<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PORTFOLIO BOOST II, L.P.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
IOWA 6289 36-4240382
(State or jurisdiction of (Primary Standard Industrial I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.
</TABLE>
4320 WINFIELD ROAD, SUITE 320, WARRENVILLE, ILLINOIS 60555
1-(877) 777-2846
(Address and telephone number of principal executive offices)
4320 WINFIELD ROAD, SUITE 320, WARRENVILLE, ILLINOIS 60555
(Address of principal place of business or intended principal place of business)
WADE H. SCHUT OR GREGORY P. PAGE
Nyemaster, Goode, Voigts, West, Hansell & O'Brien, P.C.
700 Walnut, Suite 1600, Des Moines, Iowa 50309
(515) 283-3100
(Name, address and telephone number of agent for services)
Approximate date of proposed sale to the public: As soon as possible after
effectiveness of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ___________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_] ___________
CALCULATION OF REGISTRATION FEE
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<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Title of each Proposed maximum Proposed maximum
class of securities Amount to be offering price aggregate offering Amount of
to be registered registered per Unit price registration fee
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units of Limited $25,000,000 $1,000 per Unit until $25,000,000 $7,575.76
Partnership Interest 500 Units are sold;
Net Asset Value Per
Unit thereafter
</TABLE>
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 the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PORTFOLIO BOOST II, L.P.
$25,000,000 OF UNITS OF LIMITED PARTNERSHIP INTEREST
______________
This is an initial public offering of units of limited partnership interest
in Portfolio Boost II, L.P. The initial purchase price is $1,000 per unit. The
first $500,000 from the sale of units will be placed in an escrow account at
First American Bank, Fort Dodge, Iowa. If $500,000 is collected before August
20, 1999, the escrow account will be closed and the funds in the account will be
released to the limited partnership for its use. If $500,000 is not collected
before August 20, 1999, this offering will be terminated, and the funds in the
escrow account will be returned to the subscribers, without deduction and along
with any interest earned on the funds.
The limited partnership will trade in various domestic and foreign futures
contracts and options.
A minimum investment of $5,000 is required.
<TABLE>
<CAPTION>
Per Unit Minimum Maximum
-------- -------- -----------
<S> <C> <C> <C>
Public Offering Price Before Trading.. $1,000 $500,000 $25,000,000
Underwriting Commissions.............. -0- -0- -0-
Proceeds to Limited Partnership....... $1,000 $500,000 $25,000,000
</TABLE>
After the limited partnership starts trading, the purchase price for units will
be the net asset value per unit. No underwriting commissions are payable by the
limited partnership, but the limited partnership will pay other expenses of this
offering such as filing fees, legal and accounting fees and printing costs.
Those expenses are estimated to be $125,660. The underwriter will receive fees
from the general partner of the limited partnership.
THIS IS A SPECULATIVE INVESTMENT AND THE BUSINESS OF THE LIMITED
PARTNERSHIP INVOLVES A HIGH DEGREE OF RISK. SEE "PRINCIPAL RISK FACTORS"
BEGINNING ON PAGE 10. THE RISKS INCLUDE THAT FUTURES TRADING IS HIGHLY
SPECULATIVE AND VOLATILE, THE LIMITED PARTNERSHIP IS SUBJECT TO CONFLICTS OF
INTEREST, THE SUCCESS OF THE LIMITED PARTNERSHIP'S TRADING WILL DEPEND ENTIRELY
ON CERTAIN SOFTWARE, AND THE SOFTWARE IS UNTESTED IN ACTUAL TRADING.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. 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 COMMODITY FUTURES TRADING COMMISSION
PASSED ON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
_________________
Vacation Investors, Inc.
Prospectus dated November 20, 1998
<PAGE>
TABLE OF CONTENTS
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<CAPTION>
Page
<S> <C>
MISCELLANEOUS NOTICES............................................ (iii)
MISCELLANEOUS STATE LAW NOTICES.................................. (iv)
RISK DISCLOSURE STATEMENT........................................ (v)
SUMMARY OF THE OFFERING.......................................... 1
PRINCIPAL RISK FACTORS........................................... 10
CONFLICTS OF INTEREST............................................ 27
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER.................. 33
DESCRIPTION OF CHARGES TO THE PARTNERSHIP........................ 34
POTENTIAL ADVANTAGES............................................. 40
USE OF PROCEEDS.................................................. 41
INVESTMENT PROGRAM............................................... 42
DETERMINATION OF THE OFFERING PRICE.............................. 46
THE GENERAL PARTNER.............................................. 46
THE CTA--QUIET SYSTEMS LIMITED................................... 50
NICHOLAS GOGERTY................................................. 51
FRISCHMEYER TRADING CORPORATION.................................. 52
PERFORMANCE RECORDS OF THE GENERAL PARTNER....................... 55
PERFORMANCE RECORDS OF THE CTA................................... 57
FUTURES COMMISSION MERCHANT...................................... 60
TRANSFERABILITY AND LIQUIDATION OF UNITS......................... 61
CERTAIN TERMS AND DEFINITIONS.................................... 65
THE COMMODITY MARKETS............................................ 66
FEDERAL INCOME TAX ASPECTS....................................... 74
THE LIMITED PARTNERSHIP AGREEMENT................................ 91
PLAN OF DISTRIBUTION............................................. 98
SUBSCRIPTION PROCEDURE........................................... 101
VACATION AWARD................................................... 102
LEGAL OPINION.................................................... 105
EXPERTS.......................................................... 106
</TABLE>
Appendix 1 - Supplemental Performance Information of the Partnership
Exhibit "A" - Limited Partnership Agreement
Exhibit "B" - Subscription Documents
Exhibit "C" - Balance Sheet of the Partnership as of September 30, 1998
(audited)
Exhibit "D" - Balance Sheet of General Partner as of September 30, 1998
(audited)
(ii)
<PAGE>
MISCELLANEOUS NOTICES
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE UNITS HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE LIMITED
PARTNERSHIP AGREEMENT, AND UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF AN INVESTMENT IN THE UNITS FOR AN INDEFINITE PERIOD OF TIME.
NO PUBLIC MARKET EXISTS OR IS EXPECTED TO DEVELOP FOR THE UNITS AND,
CONSEQUENTLY, PROSPECTIVE INVESTORS WHO DESIRE LIQUIDITY SHOULD NOT PURCHASE THE
UNITS. SEE "PRINCIPAL RISK FACTORS--LIMITED ABILITY TO ASSIGN AND LIQUIDATE
---
INVESTMENT IN UNITS" BELOW.
NO OFFICER, EMPLOYEE OR AGENT OF THE PARTNERSHIP OR ANY DEALER, SALESMAN OR
OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY
INFORMATION OTHER THAN THAT CONTAINED IN THIS PROSPECTUS OR IN ANY OTHER WRITTEN
MATERIALS EXPRESSLY APPROVED BY THE PARTNERSHIP OR TO IN ANY EVENT MAKE ANY
REPRESENTATIONS, WARRANTIES OR GUARANTEES WHATSOEVER, AND, IF GIVEN OR MADE,
SUCH INFORMATION, REPRESENTATIONS, WARRANTIES OR GUARANTEES MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY OR OTHERWISE GIVEN OR MADE BY THE
PARTNERSHIP OR ON ITS BEHALF. ANY MATERIALS OTHER THAN THIS PROSPECTUS ARE
SUMMARIES AND GENERAL DESCRIPTIONS ONLY, AND ANY DECISION TO INVEST IN THE UNITS
MUST BE MADE BASED SOLELY ON THE INFORMATION SET FORTH IN THIS PROSPECTUS.
THIS PROSPECTUS SPEAKS AS OF THE DATE OF THIS PROSPECTUS. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE PARTNERSHIP SINCE THE DATE OF THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY UNITS BY ANYONE IN ANY STATE IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
THIS PROSPECTUS HAS BEEN PRESENTED AND SHOULD BE ACCEPTED WITH THE EXPRESS
AGREEMENT AND UNDERSTANDING THAT IT WILL NOT BE REPRODUCED IN WHOLE OR IN PART,
NOR WILL IT BE DISTRIBUTED OR DISCLOSED TO ANY OTHER PERSON, FIRM, CORPORATION
OR OTHER ENTITY WITHOUT THE PRIOR WRITTEN PERMISSION OF THE GENERAL PARTNER.
ANY PERSON ACTING CONTRARY TO THE FOREGOING RESTRICTIONS MAY PLACE SUCH PERSON
AND THE PARTNERSHIP IN VIOLATION OF FEDERAL AND STATE SECURITIES LAWS.
(iii)
<PAGE>
MISCELLANEOUS STATE LAW NOTICES
NOTICE TO ILLINOIS RESIDENTS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECRETARY OF
STATE OF ILLINOIS OR THE STATE OF ILLINOIS, NOR HAS THE SECRETARY OF STATE OF
ILLINOIS OR THE STATE OF ILLINOIS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NOTICE TO VIRGINIA RESIDENTS
THE VIRGINIA STATE CORPORATION COMMISSION DOES NOT PASS UPON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS OR UPON THE MERITS OF THIS OFFERING, AND THE
COMMISSION EXPRESSES NO OPINION AS TO THE QUALITY OF THIS SECURITY.
NOTICE TO CONNECTICUT RESIDENTS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE BANKING
COMMISSIONER OF THE STATE OF CONNECTICUT NOR HAS THE COMMISSIONER PASSED ON THE
ACCURACY OR ADEQUACY OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE
NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED
IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE
THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING.
NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE
FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN
ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL
TO, ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO
BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO CALIFORNIA RESIDENTS
THE EXEMPTION SET FORTH IN SECTION 25104(h) OF THE CALIFORNIA CORPORATE
SECURITIES LAW FROM THE NONISSUER TRANSACTION QUALIFICATION REQUIREMENT OF
SECTION 25130 OF THE CALIFORNIA CORPORATE SECURITIES LAW WILL NOT BE AVAILABLE
TO CALIFORNIA INVESTORS.
NOTICE TO PENNSYLVANIA RESIDENTS
BECAUSE THE MINIMUM CLOSING AMOUNT IS LESS THAN $2,500,000, YOU ARE
CAUTIONED TO CAREFULLY EVALUATE THE PARTNERSHIP'S ABILITY TO FULLY ACCOMPLISH
ITS STATED OBJECTIVES AND TO INQUIRE AS TO THE CURRENT DOLLAR VOLUME OF
PARTNERSHIP'S SUBSCRIPTIONS.
(iv)
<PAGE>
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, AND 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 PROSPECTUS CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL, BEGINNING AT PAGE
34, AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS,
TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 38.
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 PROSPECTUS, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF
THIS INVESTMENT, BEGINNING AT PAGE 10.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN FUTURES
OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
(v)
<PAGE>
SUMMARY OF THE OFFERING
-----------------------
The following is a summary of the offering of the Units of the Partnership
being made pursuant to this Prospectus (the "Prospectus"). Although this
summary is materially complete, this Prospectus does contain additional
information, and this summary is qualified by the more detailed information
appearing elsewhere in this Prospectus. Any description of any agreement or
document is also materially complete, but those descriptions do not set forth
all of the rights and obligations of the parties, and any description of any
agreement or document is qualified by this reference to the agreement or
document.
- --------------------------------------------------------------------------------
THE PARTNERSHIP Portfolio Boost II, L.P. is an Iowa limited
- --------------- partnership that was organized on June 16, 1998. The
Partnership's principal office is at Cornerstone at
Cantera, 4320 Winfield Road, Suite 320, Warrenville,
Illinois 60555; telephone 1-877-RRRATIO.
The Partnership will terminate at 11:59 p.m. on
December 31, 2050, or upon the occurrence of an event
causing an earlier termination as set forth in the
Limited Partnership Agreement. See "THE LIMITED
PARTNERSHIP AGREEMENT- Termination of the
Partnership" below.
BUSINESS - COMMODITY The Partnership is a single advisor commodity pool
- --------------------
POOL which is engaged in the business of speculative
----
trading of various domestic and foreign futures
contracts, options and other interests pursuant to
one of the trading programs of the Partnership's
Commodity Trading Advisor. See "PRINCIPAL RISK
FACTORS," "USE OF PROCEEDS," and "INVESTMENT PROGRAM"
below. The net proceeds of this offering will be used
in that business. The Partnership's principal
objective is to generate increased capital for the
Partners, but there can be no assurance that the
Partnership will achieve this objective since it is
involved in a speculative, volatile, high risk
business. See "PRINCIPAL RISK FACTORS" below.
The Partnership had not accepted any subscriptions
for Units or commenced trading as of the date of this
Prospectus, so the Partnership had no operating
history as of the date of this Prospectus. See
"PRINCIPAL RISK FACTORS--Partnership Has No Operating
History" below. The audited balance sheet of the
Partnership as of September 30, 1998 is attached to
this Prospectus as Exhibit "C". See "EXPERTS" below.
MANAGEMENT - The commodity pool operator and General Partner of
- ----------
COMMODITY POOL the Partnership is Portfolio Boost, L.L.C., an Iowa
--------------
OPERATOR limited liability company that was organized in May,
--------
1998. The General Partner's main business office is
Cornerstone at Cantera, 4320 Winfield Road, Suite
320, Warrenville, Illinois 60555; telephone 1-877-
RRRATIO. Jeffrey A. Raun ("Mr. Raun") is the sole
officer of the General Partner. See "THE GENERAL
PARTNER" below. The books and records of the
Partnership will be maintained at the offices of
Schoenauer & Co., P.C., 328 Main Street, Ames, Iowa
50010.
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<PAGE>
- --------------------------------------------------------------------------------
COMMODITY TRADING The commodity trading advisor for the Partnership is
- -----------------
ADVISOR; TRADING Quiet Systems Limited (the "CTA"), a Cayman Islands
----------------
PROGRAM corporation that was organized in March, 1998. See
------- "THE CTA--QUIET SYSTEMS LIMITED" below. The CTA will
determine all of the Partnership's trades in the
CTA's sole discretion. See "INVESTMENT PROGRAM"
below. The Partnership's ability to achieve its
investment objectives will accordingly depend
entirely upon the success of the trading program of
the CTA. See "PRINCIPAL RISK FACTORS--Reliance on
CTA" below.
The CTA's trading program in which the Partnership's
account will be traded is referred to by the CTA as
its "Financial Program."
The Financial Program is not correlated with
traditional debt and equity investments, and
therefore provides a level of diversification for a
traditional stock and bond portfolio. The Financial
Program should not, however, be viewed by an investor
as in itself providing adequate diversification of
the investor's overall investment portfolio. See
"PRINCIPAL RISK FACTORS--Lack of Diversification"
below. Also, although an investment in the Units is
an appropriate investment for certain investors,
investors should be aware that they can achieve
additional diversification within the managed futures
industry and for their overall investment portfolio
through investments in other managed futures
programs. See "PERFORMANCE RECORDS OF THE CTA" below.
THE OFFERING Funds for the Partnership's business are obtained
- ------------
through the sale of Units and through the retention
of any profits generated from the Partnership's
trading. The Units are being publicly offered
pursuant to a Registration Statement on Form SB-2
under the Securities Act of 1933 and pursuant to
registration statements filed with various state
securities authorities. Units may also be offered in
other states pursuant to exemptions from registration
of the Units available in those states. The Units are
being continuously offered by the Partnership. The
Partnership first intends to use this Prospectus on
November 20, 1998.
SECURITIES The Units are initially offered for sale at a fixed
- ----------
OFFERED price of $1,000 per Unit, which amount was
-------
arbitrarily established by the General Partner. The
amount was not based upon past or expected earnings
and does not represent that the Units have or will
have a market value of or can be resold or liquidated
at that price. The Partnership may commence trading
if the General Partner has accepted subscriptions for
500 Units (the "Minimum Units") within nine (9)
months from the date of this Prospectus (the "Minimum
Units Offering Period"). The Units which remain
unsold after the Partnership has commenced trading
may be offered for sale, in the sole discretion of
the General Partner, at a price per Unit equal to the
Net Asset Value Per Unit as of the opening of trading
on the effective date of the purchase. The effective
date of any such purchase shall be the first business
day of the month next following the date on which the
General Partner accepts a Subscription Agreement and
the purchase price for the Units from the subscriber
in question. See "SUBSCRIPTION PROCEDURE" below. The
Partnership will calculate the Net Asset Value Per
Unit on a monthly basis and will make the Net Asset
Value Per Unit available to prospective investors and
Limited Partners upon request to the General Partner
at the address or phone number set out in "SUMMARY OF
THE OFFERING--The Partnership" on
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
page 1 of this Prospectus. The Partnership will issue
fractional Units, rounded up to the sixth decimal
point, to the extent necessary to fill an accepted
subscription for Units.
If the General Partner has not accepted subscriptions
for at least the Minimum Units before the close of
the Minimum Units Offering Period, this offering will
terminate and all amounts paid by subscribers will be
returned to the applicable subscriber within ten (10)
business days of the close of the Minimum Units
Offering Period and as otherwise provided in the
subscriber's Subscription Agreement. Funds from
accepted subscriptions received prior to the
commencement of trading by the Partnership will be
deposited and held in a separate escrow account in
the name of the Partnership at First American Bank,
1207 Central Avenue, Fort Dodge, Iowa, pending
acceptance and collection of subscriptions for at
least the Minimum Units. See "PLAN OF DISTRIBUTION"
and "SUBSCRIPTION PROCEDURE" below. No escrow will be
utilized for Units sold after the sale of the Minimum
Units, and all subsequent subscriptions will
therefore be immediately available for use in the
Partnership's business. All subscriptions are
irrevocable and subscription payments deposited in
the escrow account may not be withdrawn by
subscribers under any circumstances.
A maximum of $25,000,000 of Units are offered hereby.
The Limited Partnership Agreement authorizes the
General Partner, however, to sell additional Units
from time to time, and there is therefore no maximum
amount of Units which may be sold by the Partnership
or maximum amount of contributions which may be
received by the Partnership. There is no assurance,
however, that the Minimum Units or any other
specified amount of Units will be sold, and the
Limited Partnership Agreement also authorizes the
General Partner to terminate any offering of Units at
any time, in the General Partner's sole discretion.
See "PRINCIPAL RISK FACTORS--No Assurance Units Will
Be Sold; Limited Experience of Underwriter" below.
MINIMUM The minimum initial investment in the Partnership is
- -------
SUBSCRIPTION $5,000, but the General Partner reserves the right to
------------
AND NET WORTH require a higher minimum initial investment from any
-------------
REQUIREMENTS subscriber. Subsequent investments by existing
------------
Limited Partners may be in such amounts as may be
accepted by the General Partner, in the General
Partner's sole discretion.
An investor must deliver a Subscription Agreement, a
Suitability Standards Requirement form and an
Acknowledgment of Receipt of this Prospectus
(collectively, the "Subscription "Documents") to the
General Partner in order to be able to purchase
Units. See "SUBSCRIPTION PROCEDURE" below. The forms
of the Subscription Documents are attached to this
Prospectus as Exhibit "B." Prospective investors must
carefully review the Subscription Documents because
various representations, warranties, acknowledgments
and agreements are made by subscribers in the
Subscription Documents. See "SUBSCRIPTION PROCEDURE"
below.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
In order to purchase Units, an investor who is not a
resident of the state of California or an entity with
its principal place of business in California must
have at least either (i) a minimum net worth of
$150,000, or (ii) a minimum annual gross income of
$45,000 and a minimum net worth of $45,000. An
investor who is a resident of California or an entity
with its principal place of business in California
must have at least either (i) a minimum net worth of
$250,000, or (ii) a minimum annual gross income of
$65,000 and a minimum net worth of $100,000. AN
INVESTOR'S NET WORTH FOR THESE PURPOSES MUST BE
DETERMINED EXCLUSIVE OF HOME, HOME FURNISHINGS AND
AUTOMOBILES. In the case of sales to fiduciary
accounts, the net worth and income standards may be
met by the beneficiary, the fiduciary account, or by
the donor or grantor who directly or indirectly
supplies the funds to purchase the Units. Investors
will represent and warrant in the Subscription
Agreement that they meet the above standards.
All subscriptions are irrevocable, except only as may
be provided in the Subscription Agreement.
The General Partner has the responsibility to make
every reasonable effort to determine that the
purchase of Units is a suitable and appropriate
investment for each investor. This determination will
be based, however, solely upon the information
provided by the investor regarding the investor's
financial situation and investment objectives. The
General Partner has the right to require subscribers
to provide additional information to the General
Partner, including financial statements of the
subscriber and a letter from the subscriber
justifying the suitability of the subscriber's
investment in the Partnership and containing such
additional disclosures and/or representations and
warranties from the subscriber as the General Partner
determines to be appropriate to establish or
otherwise evidence or substantiate compliance with
the requirements of this offering or any federal or
state securities laws or regulations. The General
Partner also has the right to reject any subscription
for Units, in whole or in part, and in the General
Partner's sole discretion.
PLAN OF DISTRIBUTION The Units are being offered and sold on a best
- --------------------
efforts basis by Vacation Investors, Inc. Vacation
Investors, Inc. is registered as a fully disclosed
broker dealer with the Securities and Exchange
Commission and is a member of the National
Association of Securities Dealers. Vacation
Investors, Inc. will not receive any commissions or
other fees from the Partnership. Vacation Investors,
Inc. will, however, receive compensation from the
General Partner. See "DESCRIPTION OF CHARGES TO THE
PARTNERSHIP--CTA and Underwriter Compensation" and
"PLAN OF DISTRIBUTION" below.
Neither the General Partner, Vacation Investors, Inc.
nor any other person or entity is required to
purchase any Units, and neither the General Partner
nor Vacation Investors, Inc. have committed to
purchase any Units. The General Partner may, however,
purchase Units. See "PRINCIPAL RISK FACTORS--Purchase
of Units by General Partner or Mr. Raun" below.
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
VACATION AWARD The General Partner will, at its cost and not with
- --------------
Partnership funds, provide one of four (4) vacation
awards to each Limited Partner who meets the
qualification requirements at any time prior to
January 1, 2002. The general qualification
requirements for each of the vacation awards are that
the Limited Partner (i) be a limited partner in at
least three limited partnerships for which the
General Partner serves as the commodity pool
operator, and (ii) have made a combined capital
contribution of the specified amount to such limited
partnerships and have maintained such capital
contribution (adjusted only for liquidations by the
Limited Partner) for a consecutive period of twelve
(12) full months. The available awards and the
required capital contribution amounts are as follows:
--A "Bronze Award" (which requires a combined capital
contribution of $20,000 or more) includes: (i) one
nights lodging in any Hyatt Hotel or Resort located
in the United States, the Caribbean, Canada or
Mexico, and (ii) a $100 Hyatt spending allowance.
--A "Silver Award" (which requires a combined capital
contribution of $50,000 or more) includes: (i) two
(2) nights lodging in any Hyatt Hotel or Resort
located in the United States, the Caribbean, Canada
or Mexico, and (ii) a $100 Hyatt spending allowance.
--A "Gold Award" (which requires a combined capital
contribution of $100,000 or more) includes either:
(i) two round trip airfare tickets on a group trip to
a hotel or resort located outside of the continental
United States; and (ii) two (2) nights lodging at
that location; or at the qualifying Limited Partner's
option: (x) three (3) nights lodging in any Hyatt
Hotel or Resort located in the United States, the
Caribbean, Canada or Mexico, and (y) a $300 Hyatt
spending allowance.
--A "Platinum Award" (which requires a combined
capital contribution of $250,000 or more) includes
either: (i) two round trip airfare tickets on a group
trip to a hotel or resort located outside of the
continental United States; and (ii) five (5) nights
lodging at that location; or at the qualifying
Limited Partner's option: (x) seven (7) nights
lodging in any Hyatt Hotel or Resort located in the
United States, the Caribbean, Canada or Mexico, and
(y) a $700 Hyatt spending allowance.
A dinner meeting will also be provided to the Limited
Partners participating in the group trip option of
the Gold Award or the Platinum Award. The cost of the
dinner meeting will, however, be borne
proportionately by the applicable limited
partnerships.
See "VACATION AWARD" below for a full discussion of
the requirements, conditions and limitations
regarding the vacation awards. See also, however,
"PRINCIPAL RISK FACTORS--Vacation Award" below.
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
BREAK EVEN POINT The trading profit that the Partnership must realize
- ----------------
in the first year of a Limited Partner's investment
in the Partnership to equal all fees and expenses
such that the Limited Partner would recoup its
initial investment if the Limited Partner were to
redeem the Limited Partner's Units at the end of the
first year of investment, assuming a $5,000
investment, is (i) $223.50 or 4.47% of such $5,000
investment, assuming annual average Net Assets of
$5,000,000; (ii) $181 or 3.62% of such $5,000
investment, assuming average annual Net Assets of
$15,000,000; and (iii) $173 or 3.46% of such $5,000
investment, assuming average annual Net Assets of
$25,000,000. A more detailed description of the
calculation of these figures is set forth in
"DESCRIPTION OF CHARGES TO THE PARTNERSHIP--Break
Even Point" below.
FEES AND EXPENSES The General Partner will receive a monthly management
- -----------------
PAYABLE BY THE fee from the Partnership. The management fee will be
- --------------
PARTNERSHIP in an amount equal to one-half of one percent (0.5%)
- -----------
of the Partnership's Net Assets as of the close of
business on the last business day of each month. See
"DESCRIPTION OF CHARGES TO THE PARTNERSHIP" below.
The monthly management fee is payable regardless of
whether the Partnership has made any trades or the
Partnership's trading has been profitable. See
"PRINCIPAL RISK FACTORS--Substantial Charges to the
Partnership" below.
The General Partner will also receive a quarterly
incentive fee from the Partnership. The incentive fee
will be in an amount equal to 15% of the New Trading
Profits of the Partnership for each quarter, if any.
See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP"
below. Subsequent losses by the Partnership will not
affect any incentive fees previously paid to the
General Partner. See "PRINCIPAL RISK FACTORS--
Substantial Charges to the Partnership" below.
The Partnership will also pay substantial brokerage
commissions to First Options of Chicago, Inc., the
futures commission merchant for the Partnership. See
"FUTURES COMMISSION MERCHANT" below. The round turn
commission that was payable by the Partnership as of
the date of this Prospectus was fixed at $11.00, but
the round turn commissions payable by the Partnership
are subject to change. See "DESCRIPTION OF CHARGES TO
THE PARTNERSHIP--Futures Commission Merchant;
Brokerage Commissions" below. The General Partner
estimates that the annual brokerage commissions
payable by the Partnership will equal approximately
1.47% of the Partnership's Net Assets at the $11.00
round turn commission rate, but annual brokerage
commissions could exceed that percentage. The
Partnership will also reimburse First Options of
Chicago, Inc. for all delivery, insurance, storage or
other fees and charges incidental to trading. The
Partnership will also be responsible for all exchange
and National Futures Association fees. See
"DESCRIPTION OF CHARGES TO THE PARTNERSHIP--Other
Expenses" below. None of such other fees or charges
are included in the calculation of the foregoing
percentage.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
The Partnership will also be obligated to bear all
other expenses of the Partnership, including offering
expenses, legal and accounting fees, and office
expenses. See "DESCRIPTION OF CHARGES TO THE
PARTNERSHIP--Other Expenses" below. The General
Partner shall, however, be solely responsible for the
payment of the compensation of the CTA and the
Underwriter. See "DESCRIPTION OF CHARGES TO THE
PARTNERSHIP--CTA and Underwriter Compensation" and
"PLAN OF DISTRIBUTION" below.
LIQUIDATION OF A Limited Partner may liquidate the Units held by the
- --------------
UNITS AND DISTRIBUTIONS Limited Partner only with the consent of the General
- -----------------------
Partner. See "PRINCIPAL RISK FACTORS--Limited Ability
to Assign and Liquidate Investment in Units" and
"TRANSFERABILITY AND LIQUIDATION OF UNITS" below. A
Limited Partner desiring to liquidate Units must give
the General Partner written notice (a "Liquidation
Notice") stating the date on which the liquidation is
desired, which date must be the first business day of
any month. The Liquidation Notice must be received by
the General Partner no later than 12:00 noon on the
sixtieth (60th) business day immediately preceding
the desired effective date of liquidation or by such
later date as may be acceptable to the General
Partner, in the General Partner's sole discretion.
Any liquidation request approved by the General
Partner shall be effective as of the opening of
trading on the first business day of the month
specified in the Liquidation Notice. The liquidation
price per Unit shall be the Net Asset Value Per Unit
at that time.
The General Partner shall cause a notice to be given
to each Limited Partner within seven (7) business
days from the date of the date (the "Decline Date")
upon which there shall have been a decline in the Net
Asset Value Per Unit to less than fifty percent (50%)
of the Net Asset Value Per Unit as of the close of
business on the day which is one (1) year prior to
such Decline Date. See "THE LIMITED PARTNERSHIP
AGREEMENT--Notice to Limited Partners" below. In such
event, trading by the Partnership shall be
temporarily suspended for a period of thirty (30)
calendar days, beginning on the date of the General
Partner's notice, during which time the Limited
Partners may request liquidation of their Units. A
liquidation in this event shall be effective on and
as of the opening of trading on the business day next
following the General Partner's receipt of the
written request to liquidate from the Limited
Partner.
The General Partner shall also cause a notice to be
given to the Limited Partners prior to effecting any
material change related to brokerage commissions. Any
such change shall not be made for thirty (30)
calendar days, during which time the Limited Partners
may request the liquidation of their Units.
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
Limited Partners must be aware, however, that under
certain circumstances the General Partner may honor
requests for liquidation only in part and/or suspend
liquidations or delay payment of liquidations. See
"PRINCIPAL RISK FACTORS--Limited Ability to Assign
and Liquidate Investment in Units" and
"TRANSFERABILITY AND LIQUIDATION OF UNITS" below.
The Partnership is not required to make any
distributions, and distributions by the Partnership
will be made only at such times and in such amounts
as determined by the General Partner, in its sole
discretion. Since the principal objective of the
Partnership is to increase capital, not cash flow, it
is likely that no distributions will be made by the
Partnership. A Limited Partner's tax liability for
profits of the Partnership will likely exceed
distributions received from the Partnership. See
"PRINCIPAL RISK FACTORS - Limited Partners Will Be
Taxed on Profits Whether or Not Distributed" below.
CONFLICTS OF INTEREST Significant actual and potential conflicts of
- ---------------------
interest exist in the structure and operation of the
Partnership, arising from, among other things, (i)
the General Partner's and Mr. Raun's management of
other commodity pools; (ii) the CTA's management of
trading for other persons and entities; (iii) the
General Partner's and Mr. Raun's right to purchase
Units in the Partnership; and (iv) Mr. Raun's
indirect ownership interest in the CTA. Prospective
investors must carefully review "CONFLICTS OF
INTEREST" below.
RISKS AN INVESTMENT IN THE PARTNERSHIP IS HIGHLY
- -----
SPECULATIVE AND INVOLVES SUBSTANTIAL RISKS. The risks
include, but are not limited to, (i) the risk of loss
of a Limited Partner's entire investment; (ii) the
speculative and high risk nature of trading in
domestic and foreign futures contracts, options and
other interests; (iii) the substantial charges which
the Partnership will incur regardless of whether any
profits are earned; (iv) the restricted
transferability and liquidity of the Units; (v) the
existence of conflicts of interest in the structure
and operation of the Partnership; and (vi) the
Partnership's total reliance on the CTA to achieve
its investment objectives. See "PRINCIPAL RISK
FACTORS," "CONFLICTS OF INTEREST" and "DESCRIPTION OF
CHARGES TO THE PARTNERSHIP" below.
GLOSSARY AND The following glossary will assist prospective
- ------------
DESIGNATION OF investors in understanding some of the terms
- --------------
PARTIES frequently used in this Prospectus.
- -------
"CFTC." Commodity Futures Trading Commission,
Washington,
"COMMODITY POOL OPERATOR." The General Partner,
Portfolio Boost, L.L.C.
"COMMODITY TRADING ADVISOR" OR "CTA." Quiet Systems
Limited.
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
"FUTURES COMMISSION MERCHANT" OR "FCM." First Options
------------------------------------
of Chicago, Inc.
"GENERAL PARTNER." Portfolio Boost, L.L.C.
---------------
"IRA." An Individual Retirement Account.
---
"LBS." LBS Limited Partnership.
---
"LIMITED PARTNERS." All persons who acquire Units in
----------------
the Partnership.
"LIMITED PARTNERSHIP AGREEMENT." The Limited
-----------------------------
Partnership Agreement of the Partnership, as it may
be amended from time to time. A copy of the current
Limited Partnership Agreement is attached to this
Prospectus as Exhibit A.
"MR. RAUN." Jeffrey A. Raun.
--------
"NASD." The National Association of Securities
----
Dealers.
"NFA." The National Futures Association.
---
"NET ASSETS." The Partnership's total assets minus
----------
the Partnership's total liabilities, determined in
accordance with generally accepted accounting
principles, except (i) that for purposes of
calculating the Net Asset Value Per Unit, Net Assets
shall be determined by amortizing all organizational
and offering expenses incurred by the Partnership
prior to the effective date of the initial
registration statement filed by the Partnership with
the SEC over a period of five (5) years; and (ii) as
may be otherwise provided herein.
"NET ASSET VALUE PER UNIT." The Net Assets of the
------------------------
Partnership at the time of calculation divided by the
aggregate number of outstanding Units at that time.
"NEW TRADING PROFITS." The excess, if any, of the Net
-------------------
Assets of the Partnership at the end of each
respective quarter over the highest Net Assets of the
Partnership at the end of any previous quarter or on
the date trading commences, whichever is higher. See
"DESCRIPTION OF CHARGES TO THE PARTNERSHIP--
Management Fee and Incentive Fee to General Partner"
below.
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
"PARTNERS." The General Partner and all Limited
--------
Partners.
"PARTNERSHIP"OR "POOL." Portfolio Boost II, L.P.
--------------------
"SEC." The Securities and Exchange Commission.
---
"TRADING PROGRAM." The trading program of the CTA in
---------------
which the Partnership's account is traded, which is
referred to by the CTA as its Financial Program.
"UNDERWRITER." Vacation Investors, Inc.
-----------
Other terms that are utilized in this Prospectus are
defined elsewhere in this Prospectus. See e.g., "THE
COMMODITY MARKETS--Certain Terms and Definitions"
below.
- --------------------------------------------------------------------------------
PRINCIPAL RISK FACTORS
----------------------
PROSPECTIVE INVESTORS MUST BE AWARE THAT AN INVESTMENT IN THE UNITS IS A
SPECULATIVE INVESTMENT WHICH INVOLVES A HIGH DEGREE OF RISK AND WHICH IS
SUITABLE ONLY FOR PERSONS WHO HAVE NO NEED FOR LIQUIDITY IN THEIR INVESTMENT AND
WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. Prospective investors must
carefully consider the following principal risks associated with an investment
in the Units, as well as the risk disclosure statements appearing at the
beginning of this Prospectus. All of the risks described in this Prospectus are
applicable regardless of the number of Units which are sold by the Partnership.
The following risks are not intended to be set forth in any particular order of
materiality or significance.
RISKS RELATING TO THE CTA:
- -------------------------
Reliance on CTA. The General Partner is relying solely upon the CTA for
---------------
the determination and implementation of a successful trading program. The
Partnership does not contemplate retaining the services of any other commodity
trading advisors. The Partnership, when purchased alone, therefore will not
have the benefit of diversification in trading methods and strategies that
investments in various commodity pools or the use of multiple commodity trading
advisors may provide. See "PRINCIPAL RISK FACTORS--Lack of and Certain Risks of
---
Multiple Trading Advisors" and "Lack of Diversification" below.
There is no assurance of the CTA's continued service to the Partnership.
If the CTA terminates or otherwise becomes unable to continue advising the
Partnership, another commodity trading advisor will have to be selected, and no
assurance can be given that a substitute commodity trading advisor will perform
as well as the CTA or can be retained on the same or similar terms as currently
in effect with the CTA.
The CTA's Trading Program is governed by certain computer software. See
---
"INVESTMENT PROGRAM" below. Although not anticipated to occur, if the computer
software were to become unavailable to the CTA, for any reason, the CTA's
Trading Program would be adversely affected in a material way. See "PRINCIPAL
---
RISK FACTORS--Reliance on Software" below. The CTA also relies upon a key
person for
10
<PAGE>
updating and maintaining the computer software. See "INVESTMENT PROGRAM;" "THE
---
CTA--QUIET SYSTEMS LIMITED" and "NICHOLAS GOGERTY" below. There is no assurance
of such person's continued service to the CTA, and if such person terminates or
otherwise becomes unable (through death, disability, etc.) to continue to
provide services to the CTA, the CTA's Trading Program could be adversely
affected in a material way. It is also possible that in any of the circumstances
described in this paragraph, the CTA may determine that it is unable to continue
to provide services to the Partnership.
It should also be noted that the CTA will be providing services and trading
advice to various other persons and entities, and that neither the CTA nor any
of its key persons are required to devote their full time or attention to the
Partnership or the Trading Program. The CTA and such key persons may have
financial or other incentives to favor other accounts or other business ventures
in which they may be involved or interested in from time to time. See
---
"CONFLICTS OF INTEREST--Other Business of the CTA" and "Key Persons of the CTA"
below.
The General Partner may also deem it to be in the Partnership's best
interest to suspend the Partnership's trading and/or to terminate the
Partnership's relationship with the CTA if the CTA does not demonstrate skill as
a commodity trading advisor over the long term. In any such event, it may be
necessary to liquidate some or all of the open positions established by the CTA,
which liquidation could result in losses or positions being liquidated prior to
the most favorable price being attained.
In any event, no assurance can be or is given that the trading methods,
systems and strategies utilized by any commodity trading advisor (whether the
CTA or another) will prove successful under any market conditions, in particular
in erratic markets or in markets where prices deviate from patterns recognizable
as trends. The trading decisions of the CTA will undoubtedly be incorrect in
many instances, and the Partnership will from time to time enter into trades
which will result in substantial losses.
RELIANCE ON SOFTWARE. The CTA's Trading Program is based upon the software
--------------------
(the "Software") which has been purchased by the CTA from Mr. Nicholas Gogerty.
See "THE CTA--QUIET SYSTEMS LIMITED" and "NICHOLAS GOGERTY" below. The CTA is
- ---
therefore dependent upon the Software for the operation of the Trading Program.
There is no assurance or guarantee that the operation of the Software will be
uninterrupted or error-free or will in any event be successful or otherwise
generate profits for the Partnership. There also is no assurance or guarantee
that the Software will necessarily continue to be available to the CTA or that
the Software will be able to be maintained and updated as necessary or
appropriate from time to time in order to properly respond to changes in the
applicable market places and trading conditions. Mr. Gogerty has not made any
representations or warranties regarding any of these matters. See "NICHOLAS
---
GOGERTY" below. Furthermore, the CTA's use of the Software could be subject to
"Year 2000" problems (See "PRINCIPAL RISK FACTORS--Year 2000 Risks" below) and
---
will be subject to acts of God or other force majeure, including, without
limitation, computer virus, communication line failure, power failure,
mechanical failure or equipment malfunction and failure, and the CTA may not
have readily available standby equipment, facilities or alternate power in the
event of any such occurrences or other disasters. Any difficulties or problems
with respect to the Software will adversely affect the Partnership's trading,
and the General Partner or the CTA may deem it necessary to either temporarily
or permanently cease trading in any such event.
CTA HAS NO EXPERIENCE OR OPERATING HISTORY. As of the date of this
------------------------------------------
Prospectus, the CTA had not directed the trading of any accounts. The CTA
therefore had no actual experience as of that date and was unable to provide the
Partnership with any actual operating or performance history.
11
<PAGE>
NO NOTICE OF TRADES OR OF CHANGES IN TRADING METHODS. All of the
----------------------------------------------------
Partnership's trades will be made by the CTA. The General Partner and the
Limited Partners will not be notified in advance of, and have no right to
approve of or consent to, without limitation, (i) specific trades made by the
Partnership; (ii) changes in the types of futures, options, commodities,
currencies, securities or other interests traded by the Partnership; or (iii)
any modifications, additions or deletions to the Trading Program. Any material
changes in the Partnership's basic investment policies or structure shall,
however, require prior written approval by the Limited Partners who hold at
least a majority of the total number of outstanding Units of the Partnership.
See "INVESTMENT PROGRAM" below. The FCM also has the authority to liquidate or
- ---
offset positions of the Partnership in certain circumstances. See "PRINCIPAL
---
RISK FACTORS--Margin Calls" below.
POSSIBLE ADVERSE EFFECTS OF INCREASING THE ASSETS TRADED BY THE CTA.
-------------------------------------------------------------------
Commodity trading advisors are limited in the amount of assets that they can
successfully manage, both by the difficulty of executing substantially larger
trades made necessary by larger amounts of equity under management and by the
restrictive effects of speculative position limits. Increased equity also
generally results in a larger demand for the same position among the accounts
managed by a commodity trading advisor. Furthermore, a considerable number of
analysts believe that a trading advisor's rate of return tends to decrease as
the amount of funds under management increases. The CTA has not agreed to limit
the amount of funds it may manage, and the CTA contemplates managing a
substantial amount of funds. There is also no limit on the amount of funds
which may be contributed to the Partnership, and the amount of funds the CTA may
manage on behalf of the Partnership is therefore also not limited. There is no
assurance that the CTA's Trading Program and the Partnership will not be
adversely affected by the management of additional funds.
LACK OF AND CERTAIN RISKS OF MULTIPLE TRADING ADVISORS. The CTA is the
------------------------------------------------------
sole commodity trading advisor to the Partnership, and the Partnership does not
contemplate retaining the services of any additional commodity trading advisors.
The Partnership will therefor not receive any benefits that may arise through
the use of multiple commodity trading advisors, such as diversification of the
assets of and/or the trading methods, systems and strategies used by the
Partnership. See "PRINCIPAL RISK FACTORS--Lack of Diversification" below.
---
If the Partnership chooses to retain the services of additional commodity
trading advisors in the future, however, there still can be no assurance that
the change will actually result in diversification of the assets of or the
trading methods, systems and strategies used by the Partnership. It is also
possible in this circumstance that the losses by one commodity trading advisor
will offset or exceed any profits which may be achieved by the other commodity
trading advisors. It is also possible that management fees or incentive fees
could be payable to one or more such advisors during a period in which the Net
Asset Value Per Unit actually declines due to losses incurred by other commodity
trading advisors. See also "PRINCIPAL RISK FACTORS--CTA Conflicts of Interest"
--------
below.
The General Partner may retain new or additional commodity trading advisors
without the consent of the Limited Partners, and there is no restriction on the
number or frequency of the changes the General Partner can make in commodity
trading advisors. Consequently, the overall emphasis and diversity of the
Partnership's trading may vary substantially from time to time. The
compensation of any new or additional commodity trading advisors may also differ
from that paid to the CTA.
Mr. Raun's Interest in the CTA. Mr. Raun (who is the sole officer of the
------------------------------
General Partner) and certain members of his family are some of the beneficiaries
of the trust which owns all of the issued and outstanding shares of stock of the
CTA. Mr. Raun and his family will therefore at least indirectly benefit from
the fees paid
12
<PAGE>
to the CTA. Mr. Raun will therefore have a personal interest in the Partnership
continuing to retain the CTA. Given that Mr. Raun is the sole officer of the
General Partner, Mr. Raun's personal interest in the CTA will create a conflict
of interest for the General Partner in determining whether to retain new or
additional commodity trading advisors. It may be in the best interests of the
Partnership to retain new or additional commodity trading advisors under certain
circumstances; for example, if the CTA does not demonstrate skill as a commodity
trading advisor over the long term. See also "CONFLICTS OF INTEREST--Mr. Raun's
---
Interest in the CTA" below.
CTA CONFLICTS OF INTEREST. The CTA may effect trades for its own account
-------------------------
and will effect trades for others (including other commodity pools) on a
discretionary basis. A potential conflict of interest arises from this fact
because it is possible that positions taken by the CTA may be the same as or may
be taken ahead of or opposite positions taken on behalf of the Partnership. See
---
"CONFLICTS OF INTEREST--Trading Decisions of the CTA" below. If the Partnership
at some point retains multiple commodity trading advisors, the commodity trading
advisors may make trading decisions for the Partnership independent of each of
other. In such event, the Partnership could therefor hold opposite positions in
the same or similar contracts at the same time. This would result in no net
change in the Partnership's holdings, but the Partnership would incur brokerage
commissions on both positions, and it would also create a potential
disproportionate effect on the Partnership if losses or margin calls were to
occur with respect to said positions. Similarly, multiple commodity trading
advisors could at times enter identical orders and therefore compete for the
same trade, which could prevent the orders from being executed at the desired
price or prevent execution all together. In addition, all accounts controlled
by each commodity trading advisor and its principals and affiliates are
aggregated for the purposes of applying speculative position limits. This
aggregation may occur with respect to the CTA given that the CTA will act as
trading advisor for other accounts. If such aggregation causes difficulties for
the CTA with speculative position limits, the number of contracts which can be
traded by the Partnership may be adversely affected. See "PRINCIPAL RISK
---
FACTORS--Possible Effects of Speculative Position Limits" below.
RISKS RELATING TO TRADING AND MARKETS:
- -------------------------------------
FUTURES TRADING IS AND FUTURES PRICES ARE SPECULATIVE AND VOLATILE. Price
-------------------------------------------------------------------
movements of futures and options contracts are highly volatile. Price movements
are influenced by, among other things, changing supply and demand relationships;
weather and other environmental conditions; acts of God; agricultural, fiscal,
monetary and exchange control programs and policies of governments; national and
international political and economic events and policies; changes in interest
rates and rates of inflation; and the general emotions and psychology of the
marketplace, which at times may seem to be totally unrelated to actual
political, economic or otherwise applicable factors. Futures markets fluctuate
continually, and sometimes substantially, causing large swings in the value of
positions held. Currency markets are in general highly interest rate sensitive,
and currency contract prices may be influenced by, among other things, political
events (including restrictions on local exchanges or markets, limitations on
foreign investment in a country, and restrictions on currency flows); changes in
balances of payments and trade; domestic and foreign rates of inflation;
international trade restrictions; and currency devaluations and revaluations.
In addition, governments from time to time intervene in certain markets with the
intent to directly influence prices, such as intervention in the currency
markets with the specific intention of influencing exchange or interest rates.
The effect of such intervention may be heightened by a group of governments
acting together. Year 2000 compliance issues may also adversely affect the
markets. See "PRINCIPAL RISK FACTORS--Year 2000 Risks" below. None of these
---
factors can be controlled by the CTA.
In any event, even if current and correct information as to substantially
all factors is known or thought to be known, prices still may not react as
predicted, and it is possible that substantially all of the Partnership's open
positions will move against it at or about the same time. Trading decisions
will undoubtedly be incorrect
13
<PAGE>
in many instances, and the Partnership will from time to time enter into
positions which will result in substantial losses. For example, prospective
investors should note that Corn Belt Commodities Round Trip Limited Partnership,
another Iowa limited partnership for which the General Partner serves as the
general partner and commodity pool operator, has failed to generate any profits
since 1995. See "PERFORMANCE RECORDS OF THE GENERAL PARTNER" below. In light of
---
such volatility, among other reasons, investors should consider their investment
in the Partnership only as a long-term investment.
YEAR 2000 RISKS. A substantial amount of public discussion is being
---------------
devoted to considering and addressing the ability of businesses in general and
of the various trading markets to become Year 2000 compliant, i.e., for their
computer and software applications, microchips and other computer, software and
related systems to be able to recognize and perform date sensitive functions
both prior to and after December 31, 1999. The costs and expenses to achieve
Year 2000 compliance are substantial, and the demand for qualified computer and
software personnel to perform the services necessary to achieve Year 2000
compliance is greatly pressing upon, and may exceed, the supply of such
personnel. Although it is not possible to determine with any degree of
certainty, it is likely that not all businesses will achieve Year 2000
compliance prior to January 1, 2000, and, although perhaps less likely, it is
also possible that some of the various exchanges or other trading markets
themselves may not timely achieve Year 2000 compliance. Year 2000 issues and
difficulties may therefore materially and adversely affect both the ability of
the various exchanges and other trading markets to properly function and
operate, and also futures and options prices, whether because of the failure of
a substantial number of businesses or business sectors to achieve Year 2000
compliance or out of the general emotions and psychology of the marketplace
regarding concerns for Year 2000 issues. See "PRINCIPAL RISK FACTORS--Futures
---
Trading is and Futures Prices are Speculative and Volatile" above.
The computer systems and software of the CTA are Year 2000 compliant. The
computer systems and software of the General Partner and of Frischmeyer Trading
Corporation are also Year 2000 compliant. The General Partner has been advised
that the computer systems and software of the FCM will be Year 2000 compliant by
the close of 1998 or January of 1999, but there can be no assurance or guarantee
that the FCM will be able to cause its computer systems and software to be Year
2000 compliant prior to January 1, 2000. There can also be no assurance or
guarantee that the various exchanges and other trading markets will be Year 2000
compliant by January 1, 2000. All United States futures exchanges will,
however, be subject to the monitoring of the CFTC for their Year 2000
preparedness, and the major foreign futures exchanges are also expected to be
subject to market-wide testing of their Year 2000 compliance during 1999.
Prospective investors need to be aware that the failure to achieve Year
2000 compliance by the FCM, the various exchanges or other trading markets or
any other third party with whom the Partnership may have a material relationship
could result in a material financial risk to the Partnership. For example, the
failure to achieve Year 2000 compliance by an exchange or other trading market
on which the Partnership has an open position may cause the Partnership to be
unable to close out that position, or to somehow lose that open position if the
failure to achieve Year 2000 compliance makes the exchange unable to identify
the fact that the Partnership had an open position.
The General Partner intends to monitor the progress of the FCM and of the
exchanges and other trading markets on which the Partnership holds positions for
their Year 2000 compliance. If the General Partner is able to determine that
the FCM or any such exchange or other trading market will not be Year 2000
compliant by January 1, 2000, the General Partner will direct the CTA to close
out some or all of the Partnership's then open positions, and to wait to
reinstitute trading until otherwise directed by the General Partner. Any such
action would likely not be consistent with the CTA's trading approach, and may
result in substantial losses to the
14
<PAGE>
Partnership on those positions. Further, despite the best efforts of the General
Partner, there can be no assurance that the above steps will be sufficient to
avoid any adverse impact to the Partnership due to the systems failure of any
third parties with whom the Partnership has a material relationship.
FUTURES TRADING IS HIGHLY LEVERAGED. The low margin deposits normally
-----------------------------------
required in futures trading (typically between 1% and 25% of the value of the
contract purchased or sold) permit an extremely high degree of leverage.
Accordingly, a relatively small price movement in a futures contract may result
in an immediate and substantial loss to the investor. For example, if 5% of the
price of the futures contract is deposited as margin at the time of purchase, a
5% decrease in the price of the futures contract would, if the contract were
then closed out, result in a total loss of the margin deposit before any
deduction for brokerage commissions and other trading fees. A decrease of more
than 5% would result in a loss of more than the total margin deposit. Like
other leveraged investments, any futures trade may result in a loss in excess of
the amount invested and the Partnership may lose more than its margin on a
trade. See "PRINCIPAL RISK FACTORS--Margin Calls" and "THE COMMODITY MARKETS--
---
Margins" below. The Partnership may from time to time hold positions with a
face value greatly exceeding the Net Assets of the Partnership, and even a
slight adverse movement in the prices of the Partnership's open positions will
consequently result in significant losses.
The CTA will utilize leverage in trading the Partnership's account, and it
is currently contemplated that from anywhere between 5% to 25% of the
Partnership's Net Assets will be committed as margin at any one time. See
---
"INVESTMENT PROGRAM" below. The CTA will make all trading decisions in the
CTA's sole discretion, however, and the amount of the Partnership's Net Assets
committed as margin may therefore at times greatly exceed the foregoing
percentages. Any increase in leverage will increase the risks to the
Partnership.
MARGIN CALLS. Futures contracts are customarily bought and sold on
------------
"initial" or "original" margins which typically range from between 1% and 25% of
the value of the contract purchased or sold. The "initial" or "original" margin
is the amount of funds which must be deposited by a client with the futures
commission merchant in order to establish open positions in futures contracts.
"Maintenance" margin is the amount to which a client's account may decline
before the client must deliver additional margin. See "THE COMMODITY MARKETS--
---
Margins" below. When the market value of a particular open position changes to
a point where the margin on deposit does not satisfy maintenance margin
requirements, a margin call will be made by the client's futures commission
merchant. Margin calls can occur frequently and the amount of a margin call can
be significant. The Partnership will be responsible for all margin calls made
to the Partnership's account. If the Partnership fails to meet a margin call,
the FCM will be required to close out some or all of the Partnership's
positions, which may result in further significant losses to the Partnership.
FUTURES TRADING MAY BE ILLIQUID. 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 illiquidity. Market illiquidity can be caused by intrinsic market
conditions or it may be the result of extrinsic factors like the imposition of
daily price fluctuation limits. Most United States exchanges limit fluctuations
in certain futures contract prices during a single day by regulations sometimes
referred to as "daily price fluctuation limits" or "daily limits." See "THE
---
COMMODITY MARKETS--Regulation" below. Under those regulations, during a single
trading day no trades may be executed at prices beyond the daily limits. Once
the price of a futures contract has increased or decreased by an amount equal to
the daily limit, positions in the contract can neither be taken nor liquidated
unless traders are willing to effect trades at or within the limit, which is
generally unlikely. Futures prices have occasionally moved the daily limit for
several consecutive days with little or no trading. Similar occurrences could
prevent the Partnership from promptly liquidating unfavorable positions and
subject the Partnership to substantial losses. See "PRINCIPAL RISK FACTORS--
---
Futures Trading is Highly Leveraged" and "Margin Calls" above.
15
<PAGE>
In addition, even if prices have not moved the daily limit or if no such
limits are in effect for the contracts or options being traded, the Partnership
may not be able to execute trades at favorable prices if little trading in such
contracts or options is taking place (i.e., a "thin" market), and under some
----
circumstances the Partnership may even be required to make or take delivery of
the commodity or other interest underlying a particular position if the position
cannot be offset or liquidated prior to its expiration date. It is also
possible that an exchange or the CFTC may suspend trading in a particular
contract, order immediate liquidation and settlement of a particular contract,
or order that trading in a particular contract be conducted for liquidation
only. Similarly, trading in options on a particular contract may become
restricted if trading in the underlying contract has been restricted and options
trading may itself be illiquid at times regardless of the condition of the
market of the underlying futures, making it difficult to offset positions in
order to realize gains thereon, limit losses or change positions in the market.
It should also be noted that since daily limits only affect price movements
for a particular trading day, the daily limits only afford protection against
losses which may occur during that trading day. Daily price limits do not
protect trades for the longer term because it is possible for prices to move
down the daily limit for several consecutive days or longer, with little or no
trading taking place. When that occurs, the CTA will be unable to liquidate
losing positions held by the Partnership, which will subject the Partnership to
substantial losses.
FAILURE OF EXCHANGES, BROKERS OR BANKS. The Partnership is subject to the
--------------------------------------
risk of failure of any of the exchanges on which it trades or of their
clearinghouses, if any. The Partnership is also subject to the loss of its
funds on deposit with the FCM under certain circumstances, such as the inability
of a customer of the FCM or the FCM itself to satisfy substantial deficiencies
in a customer's account. If the FCM were to become bankrupt, it is likely that
the Partnership would be able to recover none or only a small portion of its
assets held by the FCM. Also, Partnership funds on deposit at a United States
bank will be insured only up to $100,000 under existing federal regulations, and
amounts on deposit in excess of that amount are subject to the risk of bank
failure. None of these factors or occurrences can be controlled by the CTA or
the Partnership.
TRADING ON FOREIGN EXCHANGES. The Partnership may trade in futures and
----------------------------
option contracts on exchanges located outside the United States. CFTC
regulations do not apply to trading on foreign exchanges, and trading on foreign
exchanges may involve different and greater risks than trading on United States
exchanges. For example, some foreign exchanges, in contrast to domestic
exchanges, are "principals' markets" in which performance with respect to a
contract is the responsibility only of the individual member with whom the
trader has entered into the contract and not of the exchange. The Partnership
will be subject to the risk of the inability or refusal by any such member to
perform with respect to such contracts. Foreign markets are significantly more
susceptible to disruption than United States exchanges due to the lack of a
clearinghouse system in foreign markets. For example, failure to require
sufficient margin and to monitor the financial soundness of clearing members
contributed to a suspension of trading on the Hong Kong futures market following
the stock market decline of October 19, 1987. Trading on foreign exchanges also
involves certain risks not applicable to trading on United States exchanges,
such as the risks of varying exchange rates (given that margin requirements and
the settlement of contracts traded on foreign exchanges are generally
denominated in the local currency), exchange controls, expropriation, burdensome
or confiscatory taxation, moratoriums, or political or diplomatic events. Some
foreign markets are also newly formed and may lack personnel experienced in
floor trading or in monitoring floor trades for compliance with any foreign
exchange rules. It will also likely be more costly and difficult for the
Partnership to enforce the laws, rules or regulations of a foreign country or
exchange should that need arise, and it is possible that the foreign country or
exchange may not have laws, rules or regulations which adequately protect the
rights and interests of the Partnership. See the "RISK DISCLOSURE STATEMENT"
---
above.
16
<PAGE>
TRADING IN FORWARD CONTRACTS. The CTA may cause the Partnership to trade
----------------------------
in forward contracts in the interbank forward markets rather than on exchanges.
A forward contract is a contractual obligation to purchase or sell a specified
quantity of a currency or other interest at a specified date in the future at a
specified price, and is similar to a futures contract. However, banks and
dealers act as principals in the forward contract markets, and forward contracts
are not traded on exchanges. As a consequence, investors in forward contracts
are not afforded the regulatory protections of any exchanges or of the CFTC. As
of the date of this Prospectus, neither the CFTC nor any banking authorities
regulated trading in forward contracts, and foreign banks may not be regulated
by any United States governmental agency. There were also no limitations on
daily price moves in forward contracts as of the date of this Prospectus, and
speculative position limits were also not applicable to forward contract trading
as of that date. The principals with which the Partnership may deal in the
forward markets may, however, limit the positions available to the Partnership
as a consequence of credit considerations.
