L.C.
-42-
<PAGE> 48
FINANCIAL STATEMENTS
Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
----
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
<S> <C>
Independent Auditor's Report.................................................................................44
Statements of Financial Condition as of June 30, 2000 and 1999 (Unaudited)
and December 31, 1999, 1998 and 1997 (Audited).............................................................45
Statements of Operations for the Six Months Ended June 30, 2000 and 1999 (Unaudited),
For the Years Ended December 31, 1999 and 1998 (Audited) and
For the Period August 21, 1997 (inception) to December 31, 1997 (Audited)..................................47
Statements of Changes in Partners' Capital (Net Asset Value)
For the Six Months Ended June 30, 2000 and 1999 (Unaudited), For the
Years Ended December 31, 1999 and 1998 and
For the Period August 21, 1997 (inception) to December 31, 1997 (Audited)..................................49
Notes to Financial Statements................................................................................51
PROFUTURES, INC.
Independent Auditor's Report.................................................................................55
Balance Sheet as of December 31, 1999 (Audited) .............................................................56
Notes to Balance Sheet.......................................................................................57
Balance Sheet as of June 30, 2000 (Unaudited)................................................................61
Note to Balance Sheet........................................................................................62
</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.
----------
-43-
<PAGE> 49
INDEPENDENT AUDITOR'S REPORT
TO THE PARTNERS
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
We have audited the accompanying statements of financial condition of ProFutures
Long/Short Growth Fund, L.P. as of December 31, 1999, 1998 and 1997, and the
related statements of operations and changes in partners' capital (net asset
value) for the years ended December 31, 1999 and 1998 and 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ProFutures Long/Short Growth
Fund, L.P. as of December 31, 1999, 1998 and 1997, and the results of its
operations and the changes in its net asset values for the years ended December
31, 1999 and 1998 and 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.
Hunt Valley, Maryland
February 25, 2000
-44-
<PAGE> 50
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
June 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
(Unaudited) (Unaudited)
------------ -----------
<S> <C> <C>
ASSETS
Equity in broker trading account
Cash $24,911,066 $37,254,395
United States government securities 0 496,594
Unrealized gain (loss) on open contracts (906,975) 0
----------- -----------
Deposits with broker 24,004,091 37,750,989
Cash and cash equivalents 80,371 2,226,918
Subscriptions receivable 0 273,712
----------- -----------
Total assets $24,084,462 $40,251,619
=========== ===========
LIABILITIES
Accounts payable $ 13,461 $ 32,158
Commissions and other trading fees
on open contracts 1,137 0
General Partner management fee 60,083 93,737
Advisor incentive fee 0 293,116
Redemptions payable 829,835 57,000
----------- -----------
Total liabilities 904,516 476,011
----------- -----------
PARTNERS' CAPITAL (NET ASSET VALUE)
General Partner - 61.4461 units outstanding
at June 30, 2000 and 1999 70,466 120,989
Limited Partners - 20,149.6079 and 20,139.1426
units outstanding at June 30, 2000 and 1999 23,109,480 39,654,619
----------- -----------
Total partners' capital
(Net Asset Value) 23,179,946 39,775,608
----------- -----------
Total liabilities and partners' capital $24,084,462 $40,251,619
=========== ===========
</TABLE>
See accompanying notes.
----------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-45-
<PAGE> 51
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF FINANCIAL CONDITION
December 31, 1999, 1998 and 1997 (Audited)
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1999 1998 1997
(Audited) (Audited) (Audited)
------------ ----------- --------------
<S> <C> <C> <C>
ASSETS
Equity in broker trading account
Cash $44,341,201 $15,444,073 $ 585,732
United States government securities 0 3,406,808 0
Unrealized gain (loss) on open contracts (6,005,475) 1,163,250 2,175
----------- ----------- --------------
Deposits with broker 38,335,726 20,014,131 587,907
Cash and cash equivalents 642,249 10,415 2,275,163
Subscriptions receivable 0 0 69,694
----------- ----------- --------------
Total assets $38,977,975 $20,024,546 $ 2,932,764
=========== =========== ==============
LIABILITIES
Accounts payable $ 18,894 $ 12,215 $ 11,744
Commissions and other trading fees
on open contracts 3,018 771 189
General Partner management fee 95,836 46,529 6,095
Advisor incentive fee 0 1,400,060 0
Redemptions payable 222,643 10,000 0
----------- ----------- --------------
Total liabilities 340,391 1,469,575 18,028
----------- ----------- --------------
PARTNERS' CAPITAL (NET ASSET VALUE)
General Partner - 61.4461, 61.4461 and 30.6159 units
outstanding at December 31, 1999, 1998 and 1997 101,567 116,671 29,313
Limited Partners - 23,313.5041, 9,710.7200 and
3,013.6483 units outstanding at December 31, 1999,
1998 and 1997 38,536,017 18,438,300 2,885,423
----------- ----------- --------------
Total partners' capital
(Net Asset Value) 38,637,584 18,554,971 2,914,736
----------- ----------- --------------
Total liabilities and partners' capital $38,977,975 $20,024,546 $ 2,932,764
=========== =========== ==============
</TABLE>
See accompanying notes.
----------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-46-
<PAGE> 52
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
Six Six
Months Ended Months Ended
June 30, June 30,
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
INCOME
Trading gains (losses)
Realized $(16,674,110) $ 2,636,969
Change in unrealized 5,098,500 (1,163,250)
------------ -------------
Gain (loss) from trading (11,575,610) 1,473,719
Interest income 884,628 617,092
------------ -------------
Total income (loss) (10,690,982) 2,090,811
------------ -------------
EXPENSES
Brokerage commissions 15,119 8,138
General Partner management fee 451,430 388,423
Advisor incentive fee 0 293,116
Operating expenses 41,059 48,551
------------ -------------
Total expenses 507,608 738,228
------------ -------------
NET INCOME (LOSS) $(11,198,590) $ 1,352,583
============ =============
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period of
22,192.6105 and 13,491.9490, respectively) $ (504.61) $ 100.25
============ =============
INCREASE (DECREASE) IN NET
ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNIT $ (506.06) $ 70.27
============ =============
</TABLE>
See accompanying notes.
----------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-47-
<PAGE> 53
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999
and 1998 (Audited) and
For the Period August
21, 1997 (inception) to December 31, 1997
(Audited)
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, December 31, December 31,
1999 1998 1997
(Audited) (Audited) (Audited)
------------ ------------ ------------
INCOME
<S> <C> <C> <C>
Trading gains (losses)
Realized $ 1,522,130 $ 6,818,869 $ (116,342)
Change in unrealized (7,168,725) 1,161,075 2,175
----------- ----------- ------------
Gain (loss) from trading (5,646,595) 7,979,944 (114,167)
Interest income 1,625,573 439,168 19,520
----------- ----------- ------------
Total income (loss) (4,021,022) 8,419,112 (94,647)
----------- ----------- ------------
EXPENSES
Brokerage commissions 35,908 8,363 564
General Partner management fee 986,328 267,508 9,826
Advisor incentive fee 293,116 1,571,370 0
Operating expenses 102,937 55,126 11,704
----------- ----------- ------------
Total expenses 1,418,289 1,902,367 22,094
----------- ----------- ------------
NET INCOME (LOSS) $(5,439,311) $ 6,516,745 $ (116,741)
=========== =========== ============
NET INCOME (LOSS) PER GENERAL
AND LIMITED PARTNER UNIT
(based on weighted average number of
units outstanding during the period of
17,843.6687, 6,179.3557, and
2,421.6801, respectively) $ (304.83) $ 1,054.60 $ (48.21)
=========== =========== ============
INCREASE (DECREASE) IN NET
ASSET VALUE PER GENERAL
AND LIMITED PARTNER UNIT $ (245.81) $ 941.31 $ (42.55)
=========== =========== ============
</TABLE>
See accompanying notes.
----------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-48-
<PAGE> 54
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Six Months Ended June 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
Total
Number of Partners' Capital
Units General Limited Total
--------- ------- ----------------- -----
<S> <C> <C> <C> <C>
Balances at
December 31, 1998 9,772.1661 $116,671 $ 18,438,300 $ 18,554,971
Net income for six months
ended June 30, 1999 4,318 1,348,265 1,352,583
Additions 10,809.8386 0 20,599,942 20,599,942
Redemptions (381.4160) 0 (731,888) (731,888)
----------- -------- ------------ ------------
Balances at
June 30, 1999 20,200.5887 $120,989 $ 39,654,619 $ 39,775,608
=========== ======== ============ ============
Balance at
December 31, 1999 23,374.9502 $101,567 $ 38,536,017 $ 38,637,584
Net (loss) for six months
ended June 30, 2000 (31,101) (11,167,489) (11,198,590)
Additions 976.6831 0 1,354,526 1,354,526
Redemptions (4,140.5793) 0 (5,613,574) (5,613,574)
----------- -------- ------------ ------------
Balances at
June 30, 2000 20,211.0540 $ 70,466 $ 23,109,480 $ 23,179,946
=========== ========= ============ ============
</TABLE>
<TABLE>
<CAPTION>
Net Asset Value Per Unit
---------------------------------
June 30, June 30,
2000 1999
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
$1,146.89 $1,969.03
========= =========
</TABLE>
See accompanying notes.
----------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-49-
<PAGE> 55
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (NET ASSET VALUE)
For the Years Ended December 31, 1999
and 1998 (Audited) and For the period August
21, 1997 (inception) to December 31, 1997
(Audited)
<TABLE>
<CAPTION>
Total
Number Partners' Capital
of Units General Limited Total
----------- ------------ ----------------- ------------
<S> <C> <C> <C> <C>
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
Net income for the year
ended December 31, 1998 50,427 6,466,318 6,516,745
Additions 6,959.8881 36,931 9,422,159 9,459,090
Redemptions (231.9862) 0 (335,600) (335,600)
----------- ------------ ------------ ------------
Balances at
December 31, 1998 9,772.1661 116,671 18,438,300 18,554,971
Net (loss) for the year
ended December 31, 1999 (15,104) (5,424,207) (5,439,311)
Additions 14,732.3234 0 27,595,792 27,595,792
Redemptions (1,129.5393) 0 (2,073,868) (2,073,868)
----------- ------------ ------------ ------------
Balances at
December 31, 1999 23,374.9502 $ 101,567 $ 38,536,017 $ 38,637,584
=========== ============ ============ ============
</TABLE>
Net Asset Value Per Unit
<TABLE>
<CAPTION>
December 31, December 31, December 31,
1999 1998 1997
(Audited) (Audited) (Audited)
------------ ------------ ------------
<S> <C> <C>
$1,652.95 $1,898.76 $957.45
========= ========= =======
</TABLE>
See accompanying notes.
----------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-50-
<PAGE> 56
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL DESCRIPTION OF THE FUND
ProFutures Long/Short Growth Fund, L.P. (the "Fund") is a
Delaware limited partnership which operates as a commodity
investment pool. The Fund engages in the speculative trading
of stock index futures contracts.