The forward contract markets offer less protection against defaults in
trading than is available when trading occurs on an exchange. Because
performance of forward contracts is not guaranteed by any exchange or
clearinghouse, the Partnership will be subject to the risk of the inability or
refusal to perform with respect to such contracts on the part of the principals
or agents with or through which the Partnership trades, including the FCM. The
principals who deal in the forward contract markets are not required to continue
to make markets in the forward contracts they trade. There have been periods
during which certain participants in forward markets have refused to quote
prices for forward contracts or have quoted prices with an unusually wide spread
between the price at which they are prepared to buy and that at which they are
prepared to sell. Any such failure or refusal, whether due to insolvency,
bankruptcy or other causes, could subject the Partnership to substantial losses.
The Partnership will not be excused from the performance of any forward
contracts due to the default of third parties on other forward contract trades
which, in the CTA's trading strategy, were to substantially offset the
Partnership's forward contracts.
Although trading in forward contracts is not currently regulated by the
CFTC, the CFTC has indicated that it may in the future assert jurisdiction over
such transactions and attempt to prohibit traders from engaging in such
transactions. The CFTC might therefore at some point assert that the forward
contracts proposed to be entered into by the Partnership constitute unauthorized
futures contracts subject to the CFTC's jurisdiction and attempt to prohibit the
Partnership from participating in forward contract transactions. It is not
possible to predict at this time whether the Partnership's activities in the
forward markets may be affected as a result of the CFTC's statements in this
regard.
OPTIONS. An option on a futures contract or on a currency is the right,
-------
purchased for a certain price, to either buy or sell the underlying futures
contract or currency during a certain period of time for a fixed price. See
---
"THE COMMODITY MARKETS--Markets" below. The Partnership is authorized to trade
options and the CTA may include options in its trading.
Successful options trading requires many of the same skills as does
successful futures and forward contract trading. The risks involved are,
however, somewhat different. For example, if the Partnership buys an option
(either to sell or buy a futures contract or currency), it will pay a "premium"
representing the market value and time value of the option. Unless the price of
the futures contract or currency underlying the option changes and its becomes
profitable to exercise or offset the option before it expires, the Partnership
will lose the entire amount of such premium. Conversely, if the Partnership
sells an option (either to sell or buy a futures contract or currency), it will
be credited with the premium but will have to deposit margin due to its
contingent liability to take or deliver the futures contract or currency
underlying the option in the event the option is exercised. Traders who sell
options are subject to the entire loss which occurs in the underlying futures
position or currency
17
<PAGE>
(less any premium received). Option premiums paid or received by the Partnership
can be small in relation to the market value of the futures contract or currency
underlying the option, and buying and selling put and call options can therefore
result in large amounts of leverage.
The ability to trade in or exercise options may be restricted in the event
that trading in the underlying futures contract or currency becomes restricted,
and, in any event, no assurance can be given that a liquid market will exist for
any particular option or at any particular time. If there is insufficient
liquidity in the option market at the time, the Partnership may not be able to
effect an offsetting transaction in a particular option or may be able to do so
only at an unfavorable price. See "PRINCIPAL RISK FACTORS--Futures Trading May
---
be Illiquid" above.
POSSIBLE EFFECTS OF SPECULATIVE POSITION LIMITS. The CFTC and the United
-----------------------------------------------
States exchanges have established "speculative position limits" or "position
limits" on the maximum net long or net short futures or options positions which
any person or group of persons may own, hold, or control in particular futures
contracts. See "THE COMMODITY MARKETS-Regulation" below.
---
All accounts owned, controlled or managed by a commodity trading advisor
and the advisor's principals and affiliates will be combined for position limit
purposes. The CTA believes that at some point it may possibly face difficulties
with established position limits, which may adversely affect its contemplated
trading for the Partnership. It is therefore possible that the CTA's Trading
Program may have to be modified and that positions may not be able to be entered
into, or that positions held by the Partnership may have to be liquidated, in
order to avoid exceeding position limits. In this event, the operations and
profitability of the Partnership will be adversely affected.
The Partnership is also subject to speculative position limits and it may
have to modify or liquidate positions if such limits are or are about to be
exceeded by the Partnership itself.
INFLUENCES ON TRADING APPROACHES. Trading decisions are generally based on
--------------------------------
either "technical" or "fundamental" trading systems. Fundamental trading
systems primarily attempt to examine external factors (such as governmental
policies, national and international political and economic events, changing
trade prospects, and interest rates) in order to predict future prices.
Technical trading systems, on the other hand, generate buy and sell signals
which are primarily based, in most cases, upon a study of actual daily, weekly
and monthly price fluctuations, volume variations and changes and other related
mathematical, statistical or quantitative data utilizing charts and computer
programs.
The CTA's Trading Program is primarily a computerized, technical trading
system. See "INVESTMENT PROGRAM" and "THE CTA--QUIET SYSTEMS LIMITED" below.
---
The CTA may, however, modify its trading methods, systems and strategies at any
time and from time to time, in the CTA's sole discretion. See "PRINCIPAL RISK
---
FACTORS--No Notice of Trades or of Changes in Trading Methods" above.
In any event, the profitability of the CTA's Trading Program depends upon
the occurrence and accurate forecasting of significant sustained and discernable
price movements or trends. No assurance can be given of the accuracy of the
forecasts or the occurrence or existence of any significant sustained and
discernable price movements. The best trading approach will not be profitable
if there are sustained periods in which there are no price moves or trends of
the kind the trading approach seeks to identify and follow, and periods without
such moves or trends will likely lead to losses. There have been periods
without sustained and discernable trends in the past and such periods will occur
again from time to time in the future. In addition, any factor which would
18
<PAGE>
lessen the prospect of major trends occurring in the future (such as increased
governmental control of or participation in the markets) may reduce the prospect
that a particular trading approach will be profitable in the future. See
---
"PRINCIPAL RISK FACTORS--Futures Trading Is and Futures Prices are Speculative
and Volatile" above. Also, any factor which would make it more difficult to
execute trades at desired prices in accordance with the CTA's Trading Program
(such as a significant lessening of liquidity in a particular market; See
---
"PRINCIPAL RISK FACTORS--Futures Trading May Be Illiquid" above) would also be
detrimental to profitability. Many trading approaches utilize similar analysis
in making trading decisions, and bunching of buy and sell orders can therefore
occur, which makes it more difficult for a position to be taken or liquidated.
Further, any increase in the use of similar trading approaches may alter
historical trading patterns which could adversely affect the CTA's Trading
Program. In addition, a technical trading approach such as the CTA's Trading
Program may under perform other trading approaches when fundamental factors
dominate price moves because a technical trading approach may be unable to
respond to fundamental consecutive events until after their impact has ceased to
influence the markets. A technical trading approach such as the CTA's Trading
Program may also be ineffective and lead to losses in markets subject to random
price fluctuations, rather than defined trends or patterns. There have been
periods in the past when the markets have been subject to limited and ill-
defined price movements, and such periods will occur again from time to time in
the future. A technical trading approach may also have difficulty in taking
into account the numerous and varied factors which can affect prices and price
movements. See "PRINCIPAL RISK FACTORS--Futures Trading is and Futures Prices
---
are Speculative and Volatile" above.
NO ASSURANCE THEREFORE CAN BE OR IS GIVEN THAT THE CTA'S TRADING PROGRAM
WILL BE SUCCESSFUL UNDER ANY MARKET CONDITIONS. PROSPECTIVE INVESTORS SHOULD
NOTE THAT THERE ARE ALWAYS TWO PARTIES TO A FUTURES CONTRACT. IF ONE PARTY TO
SUCH CONTRACT EXPERIENCES A GAIN ON THE CONTRACT, THE OTHER PARTY TO SUCH
CONTRACT EXPERIENCES AN EQUAL AMOUNT OF LOSS. ACCORDINGLY, ONLY 50% OF FUTURES
CONTRACTS MAY EXPERIENCE GAIN AT ONE TIME, WITHOUT REFERENCE TO COMMISSIONS AND
OTHER COSTS OF TRADING AND OTHER FEES WHICH WILL REDUCE AND WILL IN SOME
CIRCUMSTANCES TOTALLY ELIMINATE SUCH GAIN. THE CTA'S TRADING DECISIONS WILL
UNDOUBTEDLY NOT BE CORRECT IN MANY INSTANCES, AND THE PARTNERSHIP WILL FROM TIME
TO TIME ENTER INTO POSITIONS WHICH WILL RESULT IN SUBSTANTIAL LOSSES FOR THE
PARTNERSHIP.
COMPETITION. Futures trading is highly competitive. The Partnership will
-----------
be competing with others who may have greater experience, more extensive
information about and access to developments affecting the markets, more
sophisticated means of analyzing and interpreting the markets, and greater
financial resources. The Partnership will be competing with, among others,
commodity warehousemen, dealers, professional farmers, international traders,
representatives of governments, users of commodities and other commodity pools
and commodity trading advisors, any of whom may have certain material advantages
over the Partnership. The Partnership's trading will also be limited by the
fact that the Partnership's trading will be speculative in nature, and the
Partnership therefore generally will not have the ability or option to make or
take delivery of any commodities, currencies, securities or other interests in
the event prices do not move as expected by the CTA. The Partnership may also
experience increased competition because of the widespread utilization by other
traders of trading methods, systems and strategies which are similar to those
used by the CTA and the Partnership.
RISKS RELATING TO THE PARTNERSHIP AND THE OFFERING OF UNITS:
- -----------------------------------------------------------
CONFLICTS OF INTEREST IN THE PARTNERSHIP STRUCTURE. Although the General
--------------------------------------------------
Partner does not believe any material conflict of interest exists which in
practice will be detrimental to the Partnership, actual and potential conflicts
of interest do exist in the structure and operation of the Partnership. See
---
"CONFLICTS OF INTEREST" below. The conflicts of interest arise from, among
other things, (i) the General Partner's and the CTA's management of other
commodity pools; (ii) the General Partner's and Mr. Raun's right to purchase
Units
19
<PAGE>
in the Partnership; and (iii) Mr. Raun's indirect ownership interest in the CTA.
The conflicts of interest affect, among other things, the General Partner's and
the CTA's trading and other decisions for the Partnership vis-a-vis other
partnerships or accounts managed or traded by them, and any decision by the
General Partner to retain additional commodity trading advisors or to replace
the CTA.
SUBSTANTIAL CHARGES TO PARTNERSHIP. The Partnership is obligated to pay
----------------------------------
the monthly management fee to the General Partner, brokerage commissions, other
transaction fees and costs, and legal, accounting and other expenses regardless
of whether the Partnership realizes profits. See "DESCRIPTION OF CHARGES TO THE
---
PARTNERSHIP" below. The monthly management fee will also be payable even if the
Partnership does not engage in any trading during the month in question. The
Partnership will therefore be required to make substantial trading profits just
to avoid depletion of its assets from the charges and expenses payable by the
Partnership. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP--Break Even Point"
---
below. Also, because the incentive fee payable to the General Partner will be
determined quarterly, rather than on an annual basis, the Partnership may be
subject to substantial incentive fees in any given twelve (12) consecutive month
period despite an overall decline in the Partnership's Net Assets for such
period as a whole. Prospective investors should also note that the incentive
fee and management fee payable to the General Partner are based upon, among
other things, unrealized appreciation in the Partnership's open positions. Such
appreciation may never be realized by the Partnership, and all fees paid to the
General Partner will in all events be retained by the General Partner, even if,
for example, the Partnership subsequently realizes losses when the open
positions upon which the fees were paid are closed.
As indicated elsewhere, the Partnership may retain one or more additional
commodity trading advisors at some point in the future. If the Partnership pays
management and/or incentive fees to such commodity trading advisors, those fees
may be determined and paid separately for each advisor. The Partnership may
therefore be required to pay a management fee and/or an incentive fee to one or
more commodity trading advisors for any given time period due to trading profits
experienced by any such commodity trading advisor's allocated Net Assets in
spite of losses experienced by the other commodity trading advisors' allocated
Net Assets or by the Partnership's Net Assets as a whole.
OTHER POOLS OF THE GENERAL PARTNER OR MR. RAUN. The General Partner is the
----------------------------------------------
general partner for four (4) other commodity pools and may act as general
partner and commodity pool operator for additional pools in the future. See
---
"THE GENERAL PARTNER" below. Mr. Raun (the sole officer of the General Partner)
individually serves as general partner and commodity pool operator for four (4)
commodity pools and may serve as general partner and commodity pool operator for
additional pools in the future. The CTA serves as the commodity trading advisor
for two of the other commodity pools of the General Partner. See "PERFORMANCE
---
RECORDS OF THE GENERAL PARTNER" below. The CTA does not serve as the commodity
trading advisor for any of the commodity pools for which Mr. Raun serves as the
general partner. The General Partner may retain a different commodity trading
advisor for, and may otherwise vary or change the trading methods, systems and
strategies and the fees applicable to any other pools for which the General
Partner now or hereafter may serve as general partner. No assurance is
therefore given that the results of the Partnership's trading will be similar to
that of other pools managed by the General Partner or Mr. Raun, or that the fees
and expenses payable by any such other pools will be the same as those payable
by the Partnership. Any such other pools may have better trading results than
those of the Partnership at any given time or over any period of time. See also
--------
"CONFLICTS OF INTEREST--Other Pools and Trading by the General Partner and Mr.
Raun" below.
OTHER CLIENTS OF THE CTA. The CTA will direct the trading of numerous
------------------------
other accounts, including personal accounts and other commodity pools. The CTA
may utilize other trading methods, systems and
20
<PAGE>
strategies and have different fees for its other managed accounts. No assurance
is therefore given that the results of the Partnership's trading will be similar
to that of other accounts managed by the CTA.
RELIANCE ON AND OTHER CLIENTS AND BUSINESS OF FRISCHMEYER TRADING
-----------------------------------------------------------------
CORPORATION. The Partnership will rely upon Frischmeyer Trading Corporation for
- -----------
communicating the trading signals generated by the Software utilized in the
Trading Program to the FCM. See "FRISCHMEYER TRADING CORPORATION" below. There
---
is no assurance of Frischmeyer Trading Corporation's continued service to the
Partnership, and if Frischmeyer Trading Corporation terminates or otherwise
becomes unable to continue to provide services to the Partnership, another
person or entity will have to be selected to provide such services. No
assurance can be given that any such person or entity will perform as well as
Frischmeyer Trading Corporation or can be retained on the same or similar terms
as currently in effect with Frischmeyer Trading Corporation.
Frischmeyer Trading Corporation also relies upon a key person for the
provision of services to the Partnership. There is no assurance of such
person's continued service to Frischmeyer Trading Corporation, and if such
person terminates or otherwise becomes unable (through death, disability, etc.)
to continue to provide services to Frischmeyer Trading Corporation, the ability
of Frischmeyer Trading Corporation to provide services to the Partnership may be
adversely affected in a material way.
Frischmeyer Trading Corporation is not required to devote its full time or
attention to the Partnership's business, and Frischmeyer Trading Corporation and
its key person are involved in other futures and options related businesses and
may also be involved in other businesses or ventures. See "FRISCHMEYER TRADING
---
CORPORATION" below. Frischmeyer Trading Corporation and/or its key person may
have financial or other incentives to favor their other businesses over the
Partnership. See "CONFLICTS OF INTEREST--Other Business of Frischmeyer Trading
---
Corporation" below.
LIMITED ABILITY TO ASSIGN AND LIQUIDATE INVESTMENT IN UNITS. Units
-----------------------------------------------------------
cannot be assigned, transferred or otherwise encumbered except upon the terms
and conditions set forth in the Limited Partnership Agreement. See
---
"TRANSFERABILITY AND LIQUIDATION OF UNITS" below. Those restrictions may at
times preclude a transfer of a Unit and/or a transferee of a Unit from becoming
a substituted Limited Partner.
Substantial restrictions and conditions are also imposed upon the
liquidation of Units. See "TRANSFERABILITY AND LIQUIDATION OF UNITS" below.
---
For example, the General Partner may require a Limited Partner to provide the
General Partner with up to sixty (60) days prior written notice of the Limited
Partner's desire to liquidate Units. Given the volatility of the futures
markets, the Net Asset Value Per Unit could decline significantly during that
period. Liquidations may also be honored only in part and delayed or suspended
in various circumstances. See "TRANSFERABILITY AND LIQUIDATION OF UNITS" below.
---
Substantial liquidations of Units could require the Partnership to liquidate
open positions more rapidly than otherwise desirable in order to raise the
necessary cash to fund the liquidations, and, at the same time, achieve a market
position appropriately reflecting a smaller equity base. Illiquidity in the
market could also make it difficult to liquidate positions in this circumstance
on favorable terms, which would result in further losses to the Partnership and
a further decrease in the Net Asset Value Per Unit of the remaining outstanding
Units. See "PRINCIPAL RISK FACTORS--Futures Trading May Be Illiquid" above.
---
Since there is no assurance that the Partnership will ever distribute any
Partnership profits to the Partners, the Partners will have to depend on their
limited and restricted transfer and liquidation rights in order to realize on
their investment in the Units. See "PRINCIPAL RISK FACTORS--Limited Partners
---
Will Be Taxed on Profits Whether or Not Distributed" below.
21
<PAGE>
Prospective investors must also be aware that under certain limited
circumstances the Partnership may make a claim against a Limited Partner for
funds received by the Limited Partner from the Partnership. See
---
"TRANSFERABILITY AND LIQUIDATION OF UNITS" below.
LACK OF DIVERSIFICATION. The CTA's Trading Program in which the
-----------------------
Partnership's account will be traded is not correlated with traditional debt and
equity investments, and therefore provides a level of diversification for a
traditional stock and bond portfolio. An investment in the Partnership will
not, however, in itself provide an investor with an adequate diversification of
the investor's overall investment portfolio. Also, although an investment in
the Units is in itself an appropriate investment for certain investors, an
investor can achieve additional diversification within the managed futures
industry and for their overall investment portfolio through investments in other
managed futures programs. Further, the CTA's trading on behalf of the
Partnership will currently be limited to only interests in various financial
instruments, currencies, indices and interest rate contracts. See "INVESTMENT
---
PROGRAM" below. Thus, unlike other commodity pools or accounts, the
Partnership will not participate in a broad range of markets.
LIMITED PARTNERS WILL NOT PARTICIPATE IN MANAGEMENT. Limited Partners will
---------------------------------------------------
not participate in the control or management of the Partnership or its business.
See "PRINCIPAL RISK FACTORS--No Notice of Trades or of Changes in Trading
- ---
Methods" above and "THE LIMITED PARTNERSHIP AGREEMENT--Management of Partnership
Affairs" below. For example, distributions to the Limited Partners by the
Partnership will only be made in the sole discretion of the General Partner.
The Limited Partnership Agreement provides that the vote of the Limited
Partners who hold a majority of the total number of outstanding Units is
necessary for the Limited Partners to approve or take any action submitted to a
vote of the Limited Partners, except that a unanimous vote of the Limited
Partners is required to cause an assignee of Units to become a substituted
Limited Partner over the objections of the assignor and to carry on the business
of the Partnership after the withdrawal of all of the general partners of the
Partnership. See Sections 8.03 and 9.03 of the Limited Partnership Agreement.
---
See also "THE LIMITED PARTNERSHIP AGREEMENT--Termination of the Partnership"
- --------
below. Numerous actions can therefore be taken over the objection of any
specific Limited Partner or group of Limited Partners. It should also be noted,
on the other hand, that with respect to the matters for which a unanimous vote
of the Limited Partners is required, even one objecting Limited Partner may
prevent the matter or action from being taken, notwithstanding the desire of the
majority, or perhaps more, of the Limited Partners.
Prospective investors must also be aware that the Limited Partnership
Agreement allows the General Partner to make certain amendments to the Limited
Partnership Agreement without the vote or consent of the Limited Partners. See
---
Section 11.02 of the Limited Partnership Agreement and "THE LIMITED PARTNERSHIP
AGREEMENT--Management of Partnership Affairs" below.
NO ASSURANCE THAT UNITS WILL BE SOLD; LIMITED EXPERIENCE OF THE
---------------------------------------------------------------
UNDERWRITER. Since the Underwriter has not committed to purchase any unsold
- -----------
Units from the Partnership, there is no assurance that all or any portion of the
Units available in this offering will be sold. The General Partner also has no
obligation to purchase any Units.
The General Partner also has the right to withdraw or modify this offering,
in its sole discretion. The General Partner may also reject any subscription,
in whole or in part and in its sole discretion, and there are minimum
investment, net worth and suitability standards that must be met in order for
the General Partner to be
22
<PAGE>
able to accept a subscription. The number of investors who qualify for
investment in the Partnership is therefore limited.
The Underwriter has limited experience in public offerings, and there is no
assurance or guaranty that the Underwriter will be successful in selling the
Units. See "PLAN OF DISTRIBUTION" below.
---
The Partnership cannot commence trading unless the Minimum Units are sold
before the close of the Minimum Units Offering Period. See "PLAN OF
---
DISTRIBUTION" below.
PARTNERSHIP HAS NO OPERATING HISTORY. The Partnership had not commenced
------------------------------------
trading as of the date of this Prospectus. The Partnership therefore had no
operating or performance history as of the date of this Prospectus. It should
also be noted that the CTA had no operating history as of the date of this
Prospectus. See "PRINCIPAL RISK FACTORS--CTA Has No Experience or Operating
---
History" above.
SPECIAL CHARACTERISTICS OF START-UP. The Partnership will encounter a
-----------------------------------
start-up period during which it will incur certain risks relating to the initial
investment of the Partnership's assets. The Partnership may commence trading at
an inopportune time, such as after sustained moves in the markets, resulting in
significant initial losses. The start up period also represents a special risk
because the level of diversification of the Partnership's assets may be lower
than in a fully-committed portfolio. No assurance is given that the procedures
for moving the Partnership's account to a fully-committed portfolio will be
successful. The risks described in this paragraph are also applicable with
respect to the investment of subscriptions which may be received after the
Partnership has commenced trading.
RELIANCE ON THE GENERAL PARTNER. Limited Partners will be relying entirely
-------------------------------
on the ability of the General Partner to manage the Partnership and to review
the trades which have been made by the Partnership. Mr. Raun is the sole
officer and employee of the General Partner, and the Partnership itself
currently has no employees. Mr. Raun has managed other commodity pools since
1980. See "THE GENERAL PARTNER" below. The General Partner and Mr. Raun will
---
also have other businesses and ventures. See "CONFLICTS OF INTEREST--Other
---
Pools and Business of the General Partner and Mr. Raun" below.
There is no assurance that the General Partner will continue to provide
services to the Partnership because the General Partner may withdraw as the
general partner of the Partnership without the consent of the Limited Partners.
See "THE LIMITED PARTNERSHIP AGREEMENT--Resignation or Withdrawal of the General
- ---
Partner; Admission of Additional General Partners" below. Also, Mr. Raun is the
President and key employee of the General Partner. If Mr. Raun discontinues his
services to the General Partner or otherwise becomes unable to provide services
to the General Partner (through death, disability, etc.), the General Partner
will be unable to continue to manage the business of the Partnership unless it
is able to retain another qualified employee.
PURCHASE OF UNITS BY GENERAL PARTNER OR MR. RAUN. The General Partner and
------------------------------------------------
Mr. Raun may, but neither has any obligation to, purchase Units for their own
account. Any Units which are purchased by them shall not be included for
purposes of determining whether the Partnership has sold the Minimum Units. Any
purchase of Units by the General Partner or Mr. Raun should not be relied upon
as an indication of the merits of this offering. Also, no reliance should be
placed upon the sale of the Minimum Units as an indication of the merits of this
offering because the sale of the Minimum Units is not intended as a protective
measure for investors.
23
<PAGE>
If the General Partner and/or Mr. Raun hold a substantial number of Units,
the General Partner and Mr. Raun will be in a position to substantially
influence matters submitted to a vote of the Limited Partners, which would limit
the effectiveness of the voting rights held by other Limited Partners. Although
the General Partner and Mr. Raun will have a commonality of interest with the
other Limited Partners, a substantial investment by the General Partner and/or
Mr. Raun could create conflicts of interest. For example, conflicts of interest
could arise regarding the dissolution of the Partnership because the dissolution
of the Partnership would terminate the General Partner's compensation from the
Partnership. Any investments in the Partnership by affiliates or family members
or of other persons or entities controlled by the General Partner or Mr. Raun
will potentially increase the risks discussed in this paragraph. As of the date
of this Prospectus, however, the General Partner had not purchased any Units,
and Mr. Raun had purchased only $1,000 of Units in his capacity as the initial
Limited Partner of the Partnership. The latter amount will be returned to Mr.
Raun upon the admission of the first Limited Partner, as provided in the Limited
Partnership Agreement.
OTHER MEMBERS OF THE GENERAL PARTNER. The General Partner has both
------------------------------------
voting members and nonvoting members. The sole voting member of the General
Partner is Vacation Partners, Inc., which is an Iowa corporation that is wholly
owned by Mr. Raun. The General Partner has 4 nonvoting members. The nonvoting
members do not have voting rights, except in very limited circumstances. See
---
"THE GENERAL PARTNER" below. It is possible, therefore, that the nonvoting
members of the General Partner may at some point have the ability to participate
in the management and operation of the General Partner, which could have adverse
effects to the Partnership given that none of the nonvoting members of the
General Partner have any experience in the management or operation of a
commodity pool such as the Partnership. See "THE GENERAL PARTNER" below. It is
---
contemplated, however, that even if a circumstance arises in which the nonvoting
members may participate in the management of the General Partner, Mr. Raun will
continue to be the sole officer of the General Partner and will otherwise
continue to be responsible for the day-to-day operation of the General Partner's
business as it relates to the Partnership. The nonvoting members of the General
Partner may purchase Units. The risks noted in "Purchase of Units by General
Partner or Mr. Raun" above are therefore also potentially applicable to the
nonvoting members as well.
VACATION AWARD. One requirement that must be met in order to qualify for
--------------
any of the vacation awards discussed in "VACATION AWARD" below, is that the
Limited Partner be a limited partner in at least three (3) limited partnerships
for which the General Partner serves as the commodity pool operator. As of the
date of this Prospectus, the only limited partnerships of the General Partner
which were open to investors were the Partnership, Portfolio Boost I, L.P. and
Portfolio Boost III, L.P. The General Partner is also the commodity pool
operator of CBC-RT. CBC-RT is not, however, open to new investors. See "THE
---
GENERAL PARTNER" and "PERFORMANCE RECORDS OF THE GENERAL PARTNER" below. The
General Partner also contemplates offering units of limited partnership interest
in certain states in Portfolio Boost MJF, L.P. within the next several months,
but no assurance or guaranty can be given that the latter offering will be
ordered effective by the applicable federal and state authorities. Accordingly,
as of the date of this Prospectus, an investor would need to become a limited
partner in the Partnership and in Portfolio Boost I, L.P. and Portfolio Boost
III, L.P. in order to be able to qualify for any of the vacation awards, unless
the investor was already a limited partner in CBC-RT. In that circumstance, the
investor would need to become a limited partner in any two of the Partnership,
Portfolio Boost I, L.P. or Portfolio Boost III, L.P.
Also, unforeseen financial difficulties could arise which could prevent the
General Partner from being able to satisfy its obligation to provide the
vacation awards to qualifying Limited Partners. Weather and other factors
beyond the General Partner's control may also prevent a qualifying Limited
Partner from being able to take any vacation award.
24
<PAGE>
TAXATION, REGULATORY AND OTHER RISKS:
- ------------------------------------
LIMITED PARTNERS WILL BE TAXED ON PROFITS WHETHER OR NOT DISTRIBUTED. The
--------------------------------------------------------------------
Partnership is not required to make any distributions to the Limited Partners,
and distributions by the Partnership will be made only at such times and in such
amounts as are determined by the General Partner, in its sole discretion. The
amount and timing of any distributions are therefore uncertain, and it is likely
that no (or very few) distributions will ever be made because the principal
objective of the Partnership is to increase capital, not create cash flow.
Limited Partners will therefore need to rely upon their limited liquidation
rights in order to realize on their investment in the Partnership. See
---
"PRINCIPAL RISK FACTORS--Limited Ability to Assign and Liquidate Investment in
Units" above. It should also be noted that the General Partner will experience
conflicts of interest in determining whether to declare any distributions. See
---
"CONFLICTS OF INTEREST--Distribution and Liquidation Decisions by the General
Partner" below.
Any Partnership profits for a fiscal year will be taxable to the Limited
Partners in accordance with their distributive share of Partnership profits,
whether or not the profits have been distributed to the Limited Partners. See
---
"FEDERAL INCOME TAX ASPECTS" and "THE LIMITED PARTNERSHIP AGREEMENT--Federal Tax
Allocations" below. Even if distributions are made to Limited Partners, the
distributions may not equal the taxes payable by Limited Partners on their
distributive share of the Partnership's profits. Also, the Partnership might
sustain losses offsetting such profits after the end of the fiscal year in
question, so a Limited Partner might never receive a distribution in an amount
equal to the taxes which have already been paid by the Limited Partner on the
Partnership's prior profits.
RETIREMENT PLAN AND IRA PARTICIPANTS. The purchase of a Unit does not
------------------------------------
itself create a retirement or benefit plan or an IRA and the creation and
administration of a retirement or benefit plan or an IRA are solely the
responsibility of the investor. Retirement or benefit plan and IRA investors
are specifically cautioned to carefully consider the propriety of this
investment for a retirement portfolio. Among other things, one should carefully
consider the diversification of the person's retirement assets, and a person
should not place more of those assets in Units than the person determines is
prudent to allocate to a highly speculative, volatile and high risk investment
such as the Units. The General Partner does not undertake to advise investors
in any manner (including as to diversification, prudence and liquidity) with
respect to investment of retirement assets. Prospective investors should
consult with their personal tax and investment advisers about investing
retirement or benefit plan or IRA assets in Units. Retirement and benefit plan
and IRA investors should also carefully review, without limitation, "FEDERAL
INCOME TAX ASPECTS--Investment By Employee Benefit And Retirement Plans and
IRA's" below.
ABSENCE OF CERTAIN STATUTORY REGISTRATIONS AND REGULATIONS AND OF
-----------------------------------------------------------------
INDEPENDENT REVIEW. The Partnership is not registered as an investment company
- ------------------
or a mutual fund under the Investment Company Act of 1940 or any similar state
law, and neither the General Partner, the CTA nor any of their respective
principals are registered as an investment advisor under the Investment Advisor
Act of 1940 or any similar state law. Investors therefore do not have the
benefits of any protective measures intended to be provided by such legislation.
Prospective investors must also note that the information provided in this
Prospectus has been provided by the General Partner and has not been
independently verified or confirmed by any third party. For example, the
General Partner and the Partnership are represented by single counsel.
Accordingly, this offering and the Partnership do not have any benefits which
may arise from an independent review. A prospective investor must therefore
make whatever independent inquiries the investor deems necessary to verify or
confirm the statements
25
<PAGE>
and the performance and other information in this
Prospectus. Prospective investors are advised to obtain independent counsel.
TAX LAW SUBJECT TO CHANGE It is possible that the current federal income
-------------------------
tax treatment accorded an investment in the Units will be modified by
legislative, administrative or judicial action in the future, and all tax
discussions in this Prospectus are based upon the Internal Revenue Code and
administrative and judicial interpretations thereunder as of the date specified
in "FEDERAL INCOME TAX ASPECTS" below. No assurance can be or is given that
legislative, administrative or judicial changes will not occur at some
unpredictable future date which would modify those discussions. The nature of
future changes, if any, cannot be determined prior to the final legislative,
administrative or judicial action causing the changes. Any such changes could,
however, significantly alter the tax consequences and decrease the after-tax
rate of return on an investment in the Units. Prospective investors must seek
and rely on the advice of their own tax advisors with respect to the possible
impact on their investment of any future proposed tax legislation or
administrative or judicial action.
OTHER LAWS AND CIRCUMSTANCES SUBJECT TO CHANGE. The regulation of the
----------------------------------------------
United States and foreign markets has undergone substantial change in recent
years, and further changes are and should be expected. It is impossible to
predict, however, what changes (including new or amended laws, rules or
regulations) may occur, and the effect of any such changes on the Partnership.
The effects of any changes could, however, be substantial and adverse. Also,
the number of markets available for trading is increasing and the markets can be
expected to continue to increase and also change in other ways, any of which may
have adverse consequences to the CTA's Trading Program and to the Partnership.
NO GOVERNMENT OR EXCHANGE ENDORSEMENTS. The regulations of the CFTC and
--------------------------------------
the NFA prohibit any representation by a person registered with the CFTC or by
any member of the NFA, respectively, that such registration or membership in any
way indicates that the CFTC or the NFA has approved or endorsed such person or
such person's trading programs or objectives. The registrations and memberships
described in this Prospectus therefore do not constitute and must not be
considered as constituting any such approval or endorsement. The fact that the
Units have been registered with any federal or state authority also does not in
any way constitute any approval or endorsement by such authority of the
Partnership, the General Partner, the CTA, this Prospectus, the Units or this
offering. See the legends at the beginning of this Prospectus. Likewise, no
---
exchange or foreign authority has given or will give any such approval or
endorsement.
POSSIBILITY OF AUDIT. There can be no assurance that the Partnership's tax
--------------------
return will not be audited by the Internal Revenue Service or that adjustments
to such return will not be made as a result of such an audit. If an audit
results in an adjustment, Limited Partners may be required to file amended
returns (which may themselves also be audited) and to pay back taxes, plus
interest and possibly penalties.
OTHER TAX CONSIDERATIONS. Prospective investors must also carefully review
------------------------
and consider the various tax issues and considerations which are summarized in
"FEDERAL INCOME TAX ASPECTS" below. Prospective investors must be aware,
however, that the discussion in "FEDERAL INCOME TAX ASPECTS" below assumes that
an investor is an individual and not a corporation or other entity. This
Prospectus also does not address foreign or state or local tax law
considerations. Prospective investors must therefore consult with their own
legal and tax advisors as to all foreign, state and local tax issues.
THE FOREGOING DISCUSSION OF RISK FACTORS DOES NOT PURPORT TO BE A COMPLETE
LIST OR EXPLANATION OF THE RISKS INVOLVED IN THIS OFFERING AND
26
<PAGE>
ADDITIONAL RISKS MAY BE EXPERIENCED WHICH ARE NOT PRESENTLY FORESEEN BY THE
PARTNERSHIP. PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THIS PROSPECTUS AS LEGAL
OR TAX ADVICE. BEFORE DETERMINING TO INVEST IN THE UNITS, PROSPECTIVE INVESTORS
SHOULD READ THIS ENTIRE PROSPECTUS, INCLUDING THE LIMITED PARTNERSHIP AGREEMENT
AND THE SUBSCRIPTION AGREEMENT, AND CONSULT WITH THEIR OWN PERSONAL INVESTMENT,
LEGAL, TAX AND OTHER PROFESSIONAL ADVISORS AS TO THE LEGAL, TAX, ECONOMIC AND
OTHER ASPECTS OF AN INVESTMENT IN THE UNITS AND ITS SUITABILITY FOR THE
INVESTOR.
CONFLICTS OF INTEREST
---------------------
Significant actual and potential conflicts of interest exist in the
structure and operation of the Partnership. The Partnership has used its best
efforts to describe the principal conflicts of interest in this Section and
elsewhere in this Prospectus. (See, e.g. "PRINCIPAL RISK FACTORS" above.)
---
Although the General Partner will attempt to examine these conflicts of
interest, no formal procedures have been established to monitor or resolve any
conflicts of interest and there is therefore no assurance that any conflict of
interest will not result in adverse consequences to the Partnership.
Prospective investors must consider and be aware that the Partnership and the
General Partner intend to assert that all Partners have, by purchasing Units,
consented to and acquiesced in the risks and conflicts of interest described in
this Prospectus in the event of any demand, action, claim or proceeding against
the Partnership, the General Partner, Mr. Raun, the CTA, the FCM or any of their
respective shareholders, members, managers, directors, officers, affiliates,
principals, employees, agents, consultants or contractors, alleging that any
such risks or conflicts violate or violated any duty owed by any of them to the
Partnership or any of the Partners or otherwise violated the rights or interests
of the Partnership or of any of the Partners. All of the conflicts of interest
described in this Prospectus are applicable regardless of the number of Units
which are sold by the Partnership. The following conflicts of interest are not
intended to be set forth in any particular order of materiality or significance.
MR. RAUN'S INTEREST IN THE CTA. Mr. Raun and members of his family are
------------------------------
some of the beneficiaries of the trust which owns all of the issued and
outstanding shares of stock of the CTA. See "PRINCIPAL RISK FACTORS--Mr. Raun's
---
Interest in the CTA" above. They therefore at least indirectly benefit from any
compensation payable to the CTA. Mr. Raun is also the sole officer and one of
the members of the General Partner, and will have the authority on behalf of the
General Partner to make all decisions regarding commodity trading advisors for
the Partnership. Mr. Raun will therefore experience a conflict of interest in
determining whether the Partnership should terminate the services of the CTA or
add additional commodity trading advisors. Mr. Raun is aware of this conflict
of interest, however, and will utilize his best efforts to make determinations
regarding these issues independent of any personal considerations.
Prospective investors need to remember and be aware, however, that futures
and options trading is a volatile, high risk business. The CTA's trading
decisions will undoubtedly be incorrect in many instances, and the Partnership
will from time to time enter into positions which will result in substantial
losses. See "PRINCIPAL RISK FACTORS--Futures Trading is and Futures Prices are
---
Speculative and Volatile" above. Further, it is not uncommon for commodity
pools to experience losses from trading for many consecutive months or for many
of the months in any given one year or longer period. Prospective investors
must therefore be aware that the General Partner is not required to retain
additional commodity trading advisors or to replace the CTA, and will not be
breaching any duty owed to the Partnership or the Limited Partners for failing
to do so, simply because the Partnership has experienced substantial losses from
its trading.
27
<PAGE>
The fact that Mr. Raun and his family are interested in the CTA also causes
a conflict of interest because that relationship suggests that the fees payable
by the General Partner to the CTA have not been negotiated or established in an
"arm's-length" transaction. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP--CTA
---
and Underwriter Compensation" below. If those fees are high, the General
Partner may have also increased the fees payable to the General Partner by the
Partnership so that the General Partner would have sufficient funds to pay the
CTA's fees. The General Partner believes, however, that the fees it pays to the
CTA are below the general range of fees imposed by other commodity trading
advisors. The General Partner also believes that the fees payable to it by the
Partnership are consistent with the industry, in particular given that the
General Partner is responsible for payment of the CTA's, the Underwriter's and
Frischmeyer Trading Corporation's compensation. See "DESCRIPTION OF CHARGES TO
---
THE PARTNERSHIP--CTA and Underwriter Compensation" and "Frischmeyer Trading
Corporation Compensation" and "PLAN OF DISTRIBUTION" below.
Trading Decisions of the CTA. The CTA will serve as the commodity trading
----------------------------
advisor for numerous other persons, pools and entities on a continuing basis.
See "PRINCIPAL RISK FACTORS--Other Clients of the CTA" above. It is the General
- ---
Partner's belief that the CTA will not knowingly or deliberately use trading
strategies on behalf of the Partnership which the CTA in good faith believes are
inferior to strategies employed for other accounts traded by the CTA. The CTA
may, however, employ trading methods, systems and strategies which differ from
those employed on behalf of the Partnership in circumstances which differ from
those under which the Partnership operates, and as a consequence other accounts
managed by the CTA may have trading results which are better than those
experienced by the Partnership. For example, as of the date of this Prospectus
the CTA had three different trading programs in existence. See "THE CTA--QUIET
---
SYSTEMS LIMITED" below. Although the trading methods, systems and strategies
utilized in the CTA's three respective trading programs are similar in some
respects, there are material differences, and an account traded in one of the
CTA's trading programs may have either better or worse performance than an
account traded in one of the CTA's other trading programs. The Partnership's
account is traded in the CTA's Financial Program (See "INVESTMENT PROGRAM"
---
below), and the Partnership's performance may be better or worse than that of
accounts traded in the CTA's two other trading programs. The CTA also has the
right to establish additional trading programs which utilize different trading
methods, systems, and strategies and which have different fees. Accounts traded
in any such other trading programs may have better trading results than accounts
traded in the CTA's existing trading programs, whether by reason of the success
of the particular trading methods, systems, and strategies utilized for such
accounts or by reason of the lower fees that may be charged to such other
accounts. The records of the CTA's trades for other persons and entities will
not be available for inspection by the Partnership or any Partner.
The CTA will determine all of the Partnership's trades. See "INVESTMENT
---
PROGRAM" below. The CTA may also be effecting trades for its own account and
will be effecting trades for others on a discretionary basis. A potential
conflict of interest arises from this fact because it is possible that other
positions taken by the CTA may be taken ahead of or opposite to positions taken
on behalf of the Partnership. It is the General Partner's belief, however, that
the CTA will not intentionally or knowingly trade for its own or another's
account ahead of other accounts managed by the CTA, although a high risk
situation or other unforeseen circumstance may exist with respect to some
accounts which may dictate taking a position opposite to that of the
Partnership. In addition, the CTA has other trading programs in addition to the
Trading Program in which the Partnership's account will be traded, and the CTA
may also establish additional trading programs in the future. The trading
decisions generated in the CTA's other trading programs may be entirely
different from the trading decisions generated in the CTA's Trading Program in
which the Partnership's account is traded, and the Partnership may therefore
from time to time hold positions opposite of those of another client of the CTA
whose account is being traded in another of the CTA's trading programs.
28
<PAGE>
The various accounts being traded by the CTA will also in effect be
competing for the same positions in the market. Depending on market liquidity
and other factors, this could result in orders for the Partnership being
executed at prices that are less favorable than would otherwise be the case or
in the orders of other clients of the CTA being executed when similar trades for
the Partnership are not executed. See "PRINCIPAL RISK FACTORS--Futures Trading
---
May be Illiquid" above. The possibility of these occurrences will increase in
the event the trading decisions in the CTA's other trading programs are the same
as those made in the Trading Program, and also if the CTA's proprietary accounts
are making the same trades as well.
Also, all of the positions held by accounts managed by the CTA and its
principals and affiliates will be aggregated for purposes of applying
speculative position limits. The Partnership will not be able to enter into or
maintain positions if those positions, when added to the positions already held
by the Partnership and the other accounts of the CTA, would exceed the
applicable limits. See "PRINCIPAL RISK FACTORS--Possible Effects of Speculative
---
Position Limits" above.
The CTA is free to determine the manner in which orders will be entered or
filled by the CTA, and there is no assurance that the performance of the
Partnership's account will not be adversely affected by the manner in which
orders are entered or filled by the CTA from time to time. It is the General
Partner's belief, however, that the CTA will utilize a system which allocates
trades among the CTA's clients and the CTA's proprietary accounts in a manner
that the CTA in good faith believes is equitable and systematic. For example,
where trades with respect to the Partnership and other accounts of the CTA are
identical and where prices are different, the CTA may, but is not required to,
utilize the "Average Price System" for those futures and options contracts where
its use is authorized. See "INVESTMENT PROGRAM" below. Under the Average Price
---
System, when multiple price executions are received on a "blocked" order, the
prices will be averaged and confirmed to each account on the averaged basis,
which will be computed by multiplying the execution prices by the quantities at
those prices divided by the total quantities. The CTA may also, but is not
required to, choose to fill trades in order based on numerical account numbers,
with the lowest price allocated to the lowest account number, and so on. The
Partnership will endeavor to assure that trading on the Partnership's behalf
will be effectuated and determined in a manner which is believed to be
reasonable to the Partnership.
Other Business of the CTA. The CTA is not required to devote the CTA's
-------------------------
full time or attention to the Trading Program or the Partnership's account, and
the CTA will be involved in other futures and options related businesses and may
also be involved in other businesses or ventures. The CTA may therefore
experience conflicts of interest in allocating its time, services and functions
between the Trading Program and the CTA's other business ventures, including,
for example, the other trading programs offered by the CTA from time to time.
The CTA may have financial or other incentives to favor other trading programs,
pools, accounts or businesses over the Partnership and its Partners. The
Partnership believes, however, that the CTA's time available for the Trading
Program will be adequate to properly perform the CTA's duties.
Key Persons of the CTA. The CTA relies upon certain key persons for the
----------------------
proper operation and management of its business. See "THE CTA--QUIET SYSTEMS
---
LIMITED" below. The referenced persons may provide services to other persons,
pools and entities and may also effect trades for their own account and for
others. The referenced persons are not required to devote their full time or
attention to the services they are to provide to the CTA. The conflicts of
interests noted in "Trading Decisions of the CTA" and "Other Business of the
CTA" immediately above are therefore also equally applicable to such persons.
Other Business of Frischmeyer Trading Corporation. Frischmeyer Trading
-------------------------------------------------
Corporation is not required to devote its full time or attention to the services
Frischmeyer Trading Corporation will be providing to the Partnership, and
Frischmeyer Trading Corporation and its key persons will be providing trading
advice and
29
<PAGE>
related services to other persons, pools and entities and may also effect trades
for their own accounts and for others on a discretionary basis. The conflicts of
interest noted in "Trading Decisions of the CTA" and "Other Business of the CTA"
above are therefore also applicable to Frischmeyer Trading Corporation and its
key persons.
AGREEMENTS REQUIRED BY THE CTA. The Partnership has entered into an
------------------------------
Advisory Agreement with the CTA. See "INVESTMENT PROGRAM" below. The Advisory
---
Agreement provides that the CTA will have no liability to the Partnership except
only for acts or omissions which constitute willful misconduct or fraud. The
Advisory Agreement also provides that the CTA shall not have any liability
whatsoever to the Partnership for any losses, damages, costs or expenses which
are in any way incurred by the Partnership due to, or because any act or
omission of the CTA to be taken pursuant to the Advisory Agreement is in any way
restricted, affected or rendered impossible of performance or observance by, any
act or God or any force majeure, or any communication line failure, computer
failure, power failure, mechanical failure, equipment malfunction or failure,
computer virus, software error or interruption, act or omission of any third
party, or any other factor beyond the reasonable control of the CTA. The
Advisory Agreement also provides that the Partnership is solely liable for and
bears the risk of all errors, problems and other acts or omissions whatsoever of
the FCM, Frischmeyer Trading Corporation, any exchange or clearinghouse and all
other third parties. The Advisory Agreement also obligates the Partnership to
defend and indemnify the CTA and the CTA's shareholders, directors, officers,
employees, agents, affiliates, consultants and contractors against various
losses, liabilities, costs and expenses (including arbitration and court costs
and attorney's fees). The Advisory Agreement also provides that any action or
proceeding (whether in arbitration, the courts or otherwise) with respect to any
claim or other dispute between the Partnership and the CTA must be commenced
within one (1) year after the date the claim or dispute arose or accrues, or the
claim or dispute shall be lost and forever barred. The Advisory Agreement also
provides that any dispute between the Partnership and the CTA shall be resolved
(whether through arbitration, the courts or otherwise) on Grand Cayman, in the
Cayman Islands, British West Indies. The Partnership does not believe, however,
that the provisions of the Advisory Agreement or of any of the other agreements
required by the CTA will in practice change or affect the trading decisions that
the CTA would otherwise make on behalf of the Partnership.
AGREEMENT WITH FRISCHMEYER TRADING CORPORATION. The Partnership has also
----------------------------------------------
entered into an agreement with Frischmeyer Trading Corporation (the "FTC
Agreement"). See "FRISCHMEYER TRADING CORPORATION" below. The FTC Agreement
---
provides that Frischmeyer Trading Corporation shall not be liable in any manner
whatsoever for any trading losses, any expenses, claims, judgments or other
economic obligations to the Partnership arising out of or as a result of
Frischmeyer Trading Corporation's appointment as the agent of the Partnership
under the FTC Agreement or the Partnership's Advisory Agreement with the CTA, or
any mistakes, transmission failures, exchange rate fluctuations or otherwise
unless such economic loss or losses is or are directly caused by Frischmeyer
Trading Corporation's gross negligence or willful misconduct as finally
adjudicated by a court of competent jurisdiction. The FTC Agreement also
provides that the venue for any dispute between the Partnership and Frischmeyer
Trading Corporation, whether by litigation or arbitration, shall be in Fort
Dodge, Webster County, Iowa. Frischmeyer Trading Corporation will be acting as
the Partnership's agent, and the CTA has no liability or responsibility for any
acts or omissions of Frischmeyer Trading Corporation. The Partnership does not
believe, however, that the provisions of the FTC Agreement will in practice
change or affect the nature or quality of the services that Frischmeyer Trading
Corporation would otherwise provide to the Partnership.
Contributions by the General Partner and/or Mr. Raun. The General Partner
----------------------------------------------------
may, but has no obligation to, make capital contributions to the Partnership.
All contributions made by the General Partner shall
30
<PAGE>
be evidenced by Units, and the Units held by the General Partner shall have the
same rights as the Units held by the Limited Partners. Mr. Raun may also
purchase Units in the Partnership for his own account. Purchases of Units by the
General Partner or Mr. Raun may create a conflict of interest for the General
Partner in its conduct and operation of the Partnership's business. See
---
"PRINCIPAL RISK FACTORS--Purchase of Units by the General Partner or Mr. Raun"
above. See also, "PRINCIPAL RISK FACTORS--Other Members of the General Partner"
--------
above.
Distribution and Liquidation Decisions by the General Partner.
-------------------------------------------------------------
Distributions by the Partnership to Limited Partners will be made only in the
sole discretion of the General Partner. See "PRINCIPAL RISK FACTORS--Limited
---
Partners Will be Taxed on Profits Whether or not Distributed" above. The
General Partner will experience a conflict of interest in determining whether to
declare any distributions because distributions will lower the Net Assets of the
Partnership, which will in turn reduce the amount of the monthly management fee
which is payable to the General Partner by the Partnership. See "DESCRIPTION OF
---
CHARGES TO THE PARTNERSHIP" below. Any decrease in the Net Assets of the
Partnership will also indirectly lower the amount of incentive fees payable to
the General Partner. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP" below.
---
The General Partner will therefore be financially motivated to not declare any
distributions to the Limited Partners. The General Partner will also have an
incentive to discourage liquidation of Units by any Limited Partner for the same
reason, i.e., liquidations will lower the Net Assets of the Partnership and
thereby the compensation payable to the General Partner. Distributions and
liquidations will also lower the fees payable by the General Partner to the CTA.
This fact may also affect distribution and liquidation decisions of the General
Partner given that Mr. Raun and members of his family have an indirect interest
in the compensation payable to the CTA. See "PRINCIPAL RISK FACTORS--Mr. Raun's
---
Interest in the CTA" and "CONFLICTS OF INTEREST--Mr. Raun's Interest in the CTA"
above. The General Partner is aware of these conflicts of interest, however,
and the General Partner will utilize its best efforts to make determinations
regarding distributions and liquidation of Units independent of any
considerations relevant to the compensation to be received by the General
Partner or the CTA. Prospective investors must be aware and understand,
however, that the principal objective of the Partnership is to generate
increased capital for the Partners, and it is therefore very likely that no
distributions will ever be made to the Limited Partners. See "PRINCIPAL RISK
---
FACTORS--Limited Partners Will be Taxed on Profits Whether or not Distributed"
above. Prospective investors must also recognize that an investment in the
Partnership must only be viewed as a long term investment given, among other
things, the volatile nature of futures and options trading. See "PRINCIPAL RISK
---
FACTORS--Futures Trading is and Futures Prices are Speculative and Volatile"
above.
Performance Records. Prospective investors should be aware that the
-------------------
performance information in this Prospectus was prepared by the General Partner
or the CTA, and has not been audited or otherwise independently confirmed by any
party. This is also true with respect to any other performance information that
may be provided to prospective investors in connection with their consideration
of an investment in the Units. All performance information will, however, in
the opinion of the General Partner, accurately reflect the performance for the
periods shown.
Other Pools and Business of the General Partner and Mr. Raun. The General
------------------------------------------------------------
Partner is the general partner and commodity pool operator for four (4) other
limited partnerships. The General Partner also contemplates serving as the
general partner and commodity pool operator for other commodity pools in the
future. See "THE GENERAL PARTNER" below. Mr. Raun is the general partner and
---
commodity pool operator for four (4) limited partnerships and is also sole
owner, director and officer of the Underwriter. Both the General Partner and
Mr. Raun may also have or be involved with other businesses. The General
Partner therefore will not spend its entire time managing the business of the
Partnership, and Mr. Raun will not spend his full time managing the
31
<PAGE>
business and affairs of the General Partner. The General Partner believes,
however, that its time available for the management of the Partnership's
business will be sufficient for the General Partner to fulfill its duties and
obligations to the Partnership. The General Partner also believes that Mr.
Raun's time available for the management of the General Partner will be adequate
to fully perform his duties to the General Partner.
The Underwriter. Vacation Investors, Inc. (the "Underwriter") is the
---------------
underwriter for the Partnership's offering. See "PLAN OF DISTRIBUTION" below.
---
Mr. Raun is one of the registered representatives of the Underwriter, and he
will be offering the Units pursuant to his registration with the Underwriter.
Mr. Raun is also the sole shareholder, director and officer of the Underwriter.
The General Partner does not believe that any material conflict of interest
exists by virtue of the association of Mr. Raun with the Underwriter because
there will be no underwriting or selling commissions or other fees payable to
the Underwriter by the Partnership. See "PLAN OF DISTRIBUTION" below. It
---
should be noted, however, that compensation will be paid to the Underwriter by
the General Partner. See "PLAN OF DISTRIBUTION" below. Since Mr. Raun is the
---
sole shareholder of the Underwriter, Mr. Raun is at least indirectly interested
in that compensation. The General Partner does not believe that any material
conflicts of interest are presented by this arrangement, however, since any
compensation which is paid to the Underwriter will be paid by the General
Partner, and not by the Partnership. See "DESCRIPTION OF CHARGES TO THE
---
PARTNERSHIP--CTA and Underwriter Compensation" and "PLAN OF DISTRIBUTION" below.
Payments by the General Partner to the Underwriter will reduce the profits of
the General Partner, which affects Mr. Raun individually given that he is the
sole owner of the corporation that holds all of the voting units of the General
Partner. See "THE GENERAL PARTNER" below. Also, it is currently contemplated
---
that the payments by the General Partner to the Underwriter will either be in
turn paid out to the registered representatives of the Underwriter or used by
the Underwriter to offset out-of-pocket costs and expenses, so that there will
not be any material profits generated in the Underwriter.
Other Pools and Trading by the General Partner and the Members of the
---------------------------------------------------------------------
General Partner. The General Partner and Mr. Raun may manage additional pools
- ---------------
in the future and the General Partner and the members of the General Partner may
trade for their own and others' accounts. See "PRINCIPAL RISK FACTORS--Other
---
Pools of the General Partner or Mr. Raun" above and "THE GENERAL PARTNER" below.
This creates a potential conflict of interest since it is possible that
positions taken by the General Partner or the General Partner's members for
their own or other accounts may be the same as or may be taken ahead of or
opposite positions taken on behalf of the Partnership. Neither the General
Partner nor the General Partner's members will, however, intentionally or
knowingly trade for their own or another's account ahead of the Partnership's
account, although a high risk situation or other unforeseen circumstances may
exist with respect to other accounts traded by the General Partner or any of its
members which will dictate taking a position opposite that of the Partnership.
The Partnership will endeavor to assure that trading on the Partnership's behalf
will be effectuated and determined in a manner that is believed to be reasonable
to the Partnership.
General Partner Liability. The General Partner is a limited liability
-------------------------
company and only the General Partner, and not its owners, will be liable for
acts or omissions arising from the management of the Partnership's business.
There can be no assurance that the General Partner will at any given particular
time be capitalized or otherwise have assets in an amount sufficient to satisfy
any claims or actions which may be brought against it by the Partnership, any
Partner or any third parties. In the General Partner's experience, however, it
is not uncommon for a limited liability company or other form of limited
liability entity to serve as the general partner and commodity pool operator of
a limited partnership.
32
<PAGE>
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
-----------------------------------------------
The General Partner has a fiduciary responsibility to the Limited Partners.
If a Limited Partner believes the General Partner has violated its fiduciary
duty to the Limited Partners, the Limited Partner may seek legal relief for such
Limited Partner or on behalf of the Partnership under applicable laws to recover
damages from or require an accounting by the General Partner. For example,
Limited Partners are afforded certain rights to institute arbitration and
reparations proceedings under the Commodity Exchange Act for violations by the
General Partner of the Commodity Exchange Act or of any rule, regulation or
order of the CFTC. See "THE COMMODITY MARKETS--Regulation" below. A Limited
---
Partner may also have a right to institute legal proceedings against the General
Partner for certain violations of the Commodity Exchange Act or rules,
regulations or orders of the CFTC. Prospective investors should be aware,
however, that it will generally be difficult to recover damages based upon a
claim that the Partnership's trading has been excessive because of, among other
things, the broad trading authority given to the CTA and the absence of judicial
decisions providing clear standards for defining excessive trading or churning.
The General Partner's performance of its fiduciary and other duties to the
Partnership will also be measured by the terms of the Limited Partnership
Agreement, and prospective investors must be aware that certain provisions of
the Limited Partnership Agreement may render ineffective any legal remedies
otherwise available to Limited Partners as a result of breaches of the General
Partners's fiduciary duty or other responsibilities. Some of those provisions
are summarized in the following paragraphs. Limited Partners who have questions
concerning the responsibilities of the General Partner should consult their own
legal counsel.
As indicated in the preceding paragraph, certain provisions of the Limited
Partnership Agreement may render ineffective any legal remedies otherwise
available to Limited Partners as a result of breaches of the General Partner's
fiduciary duty or other responsibilities. For example, the Limited Partnership
Agreement provides that the General Partner shall not be liable, responsible or
accountable in damages or otherwise to the Partnership or any of the Limited
Partners for any act or omission performed or omitted by the General Partner in
good faith on behalf of the Partnership and in a manner reasonably believed by
the General Partner to be within the scope of authority granted by the Limited
Partnership Agreement and in, or not opposed to, the best interests of the
Partnership, except only when such action or failure to act constitutes
negligence or misconduct. The General Partner's defenses to any claim that the
General Partner has breached any fiduciary duty or other responsibility will
therefore include that the General Partner's act or omission was not negligent
and did not involve any misconduct. The Limited Partnership Agreement also
provides that the General Partner shall in no event be liable to the Partnership
or any of the Limited Partners because any taxing authority disallows or adjusts
any deductions or credits in the Partnership's or any Limited Partner's income
tax returns, nor for the return or repayment of the capital contributions or
profits of any Partner. Any return of capital or profits shall be made solely
from the assets of the Partnership, which shall not include any right of
contribution from the General Partner.