The Fund was organized on August 21, 1997 and commenced
trading on November 20, 1997.
B. REGULATION
As a registrant with the Securities and Exchange Commission,
the Fund is subject to the regulatory requirements under the
Securities Act of 1933 and Securities Exchange Act of 1934. As
a commodity investment pool, the Fund 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.
C. 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 quoted market price) are reflected
in the statement of financial condition as a net gain or loss,
as there exists a right of offset of unrealized gains or
losses in accordance with Financial Accounting Standards Board
Interpretation No. 39 - "Offsetting of Amounts Related to
Certain Contracts." Any change in net unrealized gain or loss
from the preceding period is reported in the statement of
operations. United States government securities are stated at
cost plus accrued interest, which approximates market value.
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.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash and short-term
investments in fixed income securities.
E. BROKERAGE COMMISSIONS
Brokerage commissions include other trading fees and are
charged to expense when contracts are opened.
F. 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.
-51-
<PAGE> 57
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
G. 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 $13,545 and
$205,999 for the six months ended June 30, 2000 and 1999;
$275,958 and $94,591 for the years ended December 31, 1999 and
1998; and $30,315 for the period August 21, 1997 (inception)
to December 31, 1997.
H. 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. Prior to June 1, 1998, the
Limited Partnership Agreement required the General Partner to
maintain a capital account equal to at least 1% of the total capital
of the Fund. Effective June 1, 1998, the Limited Partnership
Agreement was amended and now requires the General Partner and/or its
principals and affiliates to maintain capital accounts equal to at
least 1% of the total capital of the Fund. At June 30, 2000 and
December 31, 1999, the capital accounts of the General Partner and/or
the principals and affiliates totaled $621,821 and $617,408
respectively.
The Limited Partnership Agreement was further amended effective
February 16, 1999 and generally required that the General Partner
maintain a net worth of at least $1,000,000. ProFutures, Inc. has
callable subscription agreements with Internationale Nederlanden
(U.S.) Securities, Futures & Options, Inc. (ING), the Futures Broker,
whereby ING has subscribed to purchase (up to $14,000,017) the number
of shares of common stock of ProFutures, Inc. necessary to maintain
the General Partner net worth requirements.
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).
-52-
<PAGE> 58
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4. DEPOSITS WITH BROKER
The Fund deposits funds with ING to act as broker, subject to
Commodity Futures Trading Commission regulations and various exchange
and broker requirements. The Fund earns interest income on its assets
deposited with the broker. At June 30, 2000 and December 31, 1999,
the initial margin requirements of $3,257,813 and $8,648,438,
respectively, were satisfied by the deposit of cash with such broker.
At June 30, 1999 and December 31, 1998, the initial margin
requirements of $0 and $1,586,250, respectively, were satisfied by
the deposit of cash and U.S. government securities with such broker.
At 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 subscriptions receivable at June 30, 1999 of
$237,712 were received by the Fund on July 1, 1999.
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 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.
-53-
<PAGE> 59
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
Open contracts generally mature within three months; however, the
Fund intends to close all contracts prior to maturity. At June 30,
2000, the maturity date for all open contracts is September 2000 and
at December 31, 1999, the maturity date for all open contracts is
March 2000. At June 30, 1999, there are no open contracts. At
December 31, 1998, the maturity date for all open contracts is March
1999, and at December 31, 1997, the maturity date for all open
contracts is March 1998.
The General Partner has established procedures to actively monitor
market risk and minimize credit risk, although there can be no
assurance that it 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 creditworthy. 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.
NOTE 7. INTERIM FINANCIAL STATEMENTS
The statement of financial condition as of June 30, 2000 and 1999,
and the statements of operations and changes in partners' capital
(net asset value) for the six months ended June 30, 2000 and 1999 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 June
30, 2000 and 1999 and the results of operations for the six months
ended June 30, 2000 and 1999.
-54-
<PAGE> 60
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
December 31, 1999. 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 December 31,
1999, in conformity with generally accepted accounting principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Hunt Valley, Maryland
May 8, 2000
-55-
<PAGE> 61
PROFUTURES, INC.
BALANCE SHEET
December 31, 1999 (Audited)
<TABLE>
<CAPTION>
DECEMBER 31,
1999
(AUDITED)
------------
<S> <C>
ASSETS
Cash and cash equivalents $ 87,132
Management fees receivable 300,007
General partner interests in commodity pools 357,924
Deferred tax asset 9,096
Other assets 133,998
--------
888,157
Fixed Assets
Furniture and fixtures 99,579
Office equipment 108,169
Leasehold improvements 41,386
--------
249,134
Less: Accumulated depreciation 151,239
--------
97,895
Total assets $986,052
========
LIABILITIES
Accounts payable $ 54,958
Franchise tax payable 2,905
--------
Total liabilities 57,863
--------
STOCKHOLDERS' EQUITY
Common stock - no par value; 1,000,000 shares
authorized; 5,251 shares issued and outstanding 1,000
Retained earnings 927,189
--------
Total stockholders' equity 928,189
--------
Total liabilities and stockholders' equity $986,052
========
</TABLE>
See accompanying notes.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-56-
<PAGE> 62
PROFUTURES, INC.
NOTES TO BALANCE SHEET
December 31, 1999 (Audited)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. GENERAL
ProFutures, Inc. (the "Company") is a Texas corporation,
organized on December 3, 1984. 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 (U.S.) 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 sheet is presented in accordance with generally
accepted accounting principles. The preparation of the balance
sheet in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and
liabilities at the date of the balance sheet. Actual results
could differ from those estimates, and such differences may be
material to the balance sheet.
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and a money market
mutual fund account.
D. MANAGEMENT AND ADMINISTRATIVE FEES
Management and administrative 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 net asset value of the 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
sheet.
F. FIXED ASSETS
Fixed assets are stated at cost. Depreciation is provided for
using straight-line and accelerated methods with lives that
range from 3 to 39 years.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-57-
<PAGE> 63
PROFUTURES, INC.
NOTES TO BALANCE SHEET (CONTINUED)
December 31, 1999 (Audited)
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 subject to
Texas franchise tax, which has been reflected in the balance
sheet. Deferred franchise taxes are provided for all
significant temporary differences in the recognition of assets
and liabilities for tax and financial reporting purposes.
NOTE 2. GENERAL PARTNER INTERESTS IN COMMODITY POOLS
The Company's general partner interests in commodity pools as of
December 31, 1999, are as follows:
<TABLE>
<S> <C>
ATA Research/ProFutures Diversified Fund, L.P. $126,793
Alternative Asset Growth Fund, L.P. 129,572
ProFutures Long/Short Growth Fund, L.P. 101,559
--------
Total net asset value $357,924
========
</TABLE>
Summarized financial information with respect to the partnerships as
of December 31, 1999, 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>
Balance Sheet Data
Assets $72,864,650 $13,761,271 $38,977,975
Liabilities 2,441,274 457,372 340,391
----------- ----------- -----------
Net Asset Value $70,423,376 $13,303,899 $38,637,584
=========== =========== ===========
</TABLE>
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-58-
<PAGE> 64
PROFUTURES, INC.
NOTES TO BALANCE SHEET (CONTINUED)
December 31, 1999 (Audited)
NOTE 2. GENERAL PARTNER INTERESTS IN COMMODITY POOLS (CONTINUED)
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. Management fees receivable
represent management fees owed by the partnerships for the month
ended December 31, 1999. A substantial portion of the Company's
revenue comes from the partnerships and other affiliated entities.
The agreements of limited partnership of ATA Research/ProFutures
Diversified Fund, L.P. and Alternative Asset Growth Fund, L.P.
generally require the Company to maintain net worth equal to
approximately 10% of the aggregate initial capital contributions to
any limited partnership for which it acts as a general partner or
co-general partner. The agreement of limited partnership (amended
effective February 16, 1999) of ProFutures Long/Short Growth Fund,
L.P. generally requires the Company to maintain a net worth of at
least $1,000,000. The agreements of limited partnership also require
the Company to maintain minimum investments in the partnerships.
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 December 31, 1999. ING is a broker for the
partnerships for which the Company is a general partner.
NOTE 3. OTHER ASSETS
The Company has outstanding notes receivable totaling $34,600 from a
former employee, which are due on demand and bear interest at an
annual rate of 4%. In addition, the Company has a receivable of
$60,000 for the sale of software to be collected over a two year
period ending April 2001.
NOTE 4. 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.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-59-
<PAGE> 65
PROFUTURES, INC.
NOTES TO BALANCE SHEET (CONTINUED)
December 31, 1999 (Audited)
NOTE 5. 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
diversified trading strategies. 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 value of futures contracts purchased and unlimited
liability on futures 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 Company, as general partner or co-general partner, has
established procedures to actively monitor market risk and minimize
credit risk of the partnerships.
NOTE 6. LEASE COMMITMENT
The Company leases space in an office building in Austin, Texas,
under a lease expiring September 30, 2003. The future minimum lease
payments under this noncancelable operating lease are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
-----------------------
<S> <C>
2000 $ 84,429
2001 84,429
2002 84,429
2003 63,322
--------
$316,609
========
</TABLE>
NOTE 7. EMPLOYEE PROFIT SHARING AND SAVINGS PLAN
ProFutures, Inc. sponsors a qualified 401(k) profit sharing and
savings plan (the "Plan") for the benefit of eligible employees of
the Company. ProFutures, Inc. is the Plan administrator and the
Company's officers are Trustees of the Plan. Under the terms of the
Plan, employees may elect to defer a portion of their compensation.
The Company may also make discretionary contributions to the Plan on
behalf of Plan participants.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-60-
<PAGE> 66
PROFUTURES, INC.
BALANCE SHEET
June 30, 2000 (Unaudited)
<TABLE>
<CAPTION>
JUNE 30,
2000
(UNAUDITED)
----------
<S> <C>
ASSETS
Cash and cash equivalents $ 338,698
Management fees receivable 199,884
General partner interests in commodity pools 274,607
Deferred tax asset 11,711
Other assets 128,301
----------
953,201
Fixed Assets
Furniture and fixtures 91,562
Office equipment 120,700
Leasehold improvements 41,386
----------
253,648
Less: Accumulated depreciation 163,339
----------
90,309
Total assets $1,043,510
==========
LIABILITIES
Accounts payable $ 41,233
----------
STOCKHOLDERS' EQUITY
Common stock - no par value; 1,000,000 shares
authorized; 5,251 shares issued and outstanding 1,000
Retained earnings 1,001,277
----------
Total stockholders' equity 1,002,277
----------
Total liabilities and stockholders' equity $1,043,510
==========
</TABLE>
See accompanying note.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-61-
<PAGE> 67
PROFUTURES, INC.
NOTE TO BALANCE SHEET
June 30, 2000 (Unaudited)
NOTE 1. UNAUDITED BALANCE SHEET
The interim balance sheet as of June 30, 2000, is unaudited and does
not include all disclosures required by generally accepted accounting
principles. Such interim balance sheet should be read in conjunction
with the Company's audited balance sheet as of December 31, 1999,
included in the preceding pages. In the opinion of management, the
balance sheet reflects all adjustments, which were of a normal and
recurring nature, necessary for a fair presentation of financial
position as of June 30, 2000.