The Limited Partnership Agreement also provides that the Partnership shall
defend, indemnify and hold the General Partner harmless from and against any
loss, liability, damage, cost or expense (including court costs, arbitration
costs, attorneys' and accountants' fees and expenses) actually and reasonably
incurred by the General Partner and arising from any act, omission, activity or
conduct undertaken by or on behalf of the Partnership and reasonably believed by
the General Partner to be within the scope of authority conferred upon the
General Partner by the Limited Partnership Agreement, including against any
demands, claims, lawsuits, arbitration proceedings or other actions initiated
by a Limited Partner. Any such indemnity shall be payable, however, only if the
General Partner (a) acted in good faith and in a manner the General Partner
reasonably believed to be in, or not opposed to, the best interests of the
Partnership, and (b) the act, omission, activity or conduct in question did not
33
<PAGE>
constitute negligence or misconduct. The Limited Partnership Agreement also
provides that no indemnification may be made with respect to any losses,
liabilities, damages, costs or expenses arising from or out of an alleged
violation of federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular indemnitee, or (ii) such claim has been
dismissed by a court with prejudice on the merits as to the particular
indemnitee, or (iii) a court approves a settlement of the claims against the
particular indemnitee and finds that indemnification of the settlement and
related costs and expenses should be made, provided the indemnitee must apprise
the court of the position of the SEC and of the securities administrator of the
state in which the plaintiffs claim they were offered or sold Units with respect
to indemnification for securities laws violations before seeking any such court
approval for indemnification. Insofar as indemnification for liabilities
arising under the Securities Act of 1933 may be permitted to the General Partner
and its affiliates pursuant to the indemnification provisions in the Limited
Partnership Agreement or otherwise, the Partnership has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable.
The Limited Partnership Agreement also authorizes the advancement of costs
and expenses to the General Partner, subject to certain conditions specified in
the Limited Partnership Agreement.
The above discussed provisions of the Limited Partnership Agreement are
also applicable to and benefit any affiliate of the General Partner when the
affiliate is performing services on behalf of the Partnership. The term
"affiliate" for this purpose is defined in the Limited Partnership Agreement,
and will include Mr. Raun.
The above discussed provisions of the Limited Partnership Agreement shall
not be affected by the termination of the Partnership or the resignation,
removal, death, withdrawal, insolvency or dissolution of the General Partner.
Any indemnity made under the Limited Partnership Agreement shall be paid
from, and only to the extent of, Partnership assets, and no Limited Partner
shall have any personal liability for any such indemnity. The payment by the
Partnership of any indemnity to the General Partner, Mr. Raun or any of the
General Partner's other affiliates would, however, affect the Partners because
any such payment would reduce the Net Assets of the Partnership. The General
Partner will not carry insurance covering such potential losses and the
Partnership will carry no liability insurance covering its potential
indemnification exposure.
DESCRIPTION OF CHARGES TO THE PARTNERSHIP
-----------------------------------------
The Partnership will be subject to the following fees and charges, which
are described in more detail below.
34
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Entity Form of Compensation Amount of Compensation
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
General Partner Monthly Management Fee of one-half of Based on Net Assets. See "Management
one percent (0.5%) of Net Assets. Fee and Incentive Fee to General
Partner" below.
Quarterly Incentive Fee equal to 15% Based on performance of the
of the New Trading Profits of the Partnership. See "Management Fee and
Partnership for each quarter. Incentive Fee to General Partner"
below.
Reimbursement of Partnership expenses Reimbursement of actual expenses paid
paid or incurred by the General or incurred by the General Partner.
Partner. See "Other Expenses" below.
- -------------------------------------------------------------------------------------------------------------
First Options of Portion of brokerage commissions. Subject to agreement with LBS from
Chicago, Inc., the time to time. See "Allocation of
Futures Commission Commissions" below.
Merchant
Reimbursement of delivery, insurance, Reimbursement of actual payments to
storage and any other charges paid to third parties. See "Futures
third parties in connection with the Commission Merchant; Brokerage
Partnership's trading Commissions" below.
- -------------------------------------------------------------------------------------------------------------
LBS Portion of brokerage commissions. Subject to agreement with the FCM from
time to time. See "Allocation of
Commissions" below.
- -------------------------------------------------------------------------------------------------------------
Various Exchanges and Exchange fees and NFA fees. Varies dependent upon the trades made,
the NFA but estimated at between $1,000 to
$2,000 per year. See "Other Expenses"
below.
- -------------------------------------------------------------------------------------------------------------
Attorneys and Organizational and Offering Expenses Estimated at $125,660. See "Other
Accountants from this offering. Expenses" below.
Ongoing annual legal, accounting and Estimated at $25,000 for legal, and
auditing expenses. $21,000 for accounting and auditing.
See "Other Expenses" below.
- -------------------------------------------------------------------------------------------------------------
Various Third Party Escrow fees, printing costs, office Actual expenses. Estimated at between
Suppliers of Goods supplies expenses, meeting expenses, $10,000 and $20,000 per year. See
and Services and other expenses necessary or "Other Expenses" below.
appropriate for the operation of the
Partnership.
- -------------------------------------------------------------------------------------------------------------
Others Possible unanticipated and Unable to Estimate. See "Other
extraordinary expenses Expenses" below.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Management Fee and Incentive Fee to General Partner. The General Partner
---------------------------------------------------
receives a monthly management fee of one-half of one percent (0.5%) of the
Partnership's Net Assets as of the close of business on the last business day of
each month. Net Assets for this purpose shall be determined before accrual of
both the management fee and any incentive fee payable to the General Partner.
The management fee is payable by the Partnership within ten (10) business days
of the close of each month.
The General Partner will also receive a quarterly incentive fee of fifteen
percent (15%) of the New Trading Profits (as defined below) of the Partnership
for each quarter, if any. "New Trading Profits" means the excess, if any, of
the Net Assets of the Partnership at the end of each respective quarter over the
highest Net Assets of the Partnership at the end of any previous quarter or on
the date trading commences, whichever is higher. Net Assets shall be adjusted
for this purpose to eliminate the effect thereon resulting from new Capital
Contributions or distributions or liquidations made during the quarter, and
shall be decreased by any interest or other income earned on Partnership assets
during the quarter which is not directly related to trading activity and whether
such assets are held separately or in a margin account. Net Assets for this
purpose shall also be determined excluding accrual of the incentive fee (if
any), but including accrual of the management fee payable to the General Partner
for the months comprising the quarter in question. The incentive fee is payable
as soon as is reasonably practicable following the close of each quarter.
If the Partnership incurs a net loss during any quarter, such loss will be
carried over and charged against the Net Assets of the succeeding quarters until
such loss has been exhausted and before any further incentive fees shall be paid
to the General Partner. In other words, no incentive fee will be payable to the
General Partner until such losses have been offset by net profits in succeeding
quarters. As an example of the foregoing, if in successive quarters the
Partnership performance yields New Trading Profits of $2,000, $8,000, *$4,000*,
*$3,000*, $2,000, and $8,000, then the incentive fee payable to the General
Partner will be, respectively, $300, $1,200, $0, $0, $0, and $450.
The General Partner will also be reimbursed by the Partnership for
Partnership expenses or obligations which are paid or incurred by the General
Partner (such as delivery charges, copying costs, telephone charges and
postage). See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP--Other Expenses"
---
below.
The General Partner will not receive any portion of the brokerage
commissions which are paid by the Partnership.
Futures Commission Merchant; Brokerage Commissions. First Options of
--------------------------------------------------
Chicago, Inc. is the Partnership's futures commission merchant. LBS Limited
Partnership will, however, execute all of the trades of the Partnership, but
will give up all of the trades to First Options of Chicago, Inc. for clearing.
See "FUTURES COMMISSION MERCHANT" below. LBS Limited Partnership and First
- ---
Options of Chicago, Inc. receive compensation in the form of brokerage
commissions for their services of, respectively, executing and clearing the
Partnership's trades. See "DESCRIPTION OF CHARGES TO THE PARTNERSHIP--
---
Allocation of Commissions" below.
One-half (1/2) of the brokerage commissions for trades upon exchanges will
generally be paid by the Partnership at the time the trade is established, with
the remaining one-half (1/2) of the commissions to be paid on the completion or
liquidation of the trade. The brokerage commissions are commonly referred to as
"round-turn commissions" which cover both the initial purchase (or sale) of the
futures contract and the subsequent
36
<PAGE>
offsetting sale (or purchase). The brokerage commissions payable by the
Partnership are always subject to change. See "FUTURES COMMISSION MERCHANT"
---
below.
The round turn commission payable by the Partnership as of the date of this
Prospectus was fixed at $11.00, which the General Partner believes is a
competitive rate. Annual brokerage commissions payable by the Partnership are
estimated by the General Partner to equal approximately 1.47% of the
Partnership's Net Assets at the fixed $11.00 rate, but no assurance or guaranty
is given that annual brokerage commissions will not exceed that percentage.
The Partnership will also reimburse First Options of Chicago, Inc. for all
delivery, insurance, storage and other charges incidental to trading and paid to
third parties, which charges are not included in the calculation of the
percentage set forth in the preceding paragraph. The General Partner does not
anticipate significant charges of this nature.
Allocation of Commissions. It is not uncommon in the futures industry for
-------------------------
commissions which are paid by a trader to be allocated among various parties,
and the brokerage commissions payable by the Partnership will be allocated
between LBS Limited Partnership and First Options of Chicago, Inc. pursuant to
their own agreement from time to time. The Partnership does not control the
allocation, and the allocation may change from time to time without the
knowledge or consent of the Partnership. As indicated above, the commissions
payable by the Partnership were fixed at $11.00, round turn, as of the date of
this Prospectus.
Other Expenses. The Partnership is obligated to pay legal and accounting
--------------
and auditing fees, as well as any other expenses incurred by the Partnership,
such as exchange and NFA fees, office supplies expenses and organizational and
offering expenses.
The NFA fees payable by the Partnership as of the date of this Prospectus
were $0.20 round turn, and $0.10 for options transactions. Exchange fees vary,
but the General Partner estimates that exchange fees may range anywhere from
approximately $800 to $1,800 per year.
The General Partner estimates that the Partnership will incur annual legal
fees (exclusive of those for this offering [estimated to be $65,000] and any
other offerings of the Partnership) and accounting and auditing fees (also
exclusive of those for this offering [estimated to be $8,000] and other
offerings of the Partnership) of approximately $25,000 and $21,000,
respectively, regardless of the number of Units sold in this offering. The
organizational and offering expenses (legal, accounting, printing, filing fees,
etc.) to be incurred by the Partnership in connection with this offering are
estimated to be approximately $125,660.
The Partnership will also be responsible for the payment of the escrow fee
to First American Bank under the Partnership's Escrow Agreement with First
American Bank. The escrow fee will be an aggregate amount equal to the greater
of (i) $300.00, or (ii) an amount calculated by multiplying $5.00 by the number
of checks received or issued by First American Bank under the Escrow Agreement.
The Partnership estimates that it will pay filing fees of approximately
$25,000 to various federal and state authorities in connection with the
registration of this offering with those authorities.
The Partnership will also be responsible for all other expenses incurred by
the Partnership, including extraordinary expenses such as the cost of litigation
in which the Partnership may be engaged. By their nature,
37
<PAGE>
the dollar amount of extraordinary expenses cannot be estimated with any
reasonable certainty, but they may be substantial.
The actual expenses incurred by the Partnership will be set forth in
reports to the Partners. See "Reports" immediately below.
---
The General Partner will be reimbursed by the Partnership for Partnership
expenses or obligations which are paid or incurred by the General Partner (such
as delivery charges, copying costs, telephone charges and postage).
CTA and Underwriter Compensation. The compensation payable to the CTA for
--------------------------------
its services to the Partnership will be paid to the CTA by the General Partner,
and the Partnership is not liable or responsible for the payment of the CTA's
compensation. The compensation payable to the CTA by the General Partner shall
be established by agreement of the CTA and the General Partner from time to
time, with the current agreement being that the General Partner will pay the CTA
a certain percentage of the management fees and incentive fees which are
otherwise paid to the General Partner by the Partnership.
The compensation payable to the Underwriter for its services to the
Partnership is also payable by the General Partner, and the Partnership is not
liable or responsible for the payment of the Underwriter's compensation. The
compensation payable to the Underwriter by the General Partner will be
established by the agreement of the Underwriter and the General Partner from
time to time. See "PLAN OF DISTRIBUTION" below.
---
Neither the CTA nor the Underwriter will receive or participate in any way
in any brokerage commissions payable by the Partnership.
Frischmeyer Trading Corporation Compensation. The compensation payable
--------------------------------------------
under the FTC Agreement will be paid to Frischmeyer Trading Corporation by the
General Partner, and the Partnership is not liable or responsible for the
payment of Frischmeyer Trading Corporation's compensation. Frischmeyer Trading
Corporation will not receive or participate in any way in any brokerage
commissions payable by the Partnership.
Reports. The General Partner will furnish each Limited Partner with a
-------
monthly statement of account which will include, in general, a description of
the performance of the Partnership and will set forth the aggregate fees,
brokerage commissions, and other expenses incurred or accrued by the Partnership
during the month. The Partnership will also provide the Limited Partners with
all such other reports as may be required under the regulations of the CFTC and
under the Exchange Act. See "THE LIMITED PARTNERSHIP AGREEMENT--Reports to
---
Limited Partners" below.
Break Even Calculation. As indicated in "SUMMARY OF THE OFFERING--Break
----------------------
Even Point" above, the trading profit that the Partnership must realize in the
first year of a Limited Partner's investment in the Partnership to equal all
fees and expenses such that the Limited Partner would recoup its initial
investment if the Limited Partner were to redeem the Limited Partner's Units at
the end of the first year of investment, assuming a $5,000 investment, is (i)
$223.50 or 4.47% of such $5,000 investment, assuming annual average Net Assets
of $5,000,000; (ii) $181 or 3.62% of such $5,000 investment, assuming average
annual Net Assets of $15,000,000; and (iii) $173 or 3.46% of such $5,000
investment, assuming average annual Net Assets of $25,000,000. The calculations
have been given for the various levels of Net Assets since the amount of
subscriptions received by the Partnership in this offering could vary widely.
38
<PAGE>
The following table and Explanatory Notes set forth the basis for and
calculation of the above figures. Except as set forth in the Explanatory Notes,
the table is predicated on the specific rates or fees contracted by the
Partnership with the General Partner and the FCM as described above.
<TABLE>
<CAPTION>
Net Assets $5,000,000 $15,000,000 $ 25,000,000
- ---------- ---------- ----------- ------------
<S> <C> <C> <C>
Selling Price per Unit/(1)/ $ 5,000 $ 5,000 $ 5,000
General Partner's $ 300,000 $ 900,000 $ 1,500,000
Management Fee/(2)/
General Partner's Quarterly $ - 0 - $ -0- $ - 0 -
Incentive Fee on New Trading
Profits/(3)/
Partnership Operating Expenses/(4)/ $ 81,132 $ 115,632 $ 152,632
Brokerage Commissions, Exchange, $ 92,531 $ 277,594 $ 462,656
NFA and Other Trading
Fees/(5)/
Less Interest Income/(6)/ ($250,000) ($ 750,000) ($1, 250,000)
---------- ----------- ------------
Amount of Trading Income Required
for the Partnership's Net Asset
Value Per Unit (Redemption
Value) at the End of One Year to
Equal the Selling Price per Unit $ 223,663 $ 543,226 $ 865,288
Percentage of Initial Selling
Price Per Unit 4.47% 3.62% 3.46%
</TABLE>
Explanatory Notes:
- -----------------
1. Units may be purchased at a price of $1,000 per Unit until the
Partnership has commenced trading. After that time, Units may be purchased at a
price per Unit equal to the Net Asset Value Per Unit as of the opening of
trading on the first business day of the month next following the date on which
the General Partner accepts a Subscription Agreement and the required applicable
capital contribution from the subscriber in question. The minimum initial
investment is $5,000.
2. The General Partner receives a monthly management fee of one-half of
one percent (0.5%) [which equates to 6% annually] of the Partnership's Net
Assets as of the close of business on the last business day of each month. See
---
"DESCRIPTION OF CHARGES TO THE PARTNERSHIP--Management Fee and Incentive Fee to
General Partner" above. The amounts set forth above are annual amounts.
39
<PAGE>
3. The General Partner also receives a quarterly incentive fee of fifteen
percent (15%) of the New Trading Profits of the Partnership. See "DESCRIPTION OF
---
CHARGES TO THE PARTNERSHIP--Management Fee and Incentive Fee to General Partner"
above. No amount is shown above for incentive fees because all fees and
expenses payable by the Partnership are deducted before calculation of the
Incentive Fee.
4. The Partnership's actual accounting, auditing, legal and other
operating expenses will be borne by the Partnership. These expenses are
estimated to amount to approximately 1.62%, 0.77% and 0.61%, respectively,
assuming annual average Net Assets of $5,000,000, $15,000,000, and $25,000,000
respectively. The listed expenses include $125,660 as an estimate of the
organizational and offering expenses (legal, accounting, printing, filing fees,
etc.) for this offering, which amount has been amortized over a five (5) year
period for purposes of the above calculations (i.e., $2,094 per month) given
that such amortization is required under the terms of the Limited Partnership
Agreement as part of the calculation of the Net Asset Value Per Unit. See
---
"TRANSFERABILITY AND LIQUIDATION OF UNITS" below.
5. Brokerage commissions, exchange and NFA fees and other trading fees are
estimated at 1.85% of Net Assets.
6. The Partnership will earn interest on Treasury Bills purchased and held
in the Partnership's account with the FCM, and on funds held in the
Partnership's bank account. Based on interest rates in effect as of the date of
this Prospectus, interest income is estimated at 5% of Net Assets.
POTENTIAL ADVANTAGES
--------------------
Although an investment in the Partnership is highly speculative and
involves a high degree of risk, an investment will offer the following potential
advantages.
PROFESSIONAL MANAGEMENT. Studies have shown that the vast majority of
-----------------------
individual investors lose money in the futures market. However, other studies
have shown that over a majority of professionally managed futures programs
realize annual net gains for their customers over the long term. See, however,
---
"PRINCIPAL RISK FACTORS--Futures Trading Is and Futures Prices are Speculative
and Volatile" and "Influences on Trading Approaches" above.
ASSET ALLOCATION SUPPORT. Studies have also shown that including a
------------------------
diversified mix of professionally managed futures programs in an investment
portfolio reduces volatility while enhancing the possibility of returns.
LOW CORRELATION WITH STOCK AND BOND MARKETS. The CTA's Trading Program has
-------------------------------------------
a low correlation to the stock and bond markets. An investment in the
Partnership is therefore one way to provide an investor with some
diversification from those markets. See, however, "PRINCIPAL RISK FACTORS--
---
Reliance on the CTA" and "Lack of Diversification" above.
VACATION AWARDS. An investor meeting the applicable qualification
---------------
requirements may receive a vacation award from the General Partner. See
---
"VACATION AWARD" below. See also, however, "PRINCIPAL RISK FACTORS--Vacation
--------
Award" above.
LOWER INITIAL INVESTMENT REQUIREMENTS. The general minimum new account
-------------------------------------
size for the CTA's Trading Program is $700,000. However, an investor is able to
participate in the Trading Program through the
40
<PAGE>
Partnership with a minimum initial investment of $5,000. An investment in the
Partnership therefore gives an investor the ability to participate in a trading
program most persons cannot afford to invest in alone.
LIMITED LIABILITY. Unlike an individual who invests directly in futures
-----------------
contracts or options, a Limited Partner who does not participate in the control
of the business of the Partnership will not be individually subject to margin
calls and generally cannot lose more than the amount of the Limited Partner's
capital contribution, the Limited Partner's share of undistributed profits, if
any, and, under certain circumstances, any distributions made with respect to
Units and any amounts received upon liquidation of Units. See "THE LIMITED
---
PARTNERSHIP AGREEMENT--Nature of the Partnership; Liability of Limited Partners"
below.
LOWER TIME COMMITMENT. Trading in futures and options is a complicated
---------------------
process involving a substantial time commitment and knowledge of the various and
numerous factors affecting the futures and options markets. An investment in
the Partnership gives an investor the ability to participate in those markets
without such a substantial time commitment.
GAIN MARKET UNDERSTANDING. An investment in the Partnership may also,
-------------------------
however, be a way for an investor to gain a useful understanding of the futures
and options markets by studying the way the CTA trades and the various reports
the Partnership will provide to Limited Partners.
NO LOAD. No front-end or back-end fees are charged by the Partnership,
-------
which allows more of an investor's money to remain available for investment
through the Partnership. See, however, "PRINCIPAL RISK FACTORS--Substantial
---
Charges to Partnership" above.
ADMINISTRATIVE CONVENIENCE. The Partnership is structured so as to provide
--------------------------
Limited Partners with certain services designed to alleviate the administrative
details involved in engaging directly in futures and options trading, including
providing monthly and annual financial reports and all tax information relating
to the Partnership which is necessary for Limited Partners to complete their
federal income tax returns.
USE OF PROCEEDS
---------------
Once released from escrow, substantially all of the Partnership's funds
will be maintained in the Partnership's trading account with the FCM to be used
to engage in the speculative trading of various domestic and foreign futures
contracts and options under the direction of the CTA. See "INVESTMENT PROGRAM"
---
below. The Partnership's funds in its trading account with the FCM which are
not committed to trading may be invested in, among other things, certificates of
deposit, money market funds, treasury bills or securities guaranteed by the
United States government. A portion of the Partnership's funds may also be
invested in accounts in the name of the Partnership with banks (including in so
called sweep accounts), money market funds or in other similar liquid
investments. All interest and other earnings earned on the Partnership's funds
will be paid to and credited to the Partnership and not to the broker or other
custodian having custody of the Partnership's funds. The Partnership will not
have significant assets or properties other than the Partnership's trading
account with the FCM or the other types of accounts described in this paragraph.
The General Partner estimates that approximately 80% of the Partnership's assets
will generally be on deposit and held in the Partnership's account with the FCM,
with the remaining 20% of the Partnership's funds being held in money market
funds or the Partnership's bank accounts; but those percentages could vary
widely from time to time. Some of the accounts in which Partnership funds will
be deposited and held (including the account with the FCM) will not be
federally insured or guaranteed. See "PRINCIPAL RISK FACTORS--Failure of
---
Exchanges, Brokers or Banks" above.
41
<PAGE>
The funds held in the Partnership's general bank accounts will be utilized for
payment of Partnership operating expenses.
All of the funds held in the Partnership's account with the FCM may be used
as margin for the Partnership's open trading positions. The General Partner
estimates that approximately 5% to 25% of the funds of the Partnership will
normally be committed as margin and option premiums for its trading, but the
percentage of funds committed as margin may be substantially more or less than
that range from time to time. The FCM may also increase margins applicable to
the Partnership at any time. Any increase in the amount of funds committed as
margin by the Partnership will increase the risks to the Partnership. See
---
"PRINCIPAL RISK FACTORS--Futures Trading is Highly Leveraged" and "Margin Calls"
above.
The Partnership's account with the FCM will currently be classified as a
customer account under the CFTC's regulations, and not a proprietary account.
The Partnership's funds used to margin its forward and foreign trading will not
be segregated pursuant to Section 4d(2) of the Commodity Exchange Act. Of the
funds of the Partnership that will be on deposit with and held by the FCM, the
General Partner estimates that approximately 90% will be segregated pursuant to
the Commodity Exchange Act, with the remaining 10% being carried in a "non-
segregated account" at the FCM to margin the Partnership's forward and foreign
trading. Those percentages may, however, vary widely from time to time.
The types of interests the Partnership may trade in are discussed at
"INVESTMENT PROGRAM" below.
The contributions received from subscribers will be deposited and held in a
separate escrow account in the name of the Partnership at First American Bank,
Fort Dodge, Iowa, pending acceptance of at least $500,000 in subscriptions.
See "SUMMARY OF THE OFFERING--Securities Offered" above and "PLAN OF
- ---
DISTRIBUTION" below. The Partnership is therefore required to have accepted at
least $500,000 in contributions from subscribers before it can commence trading
operations. See "PRINCIPAL RISK FACTORS--No Assurance That Units Will Be Sold;
---
Limited Experience of the Underwriter" above. No escrow will be utilized for
any subscriptions received after the release of funds from escrow, and any
subsequent contributions which are accepted by the Partnership will be
immediately available for use in the Partnership's business.
Neither the Partnership nor any of its affiliates are doing business with
the government of Cuba or with any person or affiliate located in Cuba.
INVESTMENT PROGRAM
------------------
The following description of the Partnership's business and the CTA's
Trading Program is not intended to be exhaustive. In addition, substantially
all of the trading methods, systems and strategies utilized by the CTA in the
Trading Program are proprietary and confidential, and the following descriptions
are therefor by necessity general in nature. Prospective investors should also
be aware that there are numerous trading methods, systems and strategies
utilized in futures and options trading and that the following discussion only
addresses those methods, systems and strategies utilized by the CTA in the CTA's
Trading Program. Prospective investors will therefore be unable to compare the
CTA's methods, systems and strategies with any other trading methods, systems
and strategies that are utilized by other commodity trading advisors or trading
managers.
In its trading activities, the Partnership will utilize its best efforts to
adhere to the following policies.
42
<PAGE>
1. The Partnership will endeavor to assure that no business will be
conducted which is forbidden by or will be contrary to any applicable law or any
lawful rules and regulations as are established by the regulated exchanges upon
which the Partnership may trade.
2. The Partnership shall not engage in pyramiding, which means using all
or a part of an unrealized profit in a futures contract position to provide
margin for any additional futures contracts of the same or related commodities;
provided, however, that taking into account the Partnership's open trade equity
on existing positions in determining generally whether to acquire additional
positions on behalf of the Partnership will not be considered to constitute
"pyramiding."
3. The Partnership shall not make any loans to the General Partner or any
other person.
4. The Partnership shall not permit "churning" of the Partnership's
assets.
5. Neither the General Partner nor any affiliate of the General Partner
may receive interest, points or other financing charges on any loan by them to
the Partnership.
6. The funds of the Partnership shall not be commingled with the funds of
the General Partner; provided, however, without limitation, that funds used to
satisfy margin requirements will not be considered commingled.
7. The General Partner shall not receive any rebates or giveups nor
participate in any reciprocal business arrangements which circumvent these
restrictions and those against dealing with affiliates or other interested
parties.
8. Neither the CTA nor any other person acting in such capacity shall
receive a management fee or advisory fee (which terms do not include an
incentive fee) if such person shares or participates, directly or indirectly, in
any brokerage commissions generated by the Partnership.
9. The term of any contract between the Partnership and the General
Partner or the CTA shall not exceed one year and any such contract must be
terminable without penalty upon sixty (60) days written notice by the
Partnership; provided, however, that any such contract may provide for a
continuous term or renewable terms so long as such contract is otherwise
terminable upon thirty (30) days or less written notice by the Partnership.
The General Partner shall not, without the prior written consent or vote of
the Limited Partners holding at least a majority of the total number of
outstanding Units, effect any material change in the Partnership's basic
investment policies (which are those specified in numbered paragraphs 2, 3 and 4
immediately above) or structure; provided, however, that amendments authorized
by Section 11.02 of the Limited Partnership Agreement (See "PRINCIPAL RISK
---
FACTORS--Limited Partners Will Not Participate In Management" above, and "THE
LIMITED PARTNERSHIP AGREEMENT--Management of Partnership Affairs" below), or any
change from time to time (i) in commodity trading advisors or introducing
brokers or futures commission merchants; (ii) in the trading methods, systems or
strategies utilized by any commodity trading advisor, (iii) in the allocation or
diversification of the Partnership's assets among the types of interests traded
or in the positions held in contracts or options, or (iv) in the types of
contracts or options or commodities, currencies, securities or other interests
traded by the Partnership shall not, without limitation, constitute a material
change for this purpose.
43
<PAGE>
The Partnership is authorized to trade in the types of commodities,
currencies, securities and other interests described in this Prospectus, and the
Partnership and/or the CTA may change the types of commodities, currencies,
securities and other interests being traded by the Partnership from time to time
without notice to or the consent of the Limited Partners. See "PRINCIPAL RISK
---
FACTORS--Limited Partners Will Not Participate in Management" and "No Notice of
Trades or of Changes in Trading Method" above. The Partnership may trade in the
interbank spot and forward markets and on regulated exchanges located in the
United States and in non-United States jurisdictions. Prospective investors
should be aware that trading on foreign exchanges is not subject to CFTC
regulations and may involve greater risks than trading on exchanges located in
the United States. See "PRINCIPAL RISK FACTORS--Trading on Foreign Exchanges,"
---
"Trading in Forward Contracts," and "Influences on Trading Approaches" above.
The CTA's Trading Program in which the Partnership's account will be traded
in is referred to by the CTA as the "Financial Program." The Financial Program
is a systematic, trend following, computerized trading approach utilizing
multiple moving averages and a breakout system applied to the financial
instruments, currencies, indices and interest rate contracts traded in the
Financial Program, which are discussed below. The general objective of the
Financial Program is to maximize profit from trading in the financial
instruments, currencies, indices and interest rate contracts traded in the
Financial Program. The Financial Program is not correlated with traditional
debt and equity investments.
Trading in the Financial Program is currently limited to various financial
instruments, currencies, indices, and interest rate contracts, including,
without limitation, the following:
Mexican Pesos U.S. Dollar Index Australian Dollars
Japanese Yen Federal Funds Short Sterling
Swiss Francs 10 Year U.S. Treasury Notes Euro Yen
Deutsche Marks 5 Year U.S. Treasury Notes Euro Swiss
Eurodollars Municipal Bonds Euro
British Pounds 30 Year U.S. Bonds 90 day Euro Rates
Canadian Dollars French Francs
See "PRINCIPAL RISK FACTORS--Lack of Diversification" above. The particular
- ---
financial instruments, currencies, indices and interest rate contracts traded in
the Financial Program may, however, be modified by the CTA from time to time, in
its sole discretion.
The Financial Program utilizes an optimized allocation amongst the
financial instruments, currencies, indices and interest rate contracts being
traded, with the allocation being determined pursuant to an optimized Markowitz
mean variance. The allocation amongst the types of financial instruments,
currencies, indices and interest rate contracts being traded in the Financial
Program may, however, be modified or reoptimized by the CTA from time to time,
in the CTA's sole discretion.
The CTA contemplates that from approximately 5% to 25% of an account traded
in the Financial Program will be committed as margin for trading at any one time
and from time to time, but the percentage of assets committed as margin may be
substantially more or less at any given time. See "PRINCIPAL RISK FACTORS--
---
Futures Trading is Highly Leveraged" and "Margin Calls" above. No stops are
utilized in the Financial Program.
44
<PAGE>
Trading in the Financial Program may be through futures and options on
United States and foreign exchanges and in the interbank currency spot and
forward markets. See "PRINCIPAL RISK FACTORS--Trading on Foreign Exchanges" and
---
"Forward Contracts" above. The CTA may also utilize exchange for physicals and
engage in over-the-counter transactions in the Financial Program. Exchange for
physicals is a practice whereby positions in certain futures contracts may be
initiated or liquidated by first executing the transaction in the appropriate
cash market and then arbitraging the position into the futures market,
simultaneously buying the cash position and selling the futures position, or
vice versa. The CTA also may, but is not required to, utilize the Average Price
System for those futures and options contracts where its use is authorized.
Under the Average Price System, when multiple price executions are received on a
"blocked" order, the prices will be averaged and confirmed to each account on
the averaged basis, which will be computed by multiplying the execution prices
by the quantities at those prices divided by the total quantities. See
---
"CONFLICTS OF INTEREST--Trading Decisions of the CTA" above.
Although the Financial Program is a technical, computerized trading
program, the CTA does have the right and may exercise subjective discretion over
trades in times of extremely unusual market conditions, such as when
historically unusual economic, political or other risks make it prudent, in the
CTA's discretion, to reduce the trading risks incurred. The General Partner
believes, however, that it is extremely unlikely that the CTA will ever exercise
any such subjective discretion.
All of the CTA's trading methods, systems and strategies may be modified
and adjusted from time to time, in the sole discretion of the CTA. As a result
of any such changes, the prior track record of the CTA will not necessarily
reflect the potential performance of current or future methods if they had been
applied during earlier periods. See "PRINCIPAL RISK FACTORS--No Notice of
---
Trades or of Changes in Trading Method" above.
Prospective investors should also review "THE CTA--QUIET SYSTEMS LIMITED"
and "PERFORMANCE RECORDS OF THE CTA" below for a further discussion of the CTA's
experience and of the Trading Program and the CTA's other trading programs.
Prospective investors should also review "PRINCIPAL RISK FACTORS" above for this
purpose, in particular "Futures Trading is and Futures Prices are Speculative
and Volatile" and "Futures Trading is Highly Leveraged" for a discussion of the
volatility of and the use of leverage in the CTA's Trading Program.
In order to participate in the Trading Program, the Partnership was
required to execute an Advisory Agreement. Under the Advisory Agreement, the
CTA is authorized to determine and make all of the Partnership's trades in the
CTA's sole discretion. Various other terms and provisions of the Advisory
Agreement are discussed in "CONFLICTS OF INTEREST--Agreements Required by the
CTA" above.
Various other agreements and documents were also required to be executed by
the Partnership in order to be able to participate in the Trading Program and to
establish and maintain the Partnership's trading account with the FCM. See
---
"FRISCHMEYER TRADING CORPORATION" and "FUTURES COMMISSION MERCHANT" below.
The CTA will be managing accounts for other clients during the same period
that the CTA is managing the Partnership's account. See "THE CTA--QUIET SYSTEMS
---
LIMITED" below. The CTA is not prohibited from managing other accounts or from
using for other accounts the same information and trading strategy obtained,
produced or utilized in the performance of services for the Partnership. See
---
"PRINCIPAL RISK
45
<PAGE>
FACTORS--CTA Conflicts of Interest" and "CONFLICTS OF INTEREST--Trading
Decisions of the CTA" and "Other Business of CTA" above.
DETERMINATION OF THE OFFERING PRICE
-----------------------------------
Units are initially offered for sale at a fixed value of One Thousand
Dollars ($1,000) per Unit, which amount was arbitrarily set by the General
Partner. The amount was not based upon past or expected earnings and does not
represent that the Units have or will have a market value of or can be resold or
liquidated at that price. If the Minimum Units are sold prior to the close of
the Minimum Units Offering Period, the funds of the Partnership will be released
from escrow, and the Partnership will then commence trading at such time as is
determined by the CTA, in the CTA's sole discretion. See "PLAN OF DISTRIBUTION"
---
below.
The Units which remain unsold after the Partnership has commenced trading
may be offered for sale from time to time, in the sole discretion of the General
Partner, at a price per Unit equal to the Net Asset Value Per Unit as of the
opening of trading on the effective date of the purchase. The effective date of
any purchase of Units after the Partnership has commenced trading will be the
first business day of the month next following the date on which the General
Partner accepts a duly executed subscription agreement and the required
applicable capital contribution from the subscriber in question. See
---
"SUBSCRIPTION PROCEDURE" below. The Partnership will issue fractional Units,
rounded up to the sixth decimal point, to the extent necessary to fill an
accepted subscription for Units.
The Partnership will calculate the Net Asset Value Per Unit on a monthly
basis, and will make the Net Asset Value Per Unit available to prospective
investors and Limited Partners upon request to the General Partner at the
address or phone number set out in "SUMMARY OF THE OFFERING-The Partnership" on
page 1 of this Prospectus. The organizational and offering expenses incurred by
the Partnership prior to the effective date of the initial registration
statement filed by the Partnership with the SEC are amortized over a period of
five (5) years for purposes of calculating the Net Asset Value Per Unit. See
---
the definitions of "Net Assets" and "Net Asset Value Per Unit" in "SUMMARY OF
THE OFFERING - Glossary and Designation of Parties" above.
THE GENERAL PARTNER
-------------------
BACKGROUND OF THE GENERAL PARTNER. The General Partner and commodity pool
---------------------------------
operator of the Partnership is Portfolio Boost, L.L.C., an Iowa limited
liability company. The General Partner will manage the business of the
Partnership. The General Partner does have the right, however, to retain third
parties to provide services to or on behalf of the Partnership, in the General
Partner's sole discretion. The General Partner currently does not expect to
retain any such third parties, other than to perform accounting, auditing, legal
and other professional services.
The CFTC requires a disclosure of the business background of the General
Partner and of its principals for at least the five years preceding the date of
this Prospectus, and such background is as follows.
PORTFOLIO BOOST, L.L.C.
-----------------------
Portfolio Boost, L.L.C. is an Iowa limited liability company that was
organized in May of 1998. Portfolio Boost, L.L.C.'s principal office is at
Cornerstone at Cantera, 4320 Winfield Road, Suite 320,
46
<PAGE>
Warrenville, Illinois 60555, telephone 1-877-RRRATIO. Portfolio Boost, L.L.C. is
registered as a commodity pool operator with the CFTC, and is also a member of
the NFA.
Portfolio Boost, L.L.C. was organized for the purpose of serving as the
general partner of the Partnership and of Portfolio Boost I, L.P., Portfolio
Boost III, L.P., Portfolio Boost MJF, L.P. and Corn Belt Commodities Round Trip
Limited Partnership, each of which are also Iowa limited partnerships which were
formed to operate a commodity pool. Portfolio Boost, L.L.C. may also serve as
the commodity pool operator for other new or existing pools in the future, and
although no firm decision had been made as of the date of this Prospectus,
Portfolio Boost, L.L.C. does contemplate organizing and offering various other
pools in the future. See "PRINCIPAL RISK FACTORS--Other Pools of the General
---
Partner or Mr. Raun" above.
The trading accounts of Portfolio Boost I, L.P. and Portfolio Boost III,
L.P. will be traded in, respectively, the CTA's Diversified Program and the
CTA's FOREX INDEX Program, which were the other trading programs which were
offered by the CTA as of the date of this Prospectus. See "PERFORMANCE RECORDS
OF THE CTA" below. A brief discussion of those trading programs is set forth in
"PERFORMANCE RECORDS OF THE CTA" below. See also "INVESTMENT PROGRAM" above.
--------
Portfolio Boost I, L.P. was formed in May, 1998, and Portfolio Boost III, L.P.
was formed in June of 1998, and neither had accepted any capital contributions
or had commenced trading as of the date of this Prospectus.
The trading account of Portfolio Boost MJF, L.P. will be traded in one of
the trading programs of Michael J. Frischmeyer. Portfolio Boost MJF, L.P. was
formed in June of 1998, and had not accepted any capital contributions or
commenced trading as of the date of this Prospectus.
NO OFFERING OF ANY UNITS OF LIMITED PARTNERSHIP INTEREST IN PORTFOLIO BOOST
I, L.P., PORTFOLIO BOOST III, L.P. OR PORTFOLIO BOOST MJF, L.P. IS BEING MADE
PURSUANT TO THIS PROSPECTUS.
Portfolio Boost, L.L.C. is also the general partner and commodity pool
operator of Corn Belt Commodities Round Trip Limited Partnership ("CBC-RT"),
which is also an Iowa limited partnership operating a commodity pool. Corn Belt
Management, Inc., an Iowa corporation ("Corn Belt"), was the prior general
partner and commodity pool operator of CBC-RT. Portfolio Boost, L.L.C. became
the general partner and commodity pool operator of CBC-RT by virtue of the
merger of Corn Belt with and into Portfolio Boost, L.L.C. in May, 1998. One of
the assets obtained by Portfolio Boost, L.L.C. pursuant to its merger with Corn
Belt was Corn Belt's registration as a commodity pool operator with the CFTC,
and a new registration of Portfolio Boost, L.L.C. as a commodity pool operator
therefore did not need to be filed with the CFTC and the NFA. Mr. Raun owned
all of the issued and outstanding shares of stock of Corn Belt. As further
discussed below, Mr. Raun owns all of the issued and outstanding stock of
Vacation Partners, Inc., and Vacation Partners, Inc. owns all of the issued and
outstanding voting units of Portfolio Boost, L.L.C.
CBC-RT utilizes a different commodity trading advisor than the Partnership,
and CBC-RT is not in any way related to or connected with this offering. CBC-RT
IS CLOSED TO NEW INVESTORS, AND NO OFFERING OF ANY UNITS OF LIMITED PARTNERSHIP
INTEREST IN CBC-RT IS BEING MADE PURSUANT TO THIS PROSPECTUS.
The audited balance sheet of Portfolio Boost, L.L.C. as of September 30,
1998 is attached hereto as Exhibit "D". See "EXPERTS" below.
---
47
<PAGE>
JEFFREY A. RAUN ("MR. RAUN").
----------------------------
Mr. Raun is the sole officer of the General Partner. Mr. Raun also owns
all of the issued and outstanding shares of stock of Vacation Partners, Inc., an
Iowa corporation. Vacation Partners, Inc. owns all of the voting units of the
General Partner. See "THE GENERAL PARTNER--Members of the General Partner"
---
below.
Mr. Raun was born on June 23, 1956, and is presently a resident of the
State of Illinois. Mr. Raun holds a bachelor's degree in agricultural economics
from Iowa State University, Ames, Iowa. From late 1983 until January, 1994, Mr.
Raun was a Senior Account Manager and Sales Team Leader for Learning
International (formerly Xerox Learning Systems), Schaumburg, Illinois. Learning
International was the world's largest corporate sales and management training
organization. From June of 1978 until joining Learning International in June of
1983, Mr. Raun served as a sales representative for Shell Chemical Company, One
Shell Plaza, Houston, Texas.
Mr. Raun is the general partner and commodity pool operator for four (4)
commodity pools, those being (i) Agri-Center Commodities, Ltd., an Iowa limited
partnership ("Agri-Center"), (ii) Corn Belt Commodities Limited Partnership, an
Iowa limited partnership ("Corn Belt I"), (iii) Corn Belt Commodities Limited
Partnership II, an Iowa limited partnership ("Corn Belt II"), and (iv) Corn Belt
Commodities Limited Partnership III, an Iowa limited partnership ("Corn Belt
III"). The referenced commodity pools commenced trading in, respectively, 1980,
1983, 1985, and 1988. The units of limited partnership interest in each of the
commodity pools were offered pursuant to Rule 504 of Regulation D and in various
states pursuant to exemptions from registration available under the securities
laws of those states. The referenced pools are still in operation, but are no
longer open to new investors, and no offering of any units of limited
partnership interest in any of those commodity pools is being made by this
Prospectus. The aggregate capital contribution to all four pools was
$1,800,000. None of these commodity pools utilize the services of the CTA.
Mr. Raun was also the sole shareholder, director and officer of Corn Belt
from the incorporation of Corn Belt in July, 1994 through the merger of Corn
Belt with and into the General Partner in May, 1998, as discussed above. Corn
Belt served as the general partner and commodity pool operator of CBC-RT. CBC-RT
is a commodity pool which commenced trading in 1994. CBC-RT offered its units
of limited partnership interest pursuant to Regulation A under the federal
Securities Act of 1933 and in various states pursuant to either a registration
of its units or exemptions from registration available under the securities laws
of those states. CBC-RT is still in operation, but is closed to new investors,
and no offering of any units of limited partnership interest in CBC-RT is being
made pursuant to this Prospectus. The aggregate capital contribution to CBC-RT
was $3,883,696.
Mr. Raun is also the sole shareholder, director and officer of the
Underwriter, Vacation Investors, Inc., an Iowa corporation. Vacation Investors,
Inc. is registered as a fully disclosed broker dealer with the SEC and is a
member of the NASD. Vacation Investors, Inc. was organized and incorporated on
April 15, 1994 for the initial purpose of the offer and sale of units of limited
partnership interest in CBC-RT. Vacation Investors, Inc. also serves as the
underwriter for the offerings of the other limited partnerships for which the
General Partner serves as the general partner, and also engages in other broker-
dealer activities. See "PLAN OF DISTRIBUTION" below. Mr. Raun may participate
---
in the offering of the Partnership's Units pursuant to his registration with
Vacation Investors, Inc. Mr. Raun also provides general brokerage services to
various persons and entities in that capacity.
48
<PAGE>
Mr. Raun has been registered with the CFTC as an Associated Person of Iowa
Commodities, Ltd., Fort Dodge, Iowa since November 17, 1993. Iowa Commodities,
Ltd. is registered as an introducing broker with the CFTC. Iowa Commodities,
Ltd. will not, however, serve as the introducing broker for the Partnership or
otherwise provide any services to the Partnership, and Iowa Commodities, Ltd.
otherwise has no involvement with the Partnership or this offering.
As indicated above, Mr. Raun serves as the commodity pool operator for
Agri-Center, Corn Belt I, Corn Belt II, and Corn Belt III, and he has been
registered with the CFTC as a commodity pool operator since October 4, 1982.
Mr. Raun became a member of the NFA in April of 1983. Mr. Raun has also been
registered with the CFTC as a commodity trading advisor since December 27, 1984.
Mr. Raun served as the commodity trading advisor for Agri-Center, Corn Belt I,
Corn Belt II and Corn Belt III from approximately 1984 through 1989. Mr. Raun
was not serving as the commodity trading advisor for any accounts as of the date
of this Prospectus, but he may act in that capacity at some point in the future.
MEMBERS OF THE GENERAL PARTNER.
------------------------------
The General Partner is an Iowa limited liability company that has two
different classes of members. One class of members holds voting units in the
General Partner, while the other class of members holds nonvoting units in the
General Partner. As indicated above, all of the voting units of the General
Partner are held by Vacation Partners, Inc. Vacation Partners, Inc. is an Iowa
corporation that is wholly owned by Mr. Raun. Vacation Partners, Inc. was
incorporated in April, 1998, and was formed for the purpose of holding the
voting units in the General Partner. Vacation Partners, Inc. does not engage in
any business.
The nonvoting units of the General Partner have been issued to Dr. Mark and
Rebecca Westberg, Dr. Craig and Elizabeth Rowles, Dr. Alan and Dorothy Raun, and
Daniel and Kathleen Frieberg (collectively, the "Nonvoting Members"), each as
joint tenants. The Nonvoting Members do not have the right to and will not
participate in the day-to-day operation of the General Partner's business and
similarly do not have the right and will not supervise or control Mr. Raun's
activities on behalf of the General Partner, except only in certain limited
circumstances specified in the Operating Agreement of the General Partner. See
---
"PRINCIPAL RISK FACTORS--Other Members of the General Partner" above. Even in
those circumstances, however, it is contemplated that the Nonvoting Members will
not participate in making any trading or operational decisions with respect to
the Partnership, and that Mr. Raun will continue to serve as the sole officer of
the General Partner and will, in that capacity, have full right and authority to
make all operational decisions regarding the General Partner's services to the
Partnership. A discussion of the business background of the Nonvoting Members
is therefore not included in this Prospectus.
PERFORMANCE RECORDS OF THE GENERAL PARTNER. The Partnership had not yet
------------------------------------------
commenced trading as of the date of this Prospectus, so this Prospectus does not
contain any performance information for the Partnership. See "PERFORMANCE
---
RECORDS OF THE GENERAL PARTNER" below, commencing on page 55. The General
Partner also serves as the commodity pool operator for CBC-RT. CBC-RT had
commenced trading as of the date of this Prospectus, and certain performance
records regarding CBC-RT are included in "PERFORMANCE RECORDS OF THE GENERAL
PARTNER" below.
TRADING BY THE GENERAL PARTNER, MR. RAUN AND THE NONVOTING MEMBERS;
-------------------------------------------------------------------
INTEREST IN THE POOL. The General Partner, Mr. Raun and the Nonvoting Members
- --------------------
may trade commodities and other interests for their own respective accounts.
See "CONFLICTS OF INTEREST--Other Pools and Trading by the General Partner and
- ---
49
<PAGE>
the Members of the General Partner" above. The records of any such trading
activities and any written policies related to such trading will not be made
---
available to Limited Partners.
The General Partner and Mr. Raun may, but have no obligation to, purchase
and hold Units. As of the date of this Prospectus, the General Partner had not
acquired any Units, and Mr. Raun had contributed $1,000 to the capital of the
Partnership in his capacity as the initial Limited Partner. The latter amount
will be returned to Mr. Raun upon the admission of the first Limited Partner, as
is provided in the Limited Partnership Agreement. See "PRINCIPAL RISK FACTORS-
---
- -Purchase of Units by the General Partner or Mr. Raun" and "CONFLICTS OF
INTEREST--Contributions by the General Partner and Mr. Raun" above. The
Nonvoting Members may purchase Units, but no Nonvoting Member had acquired any
Units as of the date of this Prospectus. See "PRINCIPAL RISK FACTORS--Other
---
Members of the General Partner" above.
COMPENSATION OF GENERAL PARTNER. The compensation payable to the General
-------------------------------
Partner is discussed in "DESCRIPTION OF CHARGES TO THE PARTNERSHIP" above.
THE CTA--QUIET SYSTEMS LIMITED
------------------------------
BUSINESS BACKGROUND. The CTA is a corporation that was organized under the
-------------------
laws of the Cayman Islands in March of 1998. The CTA was registered as a
commodity trading advisor with the CFTC and became a member of the NFA effective
in August, 1998. The CTA is not registered in any capacity under any laws of,
or with any authorities from, any foreign country or jurisdiction.
As of the date of this Prospectus, the CTA had not yet directed the trading
for any client or account. The business of the CTA will be, however, the
trading of accounts under the trading programs of CTA and the trading of
accounts under any other trading programs as may be established by the CTA from
time to time, in its sole discretion.
All of the issued and outstanding shares of stock of the CTA are owned and
held by The Dr. Raun Family Trust, a trust established and organized under the
laws of the Cayman Islands (the "Trust"). The Trust is not actively engaged in
any business, and was organized for the sole purpose of owning and holding the
stock of the CTA and of one other commodity trading advisor. Neither the
settlor nor the trustee of the Trust are identified or discussed in this
Prospectus because they do not, in those capacities, in any way make, control or
otherwise have any involvement with any trading decisions of the CTA or the day-
to-day operations and business of the CTA. The settlor and/or some of the
beneficiaries of the Trust may also, however, from time to time provide services
to the CTA. The members of the board of directors and the officers of the CTA
are set forth below, along with the other persons who provide any material
services to CTA.
The directors of the CTA are Dr. Alan Raun, of Cumming, Iowa, and Thomas
Schnurr, of Fort Dodge, Iowa. John Leo O'Brien, of Paris, France, is the
President and Secretary of the CTA. None of Dr. Raun, Mr. Schnurr, or Mr.
O'Brien makes, controls or otherwise has any involvement with any trading
decisions of the CTA, and a discussion of their business background is therefore
not included in this Prospectus.
The CTA's Trading Program is a computerized trading system that was
developed by Nicholas Gogerty ("Mr. Gogerty"). See "INVESTMENT PROGRAM" above.
---
Mr. Gogerty has agreed to provide consulting services to the CTA. The business
background and other information regarding Mr. Gogerty are set forth in
"NICHOLAS GOGERTY" below.
50
<PAGE>
PERFORMANCE RECORDS. The performance records of the CTA are set forth in
-------------------
"PERFORMANCE RECORDS OF THE CTA" below, beginning at page 57.
TRADING BY THE CTA; INTEREST IN THE POOL. The CTA may trade commodities
----------------------------------------
and other interests for its own account. See "PRINCIPAL RISK FACTORS--CTA
---
Conflicts of Interest" and "CONFLICTS OF INTEREST--Trading Decisions of the CTA"
above. Such trades may or may not be in accordance with the CTA's trading
approaches discussed at "INVESTMENT PROGRAM" above. See "CONFLICTS OF INTEREST-
---
- -Trading Decisions of the CTA" above. The records of any such trading
activities and any written policies related to such trading will not be made
---
available to Limited Partners.
The CTA will not purchase any Units in the Partnership.
TRADING POLICIES AND PRACTICES. Some of the trading methods, systems and
------------------------------
strategies of the CTA are discussed at "INVESTMENT PROGRAM" above. See also
--------
"PRINCIPAL RISK FACTORS" and "CONFLICTS OF INTEREST" above and "PERFORMANCE
RECORDS OF THE CTA" below.
COMPENSATION OF THE CTA. The compensation to be received by the CTA will
-----------------------
be paid by the General Partner, not the Partnership. See "DESCRIPTION OF
---
CHARGES TO THE PARTNERSHIP--CTA and Underwriter Compensation" above.
NICHOLAS GOGERTY
BUSINESS BACKGROUND. As discussed in "THE CTA--QUIET SYSTEMS LIMITED"
-------------------
above, the CTA's Trading Program is a computerized trading system that was
developed by Mr. Gogerty. The CTA has entered into a Software Purchase and
Service Agreement (the "Gogerty Agreement") with Mr. Gogerty whereby the CTA has
purchased the software for the Trading Program (the "Software") from Mr.
Gogerty. The limited warranty made by Mr. Gogerty with respect to the Software
under the Gogerty Agreement expired in April, 1998, and Mr. Gogerty has not
represented, warranted or otherwise guaranteed that the Software does not
violate the copyright or other rights of any third parties or that trading
pursuant to the Software will be error-free or uninterrupted or will generate
any profits or otherwise be successful in any way. See "PRINCIPAL RISK FACTORS-
---
- -Reliance on the CTA," and "Reliance on Software" above.
Mr. Gogerty has also agreed to provide consulting services to the CTA
pursuant to the Gogerty Agreement. The services include (i) undertaking to
correct errors in the Software; (ii) developing updates and enhancements to the
Software as are reasonably necessary to cause the Software to function as valid
and current commodity trading advisory software; and (iii) monitoring the
general operation of the Software, and, if Mr. Gogerty develops any concerns
regarding the Software from such services, advising the CTA and Frischmeyer
Trading Corporation of those concerns. Mr. Gogerty does not make any
representations or warranties regarding the consulting services to be provided
by Mr. Gogerty under the Gogerty Agreement, and there can be no assurance or
guarantee that the use of the Software will be error free or uninterrupted or
will generate any profits, or that any updates, upgrades or enhancements to the
Software can or will be developed by Mr. Gogerty or the CTA. See "PRINCIPAL
RISK FACTORS--Reliance on the CTA," and "Reliance on Software" above. Also, the
Gogerty Agreement does not specify any term for the Gogerty Agreement, and there
is no assurance or guarantee of Mr. Gogerty's continued services to the CTA.
See "PRINCIPAL RISK FACTORS--Reliance on the CTA" above.
51
<PAGE>
Mr. Gogerty is providing his services pursuant to the Gogerty Agreement as
an independent contractor, and Mr. Gogerty is not an employee, director, officer
or an associated person of the CTA.
Mr. Gogerty was born in Clinton, Iowa. He graduated in 1993 with a B.A. in
Cultural Anthropology from the University of Iowa. In 1996, Mr. Gogerty
received his M.B.A. from Ecole des Ponts et Chaussees, Paris, France. Mr.
Gogerty held various programmer and research positions using thermodynamic
modeling and CAD programs prior to graduating from the University of Iowa. He
also was President and co-founder of ISYS Technologies, where his team designed
and built PC and mainframe solutions for the financial services industry. ISYS
Technologies was an Iowa corporation that was dissolved in 1993. Mr. Gogerty
began working in the financial markets industry in 1994. Since then, he has
held positions with Lakeshore Trading, Swiss Bank Corporation, and Banque
National De Paris. His final responsibility at Banque National De Paris was
Vice President, Senior Quantitative Trader, where he developed multiple
strategies for quantitative currency funds. Mr. Gogerty's M.B.A. thesis
entitled "Building a Winning Portfolio" allowed him to analyze markets in
statistical terms and to develop the Software for the CTA's Trading Program. As
indicated above, Mr. Gogerty has also developed the Software used in the CTA's
FOREX INDEX Program and the CTA's Diversified Program.
Mr. Gogerty and certain members of his family are beneficiaries of the
Trust.
Mr. Gogerty was registered as a commodity trading advisor with the CFTC and
become a member of the NFA in September, 1998.
PERFORMANCE RECORDS. MR. GOGERTY HAS NOT PREVIOUSLY DIRECTED ANY ACCOUNTS.
-------------------
As indicated, Mr. Gogerty has not previously directed trading for any accounts,
and Mr. Gogerty does not contemplate during so in the future.
TRADING BY MR. GOGERTY; INTEREST IN THE POOL. Mr. Gogerty may trade
--------------------------------------------
commodities and other interests for his own account. See "CONFLICTS OF
---
INTEREST--Key Persons of the CTA" above. The records of any such trading
activities and any written policies related to such trading will not be made
---
available to Limited Partners.
Mr. Gogerty will not purchase any Units in the Partnership.
COMPENSATION OF MR. GOGERTY. Mr. Gogerty will not receive any compensation
---------------------------
from the Partnership. Any compensation received by Mr. Gogerty which is related
to the Partnership will be payable solely by the CTA.
FRISCHMEYER TRADING CORPORATION
One condition of the CTA's Advisory Agreement is that the Partnership
maintain the FTC Agreement in full force and effect. Under the FTC Agreement,
Frischmeyer Trading Corporation will act as the Partnership's agent for purposes
of receiving the technical trading signals generated by the Software utilized by
the CTA in the Trading Program and for communicating the trades which are
directed to be made pursuant thereto to the FCM. Frischmeyer Trading
Corporation will also be authorized to receive and maintain, on the
Partnership's behalf, trade confirmations, statements of purchase and sale,
statements of open trade equity and monthly activity statements and all other
statements or documents generated as a result of the Partnership's trading.