PURCHASERS OF UNITS WILL
ACQUIRE NO INTEREST IN THIS COMPANY
-62-
<PAGE> 68
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUPPLEMENTAL PERFORMANCE INFORMATION II-1
THE STOCK INDEX FUTURES MARKETS II-4
EXHIBIT A: SECOND AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT LPA-1
EXHIBIT B: SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY B-1
EXHIBIT C: REQUEST FOR REDEMPTION C-1
</TABLE>
Each capitalized term used but not defined herein has the
meaning given such term in the Disclosure Document dated August 4, 2000 of the
ProFutures Long/Short Growth Fund, L.P. (the "Fund").
THIS STATEMENT OF ADDITIONAL INFORMATION IS THE SECOND PART OF
A TWO-PART DOCUMENT AND MUST BE READ IN CONJUNCTION WITH THE FUND'S DISCLOSURE
DOCUMENT DATED AUGUST 4, 2000.
<PAGE> 69
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 June 30, 2000.
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 to reflect the approximate 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.
<TABLE>
[Data points for graph]
<S> <C>
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
12/98 3473.08
1/99 3558.11
2/99 3542.56
3/99 3466.86
4/99 3531.59
5/99 3334.87
6/99 3601.59
7/99 3243.19
8/99 3243.14
9/99 3491.29
10/99 3329.99
11/99 3330.66
12/99 3023.24
1/00 2732.71
2/00 2615.75
3/00 2786.03
4/00 2336.92
5/00 2216.57
6/00 2097.54
</TABLE>
II-2
<PAGE> 70
ADVISOR'S PRO FORMA COMPOSITE AND FUND
PERFORMANCE FROM JULY 1, 1995 THROUGH
JUNE 30, 2000
ADVISOR'S PRO FORMA COMPOSITE AND FUND PERFORMANCE FROM JULY 1, 1995
THROUGH
JUNE 30, 2000
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996 1995
----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
January (9.6)% 2.4% 2.8% 11.7% 11.6%
February (4.3)% (0.4)% 10.4% 3.5% (0.2)%
March 6.5% (2.1)% 9.6% 10.6% 3.1%
April (16.1)% 1.9% 2.4% (11.0)% 4.1%
May (5.2)% (5.6)% 0.4% 8.9% 4.6%
June (5.4)% 8.0% (0.8)% 9.7% 1.6%
July (10.0)% (2.3)% 14.2% (3.8)% (1.3)%
August 0.0% 30.6% (10.3)% 0.6% (0.5)%
September 7.7% (16.8)% 10.8% 9.3% 6.5%
October (4.6)% 19.9% (8.7)% 3.1% 1.4%
November 0.0% 11.9% 1.9% 4.3% (9.8)%
December (9.2)% 9.9% (6.1)% (7.8)% 1.9%
Year (30.6)% (13.0)% 98.3% 34.7% 33.2% (2.4)%
(6 mos.) (6 mos.)
</TABLE>
ADVISOR'S PRO FORMA COMPOSITE AND FUND PERFORMANCE
FROM JULY 1, 1995 THROUGH JUNE 30, 2000
PERFORMANCE VS. S&P 500 STOCK INDEX
<TABLE>
<CAPTION>
PRO FORMA INDEX
--------- -----
<S> <C> <C>
Total Return 109.8% 188.8%
Annualized Return 16.0% 23.6%
Worst Drawdown (41.8)% (15.4)%
Average Month 1.6% 1.9%
Best Month 30.6% 9.7%
Worst Month (16.8)% (14.5)%
Best 12 Months 98.3% 51.9%
Worst 12 Months (41.8)% 6.8%
Positive Months 35 42
Negative Months 25 18
*Dividends reinvested
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
II-3
<PAGE> 71
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.
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.
II-4
<PAGE> 72
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. 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.
II-5
<PAGE> 73
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 just less than
approximately 7% of contract value.
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.
II-6
<PAGE> 74
EXHIBIT A
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
SECOND AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF
FEBRUARY 16, 1999
PROFUTURES, INC.
GENERAL PARTNER
<PAGE> 75
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
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-1
(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-4
(e) Limited Liability of Limited Partners...............................................................LPA-5
8. Management of the Fund....................................................................................LPA-5
(a) General.............................................................................................LPA-5
(b) Fiduciary Duties....................................................................................LPA-6
(c) Brokerage Arrangements..............................................................................LPA-6
(d) Loans; Investments..................................................................................LPA-6
(e) Certain Conflicts of Interest Prohibited............................................................LPA-7
(f) Certain Agreements..................................................................................LPA-7
(g) No "Pyramiding......................................................................................LPA-7
(h) Other Activities....................................................................................LPA-7
9. Audits and Reports........................................................................................LPA-7
10. Assigning Units..........................................................................................LPA-8
11. Redeeming Units..........................................................................................LPA-8
12. Offering of Units........................................................................................LPA-9
13. Power of Attorney........................................................................................LPA-9
14. Withdrawal of a Partner..................................................................................LPA-9
15. Standard of Liability; Indemnification..................................................................LPA-10
(a) Standard of Liability for the General Partner......................................................LPA-10
(b) Indemnification of the General Partner by the Fund.................................................LPA-10
(c) Indemnification of the Fund by the Partners........................................................LPA-11
16. Amendments; Meetings....................................................................................LPA-11
(a) Amendments with Consent of the General Partner.....................................................LPA-11
(b) Amendments and Actions without Consent of the General Partner......................................LPA-12
(c) Meetings; Other Voting Matters.....................................................................LPA-12
17. Benefit Plan Investors..................................................................................LPA-12
(a) Investment in accordance with Law..................................................................LPA-12
(b) Disclosures and Restrictions Regarding Benefit Plan Investors......................................LPA-13
18. GOVERNING LAW...........................................................................................LPA-13
19. Miscellaneous...........................................................................................LPA-13
(a) Notices............................................................................................LPA-13
(b) Binding Effect.....................................................................................LPA-13
(c) Captions...........................................................................................LPA-13
(d) Close of Business..................................................................................LPA-13
</TABLE>
----------------------------------------------
PROFUTURES, INC.