Frischmeyer Trading Corporation will not exercise any discretion whatsoever in
determining what trades will be made by the Partnership, but, as indicated, will
rather only receive the technical trading signals generated by the Software and
52
<PAGE>
in turn communicate the trades which are directed to be made pursuant thereto to
the FCM. Certain terms and provisions of the FTC Agreement are also discussed
in "CONFLICTS OF INTEREST--Agreement With Frischmeyer Trading Corporation"
above. Frischmeyer Trading Corporation will be acting as the Partnership's
agent, and the CTA will have no liability or responsibility whatsoever for any
acts or omissions of Frischmeyer Trading Corporation. See "CONFLICTS OF
---
INTEREST--Agreement With Frischmeyer Trading Corporation" above.
Frischmeyer Trading Corporation is a corporation organized under the laws
of the State of Iowa, and has its main business office in Fort Dodge, Iowa.
Frischmeyer Trading Corporation is registered as a commodity trading manager
with the Ontario, Canada Securities Commission, and as a commodity trading
advisor with the CFTC. As of the date of this Prospectus, Frischmeyer Trading
Corporation was offering one trading program that was available only to citizens
or residents of Canada. The referenced trading program of Frischmeyer Trading
Corporation does not utilize any of the trading methods, systems or strategies
that are utilized by the CTA under any of the CTA's trading programs, and is
otherwise not in any way related to or connected with the CTA.
The services to be provided to the Partnership by Frischmeyer Trading
Corporation will be provided primarily through or under the direction of Michael
J. Frischmeyer ("Mr. Frischmeyer"), who is the sole director and officer of
Frischmeyer Trading Corporation.
Mr. Frischmeyer was born in 1953. Mr. Frischmeyer graduated from Iowa
State University, Ames, Iowa, in 1976, with a bachelor of science degree in
agricultural business. From March of 1976 to November of 1979, Mr. Frischmeyer
was an account executive in the brokerage business of Stark Brokerage, Inc.,
Fort Dodge, Iowa. In November of 1979, Mr. Frischmeyer joined North Iowa
Commodities, now known as Iowa Commodities, Ltd. ("ICL"). Mr. Frischmeyer is
registered as an associated person of ICL with the CFTC, and is also currently
the Vice President and a minority shareholder of ICL. Mr. Frischmeyer also has
various management and administrative duties in ICL. ICL serves as an
introducing broker for various traders, is registered as an introducing broker
with the CFTC, and is also a member of the Chicago Board of Trade. ICL's
offices are located in Fort Dodge, Iowa.
Mr. Frischmeyer has also been registered with the CFTC as a commodity
trading advisor since October 12, 1984, and, in that capacity, directs the
trading for a substantial number of discretionary accounts for various
individuals and entities. Mr. Frischmeyer is also registered as a trading
manager with the Ontario, Canada Securities Commission. The trading programs of
Mr. Frischmeyer do not utilize any of the trading methods, systems or strategies
utilized by the CTA under any of the CTA's trading programs, and are otherwise
not in any way related to or connected with the CTA.
Mr. Frischmeyer is also a registered representative of the Underwriter.
Mr. Frischmeyer will not, however, solicit investors for the Partnership and
does not otherwise engage in any substantial activities on behalf of the
Underwriter.
Mr. Frischmeyer also has other business interests and ventures, and he and
certain members of his family are beneficiaries of the Trust. See "THE CTA--
---
QUIET SYSTEMS LIMITED" above.
CRS Management Co., a corporation organized under the laws of the State of
Iowa, owns all of the issued and outstanding shares of stock of Frischmeyer
Trading Corporation, and C. Richard Stark, of Fort Dodge, Iowa, and Mr.
Frischmeyer own all of the issued and outstanding shares of stock of CRS
Management Co.
53
<PAGE>
Neither Mr. Stark nor CRS Management Co. make or participate in and are not
otherwise involved in any way with any operational decisions for Frischmeyer
Trading Corporation or any trading or operational decisions for the CTA.
The following capsule shows the past performance of Frischmeyer Trading
Corporation's trading program since the inception of the trading program (in
June, 1998) and year-to-date (through September 30, 1998). PAST PERFORMANCE IS
NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
- --------------------------------------------------------------------------------
Percentage Rate of Return
(Computed on a compounded monthly basis)*
- --------------------------------------------------------------------------------
1998
(June-September)
- --------------------------------------------------------------------------------
(3.81%)
- --------------------------------------------------------------------------------
Name of Commodity Trading Advisor: Frischmeyer Trading Corporation
Name of Trading Program: Managed Account Program ("Managed Program")
Date Commodity Trading Advisor Began Trading Client Accounts: June 1, 1998
Date When Client Funds Began Being Traded Pursuant To The Managed Program: June
1, 1998
Number of Accounts Directed Pursuant To The Managed Program (as of September
30, 1998): 2
Total Assets Under Management of Frischmeyer Trading Corporation (as of
September 30, 1998): $111,659
Total Assets Traded Pursuant To The Managed Program (as of September 30, 1998):
$111,659
Largest Monthly Draw-Down** For The Managed Program Since Inception and Year-to-
Date (through September 30, 1998): 7-98/5.20% of client funds
Worst Peak-to-Valley Draw-Down*** For The Managed Program Since Inception and
Year-to-Date (through September 30, 1998): 7-98 to 8-98/5.20% of net asset
value
Number of Accounts Closed with Positive Net Performance (Profits) Since
Inception and Year-to-Date (through September 30, 1998): -0-
Number of Accounts Closed with Negative Net Performance (Losses) Since Inception
and Year-to-Date (through September 30, 1998): -0-
* Rate of Return is computed by dividing net performance by beginning net
asset value for the period. For those months when additions or withdrawals
exceed ten percent of beginning net assets, the Time-Weighting of Additions
and Withdrawals method is used to compute rates of return.
** "Draw-down" is defined by applicable CFTC regulations to mean losses
experienced by a pool or account over the specified period.
*** "Worst Peak-to-Valley Draw-Down" is defined by applicable CFTC regulations
to mean the greatest cumulative percentage decline in month-end net asset
value due to losses sustained by a pool, account or trading program 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.
The above performance capsule has been included in this Prospectus in order
to comply with certain regulations of the CFTC. Prospective investors must be
aware that, as indicated above, Frischmeyer Trading Corporation will not
exercise any discretion with respect to the trades of the Partnership. In
addition, Frischmeyer
54
<PAGE>
Trading Corporation's trading program is materially different than the CTA's
Trading Program since Frischmeyer Trading Corporation's trading program is a
subjective trading program, while the CTA's Trading Program is a computerized,
technical program. Given this, prospective investors should not assume that the
performance of Frischmeyer Trading Corporation's trading program will be
indicative of or in any way similar to the Partnership's or the CTA's
performance.
PERFORMANCE RECORDS OF THE GENERAL PARTNER
------------------------------------------
THIS POOL HAS NOT COMMENCED TRADING AND DOES NOT HAVE ANY PERFORMANCE
HISTORY. As indicated, the Partnership had not commenced trading as of the
date of this Prospectus, and this Prospectus therefore does not contain any
performance records or other performance information regarding the Partnership.
See "PRINCIPAL RISK FACTORS--Partnership Has No Operating History" above.
- ---
Certain supplemental performance information for the Partnership is,
however, attached to this Prospectus as Appendix 1. The supplemental
performance information presented in Appendix 1 is hypothetical performance
information, and the footnotes and assumptions following the table in Appendix 1
further describe the supplemental performance information presented in Appendix
1 and need to be carefully considered in connection with a review of Appendix 1.
PROSPECTIVE INVESTORS MUST ALSO CAREFULLY REVIEW THE DISCLOSURES ON THE COVER
PAGE TO APPENDIX 1 REGARDING THE MANY LIMITATIONS WHICH ARE INHERENT IN
HYPOTHETICAL PERFORMANCE INFORMATION.
The regulations of the CFTC require that the disclosure document of a
commodity pool operator include certain performance information regarding each
other commodity pool operated by the commodity pool operator. As of the date
of this Prospectus, the General Partner was also serving as the commodity pool
operator for four (4) other commodity pools, those being Portfolio Boost I,
L.P., Portfolio Boost III, L.P., Portfolio Boost MJF, L.P. and CBC-RT. See "THE
---
GENERAL PARTNER" above. None of Portfolio Boost I, L.P., Portfolio Boost III,
L.P., or Portfolio Boost MJF, L.P. had, however, accepted any capital
contributions or commenced trading as of the date of this Prospectus. This
Prospectus therefore does not contain any performance records for any of those
commodity pools.
CBC-RT commenced trading prior to the date of this Prospectus, and certain
performance information, along with a summary discussion of the fees payable by
CBC-RT, is set forth below. Prospective investors must be aware, however, that
CBC-RT does not utilize the CTA, and that the commodity trading advisor for CBC-
RT utilizes fundamental trading methods, systems and strategies which are
materially different from the technical trading methods, systems and strategies
utilized by the CTA in the CTA's Trading Program. See "PRINCIPAL RISK FACTORS--
---
Influences on Trading Approaches" above. CBC-RT also pays different fees than
the Partnership. Past performance is not necessarily indicative of future
results in any event, but given those differences, the performance information
for CBC-RT should not be relied upon as any indication of the Partnership's
potential performance. Prospective investors should also note that the General
Partner temporarily suspended trading by CBC-RT on April 30, 1998, because the
trading of CBC-RT's account by its commodity trading advisor had failed to
generate any profits since 1995. CBC-RT did recommence trading, however, on
July 1, 1998. See "PRINCIPAL RISK FACTORS--Futures Trading Is and Futures
---
Prices Are Speculative and Volatile" above. The commodity trading advisor for
CBC-RT is Michael J. Frischmeyer. Mr. Frischmeyer will be the commodity trading
advisor for Portfolio Boost MJF, L.P.
55
<PAGE>
CBC-RT is a single advisor pool that does not have a guarantee feature.
The following capsule shows the annual past performance of CBC-RT since the
inception of trading by CBC-RT (in December, 1994) and year-to-date (through
September 30, 1998). PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Percentage Rate of Return
(Computed on a compounded monthly basis)*
================================================================================
<S> <C> <C> <C> <C>
1994 1995 1996 1997 1998
(December only) (January through
September 30, 1998)*****
- --------------------------------------------------------------------------------
(1.21%) 15.7% (27.6%) (19.8%) (3.15%)
- --------------------------------------------------------------------------------
</TABLE>
Name of Pool: Corn Belt Commodities Round Trip Limited Partnership
Type of Pool: Publicly offered, but currently closed to new investors
Date of Inception of Trading: December 30, 1994
Aggregate Gross Capital Subscriptions to the Pool (as of September 30, 1998):
$3,883,696
Pool's Net Asset Value (as of September 30, 1998): $1,904,825.15
Largest Monthly Draw-Down** Since Inception of Trading and Year-to-Date (through
September 30, 1998): 8-96/13.9% of net asset value***
Worst Peak-to-Valley Draw-Down**** Since Inception of Trading and Year-to-Date
(through September 30, 1998): 5-96 to 4-98/54.2% of net asset value
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
** "Draw-Down" is defined by applicable CFTC regulations to mean losses
experienced by a pool or account over the specified period.
*** "Net Asset Value" is defined by applicable CFTC regulations to mean total
assets minus total liabilities, determined on an accrual basis of
accounting in accordance with generally accepted accounting principles,
with each position in a commodity interest accounted for at fair market
value.
**** "Worst Peak-to-Valley Draw-Down" is defined by applicable CFTC
regulations to mean the greatest cumulative percentage decline in month-
end net asset value due to losses sustained by a pool, account or trading
program 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.
***** The General Partner temporarily suspended trading by CBC-RT on April 30,
1998, given the failure of the Partnership's trading to generate any
profits since 1995. The General Partner reinstituted trading on July 1,
1998.
CBC-RT pays the General Partner a monthly incentive fee equal to 15% of
the new trading profits of CBC-RT for each month, if any. CBC-RT also pays the
General Partner a monthly management fee of one-third of one percent of CBC-RT's
net assets as of the close of business on the last business day of each month.
The commodity trading advisor's compensation with respect to CBC-RT is the
commodity trading advisor's receipt of a portion of the brokerage commissions
payable on trades made by CBC-RT. CBC-RT is also responsible for all brokerage
commissions, exchange and NFA fees and other trading costs and expenses. The
range of commissions payable by CBC-RT as of the date of this Prospectus was
between $40 and $64 per contract, with
56
<PAGE>
an average of approximately $56. The other operating expenses of CBC-RT, such as
legal and accounting and auditing fees, will likely be lower than the operating
expenses of the Partnership given that CBC-RT is closed to new investors and
that CBC-RT's offerings were not registered offerings, as is the case with
respect to the Partnership.
THE RESULTS SET FORTH IN THE ABOVE PERFORMANCE CAPSULE ARE NOT INDICATIVE
OF ANY RESULTS WHICH MAY BE ATTAINED BY THE GENERAL PARTNER OR THE PARTNERSHIP.
NO REPRESENTATION IS MADE THAT THE PARTNERSHIP WILL, OR IS LIKELY TO, ACHIEVE
PROFITS SIMILAR TO THOSE SHOWN. INVESTORS SHOULD ALSO NOTE THAT INTEREST INCOME
MAY CONSTITUTE A SIGNIFICANT PORTION OF A COMMODITY POOL'S TOTAL INCOME AND, IN
CERTAIN INSTANCES, MAY GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED OR
UNREALIZED LOSSES FROM COMMODITY TRADING.
No performance records for the four limited partnerships for which Mr. Raun
serves as the general partner and commodity pool operator are included in this
Prospectus because (i) they are not required under the CFTC's regulations, (ii)
none of those limited partnerships utilize the CTA, (iii) the commodity trading
advisor for the limited partnerships utilizes fundamental trading methods,
systems and strategies which are materially different from the technical trading
methods, systems and strategies utilized by the CTA in the CTA's Trading
Program, and (iv) the referenced limited partnerships pay different fees than
the Partnership. Further, to the extent the performance of such limited
partnerships was somehow deemed to be relevant, it is noteworthy that the
commodity trading advisor for the limited partnerships is the same commodity
trading advisor utilized by CBC-RT. The performance records of CBC-RT set forth
above are therefore somewhat representative of the performance of the four
limited partnerships for which Mr. Raun serves as the general partner and
commodity pool operator during the period presented for CBC-RT.
PERFORMANCE RECORDS OF THE CTA
------------------------------
NEITHER THE CTA NOR ANY OF ITS TRADING PRINCIPALS HAVE PREVIOUSLY DIRECTED
ANY ACCOUNTS.
As of the date of this Prospectus, the CTA was offering three trading
programs, the Financial Program (which is the Trading Program in which the
Partnership's account is traded), the Diversified Program and the FOREX INDEX
Program. The accounts of Portfolio Boost I, L.P. and Portfolio Boost III, L.P.
will be traded in the latter programs. See "THE CTA--QUIET SYSTEMS LIMITED"
---
above. The CTA had not, however, directed the trading of any accounts as of the
date of this Prospectus. See "PRINCIPAL RISK FACTORS--CTA Has No Experience or
---
Operating History" and "THE CTA--QUIET SYSTEMS LIMITED" above. No actual
performance records of the CTA are therefore included in this Prospectus for
prospective investors to review and consider.
Once the CTA has begun to direct the trading of accounts, the performance
record of the CTA will be separated to show its trading programs separately.
THE PARTNERSHIP'S ACCOUNT WILL BE TRADED AS PART OF THE CTA'S FINANCIAL PROGRAM.
THE CTA'S PERFORMANCE RECORDS THAT WILL BE MOST RELEVANT TO MAKING AN INVESTMENT
DECISION WITH RESPECT TO THE PARTNERSHIP WILL THEREFORE BE THE CTA'S PERFORMANCE
RECORDS FOR ITS FINANCIAL PROGRAM.
57
<PAGE>
Prospective investors should be aware that any performance information
provided to prospective investors regarding the CTA's trading programs may be
presented on a composite basis. Prospective investors should also be aware that
composite performance results tend to create an "averaging effect" on the
performance of the accounts. Further, prospective investors should recognize
that different accounts can have varying investment results, even though they
have been traded according to the same general trading approach. The results of
individual accounts may therefore be better or worse than the composite
performance results shown.
DIVERSIFIED PROGRAM OF THE CTA.
------------------------------
One of the CTA's other trading programs is referred to by the CTA as the
"Diversified Program." The Diversified Program is a systematic, trend
following, computerized trading approach utilizing multiple moving averages and
a breakout system applied to several types of markets, which are discussed
below. The general objective of the Diversified Program is to maximize profit
from trading in the markets traded in the Diversified Program. The Diversified
Program is not correlated with traditional debt and equity investments.
The types of markets that may currently be traded in the Diversified
Program are as follows: (i) grains; (ii) energies; (iii) metals; (iv)
currencies; (v) interest rates; and (vi) other financial interests. The types
of markets traded in the Diversified Program may, however, be modified by the
CTA from time to time, in its sole discretion.
The Diversified Program utilizes an optimized allocation amongst the types
of markets being traded, with the allocation being determined pursuant to an
optimized Markowitz mean variance. The allocation amongst the types of markets
within the Diversified Program may, however, be modified or reoptimized by the
CTA from time to time, in the CTA's sole discretion.
The CTA contemplates that from approximately 5% to 25% of an account traded
in the Diversified Program will be committed as margin for trading at any one
time and from time to time, but the percentage of assets committed as margin may
be substantially more or less at any given time. No stops are utilized in the
Diversified Program.
Trading in the Diversified Program may be through futures and options on
United States and foreign exchanges and in the interbank currency spot and
forward markets. The CTA may also utilize exchange for physicals and engage in
over-the-counter transactions in the Diversified Program.
Although the Diversified Program is a technical, computerized trading
program, the CTA does have the right and may exercise subjective discretion over
trades in times of extremely unusual market conditions, such as when
historically unusual economic, political or other risks make it prudent, in the
CTA's discretion, to reduce the trading risks incurred.
The Diversified Program provides clients of the CTA with additional
diversification options within the managed futures industry. See "PRINCIPAL
---
RISK FACTORS--Lack of Diversification" above. See also "POTENTIAL ADVANTAGES--
--------
Asset Allocation Support" above.
FOREX INDEX Program of the CTA.
------------------------------
The other trading program of the CTA is referred to by the CTA as its
"FOREX INDEX Program." The FOREX INDEX Program is a systematic, trend
following, computerized trading approach using multiple moving
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averages currently applied to eight different currency pairs. The currency pairs
are allocated relative to their global trade flow weighting in the 1995 Bank of
International Settlements foreign exchange survey (the "1995 BIS Survey"). The
FOREX INDEX Program has a high correlation with the Barclay Currency Traders
Index. The FOREX INDEX Program is intended to be leveraged so as to have similar
return/risk parameters to the currency trading managers followed by the Barclay
Currency Traders Index. The FOREX INDEX Program does not, however, attempt to
include all currency pairs or currency programs. The general objective of the
FOREX INDEX Program is to capture profit potential of the traded currency pairs
using the above and below described "index" type approach to reflect global
trade patterns. The FOREX INDEX Program is not correlated with traditional debt
and equity investments.
A determination will be made on a daily basis whether to be long or short
the currency pairs being traded in the FOREX INDEX Program, with the information
most important to determining trading signals being deviation of price from the
moving averages. Trades made in the FOREX INDEX Program will be determined at a
particular time during each day, and entered at a specified time on that day.
It is contemplated that a long or short position will always be held in each
currency pair, with the aggregate position at any one time being the sum of the
component positions, netted together.
The currency pairs that will currently be traded in the FOREX INDEX Program
will be the currency pairs that make up approximately 68% of the total global
currency volume as set forth in the 1995 BIS Survey, with those currency pairs
on the date of this Prospectus being as follows: (i) U.S. Dollar/Japanese Yen;
(ii) British Pound/Japanese Yen; (iii) Deutsche Mark/Japanese Yen; (iv) Deutsche
Mark/Swiss Franc; (v) U.S. Dollar/Deutsche Mark; (vi) U.S. Dollar/Swiss Franc;
(vii) U.S. Dollar/Canadian Dollar; and (viii) U.S. Dollar/British Pound.
Effective January 1, 1999, certain European currencies will be replaced with a
new currency known as the Euro. Of the types of currencies traded in the FOREX
INDEX Program as of the date of this Prospectus, only the Deutsche Mark was to
be replaced by the Euro. When that change occurs, the Euro will be traded in
the currency pairs which otherwise included the Deutsche Mark.
The FOREX INDEX Program utilizes a static allocation amongst the currency
pairs being traded, with the allocation generally based upon world trade flow as
set forth in the 1995 BIS Survey, with netted out moving averages.
The currency pairs and their weightings and the allocation amongst the
currency pairs within the FOREX INDEX Program may, however, be modified by the
CTA from time to time in the CTA's sole discretion; for example, in order to
maintain correlation with global trade flows.
The CTA contemplates that from approximately 5% to 25% of an account traded
in the FOREX INDEX Program will be committed as margin for trading at any one
time and from time to time, but the percentage of assets committed as margin may
be substantially more or less at any given time. No stops are utilized in the
FOREX INDEX Program.
The currency pairs may be traded through futures and options on United
States and foreign exchanges and in the interbank currency spot and forward
markets.
The FOREX INDEX Program provides clients of the CTA with additional
diversification options within the managed futures industry. See "PRINCIPAL
---
RISK FACTORS--Lack of Diversification" above. See also "POTENTIAL ADVANTAGES--
--------
Asset Allocation Support" above.
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FUTURES COMMISSION MERCHANT
---------------------------
First Options of Chicago, Inc. (the "FCM") has been selected as the initial
futures commission merchant for the Partnership. The FCM has an agreement with
LBS Limited Partnership, an Illinois limited partnership ("LBS"), whereby LBS
will execute all of the trades of the Partnership, but will give up all of such
trades to the FCM for clearing. LBS is registered as a futures commission
merchant with the CFTC, but is a non-clearing member. The CTA will communicate
all of the trades of the Partnership to either the FCM or LBS. The FCM may be
changed by the General Partner at any time.
The FCM is a Chicago-based commodities brokerage firm whose principal
business is the clearing of futures, options and securities for its customers.
The FCM is registered as a futures commission merchant with the CFTC, and is
also registered as a securities broker-dealer. The FCM is also a member of the
NFA and the National Association of Securities Dealers, as well as a member of
major futures and securities exchanges in the United States. The FCM is also a
clearing member of the Chicago Board of Trade and the Chicago Mercantile
Exchange and has established facilities to handle business on all other
exchanges on which the Partnership currently contemplates trading.
As futures commission merchant for the Partnership, the FCM's services are
limited solely to providing clearing services, and the FCM does not have any
responsibility or authority to, and will not, supervise the actions of the CTA,
the Partnership or the General Partner. Also, the FCM's agreement to clear
trades for the Partnership does not constitute an endorsement or recommendation
by the FCM of the Partnership, this offering, the General Partner, Frischmeyer
Trading Corporation, the CTA, or the CTA's Trading Program. The foregoing
limitations are also applicable to LBS.
The Partnership's arrangements with the FCM are terminable by the
Partnership at any time. The only written agreements or arrangements that have
been entered into between the Partnership and the FCM are the FCM's standard
customer account agreements. See "INVESTMENT PROGRAM" above.
---
The Partnership has not retained any introducing broker, and does not
intend to do so.
The regulations of the CFTC provide that a commodity pool operator must
disclose any material administrative, civil or criminal action, whether pending
or concluded, within five years preceding the date of the commodity pool
operator's disclosure document, against, among others, the pool's futures
commission merchant. As a futures commission merchant, the FCM is involved in
litigation and regulatory actions on an on-going basis. However, during the
five years preceding the date of this Prospectus, there have been no
administrative, civil or criminal actions against the FCM which the General
Partner believes are material to an investor in making an investment decision
regarding the Partnership, except for the matters described in the following
paragraphs.
The FCM is indirectly owned by Spear, Leeds, Kellogg, a New York
partnership that is registered as a futures commission merchant and broker-
dealer. On September 8, 1993, Spear, Leeds, Kellogg settled an administrative
complaint filed by the CFTC. The complaint charged Spear, Leeds, Kellogg with
two violations of the Commodity Exchange Act and CFTC regulations regarding
willful transmittal of false reports and failure to supervise. Without
admitting or denying the allegations contained in the complaint, Spear, Leeds,
Kellogg consented to a settlement agreement whereby it agreed to cease and
desist from further violations and paid a fine in the amount of $325,000. The
New York Stock Exchange brought a disciplinary action against Spear, Leeds,
Kellogg based on the same transactions that were the subject of the referenced
CFTC proceeding. On June 23,
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1993, Spear, Leeds, Kellogg settled that proceeding by entering into a
Stipulation of Facts and Consent to Penalty whereby Spear, Leeds, Kellogg was
censured and fined $75,000 by the New York Stock Exchange.
In January of 1994, a customer of the FCM was awarded $886,000 in an NASD
arbitration proceeding which had been instituted by the customer against the
FCM. The amount which had been sought by the customer was $5,800,000. The
customer's claims against the FCM related to margin calls, misrepresentations
and other clearing and breach of contract disputes.
Although the above referenced matters regarding the FCM are material in
nature, the General Partner does not believe that the matters are indicative of
the FCM's standard business practices. The General Partner's belief is based
upon the FCM's having served as the futures commission merchant for some of the
limited partnerships for which Mr. Raun serves as the general partner in his
individual capacity since late 1992, and the General Partner's review of public
records supplied by the NFA and the NASD regarding claims and actions brought
against the FCM in the five (5) year period preceding the date of this
Prospectus. Although those records do reveal various other actions or claims
have been brought against the FCM, the General Partner does not believe such
other actions or claims are material in number or of a material nature.
As of the date of this Prospectus, the round turn commission payable by
the Partnership for trades cleared by the FCM was fixed at $11.00. See
---
"DESCRIPTION OF CHARGES TO THE PARTNERSHIP--Futures Commission Merchant;
Brokerage Commissions" above. The commissions payable by the Partnership are
divided between the FCM and LBS. See "DESCRIPTION OF CHARGES TO THE
---
PARTNERSHIP--Allocation of Commissions" above. The Partnership is also
obligated to pay exchange and NFA fees and all other costs and expenses
incidental to or incurred in connection with the Partnership's trading. See
---
"DESCRIPTION OF CHARGES TO THE PARTNERSHIP--Other Expenses" above. The
brokerage commissions, exchange and NFA fees and other trading fees, costs and
expenses are subject to change from time to time.
TRANSFERABILITY AND LIQUIDATION OF UNITS
----------------------------------------
The following is a summary and general description of a Limited Partner's
limited transfer and liquidation rights. Prospective investors must read the
Limited Partnership Agreement for complete details of the terms and conditions
of a Limited Partner's limited transfer and liquidation rights. See, in
---
particular, Articles IV and VIII of the Limited Partnership Agreement.
When a purchaser of Units is admitted to the Partnership as a Limited
Partner, the Limited Partner is registered on the books and records of the
Partnership as the owner of those Units. The registered holder is entitled to
receive all distributions, allocations of profits and losses and withdrawals or
reductions of the capital account with respect to such Units, and to vote on any
matters submitted to the vote of the Limited Partners.
A Limited Partner may not sell, transfer, assign, hypothecate, pledge, or
otherwise dispose of any Unit (whether voluntarily, involuntarily or by
operation of law) unless and until all of the following conditions shall have
been satisfied, except that the General Partner may, in its sole discretion,
waive any one or more of the conditions specified in subclauses (ii) and (iv)
below: (i) the assignor and the assignee shall have delivered a written
instrument of assignment and assumption in a form satisfactory to the General
Partner; (ii) after the assignment, neither the assignee nor the assignor, if
the assignor has retained any part of a Unit, shall hold Units that represent
less than the minimum initial investment in the Partnership as then established
by the General Partner (currently $5,000), except for transfers by gift,
inheritance, intra family transfers, family dissolutions and
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<PAGE>
transfers to affiliates; (iii) the General Partner shall have consented in
writing to the assignment, which consent shall be granted if the other
conditions are met (or have been waived by the General Partner) and in the
opinion of the Partnership's counsel such assignment (1) may be effected without
registration under any applicable securities laws, (2) will not violate any
applicable laws or governmental rules or regulations, including securities laws
or limited partnership laws, and (3) will not jeopardize the status of, or cause
a termination of, the Partnership or the Partnership's tax year for federal
income tax purposes nor affect the characterizations or treatment of income or
loss; and (iv) the assignee agrees to pay all reasonable expenses incurred in
connection with the assignment, including attorney's fees. Each Limited Partner
shall, in connection with the assignment of any Unit, and upon the request of
the General Partner, execute such documents and perform such other acts as the
General Partner deems appropriate to preserve the limited liability status of
the Partnership. A Limited Partner ceases to be a limited partner for all
purposes upon assignment of all of the Limited Partner's Units. No assignment
shall, however, relieve a Limited Partner of any obligation under the Limited
Partnership Agreement without the express written consent of the General
Partner. Any purported assignment of a Unit which is not made in compliance with
the Limited Partnership Agreement is null and void and of no force and effect
whatsoever.
The Partnership is not required to recognize any assignment of any Unit
until the effective date of the assignment. The effective date of an assignment
of a Unit shall be the date designated in the written instrument whereby the
General Partner consents to the assignment, which date shall be not later than
(but may in the sole discretion of the General Partner be prior to) the first
business day of the month next following the date on which all conditions
precedent to such assignment have been satisfied.
Unless and until an assignee becomes a substituted Limited Partner in
accordance with the provisions set forth in the Limited Partnership Agreement,
the assignee shall only have the right to receive the share of the profits,
losses, distributions and returns of capital (including pursuant to a
liquidation of Units) to which the assignor would be otherwise entitled to with
respect to the assigned Units.
The Limited Partnership Agreement provides that each Limited Partner shall
have the right to allow and cause an assignee of the Limited Partner's Units to
become a substituted Limited Partner with respect to those Units in the place of
such assigning Limited Partner, without the consent of the General Partner or
any of the other Partners. Any assignment effectuated in accordance with the
Limited Partnership Agreement shall be deemed to cause the assignee to be a
substituted Limited Partner with respect to the assigned Units unless otherwise
designated by the assignor of the Units. In addition, and notwithstanding any
reservations or objections of the assignor of the Units, an assignee of any
Units may be substituted as a Limited Partner as to such Units upon and with the
consent or vote of all of the Partners, other than the assignor of the Units.
The effective date of a substitution of an assignee of a Unit made by the
assignor shall be the date designated in the written instrument whereby the
General Partner consents to the assignment if the substitution is made at the
time of the assignment of the Unit, or upon receipt by the General Partner of
written notice thereof from the assignor if the substitution is made at a later
time. The effective date of a substitution of an assignee of a Unit made
pursuant to the consent or vote of all of the other Partners shall be the date
upon which the requisite consent or vote has been obtained. An assignee of
Units who has become a substituted Limited Partner with respect to those Units
shall have all of the rights of a Limited Partner with respect to those Units,
including the right to vote.
A Limited Partner may withdraw from the Partnership and liquidate Units
held by the Limited Partner only with the consent of the General Partner, which
consent shall be given only if the following conditions are satisfied. A
Limited Partner must give the General Partner written notice (a "Liquidation
Notice") of the intention of the Limited Partner to liquidate Units, and stating
the date on which liquidation is desired, which date must
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be the first business day of any month. The Liquidation Notice must be received
by the General Partner no later than 12:00 noon on the sixtieth (60th) business
day immediately preceding the desired effective date of liquidation or by such
later date as may be acceptable to the General Partner, in the General Partner's
sole discretion. Any liquidation request approved by the General Partner shall
be effective as of the opening of trading on the first business day of the month
specified in the Liquidation Notice.
The liquidation price per Unit shall be equal to the Net Asset Value Per
Unit as of the effective time and date of the liquidation. "Net Asset Value Per
Unit" means the Net Assets of the Partnership at the time of calculation divided
by the aggregate number of outstanding Units at that time. Net Assets for this
purpose means the Partnership's total assets minus the Partnership's total
liabilities, determined in accordance with generally accepted accounting
principles, except that for purposes of calculating the Net Asset Value Per
Unit, Net Assets are determined by amortizing all organizational and offering
expenses incurred by the Partnership prior to the effective date of the initial
registration statement filed by the Partnership with the SEC over a period of
five (5) years. The term "Net Assets" is defined at "SUMMARY OF THE OFFERING--
Glossary and Designation of Parties" above. From the time of the General
Partner's receipt of a Liquidation Notice to the effective time and date of the
liquidation, the Units will remain at risk in the business of the Partnership
and the liquidation price for the Units shall not be fixed. Subsequent to the
effective time and date of a liquidation, however, the liquidation price per
Unit shall be fixed at the Net Asset Value Per Unit as of the effective time and
date of the liquidation. In other words, Limited Partners are subject to any
change in the Net Asset Value Per Unit occurring between the date of the request
for liquidation and the effective time and date of the liquidation, which may be
a period of at least sixty (60) days. Given the volatile nature of futures
trading, the Net Asset Value Per Unit could change significantly, for better or
worse, during that period. See "PRINCIPAL RISK FACTORS--Limited Ability to
---
Assign and Liquidate Investment in Units" above. The General Partner will not
assess any charges in connection with liquidations, but reserves the right to do
so in the future.
A Limited Partner may request liquidation of less than all of the Limited
Partner's Units upon the same terms and conditions as otherwise provided in the
Limited Partnership Agreement; provided, however, that the General Partner may,
in the General Partner's sole discretion, refuse any request for a partial
liquidation if the liquidation would cause the capital account of the Limited
Partner to be less than the minimum initial investment amount as then
established by the General Partner (as of the date of this Prospectus, $5,000).
The General Partner shall give written notice to a Limited Partner within
ten (10) days after the first business day of the applicable month of whether or
not the Limited Partner's Units have been liquidated. Subject to delays in
payment as provided by the Limited Partnership Agreement (as discussed in the
following paragraph), payment for liquidated Units shall be made by the
Partnership within thirty (30) days after the first business day of the
applicable month.
Prospective investors must be aware that the Limited Partnership Agreement
provides that if the number of liquidations requested for any month or over any
other given period of time, in the opinion of the General Partner, threatens the
termination of the Partnership or the Partnership's tax year or is otherwise
detrimental to the tax status of the Partnership, the General Partner may, but
is not required to, select by lot only so many liquidations as will, in its
judgment, not result in such consequences. Any Units not liquidated in this
event shall remain at risk in the business of the Partnership and shall not be
liquidated absent another Liquidation Notice given by the Limited Partner in the
manner as otherwise provided in the Limited Partnership Agreement. In
addition, the General Partner may, but is not required to, temporarily suspend
all liquidations if, in the General Partner's judgment, special circumstances
exist such that additional liquidations would impair the ability of the
Partnership to meet its objectives, and under special circumstances the
Partnership may also, but is not required
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to, delay payment for liquidated Units until the special circumstances have been
remedied or otherwise rectified. Examples of special circumstances for either of
these purposes include (i) the inability to generate sufficient cash to effect
liquidations, (ii) where such cash can only be generated by sustaining
significant losses, (iii) the inability to liquidate open positions, or (iv) the
default or delay in payments which are due the Partnership from brokers or other
persons. In the event of a suspension of liquidations, all Units will remain at
risk in the business of the Partnership and shall not be liquidated absent a
Liquidation Notice given following the lifting of the suspension by the General
Partner and in the manner otherwise provided in the Limited Partnership
Agreement. While the General Partner may indefinitely postpone liquidations or
payment of liquidations, the General Partner does intend to honor liquidation
requests at the earliest practicable time when adverse results to the
Partnership will not occur. Partnership capital will, however, in all events be
the only source for funds with which to effect liquidation requests, and for the
reasons stated above, such requests may be pending indefinitely.
The General Partner shall cause a notice to be given to each Partner within
seven (7) business days from the date of the date (the "Decline Date") upon
which there shall have been a decline in the Net Asset Value Per Unit to less
than fifty percent (50%) of the Net Asset Value Per Unit as of the close of
business on the day which is one (1) year prior to such Decline Date. See "THE
---
LIMITED PARTNERSHIP AGREEMENT--Notice to Limited Partners" below. In such
event, trading by the Partnership shall be temporarily suspended for a period of
thirty (30) calendar days, beginning on the date of the General Partner's
notice, during which time Partners shall have the right to request liquidation
of their Units. The General Partner shall honor all liquidation requests which
are received by the General Partner prior to the close of said thirty (30)
calendar day period; provided, however, that such requests may also be denied or
suspended in the circumstances described in the preceding paragraph.
Liquidations in this event shall be effective as of the opening of trading on
the business day next following the General Partner's receipt of written notice
of liquidation from the Partner.
The General Partner shall also cause a notice to be given to each Partner
prior to effecting any material change related to brokerage commissions. Any
such change shall not be made for thirty (30) calendar days, during which time
the Partners will have the right to request liquidation of their Units as
otherwise provided in the Limited Partnership Agreement.
Prospective investors must understand that the opportunity to liquidate
Units is in the nature of a right of presentment, and any such liquidation shall
be conditioned upon the then existing circumstances of the Partnership.
Partners therefore do not have an absolute right of liquidation with respect to
their Units. See "PRINCIPAL RISK FACTORS--Limited Ability to Assign and
---
Liquidate Investment in Units" above.
Liquidation Notices will be honored by the Partnership in the order they
are received (on the basis of postmark or other evidence of delivery). The
General Partner will select Units for liquidation by lot with respect to
Liquidation Notices received on the same date. No specific form will be
required to request liquidation.
Requests for liquidation of Units should be transmitted to the General
Partner at the main business office of the Partnership set forth on page 1 of
this Prospectus.
The General Partner may, in its sole discretion, require any Limited
Partner which is an IRA or a retirement plan or employee benefit plan subject
to Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") to
either (i) withdraw from the Partnership, in whole or in part, through
liquidation of some or all of the Limited Partner's Units, or (ii) make
immediate distributions to the Limited Partner in such amount as determined by
the General Partner, if such liquidation or distribution is, in the General
Partner's sole discretion, necessary or appropriate to cause the Partnership,
the General Partner or any Limited Partners to avoid being
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subject to or in violation of any of the provisions of ERISA or any regulations
promulgated pursuant thereto or any similar or successor act, statutes or
regulations.
A Limited Partner needs to be aware that under Iowa limited partnership law
(i) if a Limited Partner has received the return of any part of the Limited
Partner's capital contribution without violation of the Limited Partnership
Agreement or the Iowa Uniform Limited Partnership Act, for one (1) year after
the return, the Limited Partner is liable to the Partnership for the amount of
the returned contribution to the extent necessary to discharge the Partnership's
liabilities to creditors who extended credit to the Partnership during the
period the contribution was held by the Partnership; and (ii) if a Limited
Partner has received the return of any part of the Limited Partner's capital
contribution in violation of the Limited Partnership Agreement or the Iowa
Uniform Limited Partnership Act, for six (6) years after the return, the Limited
Partner is liable to the Partnership for the amount of the contribution
wrongfully returned. Limited Partners may, therefore, be required to return
distributions or liquidation payments received from the Partnership.
CERTAIN TERMS AND DEFINITIONS
-----------------------------
Knowledge of various terms and concepts relating to trading in futures
contracts and options is necessary for a potential investor to determine whether
to invest in the Partnership. The following discussion in this Prospectus
contains, among other things, definitions or descriptions of the following
terms and concepts at the paragraphs indicated immediately below.
Paragraph
---------
commodities....................................... A(v)
Commodity Exchange Act............................ B(ii)
Commodity Futures Trading Commission.............. B(ii)
commodity pool operator........................... B(iii)
commodity trading advisor......................... B(iii)
daily limits...................................... B(ix)
daily price fluctuation limits.................... B(ix)
exchange.......................................... B(i)
forward contract.................................. A(iv)
futures commission merchant....................... B(vi)
futures contract.................................. A(i)
hedging and speculating........................... A(vi)
long or short positions........................... A(ii)
margin............................................ C
National Futures Association...................... B(iv)
open trades or open positions..................... A(ii)
options........................................... A(iii)
position limits................................... B(x)
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THE COMMODITY MARKETS
---------------------
A. MARKETS. (i) Futures contracts are standardized contracts usually made
-------
on a commodity exchange which provide for the future delivery of specified
quantities and grades of, among other things, various agricultural and
nonagricultural commodities, currencies or financial instruments at a specified
time and place. The size and term of futures contracts on a particular
commodity, currency or instrument are identical and are not subject to
negotiation between the buyer and seller. The contractual obligations,
depending on whether one is a buyer or a seller, may be satisfied either by
taking or making, as the case may be, physical delivery of an approved grade of
the commodity or other interest or by making an offsetting sale or purchase of
an equivalent but opposite futures contract on the same exchange prior to the
designated date of delivery. As an example of an offsetting transaction where
the underlying physical commodity is not delivered, the contractual obligation
arising from the sale of one contract of December wheat on a commodity exchange
(i.e., a contract under which the holder is obligated to make delivery of a
----
specified grade and quantity of wheat in December at a specified location) may
be fulfilled at any time before delivery of the commodity is required by the
purchase of one contract of December wheat on the same exchange (i.e., a
----
contract under which the holder is obligated to take delivery of a specified
grade and quantity of wheat in December at a specified location). In that
example, the difference between the price at which the futures contract was sold
and the price paid for the offsetting purchase, after allowance for the
brokerage commission and other transaction costs and expenses , represents the
profit or loss to the trader. Certain futures contracts, such as those for
financial or economic indices approved by the CFTC or Eurodollar contracts,
settle in cash (irrespective of whether any attempt is made to offset such
contracts) rather than by delivery of any physical commodity.
(ii) In market terminology, a trader who purchases a futures contract and
is thereby obligated to take delivery of the underlying commodity, currency or
other interest is sometimes said to be "long" in the futures market, while a
trader who sells a futures contract and is thereby obligated to make delivery of
the underlying commodity or other interest is sometimes said to be "short" in
the futures market. Before a trader closes out the long or short position by an
offsetting sale or purchase, the outstanding contracts are sometimes referred to
as "open trades" or "open positions." The aggregate amount of open positions
held by traders in a particular contract is sometimes referred to as the "open
interest" in such contracts.
(iii) An option on a futures contract or on a currency gives the buyer of
the option the right to take a position at a specified price (the "striking,"
"strike" or "exercise" price) in the underlying futures contract or currency.
The buyer of a "call" option acquires the right to purchase, or take a long
position in, the underlying futures contract or currency, and the buyer of a
"put" option acquires the right to sell, or take a short position in, the
underlying futures contract or currency.
The purchase price of an option is referred to as its "premium." The
seller (or "writer") of an option is obligated to take a futures position at a
specified price opposite to the option buyer if the option is exercised. Thus,
the seller of a call option must stand ready to take a short position in the
underlying futures contract at the striking price if the buyer should exercise
the option. The seller of a put option, on the other hand, must stand ready to
take a long position in the underlying futures contract at the striking price.
A call option on a futures contract is said to be "in-the-money" if the
striking price is below current market levels, and "out-of-the-money" if the
striking price is above current market levels. Conversely, a put option on a
futures contract is said to be "in-the-money" if the striking price is above
current market levels, and "out-of-the-money" if the striking price is below
current market levels.
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Options have limited life spans, usually tied to the delivery or settlement
date of the underlying futures contract. An option that is out-of-the-money and
not offset by the time it expires becomes worthless. On certain exchanges, in-
the-money options are automatically exercised on their expiration date, but on
others unexercised options simply become worthless after their expiration date.
Options usually trade at a premium above their intrinsic value (i.e., the
----
difference between the market price for the underlying futures contract and the
striking price) because the option trader is speculating on (or hedging against)
future movements in the price of the underlying contract. As an option nears
its expiration date, the market and intrinsic value typically move into parity.
The difference between an option's intrinsic and market values is sometimes
referred to as the "time value" of the option.
The use of inter-related options and futures positions can provide an
additional means of risk management and permit a trader to retain a futures
position in the hope of an additional appreciation in that position, while at
the same time allowing a trader to limit the possible adverse effects of a
decline in the position's value.
Selling options creates additional risks. The seller of a call option who
does not have a long position in the underlying futures contract or currency is
subject to risk of loss should the price of the futures contract or currency be
higher than the striking price prior to expiration of the option by an amount
greater than the premium received for selling the option. The seller of a call
option who has a long position in the underlying futures contract or currency is
subject to the full risk of a decline in price of the futures contract or
currency reduced by the premium received for granting the option. In exchange
for the premium received for granting a call option, the option grantor gives up
all of the potential gain resulting from an increase in the price of the
underlying futures contract or currency above the striking price prior to
expiration of the option.
The seller of a put option who does not have a short position in the
underlying futures contract or currency (e.g., commitment to sell the currency)
----
is subject to risk of loss should the price of the futures contract or currency
decrease below the striking price prior to expiration of the option by an amount
in excess of the premium received for selling the option. The seller of a put
option on a futures contract who has a short position in the underlying futures
contract is subject to the full risk of a rise in the price in the futures
contract reduced by the premium received for selling the option. In exchange
for the premium received for selling a put option on a futures contract, the
option seller gives up all the potential gain resulting from a decrease in the
price of the futures contract below the striking price prior to expiration of
the option. The seller of a put option on a currency who has a short position
(e.g., commitment to sell) is subject to the full risk of a rise in the price of
- -----
the currency which must be obtained to fulfil the commitment reduced by the
premium received for selling the option. In exchange for the premium, the
grantor of a put option on a currency gives up all potential gain which would
have resulted from a decrease in the price of the currency below the striking
price prior to expiration of the option. See "PRINCIPAL RISK FACTORS--Options"
---
above.
(iv) Currencies may also be purchased or sold for future delivery through
banks or dealers pursuant to what are commonly referred to as "forward
contracts." A forward contract is a contractual right to purchase or sell a
specified quantity of a currency at or before a specified date in the future at
a specified price and, therefore, is similar to a futures contract. In forward
contract trading, however, a bank or dealer generally acts as principal in the
transaction and includes its anticipated profit (the "spread" between the "bid"
and the "asked" prices) and in some instances a mark-up in the prices it quotes
for forward contracts. See "PRINCIPAL RISK FACTORS--Trading in Forward
---
Contracts" above. Unlike futures contracts, forward contracts are not
standardized contracts; rather forward contracts for a given currency are
generally available in any size and maturity and are subject to individual
negotiation between the parties involved. There is also no direct means of
"offsetting" or closing out
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a forward contract by taking an offsetting position as one would do on a futures
contract on a United States exchange. When a trader desires to close out a
futures position, the trader establishes an opposite position in the contract
and settles and recognizes the profit or loss on the two positions at the time
that the offsetting position is established. However, if a trader desires to
close out a forward contract position, the trader establishes an opposite
position in the contract but settles and recognizes the profit or loss on both
positions simultaneously on the "prompt date" (i.e., the delivery date). Thus,
unlike in the futures contract market where a trader who has offset positions
recognizes profit or loss immediately, in the forward market a trader with a
position that has been offset at a profit does not receive such profit from the
counterparty until the prompt date, and likewise a trader with a position that
has been offset at a loss does not have to pay money to the counterparty until
the prompt date. In recent years, the terms of forward contracts have become
more standardized, and in some instances such contracts now provide a right of
offset or cash settlement as an alternative to making or taking delivery of the
underlying commodity. The forward markets provide what has typically been a
highly liquid market for currency trading, and in certain cases, particularly
for large trades, the prices quoted for currency forward contracts may be more
favorable than the prices for currency futures contracts on United States
exchanges.
Forward contracts on currencies are traded primarily in the interbank
market. The interbank market is not a formally organized exchange; but rather
is an informal network of trading relationships among world participants, which
primarily include major commercial banks, investment banks, securities and
commodities brokers and dealers, pension funds, insurance companies, commodity
pools, multinational corporations, and sophisticated individuals. In this
market, participants engage in foreign exchange transactions, i.e., transactions
in which currencies are bought and sold by the participants. Transactions may
be conducted in United States dollars or in most other major currencies.
Virtually all major currencies are traded in the interbank market. The role of
banks in this market is particularly important because they maintain active
currency trading operations and offer to buy and sell currencies to and from
their customers and correspondent banks. Participants in the interbank market
may also include any business or institution which buys or sells goods or
services abroad and, as a result, has a need for currencies in making or
receiving payment for those goods or services.
The interbank market is a 24-hour worldwide market, with participants
maintaining instantaneous communications with one another through
telecommunications devices (e.g., telephones, computers, and telexes) which
provide participants with access to the current prices at which other
participants are willing to buy or sell currencies. Trading is generally
conducted by telephone, with orders confirmed later by written confirmations.
Centralization of the marketplace in time and location has generally tended to
make the currency markets more liquid, and the volume and size of trades in the
interbank market are both much greater than on organized commodity exchanges.
Thus, whereas the futures market may be more liquid for smaller trades, the
interbank market may more easily accommodate large traders and offers
substantially more flexibility. For example, the existence of a 24-hour foreign
exchange market is essential for commercial hedgers of foreign exchange risks.
The interbank market and participation in it is not subject to regulation by the
United States government or by any international agency. While banks in the
United States are subject to federal and/or state regulation, foreign banks may
not be subject to similar regulation. See "PRINCIPAL RISK FACTORS--Trading in
---
Forward Contracts" above.
The term or maturity of a forward contract is established by agreement
between the two parties to the contract, and may range from several days to
several years. Similarly, the quantity of a forward trade is established by the
parties themselves, and there are no fixed contract quantities. The price at
which the agreed-upon quantity of a currency or commodity is to be bought or
sold is established at the time the forward contract is made. Prices in a
currency forward contract generally are expressed in terms of the amount of
currency to be exchanged per one foreign currency unit (e.g., U.S. $1.80 per one
British pound).
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<PAGE>
Forward contracts are frequently used to protect the price at which goods
or services are to be bought or sold between the time a commitment to buy or
sell is made and the time the required payment is to be made. Thus, forward
contract transactions of commercial users generally are made as part of a
broader business transaction, and are not entered into for the purpose of
profiting from the forward contract transaction. See subparagraph (vi) below.
---
In the event the Partnership engages in trading forward contracts, it will
be doing so solely for speculative purposes, i.e., hoping to make a profit from
the relative movements of the prices of the currencies that are the subject of
the forward contract between the time that a position is taken in a contract
(e.g., a sale) and the time that the position is offset by an opposite contract
- -----
(e.g., a purchase) for the identical quantity of currency at the maturity date.
----
For example, the Partnership would sell a forward contract for a given foreign
currency if the CTA anticipates a decline in the price of that currency, and it
would purchase a foreign contract for a foreign currency if the CTA anticipates
an increase in the price of that currency. Prior to the maturity of such a
forward contract, the Partnership would generally enter into another forward
contract that offsets its existing forward contract position. The offsetting
contract would have the same maturity date and be for the same quantity of the
foreign currency as the initial forward contract. The Partnership may also buy
and sell forward contracts in two different foreign currencies at or about the
same time, similar to a spread position, in order to take advantage of potential
profit in the price relationship between the two currencies. Profits and losses
then generally accrue as the price relationship changes between the two
currencies.
(v) Among the agricultural commodities for which there are futures
contracts are corn, wheat, soybeans, soybean oil, soybean meal, live cattle,
live hogs, pork bellies, iced broilers, sugar, cocoa and cotton.
Nonagricultural commodities for which there are futures contracts include
copper, silver, gold, lumber, currencies, United States Treasury bills,
commercial paper and mortgage-backed securities.
(vi) Two broad classifications of persons who trade in futures contracts
are "hedgers" and "speculators." Commercial interests (such as farmers) which
market or process commodities and financial institutions that market or deal in
commodities (including, for example, interest rate sensitive instruments,
foreign currencies and stock portfolios) and which are exposed to exchange,
interest rate and stock market risks, may use the futures markets primarily for
hedging. Hedging is a protective procedure designed to minimize losses which
may occur because of price fluctuations occurring, for example, between the time
a merchandiser or processor makes a contract to sell a raw or processed
commodity and the time the trader must perform the contract. In such case, at
the time the trader contracts to sell the commodity at a future date (i.e.,
----
becomes obligated to make delivery), the trader will simultaneously buy futures
contracts (i.e., become obligated to take delivery) for the equivalent quantity
----
of the commodity. Subsequently, the trader may accept delivery under the
futures contracts or may buy the actual commodity and close out the futures
position by selling futures contracts. Similarly, a farmer may hedge against
price fluctuations between the day the farmer plants the farmer's crop and the
day the crop is ready for delivery. If the futures price quoted for the
anticipated date of delivery is sufficient to cover the costs and leave a profit
deemed adequate, the farmer can sell the future "short" (i.e., become obligated
----
to make delivery), and deliver the crop grown on the delivery date under the
futures contract, or sell the crop in the local market and close out the futures
position by purchasing a futures contract. In the foreign exchange context, the
need to hedge currency exposures arises because of the volatility of exchange
rates. Such exposures include "translation exposures," which occur because of
certain accounting rules when an entity must translate its foreign currency-
denominated assets and liabilities into domestic currency on its financial
statements. Such exposures also include "transaction exposures," which occur
when an entity expects to receive payment or make payment in a foreign currency
in connection with a transaction.
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The futures markets therefore enable the hedger to attempt to shift the
risk of price fluctuations to the speculator. The usual objective of the hedger
is to protect the profit which the hedger expects to earn from farming,
merchandising or processing operations, rather than to profit from the futures
trading.
The speculator, on the other hand, generally expects neither to deliver nor
receive the physical commodity. Instead, the speculator risks the speculator's
capital with the hope of making profits from price fluctuations in futures
contracts. Speculators rarely make or take delivery of the physical commodity,
but rather close out their futures positions by entering into offsetting
purchases or sales of futures contracts. Since the speculator may take either a
long or short position in the market, it is possible to make profits or incur
losses regardless of the direction of price trends and whether the prices go up
or down. In every case, however, where one trader experiences a gain on a
futures contract, another trader experiences a loss.
ALL TRADES MADE BY THE PARTNERSHIP WILL BE SPECULATIVE, AND NOT FOR HEDGING
PURPOSES. PROSPECTIVE INVESTORS SHOULD NOTE THAT THERE ARE ALWAYS TWO PARTIES
TO A FUTURES CONTRACT. IF ONE PARTY TO SUCH CONTRACT EXPERIENCES A GAIN ON THE
CONTRACT, THE OTHER PARTY TO SUCH CONTRACT EXPERIENCES AN EQUAL AMOUNT OF LOSS.
THUS, AT MOST, ONLY FIFTY PERCENT (50%) OF FUTURES CONTRACTS MAY EXPERIENCE GAIN
AT ANY ONE TIME, WITHOUT REFERENCE TO COMMISSIONS AND OTHER COSTS OF TRADING
WHICH WILL REDUCE OR MAY IN SOME CIRCUMSTANCES TOTALLY ELIMINATE SUCH GAIN. SEE
---
"PRINCIPAL RISK FACTORS--FUTURES TRADING IS AND FUTURES PRICES ARE SPECULATIVE
AND VOLATILE" ABOVE.
B. REGULATION. (i) Exchanges provide centralized market facilities for
----------
trading in futures contracts and options (but not forward contracts) relating to
specified commodities, currencies and other interests. Members of, and trades
executed on, a particular exchange are subject to the rules of that exchange.
Among the principal exchanges in the United States are the Chicago Board of
Trade, the Chicago Mercantile Exchange (including the International Monetary
Market) and the Commodity Exchange, Inc.
Each of the exchanges in the United States has an associated
"clearinghouse." Once trades between members of an exchange have been
confirmed, the clearinghouse becomes substituted for each buyer and each seller
of contracts traded on the exchange and, in effect, becomes the other party to
each trader's open position in the market. Thereafter, each party to a trade
looks only to the clearinghouse for performance. The clearinghouse generally
establishes some sort of security or guarantee fund to which all clearing
members of the exchange must contribute. This fund is intended to act as an
emergency buffer to enable the clearinghouse, at least to a degree, to meet its
obligations with regard to the "other side" of an insolvent clearing member's
contracts. Clearinghouses also require margin deposits and continuously mark
positions to market to attempt to provide some assurance that their members will
be able to fulfill their contractual obligations. Thus, a central function of
the clearinghouses is to attempt to support the integrity of trades, and members
effecting futures transactions on an organized exchange generally need not worry
about the solvency of the party on the opposite side of the trade; with their
remaining concerns as to the solvency of the "other side" of the transaction
being the respective solvencies of their commodity broker and the clearinghouse.
See "PRINCIPAL RISK FACTORS-- Failure of Exchanges, Brokers or Banks" above.
- ---
Some exchanges also impose speculative position limits and other restrictions on
customer positions to attempt to ensure that no single trader can amass a
position that would have a major impact on market prices. Trading on foreign
exchanges, however, involves other risks, some of which arise from the fact that
the CFTC has no authority to regulate trading on foreign exchanges and markets.
See "PRINCIPAL RISK FACTORS--Trading on Foreign Exchanges" above.
- ---
Exchanges in the United States and their clearinghouses are given some
latitude in promulgating rules and regulations to control and regulate their
members. Examples of regulations by exchanges and clearinghouses
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<PAGE>
include the establishment of initial margin levels, size of trading units,
contract specifications, speculative position limits and daily price fluctuation
limits. The CFTC reviews some of those rules and can disapprove or, with respect
to certain of such rules, require the amendment or modification thereof.
(ii) Exchanges in the United States are subject to regulation by the CFTC
under the Commodity Exchange Act, as amended. (All references in this
Prospectus to the Commodity Exchange Act are to the Commodity Exchange Act in
effect as of the date of this Prospectus.) Under the Commodity Exchange Act,
the CFTC is the governmental agency having primary responsibility for regulation
of exchanges and futures trading. The function of the CFTC is to implement the
objectives of the Commodity Exchange Act of preventing price manipulation and
excessive speculation and promoting orderly and efficient commodity futures
markets. Such regulation, among other things, provides that trading in certain
commodity contracts must be on exchanges designated as "contract markets" and
that all trading on such exchanges must be done by or through exchange members.