GENERAL PARTNER
LAP-(i)
<PAGE> 76
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 February 16, 1999, 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 78738. 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.
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 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.
LPA-1
<PAGE> 77
(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.
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.
LPA-2
<PAGE> 78
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.
(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.
LPA-3
<PAGE> 79
(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 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
LPA-4
<PAGE> 80
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 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, as defined in
the North American Securities Administrators Association, Inc. Guidelines (the
"NASAA Guidelines"), shall not exceed 15% of the capital contributions to the
Fund.
No item of compensation, as described in Section IV.C. of 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.
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.
LPA-5
<PAGE> 81
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
and do not include investments in other partnerships, joint ventures or other
similar arrangements.
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.
(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).
LPA-6
<PAGE> 82
(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.
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.
LPA-7
<PAGE> 83
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.
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
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<PAGE> 84
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 deemed
to hold "plan assets" 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
LPA-9
<PAGE> 85
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.
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, 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
LPA-10
<PAGE> 86
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.
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.
LPA-11
<PAGE> 87
(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 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
LPA-12
<PAGE> 88
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 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-13
<PAGE> 89
INSTRUCTIONS TO EXHIBIT B --
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
INSTRUCTIONS FOR NEW INVESTORS
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
1. COMPLETE SUBSCRIPTION AGREEMENT & POWER OF ATTORNEY. This
application is attached. After reading, please turn to the
last page and fill in the requested information.
2. MAKE CHECK PAYABLE TO "PROFUTURES LONG/SHORT GROWTH FUND,
L.P." Your check and the Subscription Agreement should be
dated the same.
[GRAPHIC]
Minimum Investment - $10,000 (or $5000 for additions and
IRA's).
3. MAIL THE SUBSCRIPTION AGREEMENT AND YOUR CHECK IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE. IT'S THAT EASY!
YOUR INVESTMENT WILL BE PROCESSED THE SAME DAY WE RECEIVE IT
AND BECOME EFFECTIVE AT THE END OF THE MONTH. WE WILL
IMMEDIATELY MAIL YOU A CONFIRMATION, AND YOU WILL THEREAFTER
RECEIVE A DETAILED ACCOUNT STATEMENT EVERY MONTH.
QUESTIONS? CALL TOLL-FREE 1-800-348-3601
<PAGE> 90
ADDITIONAL INSTRUCTIONS
(SEE REVERSE SIDE FOR INFORMATION)
COMPLETING THE APPLICATION
1. To be accepted, each new account must include a Subscription Agreement with a
correct Social Security number(s) or Tax ID number. The Subscription Agreement
and your check must be dated the same.
2. To be accepted, all checks must be made payable to the name of the Fund--
PROFUTURES LONG/SHORT GROWTH FUND, L.P.--and dated the same as the Subscription
Agreement.
3. The Subscription Agreement and check should be mailed to: PROFUTURES
FINANCIAL GROUP, INC., 11612 BEE CAVE RD., SUITE 100, AUSTIN, TEXAS 78738. For
your convenience, we have enclosed a postage-paid return envelope for this
purpose.
TYPES OF ACCOUNTS
JOINT: There are two types. In a "Joint Tenants with Right of Survivorship"
(JTWROS) account, if one of the purchasers dies, that person's share of the
account is automatically transferred to the other. In a "Tenants in Common"
(TENCOM) account, if one person dies, that person's share is included in their
estate and disposed of accordingly. Please check the blank to indicate which you
prefer. BOTH OF YOU MUST SIGN THE AGREEMENT ("FIRST PURCHASER" AND "SECOND
PURCHASER").
TRUST: Fill in the complete name of the Trust as "first purchaser". The trustee
then signs the Agreement on behalf of the trust. PRINT the trustee's name
beneath the signature. Also enclose a copy of the first page, those pages of
your trust document authorizing the trustee to make such investments, and the
signature page of the trust agreement.
CORPORATIONS & PARTNERSHIPS: Fill in the complete name of the corporation or
partnership as "first purchaser". The agreement should be signed by a corporate
officer or partner. PRINT this person's name beneath their signature. Please
enclose copies of the partnership agreement or a corporate resolution
authorizing the officer to sign.
PENSION PLAN: Fill in the complete name of the plan as "first purchaser," and
have the plan trustee sign the agreement. Please PRINT the trustee's name
beneath the signature. Also enclose copies of documents verifying the trustee's
authority to make investments of this type.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): It is possible to invest in the Fund
through an IRA. You must have a "Custodian" to hold your account. ProFutures is
not a custodian. Many banks and trust companies offer this service; you are free
to use anyone you wish. Call our office for information.
PLEASE CONSULT THE "SUMMARY OF INCOME TAX CONSEQUENCES" IN THE PROSPECTUS AND
YOUR TAX ADVISOR BEFORE INVESTING YOUR IRA OR PENSION PLAN IN THE FUND.