(iii) Under the Commodity Exchange Act, futures trading in all
commodities, currencies and other interests traded on United States exchanges is
regulated. The CFTC has exclusive jurisdiction to regulate the activities of
"commodity trading advisors" and "commodity pool operators," and has adopted
regulations with respect to certain of their activities. The General Partner is
registered as a commodity pool operator with the CFTC. The CTA is registered as
a commodity trading advisor with the CFTC. The Commodity Exchange Act requires
a registered commodity pool operator to make annual filings with the CFTC and
authorizes the CFTC to require and to review books and records of, and to review
documents prepared by, the commodity pool operator. 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 Commodity Exchange
Act authorizes the CFTC to suspend the registration of a commodity pool operator
if it finds that (i) the operator has violated the Commodity Exchange Act or
regulations promulgated thereunder; (ii) the pool's trading practices tend to
disrupt orderly market conditions; (iii) any controlling person is subject to an
order of the CFTC denying such person trading privileges on any exchange; and
(iv) in certain other various circumstances. The Commodity Exchange Act gives
the CFTC similar authority with respect to the activities of commodity trading
advisors. In the event the registration of the General Partner as a commodity
pool operator were terminated or suspended, the General Partner would be unable
to manage the business of the Partnership. See "PRINCIPAL RISK FACTORS--
---
Reliance on the General Partner" above. Similarly, if the registration of the
CTA as a commodity trading advisor were terminated or suspended, the CTA would
be unable to provide trading advice and services to the Partnership. See
---
"PRINCIPAL RISK FACTORS - Reliance on the CTA" above.
(iv) Pursuant to authority in the Commodity Exchange Act, the NFA has
been formed and registered with the CFTC as a "registered futures association."
At the present time, the NFA is the only non-exchange self-regulatory
organization. As such, members are subject to NFA standards relating to fair
trade practices, financial condition and consumer protection. As a self-
regulatory body of the futures industry, the NFA promulgates rules governing the
conduct of various commodity professionals and disciplines those professionals
who do not comply with such standards. The NFA also arbitrates disputes between
members and their customers and conducts fitness screening of applicants for
membership and audits of its existing members. The CFTC also has delegated to
the NFA responsibility for, among other things, the review of disclosure
documents of commodity pool operators offering private pools and of commodity
trading advisors, and the registration under the Commodity Exchange Act of
commodity trading advisors, commodity pool operators, futures commission
merchants, introducing brokers and their respective associated persons and floor
brokers. The General Partner, the CTA and the FCM are members of the NFA.
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<PAGE>
THE REGULATIONS OF THE CFTC AND NFA PROHIBIT ANY REPRESENTATION BY A PERSON
REGISTERED WITH THE CFTC OR BY ANY 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
PROGRAMS OR OBJECTIVES. THE REGISTRATIONS AND MEMBERSHIPS DESCRIBED ABOVE MUST
NOT BE CONSIDERED AS CONSTITUTING ANY SUCH APPROVAL OR ENDORSEMENT. ALSO, NO
COMMODITY EXCHANGE HAS GIVEN OR WILL GIVE ANY SUCH APPROVAL OR ENDORSEMENT.
(v) Pursuant to their emergency powers, the CFTC and the exchanges may
take extraordinary actions in the event of a market emergency, including, for
example, the retroactive implementation of speculative position limits or higher
margin requirements, the establishment of daily price limits and the suspension
of trading. The exercise of any such action could obviously adversely affect
the trading of the Partnership. Certain emergency actions were taken with
respect to certain stock index futures contracts following the extraordinary
decline of stock prices on October 19, 1987. In addition, the regulation of
commodity trading in the United States and other countries is an evolving area
of law. The various statements made herein are subject to modification by
legislative action and changes in the rules and regulations of the CFTC, NFA,
and exchanges or other regulatory bodies. In the future, emergency actions by
the CFTC or the exchanges or changes in the regulation of trading by the
Partnership could have a detrimental effect on the Partnership's trading
performance. See "PRINCIPAL RISK FACTORS--Other Laws and Circumstances Subject
---
to Change" above.
(vi) The Partnership's FCM is also subject to regulation by and
registration with the CFTC as a "futures commission merchant." The Commodity
Exchange Act requires all futures commission merchants to meet and maintain
specified fitness and financial requirements, segregate customer funds from
proprietary funds and account separately for all customers' funds and positions,
and to maintain specified books and records on customer transactions open to
inspection by the staff of the CFTC. The Commodity Exchange Act authorizes the
CFTC to regulate trading by futures commissions merchants and their officers and
directors, permits the CFTC to require exchange action in the event of market
emergencies, and establishes an administrative procedure under which traders may
institute complaints for damages arising from alleged violations of the
Commodity Exchange Act. As of the date of this Prospectus, the CFTC did not
regulate currency forward contracts traded through banks, futures trading on
exchanges outside of the United States or transactions in physical commodities
generally. United States banks are regulated in various ways by the Federal
Reserve Board, the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, and state banking officials.
(vii) The Partnership will not be registered under the Investment Company
Act of 1940, as amended, and the General Partner and the CTA will not be
registered under the Investment Advisors Act of 1940, as amended (or any similar
state law). Any protective measures provided by such legislation therefore will
not be accorded to investors in the Units. See "PRINCIPAL RISK FACTORS--Absence
---
of Certain Statutory Registrations and Regulations" above. In addition, the
Partnership intends to trade on certain foreign commodity exchanges. Foreign
exchanges are not subject to regulation by the CFTC or any other United States
governmental agency and, accordingly, the protections afforded by such
regulation will not be available to such trading. See "PRINCIPAL RISK FACTORS--
---
Trading on Foreign Exchanges" above.
(viii) Limited Partners are afforded certain rights to institute
reparations proceedings under the Commodity Exchange Act. The CFTC has adopted
rules implementing the reparations provisions of the Commodity Exchange Act,
which provide that any person may file a complaint for a reparations award with
the CFTC for violation of the Commodity Exchange Act against a floor broker, a
futures commission merchant and
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<PAGE>
its associated persons, an introducing broker, a commodity trading advisor or a
commodity pool operator and their respective associated persons. As discussed at
"CONFLICTS OF INTEREST" and "FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER"
above, however, it may be difficult for Limited Partners to establish a
violation of the Commodity Exchange Act with respect to certain matters, and the
Limited Partnership Agreement may render ineffective certain legal remedies
available to the Limited Partners.
(ix) Most United States exchanges (but generally not foreign exchanges or
banks or dealers in the case of forward contracts) normally limit the amount of
fluctuation in the prices of futures contracts during a single trading day by
regulations which specify what are sometimes referred to as "daily price
fluctuation limits" or more commonly "daily limits." The daily limits establish
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of said previous trading
session. Once the daily limit has been reached in a particular commodity or
other interest, no trades may be made at a price beyond the limit, which can
create liquidity problems because positions in the commodity or other interest
could then be taken or liquidated only if traders are willing to effect trades
at or within the limit during the period for trading on such day. Because the
"daily limit" regulations only govern price movement for a particular trading
day, the regulations do not limit losses. Futures prices have occasionally
moved the daily limit for several consecutive trading days, and thereby
prevented prompt liquidation of futures positions on one side of the market,
subjecting those traders to substantial losses for those days. See "PRINCIPAL
---
RISK FACTORS--Futures Trading May be Illiquid" above.
(x) The CFTC and certain United States exchanges have established limits,
referred to as "speculative positions limits" or "position limits," on the
maximum net long or net short position which any person or group of persons may
hold, own or control in particular commodity contracts. One of the purposes of
position limits is to attempt to prevent a "corner" on a market or undue
influence on prices by any single trader or group of traders. The CFTC has
jurisdiction to establish position limits with respect to all commodities. The
CFTC requires each United States exchange to submit position limits for the
commodities traded on such exchange for approval by the CFTC. Certain exchanges
or their clearinghouses also set limits on the total net positions that may be
held by a commodity broker, such as the FCM. Position limits do not, however,
generally apply to many currency futures contracts, and no position limits
generally are currently in effect in bank or dealer forward contract trading or
in trading on foreign exchanges, although the principals with which the
Partnership may trade in such markets may impose such limits as a matter of
credit policy. The currency contract positions of the Partnership should not
currently be attributable to Limited Partners for their own trading, if any, for
purposes of position limits. See "PRINCIPAL RISK FACTORS--Possible Effects of
---
Speculative Position Limits" above for a discussion of the potential adverse
effects to the Partnership of the applicability of position limits to the
activities of the CTA.
C. MARGINS. (i) Futures contracts are customarily bought and sold on
-------
"initial" or "original" margins which range upward from less than one percent
(1%) of the purchase price of the contract being traded. The "initial" or
"original" margin is the minimum amount of funds which must be deposited by the
trader with the futures commission merchant in order to initiate futures trading
or to maintain open positions in futures contracts. Because of these low
margins, price fluctuations occurring in futures markets may create profits and
losses which are greater, in relation to the amount invested, than are customary
in other forms of investment or speculation. See "PRINCIPAL RISK FACTORS--
---
Futures Trading is Highly Leveraged" above. "Maintenance" margin is the amount
(generally less than initial margin) to which a trader's account may decline
before the trader must deliver additional margin. A margin deposit is like a
cash performance bond because it is intended to help assure the trader's
performance of the futures contract the trader purchases or sells.
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<PAGE>
The minimum amount of margin required in regard to a particular futures
contract is set from time to time by the exchange upon which such futures
contract is traded and may be modified from time to time by the exchange during
the term of the futures contract. Brokerage firms carrying accounts for traders
in futures contracts may not accept lower margins, and may increase the amount
of margin required as a matter of policy in order to accord further protection
for themselves. It is presently contemplated that the Partnership's FCM will
require the Partnership to make margin deposits equal to the exchange minimum
levels for all futures contracts. This requirement may, however, be altered
from time to time in the discretion of the FCM.
Trading in forward contract markets does not currently require margin, but
generally does require the extension of credit by a bank or dealer with which a
person trades. Since it is anticipated that the Partnership's trading will be
conducted with the FCM, the Partnership may be able to take advantage of the
FCM's credit lines with several forward market participants.
When a trader purchases an option, there is currently no margin
requirement. When a trader sells an option, on the other hand, the trader is
required to deposit margin in an amount determined by the margin requirements
established for the futures contract underlying the option, and, in addition, an
amount substantially equal to the current premium for the option. The margin
requirements imposed on the writing of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised, can in fact be
higher than those imposed in dealings in the futures markets directly.
Complicated margin requirements apply to "spreads" and "conversions," which are
complex trading strategies in which a trader acquires a mixture of related
futures and options positions.
(ii) Margin requirements are computed each day by a trader's futures
commission merchant. When the market value of a particular open futures
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
futures commission merchant. Margins calls can occur frequently and the amount
of a margin call can be significant. If a margin call is not met, the broker is
required to close out the trader's position. See "PRINCIPAL RISK FACTORS--
---
Margin Calls" above.
D. FUTURES PRICES. The prices of futures contracts and options are
--------------
volatile and usually fluctuate rapidly and over wide ranges. See "PRINCIPAL
---
RISK FACTORS--Futures Trading is and Futures Prices are Speculative and
Volatile" above. Prices are affected by many influences, including the
psychology of the marketplace, the laws of supply and demand, and speculative
assessments of future world and economic events. The subjective nature of many
of those influences make it impossible for any trader to reliably predict prices
and/or trends. In addition, prices still may not react as predicted even if
current and correct information as to substantially all factors is known or
thought to be known. See, "PRINCIPAL RISK FACTORS--Futures Trading is and
---
Futures Prices are Speculative and Volatile." Prices of futures contracts are
listed in most major daily newspapers and financial journals.
FEDERAL INCOME TAX ASPECTS
--------------------------
GENERAL. Following is a summary of the federal income tax principles
-------
applicable to the Partnership. This discussion is based on the Internal Revenue
Code of 1986, as amended, (the "Code"), rules and regulations thereunder which
are in effect as of September 3, 1998, and on the assumption that the
Partnership invests only equity capital and does not borrow funds from any
source. Any deviation from these assumptions or changes made to the Code or the
rules and regulations promulgated thereunder could have adverse consequences to
the
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<PAGE>
Partners. The following discussion incorporates a description of those
provisions of the Code most likely to have a material impact on an investment in
the Partnership. However, many of the Code's provisions are subject to varying
interpretations, and the impact and significance of these provisions may not
become certain until they have been definitively interpreted by the Internal
Revenue Service ("IRS") and the courts. Consequently, no assurance can be given
that such provisions will not have a material impact on an investment in the
Partnership when they are judicially or administratively interpreted.
Additionally, no assurance can be given that future legislative, administrative
or court decisions will not modify the legal basis for the statements or
conclusions expressed or that such decisions will not be retroactively applied.
Legislation is from time to time pending in Congress. No attempt has been made
to describe such legislation in this document and its final form cannot be
predicted at this time.
THIS DISCUSSION ASSUMES GENERALLY THAT THE INVESTOR IS AN INDIVIDUAL AND
NOT A CORPORATION OR OTHER LEGAL ENTITY. THE RULES AND LIMITATIONS APPLICABLE
TO CORPORATIONS AND OTHER FORMS OF ENTITIES MAY BE DIFFERENT THAN THE RULES SET
FORTH HEREIN.
It is anticipated that investment in the Partnership will have certain tax
consequences for the Partners such as long-term and short-term capital gains or
losses arising from commodities transactions. Under current IRS guidelines,
there exists a substantial possibility that the Partnership's return will be
examined. If the Partnership's return is audited, significant factual questions
may arise which, if challenged by the IRS, might only be resolved at
considerable legal and accounting expense to the Partners and the Partnership.
Any adjustment made to the Partnership return will flow through to the Partners'
returns and could result in a separate audit of the Partners' returns.
It is impractical to comment on all aspects of tax laws which may affect
the tax consequences of an investment in the Partnership, and no attempt has
been made to do so herein. Rather, this discussion focuses upon what the
Partnership believes are potentially material federal income tax issues for or
consequences to Partners. Additionally, a Partner's allocable share of income
or loss of the Partnership may be required to be included in determining the
income for state and local tax purposes, the effect of which is not analyzed in
this Prospectus. THE ANALYSIS CONTAINED HEREIN IS NOT INTENDED AS A SUBSTITUTE
FOR CAREFUL PLANNING, PARTICULARLY BECAUSE CERTAIN OF THE INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE PARTNERSHIP WILL NOT BE THE SAME FOR ALL
TAXPAYERS. ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX
ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION.
Certain tax consequences are described herein for certain Limited Partners
whose individual circumstances may make other provisions of the Code material.
The subsections of this "FEDERAL INCOME TAX ASPECTS" section describing these
provisions are: (1) Self-Employment Taxes, (2) Investment Interest Limitation,
(3) Tax-exempt Obligations, (4) Alternative Minimum Tax, (5) At-Risk
Limitations, and (6) Income and Losses from Passive Activities. In addition,
the transfer of Units, or the liquidation of the Partnership, will have material
tax consequences which are discussed in the following subsections: (1) Transfer
of Units, (2) Section 754 Election, and (3) Liquidation of the Partnership.
Finally, certain penalties and tax shelter and audit provisions are discussed
that may be applicable to the Partnership.
OPINION OF COUNSEL. In the opinion of Nyemaster, Goode, Voigts, West,
------------------
Hansell & O'Brien, P.C., Des Moines, Iowa, the Partnership will be classified as
a partnership for federal income tax purposes and it is more likely than not
that the preponderance of the material tax benefits described in this Prospectus
will be realized
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by the Partners. These material tax benefits may be divided into the following
major categories: (1) the right of the Partners to claim tax treatment accorded
partners by the Code; (2) the allocation of Partnership profits and losses in
accordance with the terms of the Limited Partnership Agreement; (3) the cost of
a Partner's Units as constituting the Partner's beginning basis in those Units;
(4) the amortization of certain start-up and organizational expenditures; (5)
the treatment of commodity transactions of the Partnership as Section 1256
contracts or other commodity transactions as the case may be; and (6) the
presence of a profit motive in the venture.
Nyemaster, Goode, Voigts, West, Hansell & O'Brien, P.C., cannot render an
opinion as to whether certain tax aspects of the venture will affect the
realization of the aggregate tax benefits because of the factual nature of the
determinations. Consequently, Nyemaster, Goode, Voigts, West, Hansell &
O'Brien, P.C., has rendered no opinion as to the allocation of certain business
expenditures among deductible business expenses, expenditures which are
capitalized and amortized as start-up expenditures, expenditures which are
capitalized and amortized as organization expenditures, and syndication expenses
which are neither deductible or amortizable. Furthermore, Nyemaster, Goode,
Voigts, West, Hansell & O'Brien, P.C., cannot render an opinion as to whether
the fees payable to the General Partner, particularly the fee based on a
percentage of the net asset value or new trading profits of the Partnership will
be treated as a payment to one who is not a partner or an allocation and
distribution of partnership income. The opinion of Nyemaster, Goode, Voigts,
West, Hansell & O'Brien, P.C., is its best judgment of the law and published
interpretations as of September 3, 1998. However, it is not binding upon the
IRS or the courts.
The Partnership will be treated as a partnership for tax purposes, and will
not be subject to any federal income tax. Each investor, as a Partner, is
required to include separately in that Partner's return the distributive share
of each class or item of Partnership income, gain, loss, deduction and credit.
These items must be included by each Partner in the Partner's tax return without
regard to the amount, if any, of cash or other distributions made. Thus, each
Partner will be taxed on the Partner's share of Partnership income even though
the Partner may receive no distributions or the amount distributed may be less
than the resulting tax liability.
The Partnership has not applied for a ruling from the IRS regarding any tax
aspect, nor does the Partnership intend to seek a ruling as to any tax aspect.
The Partnership has, however, received an opinion of Nyemaster, Goode, Voigts,
West, Hansell & O'Brien, P.C., to the effect that the Partnership is taxable as
a partnership for federal income tax purposes. Such opinion is based on the
Code and the Treasury Regulations as of September 3, 1998, and on a review of
the Limited Partnership Agreement, the Prospectus, and the following
representations of the General Partner: (a) at all times the Partnership will be
operated in accordance with the Iowa Uniform Limited Partnership Act, as
applicable, and the Limited Partnership Agreement, (b) the aggregate deductions
to be claimed by the Partners as their distributive shares of the Partnership
net losses for the first two years of operation of the Partnership will not
exceed the amount of equity capital invested in the Partnership, (c) no creditor
who makes a loan to the Partnership will have or acquire as a result of making
the loan any direct or indirect interest in the capital, profits or property of
the Partnership other than as a secured creditor, and (d) interests in the
Partnership will not be (1) traded on established securities market, or (2)
readily tradable on a secondary market (or the substantial equivalent thereof).
The General Partner will use its best efforts to take such steps as may be
required presently and from time to time by the IRS, the Code, administrative
rules, Treasury Regulations and interpretations thereof, and judicial decisions
to maintain the Partnership as a partnership for tax purposes. However, no
assurances can be given that the partnership classification for tax purposes may
not be changed during the term of the Partnership by reason of any legal change
beyond the control of the General Partner.
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CLASSIFICATION AS A PUBLICLY TRADED PARTNERSHIP. With some exceptions,
-----------------------------------------------
under the Revenue Act of 1987 (the "1987 Act") a publicly traded partnership is
treated for federal income tax purposes as a corporation, subject to a corporate
level tax and certain other adverse tax consequences. Publicly traded
partnerships are defined in the 1987 Act as partnerships whose interests are
either (a) traded on an established securities market or (b) readily tradable on
a secondary market (or the substantial equivalent thereof.)
DEFINITION OF A PUBLICLY TRADED PARTNERSHIP. The Units sold hereunder will
-------------------------------------------
not be traded on an established securities market. However, the Conference
Committee Report accompanying the 1987 Act stated that a regular plan of
redemptions or repurchases (arguably like that provided in the Limited
Partnership Agreement), whereby the holders of interests have readily available,
regular and ongoing opportunities to dispose of their interests, is indicative
that the interests are readily tradable on a market which is the substantial
equivalent of a secondary market and, therefore, an entity having such a plan
may be treated as a publicly traded partnership. In the event, however, the
Partnership satisfies the Redemption or Repurchase Safe Harbor (see "FEDERAL
---
INCOME TAX ASPECTS--Redemption or Repurchase Safe Harbor" below) the Partnership
interests would not be considered as readily tradable on a secondary market (or
the substantial equivalent thereof) because of the redemption and repurchase
provisions of the Limited Partnership Agreement.
A publicly traded partnership is defined in two separate sections of the
Code and certain exceptions contained in the section relating to the imposition
of the corporate level tax are not included in the definition contained in the
passive loss rules. Thus, a partnership may not be subject to the corporate
level tax imposed on publicly traded partnerships because it falls within one
exception, but still be subject to treatment as a publicly traded partnership
for purposes of the application of the passive loss rules.
IMPOSITION OF A CORPORATE LEVEL TAX. The 1987 Act provided an exception to
-----------------------------------
the general rule that publicly traded partnerships will be subject to a
corporate level tax if 90% or more of its gross income consists of qualifying
income (the "Qualifying Income Exemption"). Qualifying income includes:
interest; dividends; and income from futures, options or forward contracts on
commodities if the buying and selling of commodities is a principal activity of
the partnership. Interest derived "in the conduct of a financial business" is
excluded from qualifying income. It is unclear whether income earned by the
Partnership from trading in various interest rate futures contracts would
constitute interest derived in the conduct of a financial business. If it was,
the Partnership might not satisfy the Qualifying Income Exemption, with the
result that the Partnership could be subject to corporate level tax. Based upon
existing authorities, which are not conclusive, counsel for the Partnership is
of the opinion that it is more likely than not that the Partnership will satisfy
the Qualifying Income Exemption. Accordingly, the Partnership should not be a
publicly traded partnership subject to a corporate level tax.
APPLICATION OF PASSIVE LOSS RULES. In addition to the imposition of a
---------------------------------
corporate level tax on publicly traded partnerships, special rules apply to
these entities in regard to the application of the passive loss rules. See
---
"FEDERAL INCOME TAX ASPECTS--Income and Losses from Passive Activities" below.
The definition of publicly traded partnerships for purposes of the passive loss
rules does not include the Qualifying Income Exemption, discussed above.
However, the Partnership may avoid the adverse tax consequences of being treated
as a publicly traded partnership for passive loss purposes if it meets certain
safe harbors prescribed by the IRS regulations.
The regulations provide that interests in a partnership will not be treated
as readily tradable on a secondary market or the substantial equivalent thereof
under certain circumstances described in the regulations (essentially consisting
of five safe harbors and a transition rule). However, the failure of a
partnership to satisfy any of the safe harbors will not establish or give rise
to a presumption that the interests in the partnership will
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be treated as readily tradable on the substantial equivalent of a secondary
market. In general, the safe harbors relate to (a) private placements, (b)
transfers not involving trading, (c) other circumstances involving no actual
trading, (d) redemptions or repurchases (the "Redemption or Repurchase Safe
Harbor"), and (e) matching services. Counsel for the Partnership believes that
under the Partnership's current Limited Partnership Agreement and the facts and
circumstances which the General Partner expects will exist after the offering,
the only safe harbor which may apply to the Partnership is the Redemption or
Repurchase Safe Harbor. However, its applicability to the Partnership will
depend upon the facts and circumstances present in each taxable year and no
assurance can be given that the Partnership will meet this safe harbor.
REDEMPTION OR REPURCHASE SAFE HARBOR. The regulations provide that
------------------------------------
partnerships will not be publicly traded for a taxable year if (i) any
redemption or repurchase agreements require written notification at least 60
days before the redemption of the partner's intent to redeem; (ii) the
repurchase price is not established until at least 60 days after the receipt of
such notification by the partnership, or alternatively, the repurchase price is
established not more than four times during the partnership's tax year; and
(iii) the sum of the percentage interests in the partnership that are sold or
otherwise disposed of (including redemptions) during the tax year will not
exceed 10% of the total interests in the partnership capital or profits.
The Limited Partnership Agreement contains provisions which satisfy both
conditions (i) and (ii) of the Redemption or Repurchase Safe Harbor, but the
Limited Partnership Agreement does grant the General Partner some flexibility to
those issues. There is no assurance, however, that the Partnership will not
permit transfers of interests in the Partnership to exceed 10% of the total
interest in the Partnership in any tax year, and since the last condition of
this safe harbor must be determined on an annual basis, no assurance can be
-------------------
given that the Partnership will be able to satisfy this safe harbor in any year.
- --------------------------------------------------------------------------------
Therefore, it is possible that the safe harbor might not be satisfied and in
- ----------------------------------------------------------------------------
such case, the IRS could contend that the Partnership was a publicly traded
- ---------------------------------------------------------------------------
partnership for purposes of the passive loss rules. See "FEDERAL INCOME TAX
- -------------------------------------------------- ---
ASPECTS-Income and Losses from Passive Activities" below.
ORGANIZATIONAL EXPENSES. The Partnership may amortize organizational
-----------------------
expenses ratably over a period of not less than 60 months beginning with the
month in which the Partnership begins business. These expenses include legal
fees incident to the organization of the Partnership, accounting fees for
establishing the Partnership accounting system and filing fees.
Although the General Partner believes that the allocation of expenditures
between deductible business expenses, amortizable organizational expenses,
amortizable start-up expenses and nondeductible syndication fees will be proper
under the Code and Treasury Regulations, such allocations may be challenged by
the IRS. Because of the inherently factual nature of the question, Nyemaster,
Goode, Voigts, West, Hansell & O'Brien, P.C., has expressed no opinion as to the
proper allocation of these expenditures. If the IRS were successful in
challenging the allocation, a Partner's share of Partnership taxable income
could be increased to the extent that wholly-deductible expenditures were made
amortizable, or amortizable expenditures made non-deductible.
METHOD OF RECORD KEEPING. The Partnership will report its income for tax
------------------------
and book purposes under the accrual method of accounting and its tax year will
be the calendar year, or such other period as required under Section 706(b) of
the Code.
CASH DISTRIBUTIONS. Cash distributions from a partnership are generally
------------------
not equivalent to partnership income (if any) as determined for income tax
purposes. Thus, a Partner may be taxed on Partnership income with respect to a
year for which the Partner did not receive a distribution.
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If the cash distributions to a Partner by the Partnership in any year
(including the Partner's share in any reduction in liabilities) exceed the
Partner's share of the Partnership's taxable income for that year, the excess
will constitute a return of capital to the Partner for tax purposes. A return
of capital will not be reportable as taxable income to the Partner, but will
reduce the basis of the Partner's Units. If the basis of a Partner's Units is
reduced to zero, the amount of any additional distributions is treated as gain
from the sale or exchange of a Unit. See "FEDERAL INCOME TAX ASPECTS--Transfer
---
of Units" below.
BASIS. Generally, the "basis" of a Partner's interest in the Partnership
-----
for tax purposes is equal to the cost decreased, but not below zero, by the
Partner's share of any Partnership losses and distributions and increased by the
Partner's share of any Partnership income and by the Partner's share of
Partnership liabilities, if any.
The basis of a Unit is used to determine the treatment of distributions to
the Partner from the Partnership, the extent to which Partnership losses may be
deducted by a Partner, and a Partner's gain or loss upon disposition of the
Partner's Units. See "FEDERAL INCOME TAX ASPECTS--Transfer of Units" below.
---
AT-RISK LIMITATION. Section 465 of the Code provides that the amount of
------------------
any loss otherwise allowable for any year incurred in connection with a trade or
business that may be deducted by an individual cannot exceed the total amount
which the taxpayer has "at risk" in the activity at the close of the tax year.
Losses already claimed may be subject to recapture if the amount "at risk" is
reduced as a result of cash distributions from the activity, deduction of losses
from the activity, changes in the status of indebtedness from recourse to
nonrecourse, the commencement of a guarantee, or other events that affect the
taxpayer's risk of loss. Losses disallowed under Section 465 may be carried
over and treated as a deduction allocable to such activity in the first
succeeding taxable year of the partner to the extent the "at-risk" amounts in
those years permit, to the extent that such losses are allowable under the
passive loss rules (See "FEDERAL INCOME TAX ASPECTS--Income and Losses from
---
Passive Activities") and to the extent the Partner has adequate basis against
which to deduct the losses. See "FEDERAL INCOME TAX ASPECTS--Basis Loss
---
Limitation."
A taxpayer to whom Section 465 is applicable generally is "at risk" with
respect to an activity to the extent of cash contributed to the activity, the
adjusted basis of other property contributed to the activity, and amounts
borrowed for use in the activity with respect to which the taxpayer has personal
liability or has pledged property not used in the activity. However, if the
taxpayer borrows money to contribute to the activity and the lender's only
recourse is to either the taxpayer's interest in the activity or property used
in the activity, the proceeds of the borrowing are considered amounts financed
on a nonrecourse basis and do not increase the taxpayer's amount "at risk." Net
income earned by the activity but not distributed by the Partnership will
increase the amount "at risk."
A Partner will not be considered "at risk" with respect to amounts borrowed
for use in an activity from any person who has an interest in the activity other
than as a creditor or from any person who is related to a person (other than the
Partner) with an interest in such activity under Code Section 267 (for example,
a close relative or a corporation in which the person owns directly or
indirectly more than 50% of the value of the outstanding stock). A person has
an interest in the activity other than that of a creditor if that person has an
interest in the assets of the activity or if he has an interest in the net
profits of the activity; an interest in net profits may include a right to
compensation based on profits of the activity.
Partners should consider the effect of the "at-risk" provisions in
arranging debt financing for the purchase of an interest in the Partnership.
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BASIS LOSS LIMITATION. A Partner may not deduct losses in excess of the
---------------------
adjusted basis for the interest in the Partnership at the end of the partnership
year in which such losses occurred, (see "FEDERAL INCOME TAX ASPECTS--Basis"),
---
but may carry forward any excess to such time, if ever, as the basis for the
interest in the Partnership is sufficient to absorb the loss.
INCOME AND LOSSES FROM PASSIVE ACTIVITIES. The Code limits the
-----------------------------------------
deductibility of losses from business activities in which the taxpayer (limited
to individuals, certain estates and trusts, personal service corporations or
closely-held corporations) does not materially participate ("Passive Losses").
Such losses are generally only deductible to the extent of income from other
passive activities. Passive activities include any activity that the taxpayer
carries on as a limited partner, but do not include rental real estate activity
under certain circumstances.
Passive Losses in any year cannot be used to offset earned income, active
business income or portfolio income (such as dividends, interest, royalties and
nonbusiness capital gains), including portfolio income passed through to a
taxpayer from a nonparticipatory activity, but can only be used to offset income
from other passive activities. Passive Losses which are not deductible in any
year, however, may be carried over to succeeding years and used to offset income
from passive activities in such succeeding years and may be deducted upon the
taxpayer's disposition of its entire interest in the passive activity. Partners
which are closely held corporations may use their share of Passive Losses from
the Partnership to offset net active income, but not portfolio income. Any
interest expense attributable to Partnership borrowings, or to indebtedness
incurred by a Partner to acquire or carry its Units, will be included in the
computation of the Partner's Passive Losses and will thus be subject to the
limitations on the deductibility of Passive Losses.
Under the Treasury Regulations, the trading of personal property, such as
currency contracts, will not be treated as a passive activity. Accordingly, a
Partner's distributive share of items of income, gain, deduction, or loss from
the Partnership will not be treated as passive income or loss and Partnership
gains allocable to Partners will not be available to offset passive losses from
sources outside the Partnership. Partnership gains allocable to Partners will,
however, be available to offset losses with respect to portfolio investments,
such as stocks and bonds. Moreover, any Partnership losses allocable to
Partners will be available to offset other income, regardless of source. The
use of these losses may be limited under the alternative minimum tax, or by
itemized deduction or capital loss limitations.
However, if the Partnership constitutes a publicly traded partnership under
the Code because it fails to meet the Redemption or Repurchase Safe Harbor and
the other safe harbors described above in "Application of Passive Loss Rules",
the treatment described above will not apply. Instead the passive loss rules
under the Code will apply separately to the Partners' share of the net income
from the Partnership, with the result that the Partners' share of gains from the
Partnership cannot be offset by losses from the Partners' other activities, and
losses from the Partnership cannot be used to shelter income from the Partners'
other activities, but must instead be suspended and carried forward until: (1)
there is net income from the Partnership in a future year; or (2) the Partner
disposes of his or her entire interest in the Partnership. Additionally, the
Partners' share of the net income from the Partnership will be treated as
investment income for purposes of the investment interest limitation.
ALLOCATION OF PROFITS AND LOSSES. The allocation of profits, losses,
--------------------------------
deductions and credits contained in the Limited Partnership Agreement will be
recognized for tax purposes only if the allocations have substantial economic
effect. Were the Partnership allocation provisions found to lack substantial
economic effect, each Partner's share of income, gain, loss, deduction or credit
would be determined on the basis of the Partner's interest in the Partnership,
determined by an examination of all the facts and circumstances.
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<PAGE>
The IRS has issued final regulations which contain extensive rules
interpreting the "substantial economic effect" standard. In general, in order
for allocations to have substantial economic effect, the allocations must be
charged or credited to the Partners' capital accounts and the capital accounts
must control distribution of assets upon liquidation. While the General Partner
believes that the Limited Partnership Agreement either meets the two
requirements discussed above or satisfies a substitute "capital account
equivalency" test, the Limited Partnership Agreement does not meet a third
requirement, that a Partner must make a contribution to the Partnership equal to
any deficit in its capital account. Accordingly, under the regulations and the
Limited Partnership Agreement, losses would not be allocable to a Partner in
excess of the Partner's capital contribution plus properly allocated profits
less any prior distributions.
The General Partner believes that the Partnership allocation provisions
comply with the requirements of the Treasury Regulations. Counsel is unable to
determine whether the General Partner's fee which is based on a percentage of
the net asset value or new trading profits of the Partnership will be treated as
an expense of the Partnership or as shares of Partnership income allocable to
the General Partner, but counsel believes that if it is an allocable share it
will be treated as a special allocation of Partnership income allocated in
accordance with the Limited Partnership Agreement. However, the requirements of
the regulations are complex and there can be no assurance that the IRS will find
that the Partnership is in compliance with the regulations.
The Code permits items of income, gain, deduction or loss of a partnership
to be allocated to a partner only if they are received, paid or incurred by the
partnership during the portion of the year in which the partner is a member of
the partnership for tax purposes. The Secretary of the Treasury is given broad
authority to prescribe regulations detailing the allocation of items of income,
deduction or loss to tax years in which there is any change in a partner's
proportionate interest in the Partnership. The Limited Partnership Agreement
provides for the calculation of profits and losses on such basis during the
fiscal year as determined by the General Partner using any permissible method
under Section 706 of the Code and the regulations thereunder. Additional
Limited Partners are admitted only on the first day of each month of the fiscal
year. No assurances can be given that the IRS will not attempt to change any
allocation that is made among Partners admitted on different dates.
SECTION 1256 CONTRACTS. A "Section 1256 contract" is defined to mean: (1)
----------------------
any regulated futures contract ("RFC"); (2) any foreign currency contract; (3)
any non-equity option; and (4) any dealer equity option.
The term RFC means a futures contract whether it is traded on or subject to
the rules of a national securities exchange which is registered with the SEC, a
domestic board of trade designated as a contract market by the CFTC or any other
board of trade, exchange or other market designated by the Secretary of Treasury
("a qualified board of exchange") and which is "marked-to-market" to determine
the amount of margin which must be deposited or may be withdrawn. A "foreign
currency contract" is a contract which requires delivery of, or the settlement
of which depends upon the value of foreign currency which is currency in which
positions are also entered into at arm's length at a price determined by
reference to the price in the interbank market. (The Secretary of Treasury is
authorized to issue regulations excluding certain currency forward contracts
from marked-to-market treatment.) A "non-equity option" means an option which
is traded on a qualified board or exchange and the value of which is determined
directly or indirectly by reference to any stock (or group of stocks) or broadly
based stock index and the options provide for cash settlement. Warrants that
are based on a stock index and that are, economically, substantially identical
in all material respects to options based on a stock index are treated as
options based on a stock index. A "dealer equity option" means, with respect to
an options dealer, only a listed option which is an equity option, is purchased
or granted by such options dealer in the normal course of his activity of
dealing in options, and is listed on the qualified board or exchange on which
such options dealer is registered.
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With certain exceptions discussed below, the following rules apply to
Section 1256 contracts. All Section 1256 contracts will be marked-to-market
upon the closing of every contract (including closing by taking an offsetting
position or by making or taking delivery, by exercise or being exercised, by
assignment or being assigned or by lapse or otherwise) and all open Section 1256
contracts held by the Partnership at its fiscal year-end will be treated as sold
for their fair market value on the last business day of such taxable year. This
will result in all unrealized gains and losses being recognized for federal
income tax purposes for the taxable year. As a consequence, the Partners may
have tax liability relating to unrealized Partnership profits in open positions
at year-end. Sixty percent of any gain or loss from a Section 1256 contract
will be treated as long-term, and 40% as short-term, capital gain or loss (the
"60/40 Rule"), regardless of the actual holding period of the individual
contracts. The character of a Partner's distributive share of profits or losses
of the Partnership from Section 1256 contracts will thus be 60% long-term
capital gain or loss and 40% short-term capital gain or loss. Each Partner's
distributive share of such gain or loss for a taxable year will be combined with
its other items of capital gain or loss for such year in computing its federal
income tax liability. The Code contains certain rules designed to eliminate the
tax benefits flowing to high-income taxpayers from the graduated tax rate
schedule and from the personal and dependency exemptions. The effect of these
rules is to tax a portion of a high-income taxpayer's income at a marginal tax
rate of 39.6%. However, the maximum capital gains tax rate is currently twenty
percent (20%) for assets held longer than twelve (12) months and sold after
January 1, 1998.
Subject to certain limitations, a Partner, other than a corporation, estate
or trust, may elect to carryback any net Section 1256 contract losses to each of
the three preceding years. Net Section 1256 contract losses carried back to
prior years may only be used to offset net Section 1256 contract gains, but not
against other income. The net loss from Section 1256 contracts will be treated
as 60% long-term capital loss and 40% short-term capital loss. To the extent
that such losses are not depleted by the carryback, they can be carried forward
under the existing capital loss carryforward rules and will be treated as 60%
long-term capital losses and 40% short-term capital losses.
During taxable years in which little or no profit is generated from trading
activities, a Partner may still have interest income.
The marked-to-market rules do not apply to interests in personal property
of a nature which are actively traded other than Section 1256 contracts (termed
"off-exchange positions"). The gains and losses from off-exchange positions
will not be subject to the 60/40 Rule, but will be treated in accordance with
the general holding period rules and taxed at the same rates as ordinary income,
on a dollar for dollar basis. Capital gain or loss with respect to property
other than Section 1256 contracts generally will be long-term only if such
contracts have been held for more than one year. See "FEDERAL INCOME TAX
---
ASPECTS--Capital Gain and Loss Provisions" below.
SECTION 988 FOREIGN CURRENCY TRANSACTIONS. A "Section 988 transaction" is
-----------------------------------------
defined as the entering into or acquiring of any forward contract, futures
contract, option or similar financial instrument if the amount to be received
or to be paid by reason of a transaction is denominated in a nonfunctional
currency (i.e., other than the dollar) or is determined by reference to one or
more nonfunctional currencies. If the Section 988 transaction results in a gain
or loss, it is considered to be a foreign currency gain or loss to the extent it
does not exceed gain or loss realized by reason of changes in exchange rates.
This foreign currency gain or loss must be computed separately from any other
gain or loss and must be treated as ordinary, not capital, income or loss.
An election may be made to have Section 1256 apply to treat any foreign
currency gain or loss attributable to a forward contract, futures contract or
option which is a capital asset in the taxpayer's hands and
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which is not part of a straddle as capital gain or loss. The election cannot be
made if the transaction involves a position which hedges against the risk of
currency loss.
If no election is made because the transaction involves a hedge, the tax
treatment of the gain or loss attributable to the hedge position must be
determined separately from any gain or loss attributable to the position hedged.
All Section 988 transactions which are a part of the hedge must be integrated
and treated as a single transaction or otherwise treated consistently. If the
transaction does not involve a hedge, the general rules of Section 988 apply to
cause the recognition of ordinary income or loss when a realizable event occurs.
OTHER COMMODITY TRANSACTIONS. The Code provides certain rules with respect
----------------------------
to the recognition of losses from commodity transactions. With respect to off-
exchange straddles and mixed straddles (i.e., those straddles consisting of at
least one position being an off-exchange position), any losses incurred will be
allowed only to the extent such losses exceed the unrealized gains on the
offsetting position. The disallowed losses are deferred until such gains are
realized. For these purposes a straddle is defined as an offsetting position in
personal property. Two or more positions will be considered "offsetting
positions," and therefore a straddle, if there is a substantial diminution in
risk of loss from holding any position in personal property. The suspension of
loss rules do not apply to real estate, stock and stock options where the stock
options are traded on a domestic exchange and cannot produce long-term capital
gain or loss.
In determining whether two or more positions are offsetting positions, any
positions held by a related person will be considered. Attribution runs to and
from related persons and certain flow-through entities such as partnerships.
Related persons include a spouse, and any corporation filing a consolidated
return. Consequently, any position held by the Partnership could be classified
as an offsetting position with respect to a non-Partnership position on the
Partner's federal income tax return possibly resulting in adverse tax
consequences to the individual investor.
The IRS has issued Treasury Regulations under which a taxpayer may elect to
offset gains and losses from positions which are part of mixed straddles either
by separately identifying each mixed straddle to which that treatment applies or
by establishing a mixed straddle account for which gains and losses will be
recognized and offset on a periodic basis. Under either of these alternatives,
the 60 percent long-term/40 percent short-term treatment will apply only to net
gain or loss from the straddle transactions and only to the extent attributable
to Section 1256 contracts. In addition, under these rules, not more than 60
percent of any net gain from the account may be treated as long-term capital
gain and not more than 40 percent of any net loss from the account may be
treated as short-term capital loss.
Treasury Regulations have also been issued that have the effect of
suspending the running of the holding period with respect to positions which
make up a straddle, thereby resulting in all gains and losses from straddle
positions being characterized as short-term.
The loss suspension rules do not apply to "identified straddles." To
qualify as such, the straddle must be so identified on the taxpayer's records
before the close of the date it is acquired, and all of the original positions
must be acquired and closed (unless none of the straddle positions has been
closed by year-end) on the same day. Furthermore, the straddle cannot
constitute part of a larger straddle. The gains and losses from an identified
straddle are netted when all of the positions are closed.
There is a one-time, irrevocable election to treat all mixed straddle
positions as entirely off-exchange positions. As a result of making this
election, the Section 1256 contract making up a part of a mixed straddle
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will not be subject to the marked-to-market rules. If no election is made, the
positions of the mixed straddle will be treated separately, with the off-
exchange positions treated in accordance with the off-exchange rules, and the
Section 1256 contract positions treated in accordance with the marked-to-market
rules. Any loss incurred will be suspended to the extent of the unrealized gain
on the other position of the mixed straddle. The election to treat all positions
in a mixed straddle as off-exchange positions can be made only if the straddle
positions are identified as mixed-straddle positions on the date of acquisition.
All positions having unrealized gain at the end of the year, and the amount
of such gain in each position must be reported annually. If no loss has been
incurred on any position during the year, this disclosure is not required. As a
result of the attribution rules and this reporting requirement, both the
Partnership and the individual Partners may have certain reporting requirements
in connection with the suspension of losses from offsetting positions.
Capital Gain and Loss Provisions. Adjusted net capital gains for assets
--------------------------------
held more than twelve (12) months and sold after January 1, 1998 are subject to
a maximum tax rate of twenty percent (20%). Subject to an annual limitation of
$3,000, the excess of capital losses over capital gains will be deductible by an
individual against ordinary income. Excess capital losses which are not used to
reduce ordinary income in a particular taxable year may be carried forward to,
and treated as capital losses incurred in, future years.
ORDINARY INCOME. The Partnership may invest in certain obligations which
---------------
will generate interest income. Such income will generally be taxable as
ordinary income.
SECTION 183. Section 183 of the Code sets forth the general rule that no
-----------
deduction is allowable to an individual for an activity "not engaged in for
profit." Activities not engaged in for profit are activities other than those
constituting a trade or business or engaged in for the production or collection
of income or for the management, conservation, or maintenance of property held
for the production of income. The determination of whether an activity is
engaged in for profit is based on all facts and circumstances, and no single
factor is determinative.
The determination of whether a profit motive is present with respect to an
investor will depend upon the particular facts and circumstances and no
assurance can be given that Section 183 may not be applied by the IRS in the
future to disallow deductions. The United States Tax Court and the IRS have
ruled that the determination of whether an activity is engaged in for profit is
made at the partnership level. If income from an activity exceeds the
deductions attributable to such activity for three or more years out of the five
years ending with the year in question, a rebuttable presumption arises that the
activity is engaged in for profit.
If Section 183 were determined to be applicable, a deduction would be
allowed for items which are of the type that may be deducted regardless of
whether they are incurred in a trade or business or for the production of
income. However, other deductions, such as operating expenses, would be allowed
only to the extent that the gross income derived from the activity exceeds the
deductions allowed in any event, such as interest and taxes.
Although the General Partner intends for the business venture of the
Partnership to be profitable, because of the risks of loss involved in this type
of business there is a possibility that income from the activity will not exceed
the deductions attributable to such activity for three or more years out of the
five years, with the result being that the rebuttable presumption that the
activity is engaged in for profit will not be available to the Partnership. The
General Partner believes that the venture is undertaken with a profit motive.
Nyemaster, Goode,
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Voigts, West, Hansell & O'Brien, P.C., is of the opinion that the activity of
the Partnership will be considered an activity engaged in for profit.
SELF-EMPLOYMENT INCOME AND TAX. Section 1402 of the Code generally
------------------------------
provides that an individual's net earnings from self-employment shall not
include the distributive share of income or loss from any trade or business
carried on by a partnership of which he is a Partner. Therefore, a Partner
should not consider that the ordinary income from the Partnership constitutes
net earnings from self-employment for purposes of either the Social Security Act
or the Code.
INDIVIDUAL ALTERNATIVE MINIMUM TAX. Noncorporate taxpayers are subject to
----------------------------------
the alternative minimum tax to the extent it exceeds their regular tax. For an
entity taxable as an estate or trust, the first $22,500 of "alternative minimum
taxable income" is exempt from the alternative minimum tax, while for an
individual it is the first $33,750 of such income ($45,000 for a joint return;
$22,500 for married taxpayers filing separately). The exemption amounts will be
phased out at the rate of $.25 for each dollar of alternative minimum taxable
income in excess of $150,000 for married taxpayers filing jointly, $112,500 for
single taxpayers, and $75,000 for married taxpayers filing separately, estates
and trusts. Alternative minimum taxable income in excess of the exemption
amount, after any applicable phase-out, will be subject to a two-tiered rate
schedule. Alternative minimum taxable income (net of exemption) up to and
including $175,000 will be taxed at a rate of 26% and alternative minimum
taxable income over $175,000 will be taxed at a 28% rate. However, in the event
the taxpayer has capital gains, there is a formulaic expression to ensure that
such capital gains are taxed at the appropriate capital gains rates and not the
26% or 28% rate. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS
FOR A THOROUGH DISCUSSION OF THE ALTERNATIVE MINIMUM TAX RATES. Taxpayers
liable for the alternative minimum tax are required to make estimated tax
payments.
Alternative minimum taxable income is determined by adding tax preference
items to, and subtracting specified deductions from, the taxpayer's regular
taxable income. Tax preference items include among other things, certain tax-
exempt interest on private activity bonds and the amount of depreciation on real
and personal property which exceeds that allowable under an alternative method
applicable for alternative minimum tax purposes (generally straight-line, 40-
year depreciation for real property and 150 percent declining balance method for
personal property). Losses from passive business activities are not deductible
in computing alternative minimum taxable income. For alternative minimum tax
purposes, the deductibility of Investment Interest (as defined below) is limited
to net investment income. See "FEDERAL INCOME TAX ASPECTS--Investment Interest
---
Limitation" below.
Minimum tax paid in one year may be carried forward (but not back)
indefinitely as a credit against regular tax liability. The credit may not be
used, however, to offset any future minimum tax liability. The credit is the
amount of the taxpayer's adjusted net minimum tax imposed for all prior taxable
years beginning after 1986 over the amount allowable as a credit for all such
prior taxable years. The adjusted net minimum tax is the taxpayer's minimum tax
reduced by the amount that would have been the taxpayer's minimum tax if the
only deduction in computing the taxpayer's alternative minimum taxable income
was the itemized deductions adjustment and the only items of preference were the
depletion deduction, the exempt interest exclusion and the deduction for
charitable contributions of appreciated property.
The extent, if any, to which a Partner will be subject to the alternative
minimum tax will depend on that Partner's overall tax situation. Moreover, the
alternative minimum tax computations are complicated. Consequently, prospective
Partners should consult their tax advisors in order to determine the potential
impact, if any, of the alternative minimum tax on their particular tax
situation.
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INVESTMENT INTEREST LIMITATION. The Code substantially limits the
------------------------------
deductibility of interest on funds borrowed to purchase or hold property for
investment ("Investment Interest"). Investment Interest is deductible only to
the extent of the taxpayer's net investment income (i.e., the excess of non-
trade or business income from interest, dividends and if elected by a taxpayer,
gain from the disposition of investment property over expenses incurred in
earning such income). Interest income and expense from passive activities will
not be treated as either investment income or expense but rather as income or
expense from a passive activity. Furthermore, regulations provide that interest
on indebtedness incurred to acquire an interest in a passive activity
constitutes interest attributable to a passive activity and not Investment
Interest.
Investment Interest that is disallowed because of the limitations may be
carried over to and deducted in subsequent years without regard to taxable
income for the taxable year in which the interest is paid or accrued. This
limitation, if applicable, is computed separately by each Partner and not by the
Partnership.
INTEREST RELATED TO TAX EXEMPT OBLIGATIONS. Section 265(a)(2) of the Code
------------------------------------------
will disallow any deduction for interest on indebtedness of a taxpayer or a
related person incurred or continued to purchase or carry obligations the
interest on which is wholly exempt from tax. The IRS announced in Revenue
Procedure 72-18 that the proscribed purpose will be deemed to exist with respect
to indebtedness incurred to finance a "portfolio investment." The Revenue
Procedure further states that a limited partnership interest will be regarded as
a "portfolio investment," unless rebutted by other evidence. Therefore, in the
case of a Partner owning tax-exempt obligations, the IRS might take the position
that any interest expense incurred by him to purchase or carry Units should be
viewed as incurred by him to continue carrying tax-exempt obligations and that
such Partner should not be allowed to deduct all or a portion of such interest.
TRANSFER OF UNITS. Upon the sale of a Partner's Units in the Partnership,
-----------------
the Partner will recognize a gain or loss for federal income tax purposes equal
to the difference between the amount realized by such Partner in the transaction
and the basis for such Partner's Units in the Partnership at the time of such
sale.
Gain realized on the sale of a Unit by a Partner who is not a "dealer" in
securities would ordinarily be taxed as a capital gain. However, Code Section
751 causes the selling Partner to recognize as ordinary income the allocable
share of certain unrealized receivables and inventory items that have
appreciated substantially in value if capital is not a material income-producing
factor for the partnership and if the Partner who is selling on account of
retirement or death was a general partner in the partnership.
SECTION 754 ELECTION. Section 754 of the Internal Revenue Code provides,
--------------------
at the election of the Partnership, for certain adjustments to the basis of
Partnership property upon certain distributions of such property to a Partner
and upon any transfer of a Partnership interest. The general effect of such an
election is that the transferee of an interest in the Partnership is treated as
though the transferee had acquired a direct interest in its assets, and, upon
certain distributions to Partners, the Partnership is treated as though it had
newly acquired an interest in its assets and therefore acquired a new cost basis
for such assets. Because of the complexities of the tax accounting required,
the Partnership does not presently intend to file an election under Section 754.
Accordingly, a subsequent purchaser's share of gain or loss upon sale of
Partnership property will be determined by the Partnership's tax basis in the
property (which, in the absence of a Section 754 election, will be unchanged by
the transfer of the Unit), and the purchase price of the Units will not be
reflected in such gain or loss.
LIQUIDATION OF THE PARTNERSHIP. In the event of the liquidation of the
------------------------------
Partnership, each Partner will recognize gain to the extent that the cash
received in the liquidation exceeds the basis for such Partner's interest in the
Partnership. Such gain would be treated as gain from the sale of the
Partnership interest of the distributee
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Partner. See "FEDERAL INCOME TAX ASPECTS--Transfer of Units" above. In addition,
---
each Partner may receive income from the normal operations of the Partnership
during the year of dissolution. Such income will consist of ordinary income, and
short-term or long-term capital gains and losses.
Capital loss will be recognized in the event only cash is distributed, and
only to the extent the adjusted basis of a Partner's interest in the Partnership
exceeds the cash distributed. For individuals, capital losses would offset
capital gains on a dollar for dollar basis, with any excess capital losses
subject to a $3,000 annual limitation. See "FEDERAL INCOME TAX ASPECTS--Capital
---
Gain and Loss Provisions" above.
TAX SHELTERS, INTEREST. The Code contains provisions concerning tax
----------------------
shelters, as defined by Code Section 6111(c), and tax motivated transactions. A
tax shelter is defined for purposes of Section 6111 as any investment with
respect to which a person could reasonably infer that the "tax shelter ratio"
for any investor at the close of any of the first five years may be greater than
two to one. The tax shelter ratio is the ratio of the aggregate amount of
deductions and 350% of the credits anticipated (without regard to revenue) to
the aggregate capital contributions to the partnership at the close of any year.
All tax shelters must be registered with the IRS by the organizer. Any
organizer of a tax shelter or any person who sells an interest in a tax shelter
must also maintain a list of all investors containing information that the IRS
may, by regulations, require. These lists must be made available to the IRS
upon request. Thus, an investor who first purchases an interest must keep a
list of all persons to whom he or she later sells part or all of that interest.
An organizer of a tax shelter must also furnish a tax shelter identification
number to all investors, and each investor must include that number on his or
her individual tax return. The penalty imposed on each investor who, without
reasonable cause, fails to include the tax shelter identification number on his
or her return is $250.00. Should this Partnership be determined a tax shelter
the possibility that the Partnership and each Partner will be audited would be
substantially increased. The General Partner does not believe that the
Partnership constitutes a tax shelter, as defined in Code Section 6111(c), since
it is the General Partner's opinion that the tax shelter ratio will not exceed
two-to-one at the close of any of the first five years. Accordingly, the
General Partner does not plan to register the Partnership with the IRS .
Because the issue is subject to future events which cannot now be determined,
Nyemaster, Goode, Voigts, West, Hansell & O'Brien, P.C. has expressed no opinion
as to whether the Partnership will constitute a tax shelter.
If it is determined that a taxpayer has underpaid tax for any taxable year,
the taxpayer must pay the amount of the underpayment plus interest on the
underpayment from the date the tax was originally due. The interest rate is
equal to certain average rates of interest (the federal short-term rate under
Section 6621(b)(1)) for any month plus three percent (3%). The rate of interest
is adjusted quarterly.
TAXATION OF FOREIGN LIMITED PARTNERS. THIS PROSPECTUS DOES NOT ATTEMPT TO
------------------------------------
ADDRESS ANY TAX ISSUES RELATED TO INVESTMENTS BY FOREIGN INDIVIDUALS OR
ENTITIES. FOREIGN PERSONS SHOULD CONSULT THEIR OWN TAX ADVISERS BEFORE DECIDING
WHETHER TO INVEST IN THE PARTNERSHIP.
PARTNERSHIP ENTITY-AUDIT PROVISIONS. The Code provides that the tax
-----------------------------------
treatment of items of partnership income, gain, loss, deduction and credit will
be determined at the partnership level in a single partnership proceeding.
Under the provisions, the "Tax Matters Partner," normally the general partner,
may bind to a settlement any partner with less than a one percent (1%) profits
interest unless such a partner properly elects not to give such authority to the
Tax Matters Partner. The Tax Matters Partner may seek judicial review for any
adjustment to partnership income, but there will be only one such action for
judicial review to which all partners will be bound. All Partners have the
right to participate in an IRS audit of the Partnership, but only Partners
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having at least a 1% interest in the profits of the Partnership and groups of
Partners who together own at least a 5% interest in the profits of the
Partnership and request notice to a designated member of their group are
entitled to notice of the audit and the results thereof. In addition, the Code
provides that a partner must report a partnership item consistently with its
treatment on the partnership return, unless the partner specifically identifies
the inconsistency or can show that its treatment of the partnership item on its
return is consistent with a schedule furnished to the partner by the
partnership. Failure to comply with this requirement may result in penalties
for underpayment of tax and could result in an extended statute of limitations.
The statute of limitations for adjustment of tax with respect to partnership
items will generally be three years from the date of filing the partnership
return.
These provisions may cause individual Partners to be unable to protest IRS
determinations separately and may increase the likelihood that the Partnership
will be subject to an audit. The IRS has a national tax shelter audit program
which could include commodity trading partnerships such as the Partnership, and
which could make an audit of each Partner's return more likely. In addition, a
review of the Partnership return may lead to a review of each Partner's return.
Items of income, loss, gain, deductions and credit that are unrelated to the
Partnership may be adjusted as a result of this review.
PENALTIES. Code Section 6662 imposes a penalty for a substantial
---------
understatement of income tax equal to 20% of the amount of any underpayment
attributable to that understatement. "Understatement" is defined as meaning the
excess of the correct amount of tax required to be shown on the return over the
amount of tax which is actually shown on the return. A substantial
understatement exists for any taxable year if the amount of the "understatement"
for the taxable year exceeds the greater of (1) 10% of the correct tax, or (2)
$5,000 ($10,000 in the case of a corporation other than an S corporation or a
personal holding company). Except for items attributable to a "tax shelter,"
the amount of a noncorporate taxpayer's understatement is reduced by that
portion of the understatement which is attributable to the tax treatment of an
item for which there is substantial authority or with respect to which the
relevant facts were disclosed and a reasonable basis for the tax treatment of
such item exists. In the case of an item attributable to a "tax shelter," the
amount of the understatement is reduced by the portion of the understatement
which is attributable to an item for which there is substantial authority and
with respect to which the taxpayer reasonably believed that the tax treatment of
such item was more likely than not the proper treatment. "Tax shelter" includes
a partnership if the principal purpose of such partnership is the avoidance or
the evasion of federal income tax. Although the General Partner does not
believe that the Partnership constitutes a "tax shelter," as so defined, there
can be no assurance that the IRS will not attempt to classify the Partnership as
a tax shelter and impose the stricter "more likely than not" standard to any
substantial understatement penalty.
OTHER TAX ASPECTS. Although the tax analysis in this Prospectus has
-----------------
focused on federal income tax consequences, the Partners may be subject to other
taxes, such as state or local income taxes and estate, inheritance, or
intangible property taxes which may be imposed by various jurisdictions.
Consequently, Partners should consider the tax consequences of state and local
taxes on an investment in the Partnership. TAX ADVICE ON STATE AND LOCAL TAXES
IS VERY IMPORTANT, AND EACH PROSPECTIVE INVESTOR SHOULD CONSULT THE INVESTOR'S
OWN TAX ADVISOR REGARDING SUCH TAXES.
INVESTMENT BY EMPLOYEE BENEFIT AND RETIREMENT PLANS AND IRA's. In
-------------------------------------------------------------
considering an investment in the Partnership, a fiduciary of an employee benefit
plan covered by the Employee Retirement Income Security Act of 1974 ("ERISA")
(such as, for example, a qualified pension, profit-sharing or stock bonus plan,
or health and welfare plan) or of an Individual Retirement Account ("IRA")
(collectively "Qualified Plans") taking into account the facts and circumstances
of such Qualified Plan, should consider applicable fiduciary standards under
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ERISA. The fiduciary should consider, among other things: (i) the definition of
plan assets under Department of Labor regulations defining plan assets (see
below), (ii) whether the investment is subject to the diversification
requirements of Section 404(a)(1)(C) of ERISA, (iii) whether the investment is
prudent, considering the nature of an investment in and the compensation
structure of the Partnership, and the fact that there may not be a market
created in which the fiduciary can sell or otherwise dispose of the Units, and
(iv) whether the investment is in accordance with the documents and instruments
governing the Qualified Plan. An investment in the Partnership of the assets of
an IRA generally will not be subject to the aforementioned diversification and
prudence requirements of ERISA unless the IRA also is treated under Section 3(2)
of ERISA as part of an employee pension benefit plan that is established or
maintained by an employer, employee organization or both.
Generally, any person who exercises discretionary authority or control with
respect to the management or disposition of plan assets or who renders
investment advice for a fee with respect to any moneys or other plan property is
a fiduciary of the plan.
The Department of Labor has issued a regulation defining the term "plan
assets" (the "DOL Regulation"). Under the DOL Regulation, generally, when a
plan makes an equity investment in another entity, the underlying assets of that
entity will be considered plan assets unless (1) the equity interest is a
"publicly-offered security" or a security issued by an investment company
registered under the Investment Company Act of 1940, (2) the entity is an
"operating company," or (3) equity participation by benefit plan investors is
not "significant."
Under the DOL Regulation, a Unit of the Partnership is not a publicly-
offered security, a security interest issued by an investment company registered
under the Investment Company Act of 1940, nor is the Partnership an "operating
company."
The DOL Regulation provides that equity participation by benefit plan
investors is "significant" on any date, if immediately after the most recent
acquisition of any equity interest in the entity, 25% or more of the value of
any class of equity interest in the entity is held by benefit plan investors.
In the event benefit plan investment exceeds 25% or more of the value of any
class of equity interest in the entity, the assets of the Partnership will be
treated as the assets of a plan investing in the Partnership because the
investment by benefit plan investors will be significant.
In the event that the underlying assets of the Partnership are
characterized as "plan assets," fiduciary standards under ERISA may be imposed
upon the Partnership, General Partner, and perhaps the CTA. The prudence
standards and other provisions of Title I of ERISA will apply to employee
benefit plan investments in the Partnership and to IRA investments in the
Partnership if the underlying assets of the Partnership are characterized as
plan assets and, with respect to IRA investments, if IRA investors are treated
under Section 3(2) of ERISA as part of an employee pension benefit plan
established or maintained by an employer, employer organization or both. The
cost and feasibility for the Partnership or the General Partner to comply with
such standards and whether the result of the application of such standards will
have an adverse effect on the performance of the Partnership or the General
Partner cannot be predicted. Additionally, if a plan asset is subject to the
control and management of a person other than the plan trustee, there may be an
improper delegation of the plan trustee's responsibility.
ERISA also requires that the assets of a plan be valued to reflect market
value as of the close of each plan year. It may not be possible to adequately
value the Units from year to year, since there may not be a market for them and
the appreciation of any properties may not be shown in the value of the Units
until the Partnership sells or otherwise disposes of its properties.
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If the underlying assets of the Partnership are characterized as "plan
assets," the excise taxes on prohibited transactions under the Code may be
imposed upon the General Partner and the CTA. Sections 4975(a) and (b) of the
Code impose excise taxes equal to 5% of the amount involved and 100% of the
amount involved, respectively, upon disqualified persons engaging in certain
prohibited transactions with Qualified Plans. Many of the transactions
involving the General Partner, the CTA, the Partnership and Qualified Plans will
constitute prohibited transactions, subject to the excise tax provisions of the
Code, unless they qualify as exempt transactions under the Code. Because of the
inherently factual nature of the determination, no assurance can be given that
the transactions will qualify as exempt transactions. If excise taxes are
imposed on the General Partner and the CTA, significant changes in the method of
operating of the Partnership may become necessary. Such changes could result in
increased costs being incurred by the Partnership and have an adverse effect on
the performance of the Partnership.
Qualified Plans should also consider the special tax rules relating to such
retirement plans before investing in the Partnership. Such plans are taxed on
their unrelated business income to the extent such income from all sources
exceeds $1,000 per year. Interest, as well as gains or losses from the sale,
exchange or other disposition of property, including commodity futures
contracts, other than inventory or property held primarily for sale in the
ordinary course of a trade or business, are excluded from the computation of
unrelated business income. Moreover, it would appear that gains or losses on
Section 1256 contracts marked-to-market at the end of the taxable year would
also be excluded from the computation of unrelated business income. Even though
no tax may be due, a tax return (Form 990-T) must be filed for any year in which
the Qualified Plan's gross unrelated business income equals or exceeds $1,000.
Prospective plan investors should consult their own legal and financial advisors
regarding these and other considerations involved in an investment in the
Partnership by a particular plan.
Notwithstanding the exclusion of any specific type of income from unrelated
business income, a tax-exempt Limited Partner will be taxed on its share of any
income from the Partnership to the extent that either the tax exempt Limited
Partner's investment in the Partnership, or the Partnership's investment in the
assets from which the income is derived, is debt financed. Such an investment
will be debt financed if the investment is made with the use of borrowed funds,
or if it is reasonably foreseeable that, as a result of such investment, future
borrowing would be necessary to meet anticipated cash requirements.
Units may not be purchased with the assets of a Qualified Plan if the
General Partner, or the CTA 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.
THE FOREGOING DISCUSSION IS GENERAL IN NATURE AND IS NOT INTENDED TO BE
ALL-INCLUSIVE. BECAUSE THE ISSUES UNDER ERISA AND THE CODE ARE COMPLEX AND THE
POTENTIAL CONSEQUENCES CAN BE ADVERSE, A FIDUCIARY OF A QUALIFIED PLAN
CONSIDERING INVESTMENT IN THE PARTNERSHIP SHOULD CONSULT WITH ITS OWN TAX OR
LEGAL ADVISORS WITH RESPECT TO THE IMPACT OF ALL OF THE FOREGOING ON SUCH
QUALIFIED PLAN.
ANY REFERENCE TO THE OPINION OF NYEMASTER, GOODE, VOIGTS, WEST, HANSELL &
O'BRIEN, P.C. RECEIVED BY THE PARTNERSHIP IS IN ALL EVENTS SUBJECT TO ALL
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ASSUMPTIONS, EXCEPTIONS AND QUALIFICATIONS SET FORTH IN SUCH OPINION, AND SUCH
OPINION IS OTHERWISE IN ALL EVENTS ONLY MADE UPON ALL OF THE TERMS AND
CONDITIONS OF SUCH OPINION IN THE FORM RENDERED TO THE PARTNERSHIP. A COPY OF
THE OPINION OF NYEMASTER, GOODE, VOIGTS, WEST, HANSELL & O'BRIEN, P.C. WILL BE
PROVIDED TO LIMITED PARTNERS UPON REQUEST.
THE LIMITED PARTNERSHIP AGREEMENT
---------------------------------
This Prospectus contains a discussion of what the Partnership believes are
some of the more significant terms and provisions of the Limited Partnership
Agreement, a copy of which is attached to this Prospectus as Exhibit "A" and is
incorporated herein by this reference. Although all discussions of the Limited
Partnership Agreement are materially complete, the discussions are only
summaries and general descriptions. All such discussions are therefore
qualified by this reference to the Limited Partnership Agreement and prospective
investors will need to read the entire Limited Partnership Agreement for
complete details of its terms and conditions.
NATURE OF THE PARTNERSHIP; LIABILITY OF LIMITED PARTNERS. The Partnership
--------------------------------------------------------
was organized on June 16, 1998, under the Iowa Uniform Limited Partnership Act
(the "Iowa Act"). Units which are issued to Partners will be fully paid and
nonassessable. The liability of a Limited Partner for the losses, debts and
obligations of the Partnership will be limited to the Limited Partner's capital
contributions to and share of any undistributed assets of the Partnership,
except that (a) a limited partner may become liable as a general partner of a
limited partnership if, in addition to the exercise of rights and powers as a
limited partner, the limited partner participates in the control of the limited
partnership's business or knowingly permits the limited partner's name to be
used in the name of the limited partnership, (See Section 6.01 of the Limited
---
Partnership Agreement and "THE LIMITED PARTNERSHIP AGREEMENT--Management of
Partnership Affairs" immediately below), (b) a limited partner who has received
the return of any part of the limited partner's capital contribution without
violation of the limited partnership agreement or of the Iowa Act is liable, for
one year after the return, to the limited partnership for the amount of the
returned contribution to the extent necessary to discharge the liabilities of
the limited partnership to all creditors who extended credit to the limited
partnership during the period the contribution was held by the limited
partnership, (c) a limited partner who has received the return of any part of
the limited partner's capital contribution in violation of the limited
partnership agreement or of the Iowa Act is liable, for six years after the
return, to the Partnership for the amount of the contribution wrongfully
returned, and (d) if the certificate of limited partnership or certificate of
amendment or cancellation of a limited partnership contains a false statement,
one who suffers loss by reliance on the statement may recover damages from a
limited partner who knew the statement to be false at the time the certificate
was executed. The exercise of any rights of the Limited Partners as set forth
in the Limited Partnership Agreement or in this Prospectus will not cause any
Limited Partner to have participated in the control of the Partnership's
business for purposes of subparagraph (a) above. See also "THE LIMITED
--------
PARTNERSHIP AGREEMENT--Management of Partnership Affairs" below. The General
Partner will exercise its best efforts to assure that the other circumstances
noted in subparagraph (a) and in subparagraphs (c) and (d) above do not occur.
The General Partner will be liable for all obligations of the Partnership
to the extent that the assets of the Partnership are insufficient to discharge
such obligations, but the General Partner shall not be personally liable for the
return or repayment of all or any portion of the capital or profits of any
Partner.
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The Limited Partnership Agreement provides that the withdrawal, insolvency,
bankruptcy, termination, liquidation, dissolution, death or other legal
incapacity of a Limited Partner shall not cause a dissolution of the
Partnership. The legal representatives of such a Limited Partner have no right
to withdraw or value the Units of such Limited Partner except by liquidation of
the Limited Partner's Units in the manner otherwise provided in the Limited
Partnership Agreement.
UNITS. Interests in the Partnership are evidenced by Units, which the
-----
General Partner may sell to persons desiring to become Limited Partners. See
---
"PLAN OF DISTRIBUTION" and "SUBSCRIPTION PROCEDURE" below.
MANAGEMENT OF PARTNERSHIP AFFAIRS. The Limited Partners will not take part
---------------------------------
in the management or operation of the business or property of the Partnership
and will have no voice in the operations of the Partnership. See "PRINCIPAL
---
RISK FACTORS--No Notice of Trades or of Changes in Trading Methods" and "Limited
Partners Will Not Participate in Management" above. Any participation by the
Limited Partners in the management of the Partnership will jeopardize the
limited liability of the Limited Partners. See "THE LIMITED PARTNERSHIP
---
AGREEMENT--Nature of the Partnership; Liability of the Limited Partners" above.
Accordingly, under the Limited Partnership Agreement, responsibility for
managing the Partnership is vested solely in the General Partner. See Sections
---
5.01 and 5.02 of the Limited Partnership Agreement. The responsibilities of the
General Partner include, but are not limited to (i) accepting capital
contributions from any Partner and admitting additional Limited Partners; (ii)
investing any funds of the Partnership that are not committed to the conduct of
the Partnership's business as the General Partner shall determine, in its sole
discretion; (iii) employing or otherwise retaining the services of such agents,
employees, managers, accountants, attorneys, consultants and other persons
(including commodity trading advisors, introducing brokers and futures
commission merchants and floor brokers) as the General Partner determines to be
appropriate to carry out the business and affairs of the Partnership, all upon
terms satisfactory to the General Partner; (iv) negotiating, entering into,
executing, acknowledging and delivering all contracts, agreements, documents and
instruments appropriate to carrying on the business of the Partnership,
including granting the commodity trading advisor or advisors a power of attorney
to effect trades on behalf of the Partnership on a discretionary basis and
without notice to the General Partner or any Limited Partners, and subscription
agreements for Units; (v) to cause the Partnership to offer and sell Units from
time to time; (vi) determining, in the General Partner's sole discretion,
whether the Partnership will make any distributions to the Partners; (vii)
administering liquidation of Units; (viii) preparing or causing to be prepared
the required periodic and annual reports to the Limited Partners; (ix)
supervising the liquidation of the Partnership if an event causing a termination
of the Partnership occurs; and (x) doing any other act or thing whatsoever which
in the General Partner's sole discretion is necessary or appropriate to carry
out any of the foregoing or otherwise to the business and affairs of the
Partnership. The General Partner may also make certain amendments to the
Limited Partnership Agreement without the vote or consent of the Limited
Partners. See Section 11.02 of the Limited Partnership Agreement.
---
Any material change in the Partnership's basic investment policies (which
are only those specified in Article X, subparagraphs (a), (e) and (j) of the
Limited Partnership Agreement) or structure shall, however, require the prior
written consent or vote of the Limited Partners who hold at least a majority of
the total number of outstanding Units of the Partnership; provided, however,
that amendments authorized by Section 11.02 of the Limited Partnership
Agreement, or any changes in (i) commodity trading advisors or introducing
brokers or futures commission merchants, (ii) the trading methods, systems or
strategies utilized by any commodity trading advisor, (iii) the allocation or
diversification of the Partnership's assets among the types of interests traded
or in the positions held in contracts or options, or (iv) the types of contracts
or options or commodities, currencies,
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securities or other interests traded by the Partnership, shall not, without
limitation, constitute a material change for this purpose.
The Limited Partners who collectively hold at least a majority of the total
number of outstanding Units may, to the extent permitted by law, and without the
concurrence of the General Partner (except as provided below), vote to (i) amend
the Limited Partnership Agreement and, if necessary, the Certificate of Limited
Partnership; (ii) remove the General Partner and elect a new general partner(s);
and (iii) cancel any contract for services with the General Partner without
penalty upon sixty (60) days prior written notice. Any amendment to the Limited
Partnership Agreement by the Limited Partners which modifies the compensation or
distributions to which the General Partner is entitled or which affects the
duties or obligations or the rights or protection of the General Partner shall,
however, be conditioned upon the consent of the General Partner, which may be
withheld in the General Partner's sole discretion. Also, in the event of the
removal of the General Partner by the Limited Partners, the General Partner
shall be entitled to a liquidation of any or all of the General Partner's Units
at the Net Asset Value Per Unit on and as of the opening of trading on the first
business day of the month next following the date on which the General Partner
is removed. If the General Partner does not liquidate all of its Units at such
time, the General Partner shall thereafter be entitled to a liquidation of its
Units in accordance with the general liquidation provisions in the Limited
Partnership Agreement.
Each Limited Partner shall be entitled to one (1) vote for each outstanding
whole Unit owned by such Limited Partner, and to a fractional vote in an amount
equal to any fractional Unit owned by such Limited Partner.
To facilitate the execution of various documents by the General Partner on
behalf of the Partnership and the Limited Partners, the Limited Partners will
appoint the General Partner, with power of substitution, their attorney-in-fact
by executing the power of attorney which is included as part of the Subscription
Agreement. The Limited Partners also grant the General Partner the power of
attorney as provided in the Limited Partnership Agreement. The documents that
may be executed by the General Partner on behalf of the Limited Partners under
the powers of attorney will include amendments to the Certificate of Limited
Partnership and the Limited Partnership Agreement.
The General Partner has the right and authority to engage and compensate on
behalf of the Partnership all such persons, firms or corporations (including any
affiliated person or entity) as the General Partner, in its sole discretion,
shall deem advisable for the conduct and operation of the business of the
Partnership. All existing or contemplated contracts or arrangements between the
Partnership and affiliates of the General Partner as of the date of this
Prospectus have been identified in this Prospectus.
RESIGNATION OR WITHDRAWAL OF GENERAL PARTNER; ADMISSION OF ADDITIONAL
---------------------------------------------------------------------
GENERAL PARTNERS. The Limited Partnership Agreement provides that the General
- ----------------
Partner may resign or withdraw from the Partnership as general partner upon (i)
the affirmative vote of the Limited Partners who hold at least a majority of the
total number of outstanding Units, and (ii) if there is not then another general
partner for the Partnership, providing one or more successor general partners
satisfactory to the Limited Partners who hold at least a majority of the total
number of outstanding Units. The General Partner may not otherwise voluntarily
resign or withdraw from the Partnership as general partner except upon the
giving of at least one hundred and twenty (120) days prior written notice to the
Limited Partners. There is therefore no assurance of the General Partner's
continued service to the Partnership. See "PRINCIPAL RISK FACTORS--Reliance on
---
General Partner" above.
Any other individual or entity may be admitted as an additional general
partner of the Partnership upon the consent or vote of the Limited Partners who
hold at least a majority of the total number of outstanding Units.
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Any such additional general partner or general partners shall be permitted to
continue and carry on the business of the Partnership following the withdrawal,
for whatever reason, of any other general partner of the Partnership. See
---
"PRINCIPAL RISK FACTORS--Limited Partners Will Not Participate in Management."
ADDITIONAL OFFERINGS. The General Partner may, in its sole discretion,
--------------------
terminate any offering of Units. The General Partner may also, in its sole
discretion, register Units for sale and/or make or cause to be made additional
public or private offerings of Units. No Limited Partner shall have any
preemptive or other rights with respect to the issuance or sale of any
additional Units. There is no maximum aggregate amount of Units which may be
sold by the Partnership.
The General Partner shall also have the right to accept additional capital
contributions from existing Partners. Additional capital contributions from
existing Partners shall be in such amount as is acceptable to the General
Partner from time to time, in its sole discretion, and any such additional
capital contribution shall be effective on and as of the opening of trading on
the first business day of the month next following the date of the General
Partner's acceptance thereof.
PARTNERSHIP ACCOUNTING AND DISTRIBUTIONS. A capital account shall be
----------------------------------------
established for each Partner and shall be credited with (i) the amount of cash
paid to the Partnership as the Partner's capital contribution, and (ii) the
share of Partnership income or gains allocable to the account; and shall be
debited with (x) the share of Partnership deductions or losses allocable to the
account, and (y) the amount of any distributions made to and liquidations made
by the Partner with respect to the account. Profits and losses for each fiscal
year of the Partnership shall be allocated among the Partners pro rata based
upon the respective number of Units held by the Partners. For purposes of
determining the profits, losses or any other items allocable to any period,
profits, losses, and any such other items shall be determined on a daily,
monthly or other basis, as determined by the General Partner using any
permissible method under Section 706 of the Code and the regulations thereunder.
The Partnership is not required to make any distributions to the Partners,
and any distributions by the Partnership will be made only at such times and in
such amounts as are determined by the General Partner, in its sole discretion.
It is not anticipated that regular or even periodic distributions will be made.
See "PRINCIPAL RISK FACTORS--Limited Partners Will be Taxed on Profits Whether
- ---
or Not Distributed" above. Any distributions which are made shall be made pro
rata based upon the respective number of Units held by the Partners.
FEDERAL TAX ALLOCATIONS. At the end of each fiscal year, the Partnership's
-----------------------
realized capital gain or loss and ordinary income or loss will be allocated
among the Partners, after having given effect to the fees payable by the
Partnership (including those payable to the General Partner), and each Partner's
share of such items are includable in the Partner's personal income tax return.
Allocations will be pro rata from short-term capital gain or loss, long-term
capital gain or loss, and net operating income or loss realized by the
Partnership.
Net realized profit will be allocated first to each Partner who has
liquidated Units during the year to the extent that the amount received on
liquidation exceeds the amount paid for the Units. Profit remaining after the
allocation to the Partners who have liquidated Units will be allocated among the
Partners pro rata based upon the respective number of Units held by the
Partners.
The realized losses will be allocated first to each Partner who has
liquidated Units during the year to the extent that the amount paid for the
Units liquidated exceeds the amount received on liquidation. Losses
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<PAGE>
remaining after the allocation to Partners who have liquidated Units will be
allocated among the Partners pro rata based upon the respective number of Units
held by the Partners.
The allocations described above will be recognized for federal income tax
purposes provided they have "substantial economic effect." See "FEDERAL INCOME
---
TAX ASPECTS" above. For the purpose of these allocations of taxable income and
loss, the amount each Partner paid for the Partner's Units in the Partnership
will be deemed to have been increased by the amount of taxable income allocated
and reduced by the amount of realized losses allocated and by any distributions
received. When a Partner liquidates part of the Units held by the Partner, the
Partner's capital account will be reduced proportionately.
Upon liquidation of the Partnership, the remaining assets of the
Partnership will be distributed to the Partners in the proportion that the
capital account of each Partner bears to the total capital accounts of all
Partners. If such distributions are insufficient to return to any Partner the
full amount of the Partner's capital contribution, such Partner will have no
recourse against any other Partner.
TRANSFER AND LIQUIDATION OF UNITS. A description of a Limited Partner's
---------------------------------
limited transfer and liquidation rights is set forth above in "TRANSFERABILITY
AND LIQUIDATION OF UNITS" above.
TERMINATION OF THE PARTNERSHIP. The Partnership shall be dissolved and its
------------------------------
affairs shall be wound up (i) upon the occurrence of an event specified under
the Iowa Act as one causing or effecting dissolution (subject to any right to
reinstate the Partnership as may be provided under the Iowa Act); (ii) upon the
election of the General Partner, in the General Partner's sole discretion, to
terminate and dissolve the Partnership; (iii) upon the General Partner
withdrawing as or otherwise ceasing to be the general partner of the
Partnership, whether by reason of an act or circumstance contemplated by the
Limited Partnership Agreement or the Iowa Act, unless at the time there is at
least one other general partner and such remaining general partner continues and
carries on the business of the Partnership or unless the Limited Partners shall
elect to carry on the business of the Partnership pursuant to Section 9.03 of
the Limited Partnership Agreement; (iv) upon the affirmative vote of the Limited
Partners who hold at least a majority of the total number of outstanding Units;
or (v) in any event, at 11:59 p.m. on December 31, 2050. Section 9.03 of the
Limited Partnership Agreement provides that in the event of the withdrawal of
the General Partner or the General Partner otherwise ceasing to be the General
Partner, the Limited Partners may, within ninety (90) days of such event, elect
to carry on the business of the Partnership with one or more substituted general
partners by the unanimous affirmative vote of all Limited Partners.
For purposes of the preceding subclause (i), the events which would cause a
dissolution of the Partnership under the Iowa Act are as follows: (i) if a
limited partnership ceases to have any limited partners; (ii) when events
specified in the certificate of limited partnership or the limited partnership
agreement of a limited partnership occur; (iii) when all partners consent in
writing to the dissolution; (iv) when a general partner withdraws unless at the
time there is at least one other general partner and the provisions of the
limited partnership agreement permit the business of the limited partnership to
be carried on by the remaining general partner and the remaining general partner
does so; or if all partners have previously consented to the designation of
another person or entity as general partner; or if all partners, within ninety
(90) days after withdrawal of the general partner, agree in writing to continue
the business of the limited partnership and to the appointment of one or more
additional general partners as necessary or desired; (v) when a decree of
judicial dissolution is entered, which may be entered whenever a court
determines that it is not reasonably practical to carry on the business of the
limited partnership in conformity with the limited partnership agreement; or
(vi) pursuant to a proceeding commenced by the Iowa Secretary of State because
the limited partnership is without a registered agent or registered office in
Iowa for sixty (60) days or more or the limited partnership does not notify the
Iowa Secretary
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<PAGE>
of State within sixty (60) days that its registered agent or registered office
has been changed, that its registered agent has resigned, or that its registered
office has been discontinued.
With respect to subclause (ii) in the preceding paragraph, all of the
dissolution events set out in the Partnership's certificate of limited
partnership or the Limited Partnership Agreement are set out in this section of
this Prospectus. With respect to subclause (iv) in the immediately preceding
paragraph, no specific substitute or replacement general partners had been
approved or designated by the Limited Partners as of the date of this
Prospectus, and, accordingly, in the event of the withdrawal of the General
Partner, the Partnership will be dissolved unless the Limited Partners
unanimously elect to carry on the business of the Partnership and elect a new
general partner within ninety (90) days of the General Partner's withdrawal.
This procedure is provided for in Sections 9.01(a)(iii) and 9.03 of the Limited
Partnership Agreement and is also noted in subclause (iii) in the first
paragraph in this section of the Prospectus. It should be noted, however, that
the Limited Partnership Agreement does provide that any additional general
partner or general partners which may be admitted as additional general partners
of the Partnership by the vote or consent of the Limited Partners who hold at
least a majority of the total number of outstanding Units shall be permitted to
continue and carry on the business of the Partnership following the withdrawal,
for whatever reason, of any other general partner of the Partnership. See
---
Section 5.09 of the Limited Partnership Agreement.
MEETINGS. No regular meetings of the Partnership are required to be held
--------
or are provided for in the Limited Partnership Agreement. A meeting of the
Limited Partners may, however, be called by the General Partner at any time and
for any purpose, and shall be called by the General Partner no more than fifteen
(15) days after receipt by the General Partner of a written request for a
meeting setting forth the purpose thereof, and signed by Limited Partners who
collectively own at least 10% of the then outstanding Units. The General
Partner shall give written notice of any meeting of the Limited Partners and the
purpose thereof to all Limited Partners. Any such meeting shall be held at a
reasonable time and place (which shall be deemed to include the principal office
of the Partnership) on a date no less than thirty (30) nor more than sixty (60)
days after the date of the General Partner's written notice of the meeting.
REPORTS TO LIMITED PARTNERS. The Partnership's books and records are
---------------------------
maintained at the offices of Schoenauer & Co., P.C., 328 Main Street, Ames, Iowa
50010. The Partnership will provide Limited Partners with monthly statements of
account, in such form and otherwise in accordance with the applicable
regulations of the CFTC. The Partnership will also provide Limited Partners
with an annual report containing financial statements of the Partnership. The
financial statements will be certified by independent certified public
accountants. The Limited Partners will also receive information necessary for
the preparation of their annual federal income tax returns by not later than
March 15 of each year. The Partnership is subject to the informational
requirements of the Securities Exchange Act of 1934 (the "Exchange Act") by
reason of the Partnership having filed a registration statement regarding this
offering with the SEC. The Partnership will therefore be subject to the
informational requirements of the Exchange Act for at least as long as the
Partnership's registration statement with the SEC is effective. The Partnership
will accordingly provide the Limited Partners with the information required
under the Exchange Act during at least that period of time, including, without
limitation, quarterly reports on Form 10-QSB and annual reports on Form 10-KSB.
The General Partner shall also promptly make available to a Partner the Net
Asset Value Per Unit as of the time of request therefor by the Partner. Limited
Partners or their duly authorized representatives may inspect and copy (at their
cost) the Partnership books and records during normal business hours upon
reasonable written notice to the General Partner.
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<PAGE>
As indicated above, the Partnership is currently subject to the
informational requirements of the Exchange Act, and in accordance the Exchange
Act will file periodic reports and other information with the SEC. Such reports
and other information filed by the Partnership may be inspected and copied at
prescribed rates at the public reference facilities of the SEC located at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices
located at Seven World Trade Center, New York, New York 10048 and Citicorp
Center, 500 W. Madison Street, Chicago, Illinois 60661-2511, and copies of such
material can be obtained from the Public Reference Section of the SEC at the
above specified address, at prescribed rates. The SEC maintains a Web site that
contains reports, proxy and information statements and other information, and
documents which are filed by the Partnership electronically with the SEC may
also be inspected at that Web site at http://www.sec.gov.
As also indicated above, the Partnership has filed with the SEC a
Registration Statement on Form SB-2 (together with all amendments and exhibits,
the "Registration Statement") under the Securities Act of 1933, as amended, with
respect to the Units offered by this Prospectus. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which have been omitted in accordance with the rules and regulations of
the SEC. Statements contained in this Prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement
include all material information regarding such contents but are not necessarily
complete and, in each instance, are qualified by reference to the copy of such
contract or other document filed as an exhibit to the Registration Statement for
a complete version of the provisions thereof. For further information,
reference is hereby made to the Registration Statement, and the Registration
Statement may be inspected and copied at prescribed rates at the offices of the
SEC referred to above.
NOTICE TO LIMITED PARTNERS. The General Partner shall cause a notice to be
--------------------------
given to each Partner within seven (7) business days from the date of: (i) the
date (the "Decline Date") upon which there shall have been a decline in the Net
Asset Value Per Unit to less than fifty percent (50%) of the Net Asset Value Per
Unit as of the close of business on the day which is one (1) year prior to the
Decline Date; (ii) any material change in contracts with any of the
Partnership's commodity trading advisors, including any change in commodity
trading advisors or any modification in the method of calculating any incentive
fee which may be payable by the Partnership to any commodity trading advisor;
and (iii) any other material change affecting the compensation of any party
which is payable by the Partnership. "Net Asset Value Per Unit" means the Net
Assets of the Partnership at the time of calculation divided by the aggregate
number of Units outstanding at that time. Net Assets for this purpose means the
Partnership's total assets minus the Partnership's total liabilities, determined
in accordance with generally accepted accounting principles, except that for
purposes of calculating the Net Asset Value Per Unit, Net Assets are determined
by amortizing all organizational and offering expenses incurred by the
Partnership prior to the effective date of the initial registration statement
filed by the Partnership with the SEC over a period of five (5) years. The
General Partner shall also cause a notice to be given to each Partner prior to
effecting any material change related to brokerage commissions, and any such
change shall not be made for thirty (30) calendar days, during which time the
Partners will have the right to request liquidation of their Units in accordance
with the terms of the Limited Partnership Agreement. In the case of a notice
given pursuant to subclause (i) above, trading by the Partnership shall be
temporarily suspended for a period of thirty (30) calendar days, beginning on
the date of the General Partner's notice to the Limited Partners, during which
time the Limited Partners may request liquidation of their Units. See
---
"TRANSFERABILITY AND LIQUIDATION OF UNITS" above. Any notification required to
be given by the General Partner in any of the circumstances described in this
paragraph shall include a description of the Limited Partner's liquidation
rights and voting rights, if any, and a description of any material effect the
changes specified in the notice may have on the interests of the Limited
Partners. If the notice is given pursuant to subclause (i) above, the notice
shall also contain the following, in capital letters and
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bold face print: "A LIMITED PARTNER SHOULD OBTAIN ADVICE FROM AN INDEPENDENT
INVESTMENT AND PROFESSIONAL ADVISOR AS TO WHETHER THE LIMITED PARTNER SHOULD
REQUEST LIQUIDATION OF THE LIMITED PARTNER'S UNITS BECAUSE OF THE DECLINE IN THE
NET ASSET VALUE PER UNIT."
PLAN OF DISTRIBUTION
--------------------
The Units are being offered and sold only by Vacation Investors, Inc. (the
"Underwriter"). The Units are being offered by the Underwriter on a best
efforts basis, without any requirement that the Underwriter purchase any unsold
Units, and neither the Underwriter nor the General Partner has committed to
purchase any unsold Units. The General Partner may also terminate this offering
of Units at any time, in the General Partner's sole discretion.
The Partnership will not pay any underwriting or selling commission or
other fee to the Underwriter, and no payments will otherwise be made to the
Underwriter based directly upon the subscriptions made by any prospective
investor. The Underwriter will receive compensation for its sales efforts,
however, from the General Partner. See "DESCRIPTION OF CHARGES TO THE
---
PARTNERSHIP--CTA and Underwriter Compensation" above. The compensation payable
to the Underwriter by the General Partner consists of a fee of a potential
maximum aggregate amount of 5.625% of the subscriptions which have accepted and
collected by the General Partner and the Partnership. One portion of the fee is
payable within ten business days of the close of each month, and is in an amount
calculated by multiplying (i) the dollar amount of each new subscription which
is accepted and collected by the General Partner and the Partnership in the
given calendar month, by (ii) 1.875%. The second portion of the fee will be in
the same amount, but is not payable until ten (10) business days after the two
year anniversary of the date upon which the subscription was effective as a
capital contribution to the Partnership. The second portion of the fee is only
payable, however, if the limited partner who contributed the subscription has
not, at any time prior to the payment date of the second portion of the fee,
caused the limited partner's capital account with the Partnership to fall below
the amount of the subscription by reason of liquidation of Units in the
Partnership by the limited partner. The third portion of the fee will also be
in the same amount, but is not payable until ten (10) business days after the
three year anniversary of the date upon which the subscription in question was
effective as a capital contribution to the Partnership. The third portion of
the fee is also only payable, however, if the limited partner who contributed
the subscription has not, at any time prior to the payment date of the third
portion of the fee, caused the limited partner's capital account with the
Partnership to fall below the amount of the subscription by reason of
liquidation of Units in the Partnership by the limited partner. For purposes of
determining whether the second and third portions of the Underwriter's fee are
payable, a limited partner's capital account will be increased by the amount of
any distributions made to the limited partner by the Partnership, and by the
amount of any Partnership losses which have been allocated to the limited
partner's capital account. In other words, the General Partner's obligation to
pay the second and third portions of the Underwriter's fee will not be affected
by any reductions to a limited partner's capital account caused by distributions
made to the limited partner by the Partnership or by any Partnership losses. If
a limited partner contributes subscriptions in different months, the
Underwriter's fee is calculated and payable separately based on each
subscription. In this circumstance, however, if the limited partner
subsequently liquidates units in the Partnership, the amount of the liquidation
proceeds shall be applied pro rata against the subscriptions in question for
purposes of determining whether the second and third portions of the fee are
payable. For example, if a limited partner contributes $10,000 in month one,
then contributes an additional $10,000 in month six, and then liquidates $5,000
of Units, $2,500 of said liquidation proceeds shall be applied against each of
the two $10,000
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<PAGE>
subscriptions for purposes of determining whether the second portion and third
portion of the fee is payable on each such subscription. Any unpaid second
portion and third portion of any fees will also no longer be payable by the
General Partner from and after the date of the termination of the Sales
Agreement with the Underwriter, regardless of the reason the Sales Agreement is
terminated. The General Partner may also from time to time agree to pay some of
the costs and expenses incident to the performance of the Underwriter's sales
efforts, but the amount of any costs and expenses of the Underwriter which may
be reimbursed by the General Partner in any consecutive twelve (12) month period
commencing after June 17, 1998 (which is the date of the Sales Agreement with
the Underwriter) shall not, when added to the fees paid or payable on the
aggregate subscriptions which have been accepted and collected by the General
Partner and the Partnership during that twelve month period, exceed ten percent
(10%) of such aggregate subscriptions.
Prospective investors should again note that the compensation payable to
the Underwriter shall be paid solely by the General Partner, and the Partnership
has no responsibility or liability for any compensation arrangements agreed to
by the Underwriter and the General Partner.
The Underwriter is an Iowa corporation which was incorporated on April 15,
1994. The Underwriter's registration as a fully disclosed broker dealer with
the SEC became effective on May 11, 1994, and the Underwriter became a member of
the NASD on July 21, 1994. Mr. Raun is the sole shareholder, director and
officer of the Underwriter. Mr. Raun is also the general securities principal
and financial and operations principal of the Underwriter, and a registered
representative of the Underwriter. As of the date of this Prospectus, the
Underwriter had three (3) registered representatives, but the Underwriter
contemplates having up to approximately seven (7) registered representatives
within nine (9) months of the date of this Prospectus.
The principal business of the Underwriter as of the date of this Prospectus
was the offering of the Units of the Partnership and the units of limited
partnership interest in Portfolio Boost I, L.P. and Portfolio Boost III, L.P.
It is also contemplated that the Underwriter will offer the units of limited
partnership interest in Portfolio Boost MJF, L.P. Portfolio Boost I, L.P.,
Portfolio Boost III, L.P. and Portfolio Boost MJF, L.P. are other commodity
pools for which the General Partner serves as the general partner and commodity
pool operator. See "THE GENERAL PARTNER" above. It is also contemplated that
---
the Underwriter will participate in the offering of other commodity pools
sponsored by the General Partner or by other persons or entities. The
Underwriter also offers general brokerage services to the public.
The Underwriter's prior experience in public offerings is limited to the
Underwriter's offering of units of limited partnership interests in CBC-RT,
which is another Iowa limited partnership for which the General Partner serves
as the general partner and commodity pool operator. See "THE GENERAL PARTNER"
---
above. CBC-RT is closed to new investors, but it previously offered its units
of limited partnership interest pursuant to Regulation A under the federal
Securities Act of 1933, with its first Regulation A offering commencing in
November, 1994. Mr. Raun was the only registered representative of the
Underwriter who participated in CBC-RT's offerings. The Underwriter has also
offered units of limited partnership interest in one other Iowa limited
partnership. The offering of the referenced limited partnership was pursuant to
Rule 504 under federal Securities Act of 1933, and the only registered
representative of the Underwriter participating in that offering was the
individual who also serves as the general partner of the limited partnership.
The referenced limited partnership was also closed to new investors as of the
date of this Prospectus.
Mr. Raun has also participated in offering units of limited partnership
interest in the limited partnerships for which he serves as the general partner
on an individual basis. See "THE GENERAL PARTNER" above. All such offerings by
---
Mr. Raun were, however, pursuant to exemptions from registration available at
the federal and
99
<PAGE>
state levels. The Underwriter therefore has limited experience in public
offerings. See "PRINCIPAL RISK FACTORS--No Assurance that Units Will be Sold;
---
Limited Experience of the Underwriter" above.
Units are initially offered for sale at fixed value of $1,000 per Unit,
which amount was arbitrarily established by the General Partner. The amount was
not based on past or expected earnings and does not represent that the Units
have or will have a market value of or can be resold or liquidated at that
price. The Partnership may commence trading after the General Partner has
accepted subscriptions for the Minimum Units (i.e. 500 units). The Units which
remain unsold after the Partnership has commenced trading may be offered for
sale, in the sole discretion of the General Partner, at a purchase price per
Unit equal to the Net Asset Value Per Unit as of the opening of trading on the
effective date of the purchase, which will be the first business day of the
month next following the date on which the General Partner accepts a duly
executed Subscription Agreement and the required applicable capital contribution
from the Limited Partner in question. The Partnership will calculate the Net
Asset Value Per Unit on a monthly basis, and will make the Net Asset Value Per
Unit available to prospective investors and Limited Partners upon request to the
General Partner at the address or phone number set out in "SUMMARY OF THE
OFFERING--The Partnership" on page 1 of this Prospectus. The organizational and
offering expenses incurred by the Partnership prior to the effective date of the
initial registration statement filed by the Partnership with the SEC are
amortized over a period of five (5) years for purposes of calculating the Net
Asset Value Per Unit. See the definitions of "Net Assets" and "Net Asset Value
---
Per Unit" in "SUMMARY OF THE OFFERING - Glossary and Designation of Parties"
above. There can be no assurance that the Minimum Units or any additional Units
will be sold by the Partnership. See "PRINCIPAL RISK FACTORS--No Assurance that
---
Units Will be Sold; Limited Experience of the Underwriter" above.
Funds from subscriptions accepted prior to the sale of the Minimum Units
will be deposited and held in an escrow account in the name of the Partnership
at First American Bank, Fort Dodge, Iowa, pending the General Partner's
acceptance of subscriptions for at least the Minimum Units. The Escrow
Agreement requires the Partnership and the Underwriter to promptly (and in all
events by 12:00 noon of the next business day after receipt by them) transmit
all monies received from subscribers during the escrow period for the payment of
Units to First American Bank for deposit in the Partnership's escrow account at
First American Bank. First American Bank shall receive, as escrow agent, an
aggregate fee of the greater of (i) $300.00; or (ii) an amount determined by
multiplying the total number of checks received and issued by First American
Bank pursuant to the Escrow Agreement, by $5.00. Subscription payments
deposited in the escrow account may not be withdrawn by any subscriber under any
circumstance.
If subscriptions for at least the Minimum Units are not accepted by the
General Partner prior to the close of the Minimum Units Offering Period (i.e.,
within nine (9) months of the date of this Prospectus), this offering shall
terminate and all amounts paid by each subscriber will be returned to the
applicable subscriber within ten (10) business days of the close of the Minimum
Units Offering Period and as otherwise provided in the subscriber's Subscription
Agreement, together with the subscriber's pro rata share of all interest earned,
if any, on subscriptions deposited in the escrow account. Any Units which are
purchased by the General Partner or Mr. Raun shall not be counted in determining
whether the Minimum Units have been sold.
If the Minimum Units contingency is satisfied, the escrowed funds (together
with any interest earned thereon) will be released for use by the Partnership on
the first business day after which the Minimum Units contingency has been
satisfied. If the Minimum Units contingency is satisfied, this offering shall
continue until the earlier of such time as (i) all of the Units offered hereby
have been sold, or (ii) this offering is terminated by the General Partner, in
its sole discretion. No escrow will be utilized for subscriptions received
after the funds
100
<PAGE>
have been released from escrow to the Partnership as described above, and all
subscriptions accepted by the General Partner after that time will be
immediately available for use in the Partnership's business.
The Underwriter will maintain a web site at www.vacationinvestors.com. The
web site contains information regarding this offering.
SUBSCRIPTION PROCEDURE
----------------------
In order to purchase Units, an investor must execute a copy of the
Subscription Agreement in the form attached hereto as part of Exhibit "B," and
deliver the executed Subscription Agreement and the full purchase price for the
Units subscribed for to the General Partner. An investor must also return an
executed Acknowledgment of Receipt of this Prospectus, and a completed and
executed Suitability Standards Requirement form. These documents are also
attached hereto as part of Exhibit "B".
As discussed in "PLAN OF DISTRIBUTION" above, Units are initially offered
for sale at a fixed value of $1,000 per Unit. Once the Partnership has
commenced trading, Units will be offered for sale at a price per Unit equal to
the Net Asset Value Per Unit as of the opening of trading on the effective date
of the purchase, which will be the first business day of the month next
following the date on which the General Partner accepts a duly executed
Subscription Agreement and the required applicable capital contribution from the
Limited Partner in question. As indicated, contributions received from
subscribers will be converted into Units effective as of the opening of trading
on the first business day of the month next following the date on which the
General Partner accepts a duly executed Subscription Agreement and the
subscriber's capital contribution.
The minimum initial subscription is $5,000, but the General Partner
reserves the right to require a higher minimum subscription from any subscriber
or subscribers. Subsequent investments by existing Limited Partners may be in
such amounts as the General Partner may from time to time accept, in its sole
discretion.
A prospective investor who is not a resident of the state of California or
an entity with its principal place of business in California must have at least
either (i) a minimum net worth of $150,000, or (ii) a minimum annual gross
income of $45,000 and a minimum net worth of $45,000. An investor who is a
resident of California or an entity with its principal place of business in
California must have at least either (i) a minimum net worth of $250,000, or
(ii) a minimum annual gross income of $65,000 and a minimum net worth of
$100,000. AN INVESTOR'S NET WORTH FOR THESE PURPOSES MUST BE DETERMINED
EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES. In the case of sales to
fiduciary accounts, the net worth and income standards may be met by the
beneficiary, the fiduciary account, or by the donor or grantor who directly or
indirectly supplies the funds to purchase the Units.
The Subscription Agreement includes a representation and warranty from a
subscriber that the subscriber meets the applicable above referenced suitability
standards. The Subscription Agreement also contains various other
representations, warranties, agreements, and acknowledgments, and prospective
investors must therefore carefully review the Subscription Agreement.
Prospective investors should also be aware that they will agree in the
Subscription Agreement to defend, indemnify and hold harmless the Partnership,
the General Partner, the Underwriter and their respective affiliates and agents
from and against all losses, liabilities, damages, costs or expenses (including
court costs, arbitration costs and reasonable attorneys' fees) which are
incurred by any of them by reason of or in connection with any breach or default
by the investor of any representation, warranty, agreement or acknowledgment in
the investor's Subscription Agreement.
101
<PAGE>
A subscriber must pay the total purchase price for the Units subscribed for
at the time of executing the Subscription Agreement. The purchase price must be
paid in cash or its equivalent. All subscriptions are irrevocable, except only
as may be expressly provided by applicable securities laws. The General Partner
has the right, however, to reject any subscription for Units, in whole or in
part and in the General Partner's sole discretion. The General Partner may also
require any subscriber to provide additional information and documentation,
including a purchaser questionnaire, financial statements, and/or a letter
justifying the suitability of the subscriber's proposed investment in the
Partnership and containing such additional disclosures and additional
representations and warranties from the subscriber as the General Partner
determines to be necessary or appropriate to establish or otherwise evidence or
substantiate compliance with the requirements of the Partnership's offering, the
Subscription Agreement or any federal or state securities laws or regulations.
The Partnership will issue fractional Units, rounded up to the sixth
decimal point, to the extent necessary to fill an accepted subscription for
Units.
The General Partner will endeavor to deposit checks received from
subscribers after the release of funds from escrow upon acceptance of the
Subscription Agreement. The General Partner may permit IRA investments received
from the individual but not delivered as of the first business day of the month
by the trustee of the IRA at any time before the close of a month to be
effective as of the first business day of the month, so long as the check and
trustee's executed signature page to the Subscription Agreement are received
prior to the end of the prior month. All Units shall be issued subject to the
collection of good funds, and any Units issued to a subscriber who has not
provided collectible funds (whether in the form of a bad check or draft, or
otherwise) shall be canceled.
As to IRA's and retirement or benefit plans, note that an investment in the
Partnership will not of itself create an IRA or a retirement or benefit plan,
and the Partnership undertakes no responsibility to establish an IRA or a
retirement or benefit plan. See "PRINCIPAL RISK FACTORS--Retirement Plan and
---
IRA Participants" above.
Investors will not deposit funds directly with the FCM.
VACATION AWARD
--------------
The General Partner will provide one of the following vacation awards
(generally, an "Award") to each Limited Partner who meets the qualifications set
forth below at any time prior to January 1, 2002.
BRONZE AWARD. The General Partner will, at its cost and not with
------------
Partnership funds, provide each qualifying Limited Partner with a "Bronze
Award." The Bronze Award includes: (i) one nights lodging in any Hyatt Hotel
or Resort located in the United States, the Caribbean, Canada or Mexico, and
(ii) a $100 Hyatt spending allowance.
In order to qualify for the Bronze Award, a Limited Partner must (i) be a
limited partner in at least three limited partnerships for which the General
Partner serves as the commodity pool operator, and (ii) have made a combined
capital contribution of $20,000 or more to such limited partnerships and have
maintained such capital contribution (adjusted only for liquidations by the
Limited Partner) for a consecutive period of twelve (12) full months. See
---
"Award Conditions, Restrictions and Procedures" below for further requirements
and information.
102
<PAGE>
SILVER AWARD. The General Partner will, at its cost and not with
------------
Partnership funds, provide each qualifying Limited Partner with a "Silver
Award." The Silver Award includes: (i) two nights lodging in any Hyatt Hotel
or Resort located in the United States, the Caribbean, Canada or Mexico; and
(ii) a $100 Hyatt spending allowance.
In order to qualify for the Silver Award, a Limited Partner must (i) be a
limited partner in at least three limited partnerships for which the General
Partner serves as the commodity pool operator; and (ii) have made a combined
capital contribution of $50,000 or more to such limited partnerships and have
maintained such capital contribution (adjusted only for liquidations by the
Limited Partner) for a consecutive period of twelve (12) full months. See
---
"Award Conditions, Restrictions and Procedures" below for further requirements
and information.
GOLD AWARD. The General Partner will, at its cost and not with Partnership
----------
funds, provide each qualifying Limited Partner with a "Gold Award." The Gold
Award includes either: (i) two nontransferable round trip airfare tickets on a
group trip to a four or five star hotel or resort located outside of the
continental United States; and (ii) two nights lodging at such location (the
"group trip"); or at the qualifying Limited Partner's option: (x) three nights
lodging in any Hyatt Hotel or Resort located in the United States, the
Caribbean, Canada or Mexico, and (y) a $300 Hyatt spending allowance (the "land
option").
A dinner meeting will also be provided to the Limited Partners
participating in the group trip option of the Gold Award, but the cost of the
dinner meeting will be borne by the applicable limited partnerships as is
discussed in "Award Conditions, Restrictions and Procedures" below.
In order to qualify for the Gold Award, a Limited Partner must (i) be a
limited partner in at least three limited partnerships for which the General
Partner serves as the commodity pool operator; and (ii) have made a combined
capital contribution of $100,000 or more to such limited partnerships and have
maintained such capital contribution (adjusted only for liquidations by the
Limited Partner) for a consecutive period of at least twelve (12) full months.
See "Award Conditions, Restrictions and Procedures" below for further
- ---
requirements and information.
PLATINUM AWARD. The General Partner will, at its cost and not with
--------------
Partnership funds, provide each qualifying Limited Partner with a "Platinum
Award." The Platinum Award includes either: (i) two nontransferable round trip
airfare tickets on a group trip to a four or five star hotel or resort located
outside of the continental United States; and (ii) five nights lodging at such
location (the "group trip"); or at the qualifying Limited Partner's option: (x)
seven (7) nights lodging in any Hyatt Hotel or Resort located in the United
States, the Caribbean, Canada or Mexico; and (y) a $700 Hyatt spending allowance
(the "land option").
A dinner meeting will also be provided to the Limited Partners
participating in the group trip option of the Platinum Award, but the cost of
the dinner meeting will be borne by the applicable limited partnerships as is
discussed in "Award Conditions, Restrictions and Procedures" below.
In order to qualify for the Platinum Award, a Limited Partner must (i) be a
limited partner in at least three limited partnerships for which the General
Partner serves as the commodity pool operator; and (ii) have made a combined
capital contribution of $250,000 or more to such limited partnerships and have
maintained such capital contribution (adjusted only for liquidations by the
Limited Partner) for a consecutive period of at least twelve (12) full months.
See "Award Conditions, Restrictions and Procedures" below for further
- ---
requirements and information.
103
<PAGE>
AWARD CONDITIONS, RESTRICTIONS AND PROCEDURES. Accounts held in more than
---------------------------------------------
one name are only entitled to one Award, regardless of the number of owners of
or persons named on the account. Limited Partners with separate accounts and
residing in the same household may, however, combine their capital contributions
for purposes of qualifying for the Awards.
The General Partner shall give a written notice to each Limited Partner who
qualifies for any Award within thirty (30) days of the date the Limited Partner
qualifies for the Award.
A Limited Partner who has qualified for the Bronze Award or the Silver
Award or who has selected the land option for the Gold Award or Platinum Award
will have twelve (12) months from the date of the General Partner's
qualification notice to utilize the Award. The Limited Partner must also
provide the General Partner with written notice of the desired Hyatt location
and the dates at that location. The Limited Partner will be provided with a
certificate for use at the Hyatt location selected by the Limited Partner. Once
the certificate has been issued, all risk of loss for the certificate passes to
the Limited Partner. If a Limited Partner has not utilized such Award within
twelve (12) months of the date of the General Partner's qualification notice to
the Limited Partner, the Limited Partner shall be deemed to have waived the
Award. All other costs and expenses of the Limited Partner shall be borne by
the Limited Partner, such as airfare or other travel costs, meals, entertainment
and lodging at the chosen location beyond the nights payable by the General
Partner.
The dates and location of the group trip option for the Gold Award and the
Platinum Award will be selected by the General Partner. The General Partner
will give each qualifying Limited Partner a written notice (the "trip notice")
of such dates and location at least six (6) months prior to the date of the
group trip. A qualifying Limited Partner who desires to use the land option as
provided above must give the General Partner written notice within thirty (30)
days of the date of the General Partner's trip notice. A Limited Partner
selecting the land option will not be allowed to change back to the group trip.
A Limited Partner desiring to utilize the group trip option must confirm dates
and departure airport no less than one hundred and twenty (120) days in advance
of the departure date. Any penalties due to changes by the Limited Partner will
be the Limited Partner's responsibility. If the General Partner has not
received written confirmation from a qualifying Limited Partner within one
hundred and twenty (120) days in advance of the departure date for the group
trip, the Limited Partner shall be deemed to have waived the Award. The limited
partnerships in which the qualifying Limited Partner is a limited partner shall
provide, at the limited partnerships' cost, one dinner meeting on the first
night of each group trip. The cost of such dinner meeting shall be borne
proportionately by the limited partnerships in question, based upon the capital
contributions of the qualifying Limited Partner in question. Except for the
dinner meeting on the group trip option of the Gold Award and the Platinum
Award, all other costs and expenses of a qualifying Limited Partner shall be
borne by the Limited Partner, such as transportation costs to the departure
airport selected by the Limited Partner, meals, entertainment and lodging at the
chosen location beyond the nights payable by the General Partner.
Once a trip has been scheduled and booked, it will only be rescheduled due
to weather or other difficulties or problems in the sole discretion of the
General Partner. See "PRINCIPAL RISK FACTORS--Vacation Award" above.
---
The General Partner will provide the appropriate Award to a Limited Partner
with respect to each twelve (12) month period that the Limited Partner otherwise
meets the qualifications as set forth above. As of the date of this Prospectus,
a Limited Partner could therefore have the possibility of qualifying for up to a
maximum of three (3) awards. See, however, "PRINCIPAL RISK FACTORS--Vacation
---
Award" above.
104
<PAGE>
The rooms that will be provided at the location of each Award will be
double occupancy rooms on any night of the week or weekend, subject to
availability. All Hyatt spending allowances can only be utilized for purchases
at the Hyatt location in question and are only valid for use during the dates of
the trip in question. They are not convertible into cash.
Except for the Partnership's proportionate cost of the dinner meeting to be
provided in the group trip option of the Gold Award and the Platinum Award,
which will be an expense of the Partnership, the referenced Awards will not
affect the value of the Units in the Partnership since the cost and expense of
the Awards will be borne by the General Partner, and will not be paid out of
Partnership funds. INVESTORS SHOULD NOTE, HOWEVER, THAT THE PARTNERSHIP WILL
NOT RECEIVE ANY DIRECT BENEFITS FOR ITS PAYMENT FOR THE DINNER MEETINGS FOR ANY
QUALIFYING LIMITED PARTNERS.
NO COMPENSATION OR REIMBURSEMENT WILL BE MADE OR PAID TO ANY LIMITED
PARTNER WHO FAILS OR DETERMINES NOT TO UTILIZE ANY AWARD.
NO LIMITED PARTNER SHALL BE ENTITLED OR ALLOWED TO UTILIZE MORE THAN ONE
AWARD IN ANY GIVEN TWELVE (12) MONTH PERIOD. FOR EXAMPLE, A GOLD AWARD
QUALIFIER IS NOT ENTITLED TO TAKE ADVANTAGE OF THE GOLD, SILVER, AND THE BRONZE
AWARD, AND A SILVER AWARD QUALIFIER IS NOT ENTITLED TO TAKE ADVANTAGE OF BOTH
THE SILVER AND BRONZE AWARDS, ETC.
A Limited Partner must also review "PRINCIPAL RISK FACTORS--Vacation Award"
above for certain risks applicable to the Awards.
AS INDICATED ABOVE, THE GENERAL PARTNER HAS ONLY COMMITTED TO PROVIDE THE
ABOVE AWARDS TO LIMITED PARTNERS QUALIFYING FOR SUCH AWARDS PRIOR TO JANUARY 1,
2002. NO PROMISE OR REPRESENTATION IS MADE OR GIVEN WHATSOEVER THAT THE GENERAL
PARTNER WILL OFFER THE SAME OR SIMILAR AWARDS OR ANY OTHER TRIP OR INCENTIVE OF
ANY NATURE TO ANY LIMITED PARTNER IN ANY SUBSEQUENT YEAR OR ANY OTHER TIME, WITH
ANY SUCH DECISION BEING WITHIN THE RESPECTIVE SOLE AND ABSOLUTE DISCRETION OF
THE GENERAL PARTNER AND THE PARTNERSHIP. PROSPECTIVE INVESTORS AND LIMITED
PARTNERS SHOULD ALSO BE AWARE THAT THE ABOVE-DESCRIBED AWARDS MAY HAVE TAX
CONSEQUENCES FOR THE LIMITED PARTNERS ON AN INDIVIDUAL BASIS. FOR EXAMPLE, IT
IS LIKELY THAT THE VALUE OF THE AWARDS WILL BE TREATED AS INCOME OF THE LIMITED
PARTNER. PROSPECTIVE INVESTORS AND LIMITED PARTNERS ACCORDINGLY SHOULD CONSULT
WITH THEIR OWN LEGAL, TAX AND OTHER PROFESSIONAL ADVISORS AS TO THE POSSIBLE TAX
CONSEQUENCES OF THE ABOVE-DESCRIBED AWARDS.
LEGAL OPINION
-------------
The legality of the Units being offered hereby will be passed upon for the
Partnership by Nyemaster, Goode, Voigts, West, Hansell & O'Brien, P.C., 700
Walnut, Suite 1600, Des Moines, Iowa 50309. Attorneys with Nyemaster, Goode,
Voigts, West, Hansell & O'Brien, P.C. may hold Units in the Partnership.