DO NOT SEND IRA CONTRIBUTIONS DIRECTLY TO THE FUND OR PROFUTURES. ALL IRA
ACCOUNTS MUST FIRST BE SENT TO A CUSTODIAN.
QUESTIONS: If you have any questions, feel free to call and speak with one of
our Representatives who will be most happy to assist you.
CALL TOLL FREE 1-800-348-3601
<PAGE> 91
08/00 EXHIBIT B
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
(TO BE EXECUTED BY ALL PURCHASERS)
PROFUTURES LONG/SHORT GROWTH FUND, L.P. 11612 BEE CAVE ROAD, SUITE 100
C/O PROFUTURES FINANCIAL GROUP, INC. AUSTIN TEXAS, 78738
By executing page 4 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
of $__________ (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 (both the Disclosure Document and
Statement of Additional Information) 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 are 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.
BENEFIT PLAN INVESTORS
The undersigned must check the box on page 3 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.
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.
--------------------------------------------------------------------------------
PROFUTURES LONG/SHORT GROWTH FUND, L.P. EXHIBIT B PAGE 1
<PAGE> 92
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) I understand that the investment requirements, as to net worth ("NW")
(exclusive of home, furnishings and automobiles) and past and
anticipated annual income ("AI") or taxable income ("TI") as defined
under the Internal Revenue Code set forth below opposite the state in
which I purchase, apply to my subscription:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alaska $225,000 NW or $60,000 NW and $60,000 AI
Arizona $225,000 NW or $60,000 NW and $60,000 TI
California $225,000 NW or $60,000 NW and $60,000 TI
-Iowa $225,000 NW or $60,000 NW and $60,000 TI
Kansas $225,000 NW or $60,000 NW and $60,000 TI
+Maine $200,000 NW or $50,000 NW and $50,000 AI
Massachusetts $225,000 NW or $60,000 NW and $60,000 TI
Michigan $225,000 NW or $60,000 NW and $60,000 TI
Mississippi $225,000 NW or $60,000 NW and $60,000 TI
Missouri $225,000 NW or $60,000 NW and $60,000 TI
New Hampshire $225,000 NW or $125,000 NW and $50,000 TI
N. Carolina $225,000 NW or $60,000 NW and $60,000 TI
Oklahoma $225,000 NW or $60,000 NW and $60,000 AI
Oregon $225,000 NW or $60,000 NW and $60,000 AI
Pennsylvania $175,000 NW* or $100,000 NW and $50,000 AI*
S. Carolina $100,000 NW or net income in preceding year some portion of which was
subject to maximum federal and state income tax.
S. Dakota $225,000 NW or $60,000 NW and $60,000 TI
Tennessee $250,000 NW or $65,000 NW and $65,000 TI
Texas $225,000 NW or $60,000 NW and $60,000 TI
</TABLE>
* In addition, my investment in the Fund will represent no more than 10% of my
net worth (exclusive of home furnishings and automobiles).
- Minimum purchase for individual retirement accounts and employee benefit plans
in Iowa is $2,500.
+ Maine residents, including existing Limited Partners in the Fund subscribing
for additional Units, must execute a Subscription Agreement and Power of
Attorney Signature page.
(2) As to Minnesota investors only, except as provided in the immediately
following paragraph, 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. An
individual person who meets one of the following tests is an
"accredited investor".
(i) Any person whose individual net worth, or joint net worth with
that person's spouse, at the time of his purchase exceeds
$1,000,000; or
(ii) Any person who had an individual income in excess of $200,000
in each of two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years
and has a reasonable expectation of reaching the same income
level in the current year.
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.
(3) 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.
--------------------------------------------------------------------------------
PROFUTURES FINANCIAL GROUP EXHIBIT B PAGE 2
<PAGE> 93
SIGNATURE PAGE
*By executing this Subscription Agreement and Power of Attorney,
subscribers are not waiving any rights under the federal securities laws.
<TABLE>
<S> <C>
------------------------------------------------------------------------------------------------------------------------------------
SUBSCRIPTION AMOUNT $ [ ] THIS AMOUNT IS IN ADDITION TO MY ACCOUNT #
-------------- ------
Make check payable to: PROFUTURES LONG/SHORT GROWTH FUND, L.P.
THE UNDERSIGNED IS THE FOLLOWING TYPE OF INVESTOR (PLEASE CHECK):
[ ] Individual [ ] Benefit Plan Investor (See page 1)
[ ] Joint Tenants w/Rights of Survivorship (JTWROS)* [ ] Trust*
[ ] Joint Tenants in common (TENCOM)* [ ] Non-Profit Organization*
[ ] UGMA (Gift to Minor) [ ] Other (Specify)
[ ] Partnership* ------------------------
[ ] Corporation*
[ ] Pension Plan*
---------------------------------------- ------------------------------------
Print Purchaser's Name Social Security or Taxpayer ID #
---------------------------------------- ------------------------------------
Print Name of Second Purchaser Date of Birth of First Purchaser
( )
---------------------------------------- ------------------------------------
Street Address of First Purchaser Business Phone (Day)
( )
---------------------------------------- ------------------------------------
City, State and Zip Code Home Phone
*NOTE: PLEASE REFER TO INSTRUCTIONS ENCLOSED WITH THIS SUBSCRIPTION AGREEMENT.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: IF A JOINT SUBSCRIPTION, PLEASE INDICATE WHETHER JOINT TENANTS WITH RIGHT
OF SURVIVORSHIP (JTWROS) OR TENANTS IN COMMON (TENCOM). 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.