105
<PAGE>
EXPERTS
-------
The balance sheets as of September 30, 1998 of the Partnership and of the
General Partner included in this Prospectus at, respectively, Exhibit C and
Exhibit D have each been audited by Roth & Company, P.C., independent auditors,
as stated in their reports appearing therein, and have been included herein in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
106
<PAGE>
APPENDIX 1
SUPPLEMENTAL PERFORMANCE INFORMATION
The performance information presented in this Appendix 1 is hypothetical
performance information. As such, prospective investors should be aware of the
following:
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH
ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR
IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE
ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND
THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.
ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE
GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL
TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN
COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR
EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING
PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY
AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE
MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM
WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL
PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING
RESULTS.
THE PARTNERSHIP'S CTA HAS HAD NO EXPERIENCE IN TRADING ACTUAL ACCOUNTS FOR
ITSELF OR FOR CUSTOMERS. BECAUSE THERE ARE NO ACTUAL TRADING RESULTS TO COMPARE
TO THE HYPOTHETICAL PERFORMANCE RESULTS, PROSPECTIVE INVESTORS SHOULD BE
PARTICULARLY WARY OF PLACING UNDUE RELIANCE ON THESE HYPOTHETICAL PERFORMANCE
RESULTS.
FURTHER, PAST PERFORMANCE IS IN NO EVENT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
<PAGE>
The Partnership is a single advisor pool that does not have a guarantee feature.
The following capsules show hypothetical performance information for the
Partnership since an assumed inception of trading by the Partnership on January
1, 1981, and year-to-date (through September 30, 1998). PAST PERFORMANCE IS NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
Percentage Rate of Return*
For the Most Recent Five Calendar Years and Year-to-Date
(Annual results computed on a compounded monthly basis)
- ------------------------------------------------------------------------------
Month 1993 1994 1995 1996 1997 1998 YTD
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
Jan 4.1% 1.1% 3.1% 6.0% 7.2% (3.8%)
- ------------------------------------------------------------------------------
Feb 11.6% 4.2% 7.8% (4.9%) (0.4%) (4.7%)
- ------------------------------------------------------------------------------
Mar (2.8%) 2.2% 24.5% 4.7% 3.8% 5.4%
- ------------------------------------------------------------------------------
Apr 14.1% 3.4% 19.2% (0.1%) 5.1% (2.5%)
- ------------------------------------------------------------------------------
May (2.5%) (2.9%) 16.7% (3.4%) (5.4%) 5.5%
- ------------------------------------------------------------------------------
Jun (7.0%) 3.5% (6.8%) 1.9% 0.0% 6.2%
- ------------------------------------------------------------------------------
Jul 0.9% (1.8%) 8.5% (2.7%) 16.3% 1.6%
- ------------------------------------------------------------------------------
Aug 2.2% (7.2%) 9.6% (2.0%) (2.9%) 6.9%
- ------------------------------------------------------------------------------
Sep 3.7% (2.0%) 5.9% 1.3% 0.3% 2.7%
- ------------------------------------------------------------------------------
Oct (2.5%) (5.2%) 7.8% 9.1% 0.3%
- ------------------------------------------------------------------------------
Nov (1.5%) 3.9% 1.4% 0.1% 3.4%
- ------------------------------------------------------------------------------
Dec (0.7%) 0.4% 2.3% (0.4%) 3.8%
- ------------------------------------------------------------------------------
Year 19.3% (1.0%) 152.4% 9.2% 34.2% 17.6% YTD
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Percentage Rate of Return*
Since Assumed Inception of Trading through December, 1992
(Annual results computed on a compounded monthly basis)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Mo. 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
- -----------------------------------------------------------------------------------------------------------
Jan 3.0% (0.1%) 0.8% 6.4% 4.6% (5.1%) 5.5% 5.5% 8.8% 4.0% (0.9%) (11.9%)
- -----------------------------------------------------------------------------------------------------------
Feb 4.6% 3.9% 4.9% (1.6%) 4.1% 14.0% 1.4% (0.7%) 0.0% 4.4% (3.7%) (1.9%)
- -----------------------------------------------------------------------------------------------------------
Mar 2.3% 1.8% (3.8%) 2.2% (0.6%) 7.9% 2.2% (1.9%) 2.7% 6.5% 10.6% 2.3%
- -----------------------------------------------------------------------------------------------------------
Apr 0.6% (1.6%) 1.6% 1.2% 7.4% (3.7%) 11.7% (3.0%) 0.0% 2.6% (1.2%) (0.7%)
- -----------------------------------------------------------------------------------------------------------
May 1.6% 0.4% (2.9%) 8.0% 6.9% (4.8%) 2.1% 4.5% 14.5% (7.8%) (0.3%) 9.4%
- -----------------------------------------------------------------------------------------------------------
Jun 1.1% 5.8% (1.8%) (3.7%) (1.3%) 0.0% (0.4%) 2.7% 6.3% 2.5% (1.3%) 12.9%
- -----------------------------------------------------------------------------------------------------------
Jul 2.7% (1.3%) 0.8% 4.2% 5.1% 12.1% 4.3% 5.1% 0.9% 7.8% (1.5%) 19.2%
- -----------------------------------------------------------------------------------------------------------
Aug (0.3%) 10.5% (4.5%) 1.2% (1.4%) 5.6% (2.5%) 0.6% (7.8%) (4.3%) 6.4% 7.0%
- -----------------------------------------------------------------------------------------------------------
Sep 1.8% 1.3% 2.2% 1.6% (8.1%) (6.5%) 0.4% (3.6%) (5.0%) 5.7% 10.2% 1.3%
- -----------------------------------------------------------------------------------------------------------
Oct 1.7% 8.2% (2.1%) 9.0% 2.6% 3.8% 0.6% 3.0% 1.6% 7.9% 0.3% (0.7%)
- -----------------------------------------------------------------------------------------------------------
Nov (1.4%) (0.9%) (1.1%) 0.8% 2.3% 0.3% 8.8% 3.6% 0.9% (3.0%) 3.9% 12.0%
- -----------------------------------------------------------------------------------------------------------
Dec (3.3%) 11.8% (0.5%) 2.2% (0.1%) (2.0%) 12.9% 1.2% 2.9% 3.6% 14.2% (4.7%)
- -----------------------------------------------------------------------------------------------------------
Year 15.2% 46.2% (6.6%) 35.5% 22.5% 20.9% 56.8% 17.8% 26.8% 32.6% 41.2% 48.5%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Name of Pool: Portfolio Boost II, L.P.
Type of Pool: Publicly Offered
Assumed Date of Inception of Trading: January 1, 1981
Assumed Aggregate Gross Capital Subscriptions to the Pool (as of September 30,
1998): $700,000
Pool's Net Asset Value (as of September 30, 1998): $73,906,338
Largest Monthly Draw-Down**
During the Most Recent Five Calendar Years and Year-to-Date (through September
30, 1998): 8-94/7.2% of Net Asset Value ***
From Assumed Inception of Trading and Year-to-Date (through September 30,
1998): 1-92/11.9% of Net Asset Value
<PAGE>
Worst Peak-to-Valley Draw-Down ****
During the Most Recent Five Calendar Years and Year-to-Date (through September
30, 1998): 7-94 to 10-94/15.3% of Net Asset Value
From Assumed Inception of Trading and Year-to-Date (through September 30,
1998): 7-94 to 10-94/15.3% of Net Asset Value
* Rate of return is computed by dividing the net performance by the sum of
the beginning net asset value and net additions, capital withdrawals and
redemptions.
** "Draw-Down" is defined by applicable CFTC regulations to mean losses
experienced by a pool or account over the specified period.
*** "Net Asset Value" means total assets minus total liabilities, determined on
an accrual basis of accounting in accordance with generally accepted
accounting principles, with each open position accounted for at fair market
value.
**** "Worst Peak-to-Valley Draw-Down" is defined by applicable CFTC regulations
to mean the greatest cumulative percentage decline in month-end net asset
value due to losses sustained by a pool, account, or trading program 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.
ASSUMPTIONS TO SUPPLEMENTAL PERFORMANCE INFORMATION:
- ----------------------------------------------------
1. $700,000 in capital was contributed as of 1/1/81 and no additional capital
contributions were made during the entire period shown above.
2. No withdrawals or distributions were made during the entire period shown
above.
3. Brokerage commissions of $11.00, NFA and exchange fees of $3.50 and
slippage of $75 per contract were included in the costs. These rates are
consistent with current industry standards. Slippage is calculated due to
the fact that the trades were done on a hypothetical basis and not in real
market situations.
4. Interest income will be earned on the trading account of the Partnership.
For purposes of the above calculations, a 5% per annum interest rate was
used. Actual interest earnings would have been higher during the period
shown. However, to maintain a conservative reporting process, the 5% rate
was used.
5. The management fee and incentive fee payable to the General Partner as set
forth in the Prospectus were both utilized for purposes of the above
calculations. See the Section of the Prospectus entitled "DESCRIPTION OF
CHARGES TO THE PARTNERSHIP."
6. The quantitative, non-discretionary, systematic approach of the CTA was
applied to actual market data for the periods indicated in order to
determine trading results.
7. All amounts displayed are in U. S. Dollar denominations
PROSPECTIVE INVESTORS MUST CAREFULLY REVIEW THE DISCLOSURES ON THE COVER PAGE TO
THIS APPENDIX 1 REGARDING THE MANY LIMITATIONS WHICH ARE INHERENT IN
HYPOTHETICAL PERFORMANCE INFORMATION.
<PAGE>
EXHIBIT A
LIMITED PARTNERSHIP AGREEMENT
<PAGE>
PORTFOLIO BOOST II, L.P.
LIMITED PARTNERSHIP AGREEMENT
THIS LIMITED PARTNERSHIP AGREEMENT ("Agreement") is made as of the date set
forth on the signature page hereof by and among Portfolio Boost, L.L.C. (the
"General Partner"), as general partner of Portfolio Boost II, L.P. (the
"Partnership"); the person designated on the signature page hereto as the
initial limited partner (the "Initial Limited Partner"); and the persons who may
hereafter become limited partners of the Partnership (collectively, the "Limited
Partners"). The General Partner and the Limited Partners are at times
collectively referred to herein as the "Partners".
ARTICLE I: General Provisions
1.01 Formation of Partnership. The Partnership is hereby formed by the
------------------------
General Partner and the Initial Limited Partner under the provisions of the Iowa
Uniform Limited Partnership Act, Chapter 487 of the Code of Iowa, as amended and
as may be amended from time to time (the "Act"). The rights and liabilities of
the Partners shall be as provided in the Act, except as otherwise expressly
provided in this Agreement. The Initial Limited Partner's contribution of
$1,000 will be refunded upon admission of the first Limited Partner acquiring a
Unit (as that term is defined in Section 1.11 below), and the Initial Limited
Partner will thereupon withdraw from the Partnership. The Initial Limited
Partner may, however, purchase Units in the Partnership.
1.02 Certificate of Limited Partnership. The General Partner shall execute
----------------------------------
a Certificate of Limited Partnership for the Partnership (the "Certificate") and
file the Certificate in the Iowa Secretary of State's office, and in such other
public offices as deemed advisable in the discretion of the General Partner.
Amendments to the Certificate shall also be duly executed and filed in the Iowa
Secretary of State's office, and in such other public offices as deemed
advisable in the discretion of the General Partner.
1.03 Name of the Partnership. The name of the Partnership is Portfolio
-----------------------
Boost II, L.P.
1.04 Business of the Partnership. The business of the Partnership is to
---------------------------
conduct and engage in the speculative trading of domestic and foreign futures
contracts and options in commodities, currencies, securities and/or any other
types of interests whatsoever. Such trading may include all futures contracts
and options which may now or hereafter be dealt in on any exchange or in the
interbank markets. The Partnership shall have and may exercise all of the
powers now or hereafter conferred by the laws of the State of Iowa on limited
partnerships formed under the laws of that State, and the Partnership may do any
and all things related or incidental to its business as fully as natural persons
might or could do under the laws of said State.
1.05 Place of Business of the Partnership and Specified Office and Agent.
-------------------------------------------------------------------
The initial principal place of business of the Partnership is at Cornerstone at
Cantera, 4320 Winfield Road, Suite 320, Warrenville, Illinois 60555. The
initial specified office of the Partnership in Iowa, as required by Section 104
of the Act, is at 328 Main Street, P.O. Box 187, Ames, Story County, Iowa 50010,
and the initial agent for service of process at that address as required by
Section 104 of the Act is Don Kramer. The General Partner may change the
principal place of business or the specified office or agent for service of
process upon written notice to the other Partners. The General Partner may also
establish such additional places of business as the General Partner may
determine. The Partnership shall maintain at the Partnership's specified office
in Iowa such records as may be required by the Act from time to time, including,
as applicable, copies of (i) a current list of the full name and the last known
business address of each Partner separately identifying the General Partner and
the Limited Partners, with each such list being in alphabetical order; (ii) the
Certificate and all certificates of amendment to the Certificate, together with
executed copies of any powers of attorney pursuant to which the Certificate or
any certificates of amendment have been executed; (iii) the Partnership's
federal, state, and local income tax returns and reports, if any, for the three
most recent years; (iv) this Agreement and all amendments hereto; (v) any
financial statements of the Partnership for the three most recent years; and
(vi) to the extent not already set forth in this Agreement, and if otherwise
applicable, a writing setting out (x) the amount of cash and a description and
statement of the agreed value of the other property or services contributed by
each Partner and which each Partner has agreed to contribute, (xx) the times at
which or events on the happening of which any additional contributions agreed to
be made by each Partner are to be made, (xxx) any right of a Partner to receive,
or of a General Partner to make,
<PAGE>
distributions to a Partner which include a return of all or any part of the
Partner's contribution, and (xxxx) any events upon the happening of which the
Partnership is to be dissolved and its affairs wound up. The records kept
pursuant to this Section 1.05 are subject to inspection and copying during
ordinary business hours at the reasonable request and at the expense of any
Partner.
1.06 Effective Date and Duration of the Partnership. This Agreement shall
----------------------------------------------
become effective and the Partnership may commence business upon the filing of
the Certificate in the Iowa Secretary of State's office, and shall continue
until 11:59 p.m. on December 31, 2050, unless the Partnership is dissolved at an
earlier date as provided herein.
1.07 Partners' Names and Addresses. The General Partner as of the date of
-----------------------------
this Agreement is Portfolio Boost, L.L.C., whose main business address is
currently Cornerstone at Cantera, 4320 Winfield Road, Suite 320, Warrenville,
Illinois 60555. The names and addresses of the Initial Limited Partner and
subsequent Limited Partners shall be maintained at the Partnership's specified
office in Iowa as provided in Section 1.05 above.
1.08 Title to Partnership Property. All property owned by the Partnership,
-----------------------------
whether real or personal or tangible or intangible, shall be deemed to be owned
by the Partnership as an entity, and no Partner, individually, shall have any
ownership interest in any such property.
1.09 Filing of Other Certificates. The General Partner shall file and
----------------------------
publish all certificates, notices, statements or other instruments as may be
required by law for the operation of a limited partnership in all jurisdictions
where the Partnership elects to do business.
1.10 Expenses. Each Partner shall bear any personal expenses incurred in
--------
connection with the acquisition of the Partner's Units. The Partnership will
pay, without limitation, all organizational expenses of the Partnership and all
costs and expenses incurred in the offering and sale of Units, including the
costs of registration of Units under federal and applicable state securities
laws; producing the registration statement and the prospectus used to register
and offer Units and other promotional materials, documents and forms; filing
fees and taxes under applicable partnership and securities laws; accounting and
legal fees; escrow fees; and all other costs and expenses of organizing and
qualifying the Partnership and in offering and selling Units. The
organizational and offering expenses to be paid by the Partnership shall not,
however, exceed fifteen percent (15%) of the total Capital Contributions (as
that term is defined in Section 2.01(a) below) of all Limited Partners. Any
deficiency in such expenses shall be borne by the General Partner, and all such
expenses shall be borne by the General Partner in the event the General Partner
has not accepted subscriptions for at least the Minimum Units before the close
of the Minimum Units Offering Period (as those two terms are defined in Section
2.01(c) below). The Partnership may pay all costs and expenses directly or may
reimburse others, including the General Partner, for all Partnership costs and
expenses which have been paid by such other persons.
1.11 Partnership Interests. The interests of the Partners in the
---------------------
Partnership shall be designated as units ("Units"), as more further described
and defined in Section 2.01(c) below.
ARTICLE II: Capital Contributions
2.01 Capital Contributions.
---------------------
(a) Capital Contribution Defined. The term "Capital Contribution"
----------------------------
means, with respect to each Partner, the sum of all cash (or its
equivalent) contributed to the Partnership by the Partner. No Partner shall
receive interest on any Capital Contribution. A Partner may withdraw the
Partner's Capital Contribution only as provided in this Agreement. No
Partner is required to make any contribution to the Partnership other than
the Partner's initial Capital Contribution. The aggregate of all Capital
Contributions shall be available to the Partnership to carry on its
business.
(b) Capital Contribution of General Partner. The General Partner may
---------------------------------------
make Capital Contributions (in cash or its equivalent) from time to time,
in the General Partner's sole discretion. All Capital Contributions of the
General
2
<PAGE>
Partner shall be evidenced by Units, and the General Partner shall have the
same rights with respect to Units as do the Limited Partners, except as
otherwise expressly provided in this Agreement. No Units held by the
General Partner shall be counted in determining whether the Minimum Units
have been sold. Upon the dissolution and termination of the Partnership,
the General Partner will contribute to the Partnership an amount equal to
the deficit balance, if any, in the General Partner's capital account.
(c) Capital Contribution of Limited Partners. Each Limited Partner
----------------------------------------
shall make a Capital Contribution (in cash or its equivalent) at the time
of subscription for the Limited Partner's Units in the amount set forth in
the Limited Partner's Subscription Agreement. The purchase price per Unit
prior to the commencement of trading by the Partnership shall be One
Thousand Dollars ($1,000) per Unit. The Partnership shall not commence
trading unless and until the General Partner has accepted subscriptions for
at least Five Hundred (500) Units (the "Minimum Units"), which must occur
within nine (9) months of the effective date of the Registration Statement
to be filed with the Securities and Exchange Commission (the "SEC") with
respect to the Minimum Units (the "Minimum Units Offering Period"). The
Partnership may commence trading at any time after the funds for the
Minimum Units have been released from escrow (at which time subscribers
shall first be admitted to the Partnership as Limited Partners). If the
General Partner has not accepted subscriptions for the Minimum Units prior
to the close of the Minimum Units Offering Period, the offering of the
Units shall terminate and all amounts paid by subscribers for Units shall
be returned in the manner provided in the subscribers' Subscription
Agreements. Units may be offered and sold after the Partnership has
commenced trading, in the sole discretion of the General Partner. The
purchase price per Unit after the Partnership has commenced trading shall
be the Net Asset Value Per Unit (as that term is defined in Section 2.01(d)
below) as of the opening of trading on the effective date of the purchase
(which date is specified in Section 8.06 below). The Partnership will issue
fractional Units, rounded up to the sixth decimal point, to the extent
necessary to fill an accepted subscription for Units.
All Units shall be issued subject to the collection of good funds, and
any Units issued to a subscriber who has not provided collectible funds
shall be canceled.
(d) Net Assets; Net Asset Value Per Unit. "Net Assets" of the
------------------------------------
Partnership for purposes of this Agreement means the Partnership's total
assets minus the Partnership's total liabilities, determined in accordance
with generally accepted accounting principles, except (i) that for purposes
of calculating the Net Asset Value Per Unit, Net Assets shall be determined
by amortizing all organizational and offering expenses incurred by the
Partnership prior to the effective date of the initial registration
statement filed by the Partnership with the SEC over a period of five (5)
years; and (ii) as may be otherwise provided herein.
The term "Net Asset Value Per Unit" for purposes of this Agreement
means the Net Assets of the Partnership at the time of calculation divided
by the aggregate number of outstanding Units at that time.
2.02 Termination of Offerings; Additional Offerings. The General Partner
----------------------------------------------
may, in its sole discretion, terminate any offering of Units. The General
Partner may also register Units and/or make additional public or private
offerings of Units, in its sole discretion. The General Partner does not,
however, have any obligation or duty to register any Units with any authority.
No Limited Partner shall have any preemptive or other rights with respect to the
issuance or sale of any additional Units. No Limited Partner shall have the
right to consent to the admission of any additional Limited Partners or to any
additional Capital Contributions made by any existing Partner. There is no
maximum aggregate amount of Units which may be sold by the Partnership.
ARTICLE III: Allocation of Profits and Losses
3.01 Profits and Losses. Profits and losses for each fiscal year of the
------------------
Partnership shall be allocated among the Partners pro rata based upon the
respective number of Units held by the Partners. For purposes of determining
the profits, losses or any other items allocable to any period, profits, losses,
and any such other items shall be determined on a daily, monthly, or other
basis, as determined by the General Partner using any permissible method under
Section 706 of the United States Internal Revenue Code and the regulations
thereunder.
3
<PAGE>
3.02 Allocation of Distributions Upon Assignment of a Unit. The profits or
-----------------------------------------------------
losses of the Partnership attributable to any assigned Unit and any
distributions made with respect to such Unit shall be allocated to the assignor
up to and including the effective date of the assignment, and to the assignee
thereafter.
3.03 Capital Account Balance. A capital account shall be established for
-----------------------
each Partner and shall be credited with (i) the amount of cash paid to the
Partnership as the Partner's Capital Contribution, and (ii) the share of
Partnership income or gains allocable to the account; and shall be debited with
(x) the share of Partnership deductions or losses allocable to the account, and
(y) the amount of any distributions made to and liquidations made by the Partner
with respect to the account. The manner in which capital accounts are to be
maintained pursuant to this Section 3.03 is intended and shall be construed so
as to comply with the requirements of Internal Revenue Code Section 704 and the
regulations promulgated thereunder, and in the event there exists any
inconsistency the Internal Revenue Code and said regulations shall control.
3.04 General. The respective interests of the Partners in the profits and
-------
losses of the Partnership shall remain as set forth herein unless changed by
amendment to this Agreement or by an assignment or liquidation of a Unit. For
tax purposes, all items of income, gain, loss, deduction or credit shall be
allocated among the Partners according to the same percentages and provisions
for allocating profits and losses set forth in this Article III.
ARTICLE IV: Distributions
4.01 Distributions. The Partnership is not required to make any
-------------
distributions to the Partners, and any distributions by the Partnership will be
made only at such times and in such amounts as are determined by the General
Partner, in its sole discretion. Any distributions which are made shall be made
pro rata based upon the respective number of Units held by the Partners. This
Section 4.01 is not applicable to distributions to be made upon the dissolution
and liquidation of the Partnership, which circumstance is governed by Section
9.02 below.
4.02 No Priority. No Limited Partner shall have the right to receive
-----------
property other than cash in connection with any distribution, whether upon
winding up of the Partnership or otherwise and whether or not it shall
constitute a return of capital. No Limited Partner shall have priority over any
other Limited Partner as to any distributions, whether upon winding up of the
Partnership or otherwise, the return of any Capital Contribution or as to
allocations of profits or losses.
4.03 Liquidation of Units. A Limited Partner may withdraw from the
--------------------
Partnership and liquidate the Units held by the Limited Partner only with the
consent of the General Partner, which consent shall be given only if the
following conditions are satisfied:
(a) A Limited Partner must give the General Partner written notice (a
"Liquidation Notice") of the intention of the Limited Partner to liquidate
Units, and stating the date upon which the liquidation is desired, which
date must be the first business day of any month. The Liquidation Notice
must be received by the General Partner no later than 12:00 noon on the
sixtieth (60th) business day immediately preceding the desired effective
date of liquidation or by such later date as may be acceptable to the
General Partner, in the General Partner's sole discretion.
(b) Any liquidation request approved by the General Partner shall be
effective as of the opening of trading on the first business day of the
month specified in the Liquidation Notice.
(c) The liquidation price per Unit shall be equal to the Net Asset
Value Per Unit as of the effective time and date of the liquidation. From
the time of the General Partner's receipt of a Liquidation Notice to the
effective time and date of the liquidation, the Units will remain at risk
in the business of the Partnership and the liquidation price for the Units
shall not be fixed. Subsequent to the effective time and date of a
liquidation, however, the liquidation price per Unit shall be fixed at the
Net Asset Value Per Unit as of the effective time and date of the
liquidation.
(d) Subject to subparagraph (a) above and to the following, the
General Partner shall honor all Liquidation Notices in the order they are
received (on the basis of postmark or delivery, with the General Partner
selecting Units for liquidation by lot with respect to Liquidation Notices
received on the same date). If, however, the number of
4
<PAGE>
liquidations requested for any month or over any other given period of
time, in the opinion of the General Partner, threatens the termination of
the Partnership or the Partnership's tax year or is otherwise detrimental
to the tax status of the Partnership, the General Partner may (but is not
required to) select by lot only so many liquidations as will, in its
judgment, not result in such consequences. Any Units not liquidated in this
event shall remain at risk in the business of the Partnership and shall not
be liquidated absent another separate Liquidation Notice given in the
manner provided in this Section 4.03. In addition, the General Partner may
(but is not required to) temporarily suspend all liquidations if, in the
General Partner's judgment, special circumstances exist such that
additional liquidations would impair the ability of the Partnership to meet
its objectives, and under special circumstances the Partnership may also
(but is not required to) delay payment for liquidated Units until the
special circumstances have been remedied or otherwise rectified. Examples
of special circumstances for either of these purposes include (i) the
inability to generate sufficient cash to effect liquidations, (ii) where
such cash can only be generated by sustaining significant losses, (iii) the
inability to liquidate open positions, or (iv) the default or delay in
payments which are due the Partnership from brokers or other persons. In
the event of a suspension of liquidations, all Units will remain at risk in
the business of the Partnership and shall not be liquidated absent a
Liquidation Notice given following the lifting of the suspension by the
General Partner and in the manner otherwise provided in this Section 4.03.
(e) In the case of a notice given pursuant to Section 7.04(a)(i)
below, trading by the Partnership shall be temporarily suspended for a
period of thirty (30) calendar days, beginning on the date of such notice,
during which time Limited Partners shall have the right to request
liquidation of their Units. The General Partner shall honor all liquidation
requests which are received by the General Partner prior to the close of
said thirty (30) calendar day period, subject to, however, and in
accordance with the provisions of Sections 4.03(c) and 4.03(d) above and
4.03(f) below. Liquidations in this event shall be effective as of the
opening of trading on the business day next following the General Partner's
receipt of written notice from the Limited Partner.
(f) The General Partner shall give written notice to a Limited
Partner within ten (10) days after the first business day of the applicable
month of whether or not the Limited Partner's Units have been liquidated.
Payment for liquidated Units shall be made by the Partnership within thirty
(30) days after the first business day of the applicable month, subject,
however, to delays in payment pursuant to subparagraph (d) above.
A Limited Partner may request liquidation of less than all of the Limited
Partner's Units upon the same terms and conditions as set forth above; provided,
however, that the General Partner may, in the General Partner's sole discretion,
refuse any such request for a partial liquidation if the liquidation would cause
the capital account of the Limited Partner to be less than the minimum initial
investment amount as then established by the General Partner.
4.04 Retirement Accounts. The General Partner may, in the General Partner's
-------------------
sole discretion, require any Limited Partner which is an IRA or a retirement
plan or employee benefit plan subject to Title I of the United States Employee
Retirement Income Security Act of 1974 ("ERISA") to either: (i) withdraw from
the Partnership, in whole or in part, through liquidation of some or all of the
Limited Partner's Units, or (ii) make immediate distributions to the Limited
Partner in such amount as determined by the General Partner; if such liquidation
or distribution is, in the General Partner's sole discretion, necessary or
appropriate to cause the Partnership, the General Partner or any Limited
Partners to avoid being subject to or in violation of any of the provisions of
ERISA or regulations promulgated pursuant thereto or any similar or successor
act, statutes or regulations.
ARTICLE V: Management
5.01 Management of the Partnership. The management and control of all of
-----------------------------
the business and affairs of the Partnership shall be vested solely in the
General Partner.
5.02 Authority of the General Partner. The General Partner shall have all
--------------------------------
rights and powers of general partners as provided in the Act and other
applicable law. Without limiting Section 5.01 above, the General Partner is
hereby granted the right, power and authority to do on behalf of the Partnership
all things which, in the General Partner's sole discretion, are
5
<PAGE>
appropriate to carry out the Partnership's business and/or the duties and
responsibilities of the General Partner, including all of the following (without
notice to or the consent or approval of any Limited Partners):
(a) to cause to be paid all amounts due and payable by the
Partnership to any person or entity (including the General Partner),
including, without limitation, brokerage commissions, management fees,
incentive fees, and transaction fees and charges such as floor brokerage,
clearinghouse, give up or transfer and exchange and National Futures
Association ("NFA") fees;
(b) to employ or otherwise retain the services of such agents,
employees, managers, accountants, attorneys, consultants and other persons
(including, without limitation, commodity trading advisors, introducing
brokers and futures commission merchants and floor brokers) as the General
Partner determines to be appropriate to carry out the business and affairs
of the Partnership, whether or not any such persons so employed or retained
are the General Partner or are affiliated or related to any Partner, all
upon terms satisfactory to the General Partner, and to pay such fees,
salaries, wages and other compensation to such persons as the General
Partner shall in its sole discretion determine;
(c) to pay, extend, renew, modify, adjust, contest, submit to
arbitration, prosecute, defend or compromise, upon such terms and upon such
evidence as the General Partner deems sufficient, any obligation, suit,
liability, cause of action, claim, counterclaim or other dispute,
including, without limitation, taxes, either in favor of or against the
Partnership;
(d) to pay all fees and make all other expenditures which the General
Partner, in its sole discretion, deems appropriate in connection with the
organization of the Partnership, the registration, offering and sale of
Units, the operation of the Partnership's business, and/or the carrying out
of the General Partner's obligations and responsibilities under this
Agreement;
(e) to accept additional Capital Contributions from any Partner, to
admit additional Limited Partners, and to admit an assignee of a Unit to be
a substituted Limited Partner, pursuant to and subject to the terms hereof,
without notice to or the consent of any Limited Partner;
(f) to invest any funds of the Partnership that are not committed to
the conduct of the Partnership's business as the General Partner shall
determine, in its sole discretion, including in certificates of deposit,
treasury bills, so called "sweep" accounts, and other investments;
(g) to negotiate, enter into, execute, acknowledge and deliver all
contracts, agreements, documents and instruments appropriate to carry on
the business of the Partnership, including granting the commodity trading
advisor or advisors a power of attorney to effect trades on behalf of the
Partnership on a discretionary basis and without notice to the General
Partner or any Limited Partners, and subscription agreements for Units;
(h) to cause to be paid all taxes, charges and assessments that are
levied, assessed or imposed upon any of the assets of the Partnership,
unless the same are contested in good faith by the General Partner;
(i) to enter into agreements with others and engage in the trading
described in Section 1.04 above, including with or through entities and
persons affiliated with the General Partner;
(j) to sell, lease, trade, exchange, encumber, or otherwise transfer
or dispose of any or all of the Partnership's property, whether tangible or
intangible, in the ordinary course of business and upon such terms and
conditions and for such consideration as the General Partner deems
appropriate, in its sole discretion;
(k) in connection with any offering of Units, to: (i) cause to be
filed one or more offering statements or registration statements and
related documentation, and all amendments thereto, with the SEC, the
National Association of Securities Dealers, Inc. ("NASD") and/or any other
domestic or foreign authorities for the registration and offering of Units
in the United States or elsewhere and one or more offering circulars or
prospectuses and amendments and
6
<PAGE>
supplements thereto with the Commodity Futures Trading Commission ("CFTC")
and the NFA; (ii) register or otherwise qualify Units for offering and sale
under the blue sky and securities laws of any states of the United States
and other domestic or foreign jurisdictions; (iii) make all arrangements
for the offering and sale of Units; and (iv) take all such action with
respect to the matters described in the preceding subclauses (i) through
(iii) as the General Partner deems appropriate.
(l) to take all such action as the General Partner deems appropriate
to avoid the requirement that the Partnership register as an investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), or to take all such action as the General Partner deems appropriate
to register the Partnership as an investment company under and to bring the
Partnership in compliance with the 1940 Act;
(m) to compromise the obligation of a Partner to make a contribution
to the Partnership or to return money or other property paid or distributed
to the Partner in violation of the Act or this Agreement; and
(n) to do any act or thing whatsoever which in the General Partner's
sole discretion is necessary or appropriate to carry out any of the
foregoing or otherwise to the business and affairs of the Partnership.
5.03 Limitation on Authority of General Partner. Notwithstanding Section
------------------------------------------
5.02 above, the General Partner shall not, without the prior written consent or
vote of the Limited Partners who possess at least a Majority in Interest (as
that term is defined in Section 6.03 below):
(a) do any act in contravention of this Agreement, as amended from
time to time;
(b) do any act not authorized by this Agreement which would make it
impossible to carry on the ordinary business of the Partnership;
(c) possess or assign rights in Partnership property for other than a
Partnership purpose;
(d) sell, transfer, assign, encumber or convey all or substantially
all of the properties of the Partnership, except in the ordinary course of
business of the Partnership or as may be otherwise authorized by this
Agreement; or
(e) effect any material change in the Partnership's basic investment
policies (which are only those set forth in Article X, subparagraphs (a),
(e) and (j) below) or structure; provided, however, that amendments
authorized by Section 11.02 below, or any changes in (i) commodity trading
advisors or introducing brokers or futures commission merchants, (ii) the
trading methods, systems or strategies utilized by any commodity trading
advisor, (iii) the allocation or diversification of the Partnership's
assets among the types of interests traded or in the positions held in
contracts or options, or (iv) the types of contracts or options or
commodities, currencies, securities or other interests traded by the
Partnership, shall not, without limitation, constitute a material change
within the meaning of this Section 5.03(e).
5.04 Right of Public to Rely on Authority of General Partner. No person
-------------------------------------------------------
shall be required to determine the General Partner's authority to make or incur
any undertaking on behalf of the Partnership, or to see to the application or
distribution of revenues or proceeds paid to the General Partner.
5.05 Obligations of General Partner; Partners' Interests in Other Business.
---------------------------------------------------------------------
The General Partner shall devote such time and effort to the Partnership's
business as is necessary or appropriate to manage the affairs of the
Partnership. It is specifically understood and agreed, however, that no Partner
(including the General Partner) shall be required to devote full time to the
Partnership's business and that any Partner (including the General Partner) may
engage in and possess interests in other business ventures, including ventures
which are competitive with the Partnership; and neither the Partnership nor any
Partner shall by virtue of this Agreement have any right, title or interest in
or to such ventures.
5.06 Liability of the General Partner; Indemnification. The General Partner
-------------------------------------------------
shall not be liable, responsible or accountable in damages or otherwise to the
Partnership or any of the Limited Partners for any act or omission performed or
7
<PAGE>
omitted by the General Partner in good faith on behalf of the Partnership and in
a manner reasonably believed by the General Partner to be within the scope of
authority granted by this Agreement and in, or not opposed to, the best
interests of the Partnership, except only when such action or failure to act
constitutes negligence or misconduct.
The Partnership shall defend, indemnify and hold the General Partner
harmless from and against any loss, liability, damage, cost or expense
(including court costs, arbitration costs, and attorneys' and accountants' fees
and expenses) actually and reasonably incurred by the General Partner and
arising from any act, omission, activity or conduct undertaken by or on behalf
of the Partnership and reasonably believed by the General Partner to be within
the scope of authority conferred by this Agreement, including against any
demands, claims, lawsuits, arbitration proceedings or other actions initiated by
a Limited Partner; provided, however, that such indemnity shall be payable only
if the General Partner (a) acted in good faith and in a manner the General
Partner reasonably believed to be in, or not opposed to, the best interests of
the Partnership, and (b) the act, omission, activity or conduct in question did
not constitute negligence or misconduct. No indemnification may be made,
however, with respect to any losses, liabilities, damages, costs or expenses
arising from or out of an alleged violation of federal or state securities laws
unless (i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, or
(ii) such claim has been dismissed by a court with prejudice on the merits as to
the particular indemnitee, or (iii) a court approves a settlement of the claims
against the particular indemnitee and finds that indemnification of the
settlement and related costs and expenses should be made, provided the
indemnitee must apprise the court of the position of the SEC and of the
securities administrator of the state in which the plaintiffs claim they were
offered or sold Units with respect to indemnification for securities laws
violations before seeking court approval for indemnification.
The General Partner shall in no event be liable to the Partnership or any
Limited Partner because any taxing authority disallows or adjusts any deductions
or credits in the Partnership's or any Limited Partners' income tax returns.
The General Partner shall also in no event be liable for the return or repayment
of the Capital Contributions or profits of any Partner, with any return or
repayment of capital or profits to be made solely from the assets of the
Partnership (which shall not include any right of contribution from the General
Partner).
The Partnership shall make advances of costs and expenses to the General
Partner and the General Partner's affiliates (as that term is defined in Section
12.06 below) with respect to any demand, claim, proceeding, lawsuit or action,
but only if (i) it relates to acts or omissions with respect to the performance
of duties or services on behalf of the Partnership; (ii) it is initiated by a
third party who is not a Limited Partner or it is initiated by a Limited Partner
and a court specifically approves such advancement; and (iii) the General
Partner or the General Partner's affiliate, as the case may be, undertakes to
repay the advanced funds to the Partnership, together with interest at the legal
rate under Iowa law, if the General Partner or the affiliate is ultimately found
not to be entitled to indemnification hereunder.
The provisions of this Section 5.06 shall not be affected by the
termination of the Partnership or the resignation, removal, death, withdrawal,
insolvency or dissolution of the General Partner.
All of the provisions of this Section 5.06 shall apply to affiliates of the
General Partner when such affiliates are performing services on behalf of the
Partnership.
Any indemnity under this Section 5.06 shall be paid from, and only to the
extent of, Partnership assets, and no Limited Partner shall have any personal
liability for the payment of any such indemnity. The Partnership shall not
incur the cost of that portion of liability insurance, if any, which insures the
General Partner for any liability for which indemnification is not allowed under
this Section 5.06.
8
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5.07 Compensation and Reimbursement of the General Partner.
-----------------------------------------------------
(a) The General Partner shall be paid a quarterly incentive fee of
15% of the New Trading Profits (as that term is defined below) of the
Partnership for each quarter, if any. "New Trading Profits" means the
excess, if any, of the Net Assets of the Partnership at the end of each
respective quarter over the highest Net Assets of the Partnership at the
end of any previous quarter or on the date trading commences, whichever is
higher. Net Assets shall be adjusted for this purpose to eliminate the
effect thereon resulting from new Capital Contributions or distributions or
liquidations made during the quarter, and shall be decreased by any
interest or other income earned on Partnership assets during the quarter
which is not directly related to trading activity and whether such assets
are held separately or in a margin account. Also, Net Assets shall be
determined excluding accrual of the incentive fee (if any), but including
accrual of the management fee for the months comprising the quarter in
question, as the management fee is calculated pursuant to Section 5.07(b)
below. In addition, if the Partnership incurs a net loss during any
quarter, such loss shall be carried over and charged against the Net Assets
of the succeeding quarters until such loss has been exhausted and before
any further incentive fees shall be paid to the General Partner. The
incentive fee shall be payable as soon as is reasonably practicable
following the close of each quarter.
(b) The General Partner shall also be paid a monthly management fee
of one-half of one percent (0.5%) [which equates to 6% annually] of the
Partnership's Net Assets as of the close of business on the last business
day of each month. Net Assets for this purpose shall be determined before
accrual of both the management fee and the incentive fee contemplated by
Section 5.07(a) above. The management fee shall be paid by the Partnership
within ten (10) business days of the close of each month.
(c) The General Partner shall be entitled to reimbursement from the
Partnership for all Partnership obligations or expenses which are paid or
incurred by the General Partner.
5.08 Fiduciary Responsibility. The General Partner shall have a fiduciary
------------------------
responsibility for the safekeeping and use of all funds and assets of the
Partnership.
5.09 Resignation or Withdrawal of General Partner; Admission of Additional
---------------------------------------------------------------------
General Partners. The General Partner may resign or withdraw from the
- ----------------
Partnership as General Partner upon (i) the affirmative vote of the Limited
Partners who possess at least a Majority in Interest, and (ii) if there is not
then another general partner for the Partnership, providing a successor general
partner(s) satisfactory to the Limited Partners who possess at least a Majority
in Interest. The General Partner may not otherwise voluntarily resign or
withdraw from the Partnership as general partner except upon the giving of at
least one hundred twenty (120) days prior written notice to the Limited
Partners. In the latter event, the General Partner shall pay all reasonable
expenses incurred as a result of the General Partner's withdrawal if there is
not then another general partner and the Limited Partners elect to carry on the
business of the Partnership by a substituted general partner(s) in accordance
with Section 9.03 below. Any resignation or withdrawal by the General Partner
in accordance with this Section 5.09 shall not violate or constitute a breach of
this Agreement and shall not give rise to or create any claim for damages in the
Partnership or any of the Partners. No resignation or withdrawal of the General
Partner, whether voluntary, involuntary or by operation of law, shall relieve
the General Partner of any obligation up to the date of withdrawal, except with
the express written consent of the Limited Partners who possess at least a
Majority in Interest.
Any other person(s) may be admitted as additional general partners of the
Partnership upon the written consent or vote of the Limited Partners who
possess at least a Majority in Interest. Any such additional general partner(s)
shall be permitted to continue and carry on the business of the Partnership
following the withdrawal, for whatever reason, of any other general partner of
the Partnership. Written notice of the admission of any additional general
partner shall be given to the Limited Partners who did not consent to such
admission within ten (10) business days of such admission. In the event there
is more than one general partner for the Partnership, all of such general
partners shall have all of the rights, duties and obligations of the General
Partner as set forth in this Agreement, and any decisions to be made by such
general partners shall be made by a majority vote of such general partners.
9
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ARTICLE VI: Rights and Obligations of Limited Partners
6.01 Limitations on Limited Partners. No Limited Partner shall: (a)
-------------------------------
participate in the control of the business of the Partnership; (b) have any
voice in the management or operation of any Partnership property; (c) have the
authority or power to bind or act as agent for or on behalf of the Partnership
or any other Partner, or to incur any expenditures on behalf of the Partnership;
or (d) withdraw from the Partnership except in accordance with Section 4.03
above.
6.02 Liability of Limited Partners. No assessments of any kind shall be
-----------------------------
made against any of the Limited Partners. In addition, so long as such Limited
Partner complies with the provisions of Section 6.01 above, the liability of
each Limited Partner for the losses, debts and obligations of the Partnership
shall be limited to the Limited Partner's Capital Contribution and share of any
undistributed assets of the Partnership; provided, however, that under the Act
(i) if a Limited Partner has received the return of any part of the Limited
Partner's Capital Contribution without violation of this Agreement or the Act,
for one (1) year after the return, the Limited Partner is liable to the
Partnership for the amount of the returned contribution to the extent necessary
to discharge the Partnership's liabilities to creditors who extended credit to
the Partnership during the period the contribution was held by the Partnership,
and (ii) if a Limited Partner has received the return of any part of the Limited
Partner's Capital Contribution in violation of this Agreement or the Act, for
six (6) years after the return, the Limited Partner is liable to the Partnership
for the amount of the contribution wrongfully returned.
6.03 Meetings; Vote; Voting Rights.
-----------------------------
(a) A meeting of the Limited Partners may be called by the General
Partner at any time and for any purpose, and shall be called by the General
Partner no more than fifteen (15) days after receipt by the General Partner
of a written request for such a meeting setting forth the purpose thereof,
and signed by Limited Partners who collectively own at least ten percent
(10%) of the then outstanding Units. The General Partner shall give written
notice of any meeting and the purpose thereof to all Limited Partners. Any
such meeting shall be held at a reasonable time and place (which includes
the Partnership's principal office) on a date no less than thirty (30) nor
more than sixty (60) days after the date of the General Partner's written
notice of the meeting.
(b) Any action required or permitted to be taken by Limited Partners
at a meeting may be taken without a meeting, prior notice, or a vote, if a
consent in writing setting forth the action taken is signed by the Limited
Partners owning Units having not fewer than the minimum number of votes
otherwise necessary to take such action under this Agreement. Written
notice of the taking of action under this Section 6.03(b) shall be given to
those Limited Partners who did not consent to such action. All written
consents shall be treated for all purposes as votes at a meeting.
(c) Each Limited Partner shall be entitled to one (1) vote for each
outstanding whole Unit owned by such Limited Partner, and to a fractional
vote in an amount equal to any fractional Unit owned by such Limited
Partner. All actions of the Limited Partners taken at any meeting or by
written action without a meeting shall require the affirmative vote of the
Limited Partners holding at least a majority of the total number of
outstanding Units ("a Majority in Interest"), unless a higher vote is
affirmatively required by any other provision of this Agreement or by the
Act. Partners may vote in person or by proxy.
(d) The Limited Partners who possess at least a Majority in Interest
may, to the extent permitted by law, and without the concurrence of the
General Partner (except as provided below), vote to (i) amend this
Agreement and, if necessary, the Certificate; (ii) remove the General
Partner and elect a new general partner(s); and (iii) cancel any contract
for services with the General Partner without penalty upon sixty (60) days
prior written notice. Provided, however, that any amendment of this
Agreement pursuant to this Section 6.03 which modifies the compensation or
distributions to which the General Partner is entitled or which affects the
duties or obligations or the rights or protections of the General Partner
shall be conditioned upon the consent of the General Partner, which may be
withheld in the General Partner's sole discretion. In the event of the
removal of the General Partner by the Limited Partners pursuant to this
Section 6.03, the General Partner shall be entitled to a liquidation of any
or all of the General Partner's Units at the Net Asset Value Per Unit on
and as of the opening of trading on the first business day of the month
next following
10
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the date on which the General Partner is removed. If the General Partner
does not liquidate all of its Units at such time, the General Partner shall
thereafter be entitled to a liquidation of its Units in accordance with
Section 4.03 above.
ARTICLE VII: Books, Records and Bank Accounts
7.01 Books and Records. The General Partner shall keep true books of
-----------------
account and records with respect to the operations of the Partnership, including
those books and records as may be required under the CFTC's regulations. Such
books and records shall be maintained at the Partnership's principal place of
business, and all Partners, and their duly authorized representatives, shall at
all reasonable times have access to such books and records. The General Partner
shall maintain and preserve such books and records for a period of not less than
five (5) years.
7.02 Accounting Basis; Fiscal Year. The books and records of the
-----------------------------
Partnership (i) shall be kept in accordance with generally accepted accounting
principles, except as may be otherwise provided in this Agreement or as may be
otherwise determined by the General Partner, in the General Partner's sole
discretion; (ii) shall reflect all Partnership transactions, (iii) shall be
appropriate and adequate for the Partnership's business and to carry out the
provisions of this Agreement, and (iv) shall be closed and balanced at the end
of each fiscal year of the Partnership. The fiscal year of the Partnership
shall be the calendar year.
7.03 Reports. The General Partner shall cause such reports or information
-------
to be provided to the Partners as the CFTC, the NFA, the SEC, the NASD or any
other applicable governmental authority may from time to time require to be
given to the Partners.
The General Partner shall also provide to all Partners, by not later than
March 15 of each year, all information with respect to the Partnership which is
necessary for the preparation of the Partners' respective income tax returns.
The General Partner shall calculate the Net Assets of the Partnership on a
daily basis, and shall promptly advise a Partner, upon request, of the Net Asset
Value Per Unit as of the time of the request.
7.04 Notices.
-------
(a) The General Partner shall cause a notice to be given to each
Partner within seven (7) business days from the date of: (i) the date (the
"Decline Date") upon which there shall have been a decline in the Net Asset
Value Per Unit to less than fifty percent (50%) of the Net Asset Value Per
Unit as of the close of business on the day which is one year prior to the
Decline Date; (ii) any material change in contracts with any of the
Partnership's commodity trading advisors, including any change in commodity
trading advisors or any modification in the method of calculating any
incentive fee which may be payable by the Partnership to any commodity
trading advisor; and (iii) any other material change affecting the
compensation of any party which is payable by the Partnership. In the case
of a notice given pursuant to subclause (i) above, the Limited Partners
will have the opportunity to request the liquidation of their Units as
provided in Section 4.03(e) above.
(b) The General Partner shall also cause a notice to be given to each
Partner prior to effecting any material change related to brokerage
commissions. Any such change shall not be made for 30 calendar days, during
which time the Partners will have the right to request liquidation of their
Units pursuant to Section 4.03 above.
(c) Any notification pursuant to this Section 7.04 shall include a
description of the Partner's liquidation rights and voting rights, if any,
and a description of any material effect the changes specified in the
notice may have on the interests of the Partners. Any notice given pursuant
to Section 7.04(a)(i) above shall also include the following, in capital
letters and bold face print: "A LIMITED PARTNER SHOULD OBTAIN ADVICE FROM
AN INDEPENDENT INVESTMENT AND PROFESSIONAL ADVISOR AS TO WHETHER THE
LIMITED PARTNER SHOULD REQUEST LIQUIDATION OF THE LIMITED PARTNER'S UNITS
BECAUSE OF THE DECLINE IN THE NET ASSET VALUE PER UNIT."
11
<PAGE>
7.05 Bank Accounts. The General Partner shall establish one or more bank
-------------
accounts to be used for the payment of the expenditures of the Partnership. All
such accounts shall be the property of the Partnership, and shall be used only
for Partnership purposes. Only Partnership funds shall be deposited in said
accounts.
7.06 Tax Returns. The General Partner shall cause Partnership tax returns
-----------
to be prepared and timely filed, and shall also cause the Partnership to pay any
taxes payable by the Partnership. The General Partner is not, however, required
to cause the Partnership to pay any tax so long as the General Partner or the
Partnership is in good faith and by appropriate means contesting the
applicability, validity or amount thereof and such contest shall not materially
endanger any right or interest of the Partnership.
7.07 Tax Elections. The General Partner will make all tax elections or
-------------
allocations deemed necessary or desirable for the Partnership or the purposes of
this Agreement. Without limiting the preceding sentence, the General Partner is
authorized to perform all duties imposed by Sections 6221 through 6232 of the
United States Internal Revenue Code on the General Partner as "tax matters
partner" of the Partnership, including the following: (i) the power to
represent the Partnership in all audits and other administrative proceedings;
(ii) the power to extend the statute of limitations for all Limited Partners;
(iii) the power to file a petition with an appropriate federal court for a
review of a final Partnership administrative adjustment; and (iv) the power to
enter into a settlement with the Internal Revenue Service (the "IRS") on behalf
of, and binding upon, those Limited Partners having less than a one percent (1%)
interest in the Partnership, unless a Limited Partner has notified the IRS and
the General Partner to the contrary.
ARTICLE VIII: Assignability of Units; Additional Limited Partners
8.01 Assignment of a Limited Partner's Units.
---------------------------------------
(a) Except as otherwise provided below, a Limited Partner may not
sell, transfer, assign, hypothecate, pledge, or otherwise dispose of any
Unit (whether voluntarily, involuntarily or by operation of law) unless and
until all of the following conditions have been satisfied, except that the
General Partner may, in its sole discretion, waive any one or more of the
conditions specified in subclauses (ii) and (iv) below:
(i) the assignor and the assignee shall have delivered a
written instrument of assignment and assumption in a form satisfactory
to the General Partner;
(ii) after the assignment, neither the assignee nor the
assignor, if the assignor has retained any part of a Unit, shall hold
Units that represent less than the minimum initial investment in the
Partnership as then established by the General Partner, except for
transfers by gift, inheritance, intra family transfers, family
dissolutions, and transfers to affiliates;
(iii) the General Partner shall have consented in writing to the
assignment, which consent shall be granted if the other conditions are
met (or have been waived by the General Partner) and in the opinion of
the Partnership's counsel such assignment (1) may be effected without
registration under any applicable securities laws; (2) will not
violate any applicable laws or governmental rules or regulations,
including securities laws or limited partnership laws; and (3) will
not jeopardize the status of, or cause a termination of, the
Partnership or the Partnership's tax year for federal income tax
purposes nor affect the characterizations or treatment of income or
loss; and
(iv) the assignee agrees to pay all reasonable expenses incurred
in connection with the assignment, including attorneys' fees.
The Partnership shall not be required to recognize any assignment of
any Unit until the effective date of such assignment. Unless and until an
assignee becomes a substituted Limited Partner in accordance with Section
8.03 below, the assignee shall only have the right to receive the share of
the profits, losses, distributions and returns of capital
12
<PAGE>
(including pursuant to a liquidation of Units in accordance with Section
4.03 above) to which the assignor would be otherwise entitled to with
respect to the assigned Units.
By executing or otherwise adopting this Agreement, each Limited
Partner shall be deemed to have consented to any assignment of a Unit
consented to by the General Partner.
(b) The Partnership and the General Partner shall be entitled to
treat the record owner of any Units (as shown on the books of the
Partnership) as the absolute owner thereof for all purposes, and shall
incur no liability for distributions made to such owner.
(c) Each Limited Partner shall, in connection with the assignment of
any Unit, and upon the request of the General Partner, execute such
documents and perform such other acts as the General Partner deems
appropriate to preserve the limited liability status of the Partnership.
(d) A Limited Partner ceases to be a limited partner for all purposes
upon assignment of all of the Limited Partner's Units. No assignment shall,
however, relieve a Limited Partner of any obligation under this Agreement
without the express written consent of the General Partner.
(e) Any purported assignment of a Unit which is not made in
compliance with this Agreement is null and void and of no force and effect
whatsoever. For purposes of this Section 8.01, any transfer of a Unit in
the Partnership shall be considered an assignment, whether the transfer is
voluntary, involuntary, or by operation of law.
8.02 Assignee's Rights. An assignee of a Unit shall be entitled to receive
-----------------
distributions and to receive allocations of the profits and losses of the
Partnership attributable to such Unit after the effective date of the
assignment. The "effective date" of an assignment of a Unit under this Section
8.02 and Section 8.01 above shall be the date designated in the written
instrument whereby the General Partner consents to the assignment, which date
shall be not later than (but may in the sole discretion of the General Partner
be prior to) the first business day of the month next following the date on
which all conditions precedent to such assignment have been satisfied.
8.03 Substituted Limited Partner. Each Limited Partner shall have the right
---------------------------
to allow and cause an assignee of any of the Limited Partner's Units to become a
substituted Limited Partner with respect to those Units in the place of such
assigning Limited Partner, without the consent of the General Partner or any of
the other Partners. Any assignment effectuated in accordance with Section 8.01
above shall be deemed to cause the assignee to be a substituted Limited Partner
with respect to the assigned Units unless otherwise designated by the assignor.
In addition, and notwithstanding any reservations or objections of the assignor
of the Units, an assignee of any Units may be substituted as a Limited Partner
as to such Units upon and with the consent or vote of all of the Partners, other
than the assignor of the Units. By executing or adopting this Agreement, each
Limited Partner shall be deemed to have consented to any substitution of an
assignee of any Units in the place of the assignor.
8.04 Substitution Required for Vote. Unless and until an assignee of a Unit
------------------------------
becomes a substituted Limited Partner, the assignee shall not be entitled to
exercise any vote with respect to such Unit or otherwise have any rights of a
Limited Partner, except only as provided in Sections 8.01 and 8.02 above.
8.05 Effective Date of Substitution. The effective date of a substitution
------------------------------
of an assignee of a Unit made by the assignor shall be the effective date
specified in Section 8.02 above if the substitution is made at the time of the
assignment of the Unit, or upon receipt by the General Partner of written notice
thereof from the assignor if made at a later time. The effective date of a
substitution of an assignee of a Unit made pursuant to the consent or vote of
all of the other Partners pursuant to Section 8.03 above shall be the date upon
which the requisite consent or vote has been obtained.
8.06 Additional Limited Partners; Additional Contributions by Existing
-----------------------------------------------------------------
Partners. The General Partner shall have the right to admit additional Limited
- --------
Partners to the Partnership and to accept additional Capital Contributions from
existing Partners. Additional Limited Partners shall be admitted to the
Partnership effective on and as of the opening of trading on the first business
day of the month next following the date on which the General Partner accepts a
duly executed subscription
13
<PAGE>
agreement and the required applicable capital contribution from the Limited
Partner in question. By executing or otherwise adopting this Agreement, each
Limited Partner shall be deemed to have consented to the admission of all
additional Limited Partners admitted to the Partnership by the General Partner.
Additional Capital Contributions from existing Partners shall be in such amount
as is acceptable to the General Partner, in its sole discretion, and shall be
effective on and as of the opening of trading on the first business day of the
month next following the date of the General Partner's acceptance of the
additional Capital Contribution in question.
8.07 Bankruptcy, Death, Incapacity, Etc. of Limited Partner. The
------------------------------------------------------
withdrawal, insolvency, bankruptcy, termination, liquidation, dissolution, death
or other legal incapacity of a Limited Partner shall not cause a dissolution of
the Partnership. The rights of such a Limited Partner to share in the profits
and losses of the Partnership, to receive distributions of Partnership funds, to
assign such Limited Partner's Units and cause the substitution of a substituted
Limited Partner with respect to such Units, and to vote such Units shall, on the
happening of such an event, devolve on such Limited Partner's estate, trustee,
custodian, personal representative, or in the event of the death of one whose
Unit is held in joint tenancy, pass to the surviving joint tenant, in each case
subject to the terms and conditions of this Agreement. The estate of a deceased
or incapacitated Limited Partner shall be liable for all of the obligations of
such Limited Partner.
ARTICLE IX: Dissolution and Termination
9.01 Events of Dissolution.
---------------------
(a) The Partnership shall be dissolved and its affairs shall be wound
up:
(i) upon the occurrence of an event specified under the Act as
one causing or effecting dissolution (subject to any right to
reinstate the Partnership as may be provided under the Act);
(ii) upon the election of the General Partner, in the General
Partner's sole discretion, to terminate and dissolve the Partnership;
(iii) upon the General Partner withdrawing as or otherwise
ceasing to be the general partner of the Partnership, whether by
reason of an act or circumstance contemplated by this Agreement or the
Act, unless at the time there is at least one other general partner
and such remaining general partner continues and carries on the
business of the Partnership or unless the Limited Partners shall elect
to carry on the business of the Partnership pursuant to Section 9.03
below;
(iv) upon the affirmative vote of the Limited Partners who
collectively hold at least a Majority in Interest; or
(v) in any event, at 11:59 p.m. on December 31, 2050.