UNITED STATES INVESTORS ONLY
I have checked the box [ ] if I am subject to back up withholding tax under the
provisions of the Internal Revenue Code. 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.
NON-UNITED STATES INVESTORS ONLY
Under the penalties of perjury, by signature below I hereby certify that (a) I
am not a citizen or resident of the United States or (b), in the case of an
investor that is not an individual, the investor is not a United States
corporation, partnership, estate or trust [ ]. See Form W-8BEN attached.
--------------------------------------------------------------------------------
IF THERE IS ANY OTHER INFORMATION ABOUT YOUR INVESTMENT OBJECTIVES, FINANCIAL
CONDITION, OR OTHER INVESTMENTS THAT WOULD HELP US EVALUATE IF IT IS APPROPRIATE
FOR YOU TO INVEST IN THIS FUND, PLEASE EXPLAIN HERE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PLEASE SIGN ON FOLLOWING PAGE
--------------------------------------------------------------------------------
PROFUTURES LONG/SHORT GROWTH FUND, L.P. EXHIBIT B PAGE 3
<PAGE> 94
By executing this Subscription Agreement, I acknowledge the representations and
warranties set forth above on Page 1.
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.
<TABLE>
<S> <C>
-------------------------------------------------------------------------------------------------------------
Date:
---------
----------------------------------------------------- ---------------------------------------------
Signature of First Purchaser
(Individual, Custodian, Officer or Partner of Entity) Signature of Second Purchaser
-------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
DO NOT WRITE BELOW THIS LINE
TO BE COMPLETED BY REGISTERED REPRESENTATIVE CLIENT #
----------
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.
<TABLE>
<S> <C>
PROFUTURES FINANCIAL GROUP, INC. ACCEPTED _______________ BY:
AUSTIN, TEXAS CRD #24328 PROFUTURES, INC.
GENERAL PARTNER FOR
GARY D. HALBERT, REGISTERED REPRESENTATIVE PROFUTURES LONG/SHORT GROWTH FUND, L.P.
------------------------------------------ -------------------------------------
Gary D. Halbert, Registered Representative Gary D. Halbert, President
</TABLE>
MAIL SUBSCRIPTION AGREEMENT/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 78738
1-800-348-3601
--------------------------------------------------------------------------------
PROFUTURES FINANCIAL GROUP EXHIBIT B PAGE 4
<PAGE> 95
EXHIBIT C
REQUEST FOR REDEMPTION
-----------------------
(Date)
PROFUTURES LONG/SHORT GROWTH FUND, L.P.
c/o ProFutures, Inc.
11612 Bee Cave Road
Suite 100
Austin, Texas 78738
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> 96
PART II
INFORMATION NOT REQUIRED TO BE 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.................... 0
National Association of Securities Dealers, Inc. Filing Fee............ 0
Printing Expenses...................................................... 40,000
Fees of Certified Public Accountants................................... 25,000
Blue Sky Expenses (Excluding Legal Fees)............................... 20,000
Fees of Counsel........................................................ 40,000
Miscellaneous Offering Costs........................................... 20,000
---------
Total.................................................................. $ 145,000
=========
</TABLE>
----------
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.
C-2
<PAGE> 97
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.
Exhibit
Number Description of Document
3.02 Second Amended and Restated Limited Partnership Agreement of
the Registrant (included as Exhibit A to the Prospectus).
10.02 Form of Subscription Agreement and Power of Attorney (included
as Exhibit B to the Prospectus).
10.03 August 2000 Extension of First Amended and Restated Advisory
contract between the Registrant and the Advisor.
23.01 Consent of Sidley & Austin.
23.02 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
27.01 Financial Data Schedule
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 (Reg. No. 333-89507), as filed with the Commission on
October 22, 1999 and declared effective on November 17, 1999.
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 Extension of First Amended and Restated of Advisory contract
between the Registrant and the Advisor.
The following exhibits are incorporated by reference herein from the exhibits of
the same description and number filed with Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (Reg. No. 333-63129), as filed with the
Commission on December 23, 1998 and declared effective on February 16, 1999.
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
10.01 Amendment to Customer Agreement between the Registrant and the
Futures Broker.
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.
C-3
<PAGE> 98
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) 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) 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.
C-4
<PAGE> 99
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 4th day of
August, 2000.
ProFutures Long/Short Growth Fund, L.P.
By: ProFutures, Inc.
By: /s/ Gary D. Halbert
-------------------
Gary D. Halbert
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 August 4, 2000
---------------------------------- (Principal Executive
Gary D. Halbert Officer)
/s/ Debi B. Halbert Chief Financial Officer, August 4, 2000
---------------------------------- Treasurer and Director
Debi B. Halbert (Principal Financial
and Accounting Officer)
</TABLE>
(Being the principal executive officer, the principal
financial and accounting officer and a majority of the directors of ProFutures,
Inc.)
<TABLE>
<S> <C> <C>
PROFUTURES, INC. General Partner of Registrant
By: /s/ Gary D. Halbert August 4, 2000
------------------------------
Gary D. Halbert
President
</TABLE>
<PAGE> 100
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.02 Second Amended and Restated Limited Partnership Agreement of
the Registrant (included as Exhibit A to the Prospectus).
10.01 Form of Subscription Agreement and Power of Attorney (included
as Exhibit B to the Prospectus).
10.03 August 2000 Extension of First Amended and Restated Advisory
contract between the Registrant and the Advisor.
23.01 Consent of Sidley & Austin.
23.02 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
27.01 Financial Data Schedule.
</TABLE>