(b) The dissolution of the Partnership shall be effective on the day
on which the event giving rise to the dissolution occurs. The Partnership
shall not terminate, however, until the Certificate has been canceled and
the assets of the Partnership have been distributed as provided herein, and
the business of the Partnership and the affairs of the Partners shall
continue to be governed by this Agreement until the termination of the
Partnership. Upon dissolution, the General Partner, or if there be none, a
liquidator appointed by the Limited Partners who collectively hold at least
a Majority in Interest, shall liquidate the assets of the Partnership,
apply and distribute the proceeds thereof as provided by this Agreement and
cause the cancellation of the Certificate.
9.02 Distributions Upon Liquidation.
------------------------------
(a) After payment of liabilities owing to creditors (including, to
the extent permitted by law, to Partners who are creditors), the General
Partner or liquidator, as the case may be, shall set up such reserves as it
deems reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Partnership. The reserves may
14
<PAGE>
be paid over and held in escrow in a bank account for the purpose of paying
any contingent or unforeseen liabilities or obligations, and at the
expiration of such period as the General Partner or liquidator may deem
advisable, such reserves shall be distributed to the Partners in the manner
set forth in Section 9.02(b) below.
(b) After paying such liabilities and providing for such reserves,
the General Partner or liquidator, as the case may be, shall cause the
remaining assets of the Partnership to be distributed to the Partners in
the proportion that the capital account of each Partner bears to the total
capital account of all Partners. If those distributions are insufficient to
return the full amount of any Partner's Capital Contribution, such Partner
shall have no recourse against any other Partner; provided, however, that
this provision shall not be interpreted as a waiver by any Partner of any
rights under existing and future laws regarding fiduciary duties of the
General Partner.
9.03 Election to Carry on Business. In the event of the withdrawal of the
-----------------------------
General Partner or the General Partner otherwise ceasing to be the General
Partner, the Limited Partners may, within ninety (90) days of such event, elect
to carry on the business of the Partnership with one or more substituted general
partner(s) by the unanimous affirmative vote of all Limited Partners.
ARTICLE X: Miscellaneous Restrictions on Partnership Relationships and
Activities
The following relationships or activities are prohibited or restricted, as
the case may be, as follows:
(a) The Partnership shall not make any loans to the General Partner
or any other person.
(b) The General Partner shall not receive any rebates or giveups nor
participate in any reciprocal business arrangements which circumvent the
restrictions set forth in this Article X and those against dealing with
affiliates or other interested parties.
(c) Neither the Partnership's commodity trading advisor nor any other
person acting in such capacity shall receive a management fee or an
advisory fee (which terms do not include an incentive fee) if such person
shares or participates, directly or indirectly, in any brokerage
commissions generated by the Partnership.
(d) The term of any contract between the Partnership and the
Partnership's commodity trading advisor or General Partner shall not exceed
one year and any such contract must be terminable without penalty upon
sixty (60) days written notice by the Partnership; provided, however, that
any such contract may provide for a continuous term or renewable terms so
long as such contract is otherwise terminable upon thirty (30) days or less
written notice by the Partnership.
(e) The Partnership shall not engage in pyramiding, which means using
all or a part of an unrealized profit in a futures contract position to
provide margin for any additional futures contracts of the same or related
commodities; provided, however, that taking into account the Partnership's
open trade equity on existing positions in determining generally whether to
acquire additional positions on behalf of the Partnership will not be
considered to constitute "pyramiding."
(f) All expenses of the Partnership shall be billed directly to and
paid by the Partnership or reimbursed to others upon receipt of
satisfactory evidence of payment.
(g) Neither the General Partner nor any affiliate of the General
Partner may receive interest, points or other financing charges on any loan
made by them to the Partnership.
(h) Any subscription agreement executed by a Limited Partner in
connection with the purchase of Units shall be retained by the General
Partner for 6 years.
15
<PAGE>
(i) The funds of the Partnership shall not be commingled with the
funds of the General Partner; provided, however, without limitation, that
funds used to satisfy margin requirements will not be considered
commingled.
(j) The Partnership shall not permit "churning" of the Partnership's
assets.
ARTICLE XI: Amendments to Limited Partnership Agreement
11.01 Amendments Proposed. Amendments to this Agreement may be proposed by
-------------------
the General Partner by the General Partner giving a written notice of the
proposed amendment to the Limited Partners. Each such notice shall state that
the proposed amendment shall become effective thirty (30) days after the mailing
of such notice, unless Limited Partners holding ten percent (10%) or more of the
then outstanding Units shall object in writing to the General Partner prior to
that date. In the event of such objection, the matter may be resubmitted to the
Limited Partners in accordance with Section 6.03 above.
11.02 Amendments by General Partner.
-----------------------------
(a) Additions, deletions, amendments or other modifications may be
made to this Agreement and the Certificate by the General Partner without
the consent or approval of the Limited Partners: (i) to add to the duties
or obligations of or surrender any right or power granted to the General
Partner; (ii) to change the name of the Partnership; (iii) to cure any
ambiguity, to correct or supplement any inconsistent provisions, or to make
any other provisions which will not be inconsistent with the provisions of
this Agreement; (iv) to delete any provision of, add any provision to, or
amend or modify any provision of this Agreement as suggested by the CFTC,
the NFA, the SEC, the NASD, a state securities commissioner or similar such
official, or by any other domestic or foreign governmental authority; (v)
to attempt to ensure that the Partnership is not taxed as a corporation or
to effect the intent of the allocations herein to the maximum extent
possible in the event of a change in applicable laws affecting such
allocations; (vi) to prevent the Partnership or the General Partner or its
affiliates from being subject to the provisions of the United States
Investment Company Act of 1940, the United States Investment Advisers Act
of 1940, or regulations adopted under the United States Employee Retirement
Income Security Act of 1974, as amended, or any successor legislation;
(vii) to qualify the Partnership under the United States Investment Company
Act of 1940 and any persons under the United States Investment Company Act
of 1940 or the United States Investment Advisers Act of 1940, as amended,
or any successor legislation to any of the foregoing; (viii) to qualify or
maintain the qualification of the Partnership as a limited partnership in
any jurisdiction; (ix) to address or in response to any new or any change
or changes in the Act and/or applicable tax laws, rules, regulations,
rulings, procedures, orders, interpretive notices or otherwise; (x) to
effectuate Section 12.05 below; and (xi) to reflect the admission or
withdrawal of additional or substitute general partners. Provided, however,
that no amendment shall be adopted pursuant to this Section 11.02(a) unless
the adoption thereof (1) is not materially adverse to the interests of the
Limited Partners, (2) is consistent with Section 5.01 above, (3) does not
affect the distributions provided in Article IV above or the allocation of
profits or losses provided in Article III above, and (4) does not affect
the limited liability of the Limited Partners contemplated by Section 6.02
above or the status of the Partnership as a partnership for federal income
tax purposes. The power of attorney granted pursuant to Section 12.03 below
and pursuant to any subscription agreement given by a Limited Partner may
be used by the General Partner to execute on behalf of a Limited Partner
any document evidencing an amendment adopted in accordance with the terms
of this Section 11.02(a).
(b) The General Partner shall provide the Limited Partners with a
copy of any amendment adopted pursuant to this Section 11.02.
ARTICLE XII: Miscellaneous
12.01 Notices. Any and all notices or other communications permitted or
-------
required to be made or given under this Agreement shall be in writing, signed by
the Partner giving the notice or other communication, and shall be personally
delivered or sent by mail or courier to the other Partner(s) at the address set
forth in the books and records of the Partnership, or at such other address as
may be supplied by written notice given in conformity with the terms of this
Section 12.01. The date of
16
<PAGE>
personal delivery or the date of mailing, as the case may be, shall be the date
of the giving of any notice or other communication for purposes of this
Agreement.
12.02 Successors and Assigns. Subject to the restrictions on transfer set
----------------------
forth herein, this Agreement shall be binding upon and shall inure to the
benefit of the Partners, their respective successors, legal representatives,
heirs and permitted assigns. Each successor-in-interest to any Partner shall
hold such interest upon and subject to all of the terms and conditions of this
Agreement.
12.03 Power of Attorney.
-----------------
(a) Each Limited Partner, including any additional or substituted
Limited Partner, by virtue of and as a condition to the acceptance of
Units, unconditionally adopts and consents to this Agreement, and also
irrevocably constitutes and appoints the General Partner and each
substitute or additional general partner, and each of them acting singly,
with full power of substitution, such Limited Partner's true and lawful
agent and attorney-in-fact, with full power and authority in such Limited
Partner's name, place and stead, to make, execute, acknowledge, swear to,
deliver, file and record all such documents and instruments as may be
appropriate to carry out this Agreement or the business of the Partnership,
including (i) the original Certificate and all amendments thereto; (ii) all
certificates and other instruments to permit the Partnership to become or
to continue as a limited partnership; (iii) all instruments that effect a
change or modification of the Partnership in accordance with this
Agreement, including the admission of additional Limited Partners and the
substitution of assignees as Limited Partners; (iv) all conveyances and
documents and instruments to effect the dissolution and termination of the
Partnership; (v) fictitious or assumed name certificates; and (vi) all
other documents or instruments which may be required or permitted by law to
be filed by or on behalf of the Partnership.
(b) The foregoing power of attorney:
(i) is coupled with an interest and shall be irrevocable and
survive the death or incapacity of each Limited Partner;
(ii) may be exercised by the General Partner by a single
signature of the General Partner acting as attorney-in-fact for all of
the Limited Partners; and
(iii) shall survive an assignment of Units by a Limited Partner.
(c) The grants of authority and powers of attorney set forth herein
are in addition and cumulative to any other grants of authority or powers
of attorney given by any Limited Partner in any other document, including
any subscription agreement. Each Limited Partner shall execute and deliver
to the General Partner, within five (5) days after receipt of the General
Partner's request, such further powers-of-attorney and other instruments as
the General Partner deems appropriate to carry out this Agreement.
12.04 Gender and Number. Words and phrases herein shall be construed as in
-----------------
the singular or plural number and as masculine, feminine or neuter gender,
according to the context.
12.05 Legends. If certificates for any Units are issued, each such
-------
certificate shall bear all such legends as the General Partner, in its sole
discretion, determines to be appropriate to give notice of this Agreement or to
comply with any applicable law, rule or regulation, including securities laws,
rules and regulations. The General Partner shall also have the right to place
any such legends upon this Agreement.
12.06 Affiliate; Person. For purposes of this Agreement, the term
-----------------
"affiliate" when used with reference to a specified person shall mean any person
that directly or indirectly controls or is controlled by or is under common
control with the specified person. For purposes of this Agreement, the term
"person" means any individual, partnership, corporation, trust or other form of
entity whatsoever.
17
<PAGE>
12.07 No Waiver. The failure of any Partner to insist upon strict
---------
performance of this Agreement, irrespective of the length of time for which such
failure continues, shall not be a waiver of such Partner's right to demand
strict compliance in the future. No consent or waiver to or of any breach or
default of this Agreement shall constitute a consent or waiver to or of any
other similar or different breach or default.
12.08 Entire Agreement. This Agreement constitutes the full and complete
----------------
agreement of the parties hereto with respect to the subject matters hereof and
supersedes all negotiations, preliminary agreements and all prior or
contemporaneous discussions and understandings of the parties hereto in
connection with the subject matters hereof.
12.09 Captions. The titles or captions of Articles or Sections in this
--------
Agreement are for convenience of reference only, and in no way define, limit,
extend or describe the scope or extent of this Agreement or the intent of any
provision hereof.
12.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which together shall constitute one agreement, binding on
all the Partners notwithstanding that all Partners have not signed the same
counterpart.
12.11 Applicable Law. This Agreement shall be governed by and interpreted,
--------------
construed and enforced in accordance with the laws of the State of Iowa, but
without regard to provisions thereof relating to conflicts of law.
IN WITNESS WHEREOF, the General Partner and the Initial Limited Partner
executed this Limited Partnership Agreement as of the 16th day of June, 1998.
GENERAL PARTNER: INITIAL LIMITED PARTNER:
PORTFOLIO BOOST, L.L.C.
By: /s/ Jeffrey A. Raun By: /s/ Jeffrey A. Raun
---------------------------- -----------------------------------
Jeffrey A. Raun, President Jeffrey A. Raun
18
<PAGE>
EXHIBIT B
SUBSCRIPTION DOCUMENTS
<PAGE>
SUBSCRIPTION AGREEMENT
TO UNITS IN
PORTFOLIO BOOST II, L.P.
________________________________________________________________________________
THESE SECURITIES, IN THE FORM OF UNITS OF LIMITED PARTNERSHIP INTEREST IN
PORTFOLIO BOOST II, L.P., AN IOWA LIMITED PARTNERSHIP, CANNOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
FEDERAL AND APPLICABLE STATE SECURITIES LAWS AND WITH THE LIMITED PARTNERSHIP
AGREEMENT OF PORTFOLIO BOOST II, L.P.
THE BUSINESS OF PORTFOLIO BOOST II, L.P. IS HIGHLY SPECULATIVE AND VOLATILE
AND INVOLVES A HIGH DEGREE OF RISK. SUBSCRIBERS MUST CAREFULLY READ THE ENTIRE
PROSPECTUS OF PORTFOLIO BOOST II, L.P. IN ORDER TO FULLY UNDERSTAND AND
COMPREHEND THE BUSINESS OF AND THE RISKS ASSOCIATED WITH AN INVESTMENT IN
PORTFOLIO BOOST II, L.P. AND IN ORDER TO DETERMINE THAT AN INVESTMENT IN
PORTFOLIO BOOST II, L.P. IS A SUITABLE AND APPROPRIATE ONE FOR THE SUBSCRIBER.
NO OFFICER, EMPLOYEE OR AGENT OF PORTFOLIO BOOST II, L.P. OR ANY DEALER,
SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OTHER THAN
THAT CONTAINED IN THE PROSPECTUS OF PORTFOLIO BOOST II, L.P. OR IN ANY OTHER
WRITTEN MATERIALS EXPRESSLY APPROVED BY PORTFOLIO BOOST II, L.P., OR TO IN ANY
EVENT MAKE ANY REPRESENTATIONS, WARRANTIES OR GUARANTEES WHATSOEVER AND, IF
GIVEN OR MADE, SUCH INFORMATION, REPRESENTATIONS, WARRANTIES OR GUARANTEES MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED OR OTHERWISE GIVEN BY PORTFOLIO
BOOST II, L.P. ANY MATERIALS OTHER THAN THE PROSPECTUS ARE SUMMARIES AND
GENERAL DESCRIPTIONS ONLY, AND SUBSCRIBERS MUST MAKE ANY DECISION TO INVEST IN
PORTFOLIO BOOST II, L.P. BASED SOLELY ON THE INFORMATION SET FORTH IN THE
PROSPECTUS OF PORTFOLIO BOOST II, L.P.
________________________________________________________________________________
1. ADOPTION. The undersigned (referred to as "Subscriber") hereby agrees
--------
to become a Limited Partner in Portfolio Boost II, L.P., an Iowa limited
partnership (the "Partnership"), and specifically accepts and adopts and agrees
to be bound by each and every provision of the Portfolio Boost II, L.P. Limited
Partnership Agreement, as amended to date and as may be amended from time to
time (the "Partnership Agreement").
2. SUBSCRIPTION. Subscriber agrees to purchase units of limited
------------
partnership interest in the Partnership ("Units") equal to the dollar amount set
forth on the signature page hereto in accordance with and on the terms and
conditions set forth in this Subscription Agreement and in the Partnership's
Prospectus (the "Prospectus"). Subscriber acknowledges receipt of the
Prospectus. Capitalized terms not otherwise defined herein shall have the
meanings given them in the Prospectus.
The purchase price per Unit prior to the commencement of trading by the
Partnership is $1,000. The purchase price per Unit after that time shall be the
Net Asset Value Per Unit as of the opening of trading on the effective date of
the purchase, which will be the first business day of the month next following
the date on which
<PAGE>
the General Partner (as that term is defined in Section 3 below) accepts this
Subscription Agreement and the purchase price from Subscriber. The Partnership
will issue fractional Units, rounded up to the sixth decimal point, to the
extent necessary to fill an accepted subscription.
A minimum initial investment of $5,000 is required, but the General Partner
reserves the right to require a higher minimum initial investment from any
subscriber or subscribers. Subsequent investments by existing Limited Partners
in the Partnership may be in such amounts as may be accepted by the General
Partner from time to time, in the General Partner's sole discretion.
3. PAYMENT AND DELIVERY OF DOCUMENTS. Prior to the release of
---------------------------------
subscription payments from escrow as described in Section 4 below, Subscriber
shall tender to Portfolio Boost, L.L.C., an Iowa limited liability company
serving as the general partner of the Partnership (the "General Partner"),
Subscriber's check in the dollar amount set forth on the signature page hereto
made payable to "First American Bank--Escrow Agent for PB II." Following the
release of subscription payments from escrow, Subscriber shall tender to the
General Partner Subscriber's check in the dollar amount set forth on the
signature page hereto made payable to "Portfolio Boost II, L.P." Payment of the
dollar amount set forth on the signature page hereto shall constitute
Subscriber's capital contribution to the Partnership.
The executed signature page to this Agreement and Subscriber's payment
should be forwarded to the Partnership at the address set forth in the
Prospectus. Subscriber shall also forward the other Subscription Documents (as
that term is defined in the Prospectus) to that address. Subscriber acknowledges
that the General Partner or Vacation Investors, Inc. (the "Underwriter") may
request additional information from Subscriber in connection with this
subscription.
4. ESCROW ACCOUNT. Subscription payments will initially be deposited and
--------------
held in a separate escrow account at First American Bank, Fort Dodge, Iowa,
pending receipt, acceptance and collection of subscriptions totaling $500,000.
Subscription payments deposited in the escrow account may not be withdrawn by
Subscriber under any circumstances. If subscriptions totaling $500,000 are not
received and accepted within nine (9) months of the date of the initial
Prospectus utilized by the Partnership in offering its units of limited
partnership interest, the Partnership will terminate the offering and all
amounts paid by Subscriber will be returned to Subscriber within ten (10)
business days of the close of said nine (9) month period, without deduction and
together with Subscriber's pro rata share of all amounts earned in excess of the
subscriptions received, if any. If subscriptions for $500,000 are received and
accepted by the designated date, the escrowed funds (including all earnings
thereon) will be released to the Partnership, and the Partnership shall
thereafter commence trading at such time as is determined by the Commodity
Trading Advisor for the Partnership.
No escrow will be utilized for subscriptions received and accepted
following the release of funds from escrow to the Partnership as provided above.
5. ACCEPTANCE OR REJECTION OF SUBSCRIPTION. Subscriber acknowledges and
---------------------------------------
agrees that this subscription shall not be effective until accepted in writing
by the General Partner and that the General Partner reserves the right to reject
this subscription in whole or in part. Subscriptions may be rejected for
failure to conform to the requirements of the offering, insufficient
documentation, oversubscription of the offering or for such other reason or
reasons as the General Partner may determine, in its sole discretion. In the
event of rejection of this subscription in whole, Subscriber's payment will
promptly be returned to Subscriber without deduction and this Subscription
Agreement shall have no further force or effect. In the event of rejection of
this subscription in part, the rejected amount of Subscriber's payment will be
promptly returned to Subscriber, but
2
<PAGE>
in that circumstance this Subscription Agreement shall remain in full force and
effect. Subscriber shall not be entitled to receive any interest or other
earnings on Subscriber's subscription in the event of rejection of this
subscription, in whole or in part, by the General Partner.
6. ADMISSION TO PARTNERSHIP. In the event Subscriber's subscription is
------------------------
accepted by the General Partner and the minimum offering contingency specified
in Section 4 above is satisfied, Subscriber shall be admitted to the Partnership
as a Limited Partner in accordance with the following:
(a) If Subscriber's subscription is accepted by the General Partner
prior to the release of funds from escrow, Subscriber shall be admitted to
the Partnership as a Limited Partner as of the date on which such escrowed
funds are released to the Partnership.
(b) If Subscriber's subscription is accepted by the General Partner
after release of funds from escrow, Subscriber shall be admitted to the
Partnership as a Limited Partner effective as of the time provided in the
Partnership Agreement.
7. REPRESENTATIONS, WARRANTIES, ACKNOWLEDGMENTS AND AGREEMENTS.
-----------------------------------------------------------
Subscriber represents, warrants, acknowledges and agrees that:
(a) Subscriber is a resident of the State set forth on the signature
page hereto (the "State"), and
(i) if Subscriber is a corporation, partnership, trust or other
form of organization or entity, Subscriber has its principal office in
the State, and Subscriber was not organized for the specific purpose
of acquiring Units; or
(ii) if Subscriber is an individual, Subscriber is of full legal
age in the State, is legally competent to execute this Subscription
Agreement, and has his or her principal residence in the State.
(b) If Subscriber is not a natural person, Subscriber either (i) is
not engaged in the business of or operated for the purpose of trading in
futures or options, or (ii) if Subscriber is engaged in such business or
operated for such purpose, Subscriber has obtained or is exempt from
obtaining all licenses, registrations, memberships, consents or approvals
as are required therefor by any governmental or regulatory authority,
including, without limitation, the Commodity Futures Trading Commission and
the National Futures Association. Subscriber shall maintain, or maintain
its exemption from, as the case may be, all such licenses, registrations,
memberships, consents or approvals throughout the entire time Subscriber
holds any Units. Any information requested from Subscriber pursuant to
Section 7(d) below regarding this subparagraph (b) may be filed with or
provided to the applicable governmental or regulatory authority if
requested by such authority or if otherwise determined to be appropriate by
the Partnership.
(c) Subscriber is making the representations, warranties,
acknowledgments and agreements in this Subscription Agreement with the
intent that the same may be relied upon by the General Partner and the
Partnership in determining compliance with federal and state securities
laws and in determining the suitability of Subscriber as a purchaser of
Units and a
3
<PAGE>
Limited Partner in the Partnership. Subscriber understands that no federal
or state agency has recommended or endorsed the Units or made any finding
or determination as to the fairness, accuracy or completeness of the
provisions hereof or of the Partnership Agreement, the Prospectus, the
Units or the offering of the Units.
(d) The General Partner or the Underwriter may at any time (including
after Subscriber has become a Limited Partner) require Subscriber to submit
such additional information and documentation as they deem necessary or
appropriate to ascertain that Subscriber's investment in the Partnership is
appropriate in light of the suitability standards imposed for the offering
and Subscriber's investment objectives and financial situation or to
establish or otherwise evidence or substantiate compliance with the
requirements of the Partnership's offering, this Subscription Agreement or
federal or state securities laws or regulations, including, without
limitation, a purchaser questionnaire, financial statements of Subscriber
and a letter from Subscriber justifying the suitability of Subscriber's
investment in the Partnership and containing such additional disclosures
and additional representations and warranties from Subscriber as the
General Partner determines to be necessary or appropriate to establish or
otherwise evidence or substantiate compliance with the requirements of the
Partnership's offering, this Subscription Agreement or any federal or state
securities laws or regulations. All such additional information and
documentation will be true and accurate in all respects.
(e) The General Partner shall have the right to accept or reject
Subscriber's subscription in whole or in part. Subscriptions may be
rejected for, without limitation, failure to conform to the requirements of
the Partnership's offering, insufficient documentation, oversubscription of
the offering, or for any such other reason as the General Partner may
determine, in its sole discretion.
(f) Subscriber has received and carefully read and is familiar with
the Prospectus (including, without limitation, the sections in the
Prospectus setting forth the risk factors and conflicts of interest
applicable to an investment in the Partnership and the fees payable by the
Partnership to the General Partner and others), the Partnership Agreement
and this Subscription Agreement, and confirms that all documents
incorporated in the Prospectus and all records and books pertaining to the
investment in the Units made pursuant to this Subscription Agreement have
been made available to Subscriber.
(g) Subscriber has had access, during the course of this transaction
and prior to sale, to all information necessary to enable Subscriber to
evaluate the merits and risks of a prospective investment in Units and the
Partnership, and Subscriber has had the opportunity to ask questions of and
receive answers from the General Partner, or a person or persons acting on
the General Partner's behalf, concerning the terms and conditions of the
offering and the opportunity to obtain any additional information which the
Partnership or the General Partner possesses or can acquire without
unreasonable effort or expense that is necessary to verify the accuracy of
the information contained in and incorporated in the Prospectus or to which
Subscriber has had access; and all questions raised by Subscriber have been
answered to the full satisfaction of Subscriber.
4
<PAGE>
(h) Subscriber (i) is acquiring the Units for Subscriber's own
account for investment only and not with a view to the distribution, resale
or transfer thereof, and as the sole record and beneficial holder thereof,
(ii) is acquiring such Units without any intention of reselling or
distributing any of such Units except in accordance with the provisions of
the Securities Act of 1933 (the "Act") and rules and regulations
promulgated thereunder and applicable state securities laws and regulations
and with the provisions of the Partnership Agreement, and (iii) agrees that
the Units shall not be sold, pledged, hypothecated, donated or otherwise
transferred, whether or not for consideration, by Subscriber except in
accordance with such laws, rules and regulations and with the Partnership
Agreement.
(i) Subscriber understands and agrees that (i) the effect of the
foregoing subparagraph (h) is that Subscriber shall be restricted from
selling or otherwise transferring or disposing of any of the Units except
in accordance with the Partnership Agreement and pursuant to a registration
statement rendered effective under the Act and applicable state securities
laws, or at some indeterminable date in the future, in accordance with the
Partnership Agreement and an applicable exemption from registration which
is the subject of a favorable legal opinion rendered by counsel for the
Partnership, and (ii) as of the date hereof, the Partnership and the
General Partner have no legal obligation to include the Units in any
registration statement to be filed under the Act or applicable state
securities laws.
(j) Subscriber understands the fundamental aspects of the business
and the pool to be conducted by the Partnership and the nature and extent
of the management and control by the General Partner and the Commodity
Trading Advisor over the Partnership as a whole, including, but not limited
to: (i) the trading methods to be used and decisions made in the trading of
futures, options or other interests by the Partnership; (ii) the transfer
of Units and the ability or right of a transferee of a Unit to become a
substituted Limited Partner; (iii) the making of distributions by the
Partnership; and (iv) the ability or right of a Limited Partner to redeem
or liquidate its Units.
(k) Subscriber understands that the Units are a highly speculative
investment which involve a high degree of risk, including the possibility
of the loss of a substantial portion or all of the investment, and that
neither the Partnership nor the General Partner make any representation or
warranty as to, and that there is no assurance of, any economic, income,
tax, profits or other benefits whatsoever from an investment in the Units.
Subscriber also understands that the Partnership may not ever accomplish
any of the purposes or objectives of the Partnership.
(l) Subscriber understands that the Partnership Agreement establishes
substantial restrictions on the transferability and liquidation of Units,
including, but not limited to, the consent of the General Partner.
Accordingly, Subscriber also understands that Subscriber will need to bear
the economic risk of the investment in the Units for an indefinite period
of time and will not be readily able to liquidate the Units in case of an
emergency.
(m) Subscriber understands the tax consequences of an investment in
the Units and the Partnership and that any federal or state income or
other tax benefits which may be available to Subscriber may be lost through
changes to, or in the interpretation of, existing laws
5
<PAGE>
and regulations. Subscriber is relying solely upon the advice of
Subscriber's personal tax advisors with respect to all tax aspects of an
investment in the Units and the Partnership.
(n) Subscriber has such knowledge and experience in financial and
business matters that Subscriber is capable of evaluating the merits and
risks of an investment in the Units. Subscriber is able to bear the
economic risk of the investment in the Units, and Subscriber has adequate
financial or other means for providing for Subscriber's current and
anticipated needs and contingencies and has no need for liquidity in this
investment.
(o) If Subscriber is not a resident of the State of California or an
entity with its principal place of business in California, Subscriber has
at least either: (i) a minimum net worth (determined exclusive of home,
home furnishings and automobiles) of $150,000; or (ii) a minimum annual
gross income of $45,000 and a minimum net worth (once again determined
exclusive of home, home furnishings and automobiles) of $45,000. In the
case of sales to fiduciary accounts, the net worth and income standards may
be met by the beneficiary, the fiduciary account, or by the donor or
grantor who directly or indirectly supplies the funds to purchase the
Units.
(p) If Subscriber is a resident of the State of California or is an
entity with its principal place of business in California, Subscriber has
at least either (i) a minimum net worth (determined exclusive of home, home
furnishings and automobiles) of $250,000; or (ii) a minimum annual gross
income of $65,000 and a minimum net worth (once again determined exclusive
of home, home furnishings and automobiles) of $100,000. In the case of
sales to fiduciary accounts, the net worth and income standards may be met
by the beneficiary, the fiduciary account, or by the donor or grantor who
directly or indirectly supplies the funds to purchase the Units.
(q) Subscriber understands that a notation will be made on the
records of the Partnership regarding the restrictions on transferability of
the Units, and that the Partnership Agreement may also contain legends
addressing the restrictions on transferability of the Units.
(r) Subscriber understands that as of the date of the Prospectus the
Partnership had no financial or operating history.
(s) This Subscription Agreement has been duly authorized, executed and
delivered by Subscriber and constitutes the valid, legal and binding
obligation of Subscriber, enforceable in accordance with its terms.
8. APPOINTMENT OF POWER OF ATTORNEY.
--------------------------------
(a) Subscriber hereby constitutes and appoints the General Partner
(and any additional or substitute general partner's from time to time) the
true and lawful attorney-in-fact of Subscriber with full power and
authority for Subscriber, and in the name of Subscriber, to make and
execute and, if required or if advisable, acknowledge, file and publish
wherever appropriate:
6
<PAGE>
(i) The Partnership Agreement and all authorized or required
amendments thereto;
(ii) The Certificate of Limited Partnership of the Partnership
and any and all certificates of amendments thereto, and all fictitious
name certificates, as may be required by or appropriate under the laws
of Iowa or any other jurisdiction;
(iii) Any other instrument which may be required to be filed by
the Partnership under the laws of any jurisdiction or by any
governmental agency or authority, or which the General Partner deems
it advisable to file in order to effectuate any offering of units of
limited partnership interest by the Partnership, or the terms and
provisions of this Subscription Agreement, the Prospectus or the
Partnership Agreement; and
(iv) Any documents which may be required to effect or report the
continuation of the Partnership, the admission of initial, additional
or substituted Limited Partners or general partners, the withdrawal or
reduction of capital contributions or the dissolution and termination
of the Partnership in accordance with this Subscription Agreement or
the Partnership Agreement.
(b ) The foregoing grant of authority:
(i) Is a special power of attorney coupled with an interest, is
irrevocable, and shall not be affected by and shall survive the death,
disability, incompetence, dissolution or other termination of
Subscriber;
(ii) May be exercised by the General Partner either by signing
separately as attorney-in-fact for Subscriber or by a single signature
of the General Partner acting as attorney-in-fact for all of the
parties executing any instrument; and
(iii) Shall survive the delivery of an assignment of a Unit by
Subscriber.
(c) Subscriber acknowledges and agrees that the Partnership Agreement
also contains a grant of authority and power of attorney by each and all of
the Limited Partners to the General Partner, and that Subscriber, by
adoption of the Partnership Agreement hereby, also grants such authority
and power of attorney to the General Partner. The grants of authority and
powers of attorney set forth herein and in the Partnership Agreement are
each respectively in addition and cumulative to the other, and neither
restricts or limits the other.
9. CORRECT AND CURRENT INFORMATION. Subscriber represents and warrants
-------------------------------
that all of the information set forth herein as it relates to Subscriber is
true, correct and complete as of the date hereof. Subscriber further represents,
warrants and agrees that if there should be any change in any of such
information prior to Subscriber's admission to the Partnership as a Limited
Partner, Subscriber shall immediately furnish such revised or corrected
information to the General Partner. Without limiting the generality of the
foregoing,
7
<PAGE>
Subscriber agrees to furnish the General Partner with written notice of any
change of address of Subscriber. If Subscriber is an entity, Subscriber and the
individual(s) executing this Subscription Agreement on behalf of Subscriber each
represent and warrant that (i) such individual(s) is of full legal age and is
otherwise legally competent to execute this Subscription Agreement; (ii) such
individual(s) has full power and authority to execute this Subscription
Agreement on behalf of Subscriber and to make the representations, warranties,
acknowledgments and agreements contained herein for Subscriber and on
Subscriber's behalf; (iii) Subscriber is authorized to become a Limited Partner
in, and to make Subscriber's capital contribution to, the Partnership; and (iv)
the purchase of the Units and the investment in the Partnership by Subscriber
has been authorized by the governing board of Subscriber (if required) and is
not prohibited by the governing documents of Subscriber.
10. INDEMNIFICATION BY SUBSCRIBER. Subscriber understands that the offer,
-----------------------------
sale and issuance of the Units to Subscriber were and will be based upon the
representations, warranties, acknowledgments and agreements of Subscriber
contained herein. Subscriber hereby agrees to defend and indemnify the
Partnership, the General Partner, the Underwriter and any person or entity
acting for or on the Partnership's, the General Partner's or the Underwriter's
behalf with respect to the offer, sale and/or issuance of the Units, and to hold
the Partnership, the General Partner, the Underwriter and each such person or
entity harmless from and against all losses, liabilities, damages, costs or
expenses (including, without limitation, court costs, arbitration costs and
reasonable attorneys' fees) arising by reason of or in connection with (i) any
misrepresentation or any breach or default of any representation, warranty,
acknowledgment or agreement by Subscriber; (ii) any sale or distribution of
Units by Subscriber in violation of this Subscription Agreement, the Partnership
Agreement, the Act, or any applicable state securities laws; or (iii)
Subscriber's failure to fulfill any of Subscriber's other agreements set forth
herein.
11. REVOCATION. Except only as may be expressly provided by applicable
----------
securities laws, Subscriber agrees that Subscriber shall not and cannot cancel,
terminate or revoke this Subscription Agreement or any representation, warranty,
acknowledgment or agreement of Subscriber made hereunder or herein and that (if
Subscriber is an individual) this Subscription Agreement shall survive the
death, disability or incompetence of Subscriber.
12. MISCELLANEOUS. This Subscription Agreement shall be construed in
-------------
accordance with and governed by the laws of the State of Iowa. This
Subscription Agreement constitutes the entire agreement among the parties hereto
with respect to the subject matters hereof and may be amended only by a writing
executed by all parties. Words and phrases herein shall be construed as in the
singular or plural number and as masculine, feminine or neuter gender, according
to the context. The remedies provided herein to the Partnership, the General
Partner, the Underwriter and their agents are cumulative and are not exclusive
of any rights or remedies that may be available to any of them at law, in equity
or otherwise. In the event any provision of this Subscription Agreement is held
invalid, illegal or unenforceable, in whole or in part, the remaining provisions
of this Subscription Agreement shall not be affected thereby and shall continue
to be valid and enforceable. In the event any provision of this Subscription
Agreement is held to be invalid, illegal or unenforceable as written, but valid,
legal and enforceable if modified, then such provision shall be deemed to be
amended to such extent as shall be necessary for such provision to be valid,
legal and enforceable and it shall be enforced to that extent. This
Subscription Agreement and the representations, warranties, acknowledgments and
agreements contained herein shall be binding upon the heirs, legal
representatives, successors and assigns of Subscriber.
[SIGNATURE PAGE FOLLOWS]
8
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
FOR INDIVIDUALS
---------------
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this ___ day of __________________, ____.
PLEASE PRINT SUBSCRIPTION AMOUNT $__________
Name(s) of Individual(s) _______________________________________________________
Residence Address: _______________________________________________________
_______________________________________________________
Social Security _______________________________________________________
Numbers: _______________________________________________________
TITLE IS TO BE HELD IN EQUAL SHARES AS (STRIKE OUT THE ONE THAT DOES NOT APPLY,
IF NO DESIGNATION IS MADE, TITLE WILL BE JTWFRS):
(A) JOINT TENANTS, WITH FULL RIGHTS OF SURVIVORSHIP
(B) TENANTS IN COMMON
SIGNATURE(S): _______________________________________________________
_______________________________________________________
________________________________________________________________________________
VACATION INVESTORS, INC. CERTIFICATION
The undersigned certifies that: (1) the undersigned has informed
Subscriber of all pertinent facts relating to the liquidity and marketability of
the Units as set forth in the Prospectus; and (2) the undersigned has reasonable
grounds to believe (on the basis of information obtained from Subscriber
concerning such Subscriber's investment objectives, other investments, financial
situation and needs, and any other information known by the undersigned), that
(a) Subscriber is or will be in a financial position appropriate to enable
Subscriber to realize to a significant extent the benefits described in the
Prospectus, (b) Subscriber has a fair market net worth sufficient to sustain the
risks inherent in the Partnership (including loss of investment and lack of
liquidity), and (c) the Partnership is otherwise a suitable investment for
Subscriber.
VACATION INVESTORS, INC.
Date: ____________________________ By: ____________________________________
Jeffrey A. Raun, Registered
Representative
________________________________________________________________________________
ACCEPTANCE
The foregoing subscription and agreement to purchase units of limited
partnership interest in Portfolio Boost II, L.P. is accepted.
PORTFOLIO BOOST II, L.P.
By: Portfolio Boost, L.L.C.
General Partner
Date of Acceptance:______________ By: _________________________________
Jeffrey A. Raun, President
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
FOR
QUALIFIED RETIREMENT PLANS AND IRAS
-----------------------------------
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this ___ day of ______________________, ____.
PLEASE PRINT SUBSCRIPTION AMOUNT $_________
Name: _____________________________________________________
Residence Address: _____________________________________________________
_____________________________________________________
Social Security Number: _____________________________________________________
Signature: _____________________________________________________
Name of Trustee/Fiduciary: _____________________________________________________
Taxpayer I.D. Number: _____________________________________________________
Address of _____________________________________________________
Trustee/Fiduciary: _____________________________________________________
Name and Title of Person
signing on behalf of
Trustee/Fiduciary _____________________________________________________
Title
Signature of person
Signing on behalf of
Trustee/Fiduciary _____________________________________________________
________________________________________________________________________________
VACATION INVESTORS, INC. CERTIFICATION
The undersigned certifies that: (1) the undersigned has informed
Subscriber of all pertinent facts relating to the liquidity and marketability of
the Units as set forth in the Prospectus; and (2) the undersigned has reasonable
grounds to believe (on the basis of information obtained from Subscriber
concerning such Subscriber's investment objectives, other investments, financial
situation and needs, and any other information known by the undersigned), that
(a) Subscriber is or will be in a financial position appropriate to enable
Subscriber to realize to a significant extent the benefits described in the
Prospectus, (b) Subscriber has a fair market net worth sufficient to sustain the
risks inherent in the Partnership (including loss of investment and lack of
liquidity), and (c) the Partnership is otherwise a suitable investment for
Subscriber.
VACATION INVESTORS, INC.
Date: ____________________________ By: ____________________________________
Jeffrey A. Raun, Registered
Representative
________________________________________________________________________________
ACCEPTANCE
The foregoing subscription and agreement to purchase units of limited
partnership interest in Portfolio Boost II, L.P. is accepted.
PORTFOLIO BOOST II, L.P.
By: Portfolio Boost, L.L.C.
General Partner
Date of Acceptance:______________ By: _________________________________
Jeffrey A. Raun, President
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
FOR
UNIFORM GIFTS TO MINORS
-----------------------
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this ___ day of ______________________, ____.
PLEASE PRINT SUBSCRIPTION AMOUNT $_________
Account Name: _______________________________ as custodian for
__________________________ under the _______________________ Uniform
Gifts/Transfers to Minors Act (State)
Address of _______________________________________________________
Minor: _______________________________________________________
Social Security
Number of Minor: _______________________________________________________
Name and
Relationship of
Custodian to Minor: _______________________________________________________
Address of _______________________________________________________
Custodian: _______________________________________________________
Signature of
Custodian: __________________________________________________________
________________________________________________________________________________
VACATION INVESTORS, INC. CERTIFICATION
The undersigned certifies that: (1) the undersigned has informed
Subscriber of all pertinent facts relating to the liquidity and marketability of
the Units as set forth in the Prospectus; and (2) the undersigned has reasonable
grounds to believe (on the basis of information obtained from Subscriber
concerning such Subscriber's investment objectives, other investments, financial
situation and needs, and any other information known by the undersigned), that
(a) Subscriber is or will be in a financial position appropriate to enable
Subscriber to realize to a significant extent the benefits described in the
Prospectus, (b) Subscriber has a fair market net worth sufficient to sustain the
risks inherent in the Partnership (including loss of investment and lack of
liquidity), and (c) the Partnership is otherwise a suitable investment for
Subscriber.
VACATION INVESTORS, INC.
Date: ____________________________ By: ____________________________________
Jeffrey A. Raun, Registered
Representative
________________________________________________________________________________
ACCEPTANCE
The foregoing subscription and agreement to purchase units of limited
partnership interest in Portfolio Boost II, L.P. is accepted.
PORTFOLIO BOOST II, L.P.
By: Portfolio Boost, L.L.C.
General Partner
Date of Acceptance:______________ By: _________________________________
Jeffrey A. Raun, President
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
FOR
TRUSTS
------
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this ___ day of ______________________, ____.
PLEASE PRINT AMOUNT: $_________
Name of Trust: _____________________________________________________
Address: _____________________________________________________
_____________________________________________________
Taxpayer Identification
Number: _____________________________________________________
Names of Beneficiaries
of Trust: _____________________________________________________
Document Forming
the Trust: _____________________________________________________
Name of Trustee/Fiduciary:_____________________________________________________
Address of
Trustee/Fiduciary: _________________________________________________________
_________________________________________________________
Name and Title of Person
signing on behalf of
Trustee/Fiduciary _________________________________________________________
Title
Signature of person
Signing on behalf of
Trustee/Fiduciary _________________________________________________________
________________________________________________________________________________
VACATION INVESTORS, INC. CERTIFICATION
The undersigned certifies that: (1) the undersigned has informed
Subscriber of all pertinent facts relating to the liquidity and marketability of
the Units as set forth in the Prospectus; and (2) the undersigned has reasonable
grounds to believe (on the basis of information obtained from Subscriber
concerning such Subscriber's investment objectives, other investments, financial
situation and needs, and any other information known by the undersigned), that
(a) Subscriber is or will be in a financial position appropriate to enable
Subscriber to realize to a significant extent the benefits described in the
Prospectus, (b) Subscriber has a fair market net worth sufficient to sustain the
risks inherent in the Partnership (including loss of investment and lack of
liquidity), and (c) the Partnership is otherwise a suitable investment for
Subscriber.
VACATION INVESTORS, INC.
Date: ____________________________ By: ____________________________________
Jeffrey A. Raun, Registered
Representative
________________________________________________________________________________
ACCEPTANCE
The foregoing subscription and agreement to purchase units of limited
partnership interest in Portfolio Boost II, L.P. is accepted.
PORTFOLIO BOOST II, L.P.
By: Portfolio Boost, L.L.C.
General Partner
Date of Acceptance:______________ By: _________________________________
Jeffrey A. Raun, President
<PAGE>
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
FOR
CORPORATIONS, LIMITED LIABILITY COMPANIES, PARTNERSHIPS AND OTHER ENTITIES
--------------------------------------------------------------------------
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement on this ___ day ________________________, ____.
PLEASE PRINT SUBSCRIPTION AMOUNT $________
Name of Entity ________________________________________________________
Address: ________________________________________________________
________________________________________________________
Taxpayer Identification
Number: ________________________________________________________
State of Organization or
Incorporation: _______________________________________________________
Name and Title of
Person(s) Signing
for Entity _______________________________________________________
Title
_______________________________________________________
Title
SIGNATURE(S): _______________________________________________________
_______________________________________________________
________________________________________________________________________________
VACATION INVESTORS, INC. CERTIFICATION
The undersigned certifies that: (1) the undersigned has informed
Subscriber of all pertinent facts relating to the liquidity and marketability of
the Units as set forth in the Prospectus; and (2) the undersigned has reasonable
grounds to believe (on the basis of information obtained from Subscriber
concerning such Subscriber's investment objectives, other investments, financial
situation and needs, and any other information known by the undersigned), that
(a) Subscriber is or will be in a financial position appropriate to enable
Subscriber to realize to a significant extent the benefits described in the
Prospectus, (b) Subscriber has a fair market net worth sufficient to sustain the
risks inherent in the Partnership (including loss of investment and lack of
liquidity), and (c) the Partnership is otherwise a suitable investment for
Subscriber.
VACATION INVESTORS, INC.
Date: ____________________________ By: ____________________________________
Jeffrey A. Raun, Registered
Representative
________________________________________________________________________________
ACCEPTANCE
The foregoing subscription and agreement to purchase units of limited
partnership interest in Portfolio Boost II, L.P. is accepted.
PORTFOLIO BOOST II, L.P.
By: Portfolio Boost, L.L.C.
General Partner
Date of Acceptance:______________ By: _________________________________
Jeffrey A. Raun, President
<PAGE>
PORTFOLIO BOOST II, L.P.
Suitability Standards Requirement
FOR NON-CALIFORNIA RESIDENTS
- ----------------------------
I(We) have read the Prospectus and Subscription Agreement and attest that I(we)
qualify for an investment in Portfolio Boost II, L.P. I(We) understand one
requirement I(we) must meet in order to qualify is that I(we) must meet one or
more of the qualifications below:
Qualifications:
- --------------
1. I(We) have a minimum annual gross income of $45,000 and a minimum net worth
(determined exclusive of home, home furnishings and automobiles) of
$45,000.
or,
2. I(We) have a minimum net worth (determined exclusive of home, home
furnishings and automobiles) of $150,000.
FOR CALIFORNIA RESIDENTS
- ------------------------
I(We) have read the Prospectus and Subscription Agreement and attest that I(we)
qualify for an investment in Portfolio Boost II, L.P. I(We) understand one
requirement I(we) must meet in order to qualify is that I(we) must meet one or
more of the qualifications below:
Qualifications:
- --------------
1. I(We) have a minimum annual gross income of $65,000 and a minimum net worth
(determined exclusive of home, home furnishings and automobiles) of
$100,000.
or,
2. I(We) have a minimum net worth (determined exclusive of home, home
furnishings and automobiles) of $250,000.
FIRST PERSON OR INDIVIDUAL SECOND PERSON
-------------------------- -------------
Signed __________________________ Signed _____________________
Print name __________________________ Print name _____________________
Date __________________________ Date _____________________
<PAGE>
PORTFOLIO BOOST II, L.P.
Acknowledgment Of Receipt
-------------------------
The undersigned hereby acknowledges that on the date stated below the
undersigned received the Portfolio Boost II, L.P. Prospectus dated November 20,
1998.
THE UNDERSIGNED ALSO ACKNOWLEDGES THAT ANY OTHER INFORMATION OR OTHER
WRITTEN MATERIALS THE UNDERSIGNED MAY HAVE RECEIVED REGARDING PORTFOLIO BOOST
II, L.P. ("OTHER INFORMATION") ARE A SUMMARY AND GENERAL DESCRIPTION OF ONLY
PORTIONS OF THE PROSPECTUS, AND THAT ANY OTHER INFORMATION IS NOT INTENDED TO BE
COMPLETE NOR UTILIZED BY ANY PROSPECTIVE INVESTOR EXCEPT IN CONNECTION WITH THE
PROSPECTUS. ALL OTHER INFORMATION IS QUALIFIED IN ITS ENTIRETY BY THIS
REFERENCE TO THE PROSPECTUS. PROSPECTIVE INVESTORS MUST THEREFORE READ THE
ENTIRE PROSPECTUS IN ORDER TO FULLY ANALYZE AND UNDERSTAND ANY OTHER INFORMATION
AND FOR COMPLETE DETAILS OF THIS OFFERING, INCLUDING, WITHOUT LIMITATION, FOR
THE NUMEROUS RISKS INVOLVED IN ACQUIRING UNITS IN PORTFOLIO BOOST II, L.P., AND
OTHERWISE WITH RESPECT TO PORTFOLIO BOOST II, L.P.
______________________________________
Print Name
_______________________________________
Signature
_________________________________________
Date
Return to:
Portfolio Boost, L.L.C.
Cornerstone at Cantera
4320 Winfield Road, Suite 320
Warrenville, Illinois 60555
Attn: Jeffrey A. Raun
<PAGE>
EXHIBIT C
BALANCE SHEET
OF
THE PARTNERSHIP
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Partners and Management
of Portfolio Boost II, L.P.
We have audited the accompanying balance sheet of Portfolio Boost II, L.P. (an
Iowa partnership) as of September 30, 1998. This financial statement is the
responsibility of the Partnership'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 Portfolio Boost II, L.P. as of
September 30, 1998, in conformity with generally accepted accounting principles.
Roth & Company, P.C.
/s/ Roth & Company, P.C.
- -------------------------
Des Moines, Iowa
October 15, 1998
<PAGE>
PORTFOLIO BOOST II, L.P.
BALANCE SHEET
SEPTEMBER 30, 1998
- -----------------------------------------------------------------
ASSETS
- ------
Cash $1,000
=====
PARTNERS' CAPITAL
- -----------------
Partners' Capital $1,000
=====
See notes to balance sheet.
- -----------------------------------------------------------------
<PAGE>
PORTFOLIO BOOST II, L.P.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
- ---------------------------------------------------------------
1. NATURE OF BUSINESS
Portfolio Boost II, L.P. (the "Partnership") is an Iowa limited partnership
organized on June 16, 1998 with its principal office in Warrenville,
Illinois. The Partnership has not yet commenced operations. The only
transaction to date is the original capital contribution of $1,000 by the
initial limited partner, who is an officer of the General Partner. The
General Partner may, but is not obligated to make a capital contribution.
The Partnership will terminate on December 31, 2050, or upon the occurrence
of an event causing an earlier termination as set forth in the Limited
Partnership Agreement.
The Partnership is a single advisor commodity pool which will be engaged in
the business of speculative trading of various domestic and foreign futures
contracts, options and other interests pursuant to one of the trading
programs of the Partnership's commodity trading advisor (CTA). The
Partnership's principal objective is to generate increased capital for the
partners, but there can be no assurance that the Partnership will achieve
this objective since it is involved in a speculative, volatile, high risk
business. The Limited Partnership Agreement provides the Partnership may
commence trading after the General Partner has accepted subscriptions for
500 units of limited partnership interest ("Units") at $1,000 per Unit. If
subscriptions for a minimum of 500 Units have not been accepted within nine
months of the date of the Prospectus, the offering will terminate and all
amounts paid by the subscribers will be returned.
Interests in the Partnership are evidenced by Units. Profits and losses of
the Partnership are allocated to the partners pro rata based upon the
respective number of Units held. The Partnership's income tax attributes
pass-through to the partners of the Partnership.
2. FEES AND EXPENSES
Fees
----
The Partnership will pay to its commodity pool operator and General
Partner, Portfolio Boost, L.L.C., a monthly management fee in an amount
equal to one-half of one percent (0.5%) of
<PAGE>
PORTFOLIO BOOST II, L.P.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
- ---------------------------------------------------------
the Partnership's net assets as of the close of business on the last
business day of each month. The Partnership will also pay to its General
Partner a quarterly incentive fee in an amount equal to 15% of New Trading
Profits, as defined in the Limited Partnership Agreement, for each quarter.
The General Partner is solely responsible for the payment of compensation
to the Partnership's CTA, to the Partnership's agent (Agent) and to the
Underwriter of the offering of Partnership Units. Additionally, the General
Partner will provide, at its cost, vacation awards to qualifying Limited
Partners.
All trading decisions will be made for the Partnership by its CTA, Quiet
Systems Limited. The sole officer of the General Partner and certain
members of his family are some of the beneficiaries of the trust which owns
the CTA.
The Partnership's Agent for purposes of receiving the signals generated by
the CTA's trading program and communicating the trades which are directed
to be made is Frischmeyer Trading Corporation. The individual who controls
the Agent and certain members of his family are some of the beneficiaries
of the trust which owns the CTA. The Underwriter of the offering is
Vacation Investors, Inc., which is owned by the sole officer of the General
Partner.
Other Expenses
--------------
The Partnership is responsible for payment of brokerage commissions and
other fees incidental to trading to its futures commission merchant, First
Options of Chicago, Inc., payment of exchange and National Futures
Association fees, and payment of all other expenses of the Partnership,
including organization and offering (excluding underwriting) expenses,
legal and accounting fees and meeting and office expenses.
3. DISTRIBUTIONS AND REDEMPTIONS
Distributions, if any, will be made only at such times and in such amounts
as determined by the General Partner, in its sole
<PAGE>
PORTFOLIO BOOST II, L.P.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
- ----------------------------------------------------------
discretion. With the consent of the General Partner, a Limited Partner may
liquidate, with at least sixty days prior written notice, the Units held by
the Limited Partner at Net Asset Value Per Unit on the liquidation date.
For purposes of calculating Net Asset Value Per Unit, Net Assets includes
partners' capital, as determined for financial statement purposes, plus an
adjustment for unamortized organizational and offering costs.
Organizational and offering costs are expensed when incurred for financial
statement purposes. For purposes of calculating Net Asset Value Per Unit,
these costs are capitalized and amortized over a period of five years.
<PAGE>
EXHIBIT D
BALANCE SHEET
OF
THE GENERAL PARTNER
<PAGE>
INDEPENDENT AUDITORS' REPORT
- ----------------------------
To the Members of
Portfolio Boost, L.L.C.
We have audited the accompanying balance sheet of Portfolio Boost, L.L.C. (an
Iowa limited liability company) as of September 30, 1998. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Portfolio Boost, L.L.C. as of
September 30, 1998, in conformity with generally accepted accounting principles.
Roth & Company, P.C.
/s/Roth & Company, P.C.
- ------------------------
Des Moines, Iowa
October 15, 1998
<PAGE>
PORTFOLIO BOOST, L.L.C.
BALANCE SHEET
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Cash Equivalents $ 85,026
Marketable Securities 9,507
Accounts Receivable 6,391
Airline Ticket Credits 118,129
Costs Reimbursable From Limited Partnerships 44,386
Residential Rental Property 224,833
Investment in Limited Partnership 51,567
----------
TOTAL ASSETS $ 539,839
==========
LIABILITIES AND MEMBERS' EQUITY
- -------------------------------
LIABILITIES:
Accounts Payable $ 1,813
----------
MEMBERS' EQUITY:
Voting Member's Equity 108,026
Nonvoting Members' Equity 1,080,000
----------
1,188,026
Less Subscriptions Receivable (650,000)
----------
Total Members' Equity 538,026
----------
TOTAL LIABILITIES AND MEMBERS' EQUITY $ 539,839
==========
</TABLE>
See notes to balance sheet.
- --------------------------------------------------------------------------------
<PAGE>
PORTFOLIO BOOST, L.L.C.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION
Nature of Business
------------------
Portfolio Boost, L.L.C. (Company) was organized on May 20, 1998 with Corn
Belt Management, Inc. being merged into the Company on May 22, 1998. The
Company serves as the general partner and commodity pool operator for
commodity pools.
The Company is the general partner and commodity pool operator of Corn Belt
Commodities Round Trip Limited Partnership (CBCRT), which is a limited
partnership operating a commodity pool. Corn Belt Management, Inc. was the
prior general partner and commodity pool operator of CBCRT.
The Company will also serve as general partner and commodity pool operator
of four commodity pools currently being organized which have not yet begun
operations, Portfolio Boost I, L.P.; Portfolio Boost II, L.P.; Portfolio
Boost III, L.P.; and Portfolio Boost MJF, L.P. These commodity pools are
expected to begin operations in 1998 or early 1999.
Under the terms of the limited partnership agreements, the Company earns
monthly management fees and quarterly incentive fees and is liable for
certain expenses of the partnerships, such as commodity trading advisor
fees and underwriting fees.
As the general partner, the Company is liable for the obligations of the
limited partnerships. Management is unaware of any such liabilities which
would have a material adverse affect on the Company's financial position.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
-------------------------
The Company considers all demand deposit accounts, money market funds and
debt securities with an original maturity of three months or less to be
cash and cash equivalents.
<PAGE>
PORTFOLIO BOOST, L.L.C.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
Marketable Securities
---------------------
The Company considers all investments in marketable equity and debt
securities as trading securities and are carried at fair value.
Airline Ticket Credits
----------------------
The Company has airline ticket credits received in exchange for consulting
services provided to a travel management company. The Company does not
anticipate any such future exchanges. The credits are recorded at fair
value and are used to purchase airline tickets.
The airline ticket credits are used in the Company's operations as a
general partner and commodity pool operator for various limited
partnerships. In connection with these activities, the Company provides
vacation awards to those limited partners who meet specified
qualifications.
Costs Reimbursable From Limited Partnerships
--------------------------------------------
The Company is the general partner of four limited partnerships that are
currently being organized which will operate commodity pools. These limited
partnerships are currently preparing offering documents and in the process
of filing them with various regulatory agencies which is required before
the limited partnerships can accept capital contributions.
The Company, as the general partner, has paid costs related to the
preparation of the offering documents and the regulatory filings. These
costs are reimbursable from the limited partnerships once the limited
partnerships have received the minimum amount of capital contributions and
commenced operations.
The Company continually monitors and assesses the progress of each
offering. If an offering is aborted or discontinued, the costs related to
that limited partnership would be immediately charged to expense.
<PAGE>
PORTFOLIO BOOST, L.L.C.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
Residential Rental Property
---------------------------
This property is held for sale, and is carried at the lower of cost or fair
value less estimated costs to sell.
Investment in Limited Partnership
---------------------------------
The investment in CBCRT, a limited partnership in which the Company is the
general partner but not the majority owner, is accounted for under the
equity method.
Income Taxes
------------
The Company is a limited liability company under which the income tax
attributes pass-through to the members of the Company. Therefore, no income
tax expense is recorded by the Company.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
3. REGULATORY REQUIREMENTS
The Company is subject to various regulatory guidelines relating to the
maintenance of a minimum amount of regulatory net worth. Under the
guidelines regulatory net worth is generally required equal to five percent
of the sum of partner contributions received and limited partnership
interests being offered in limited partnerships for which the Company is
the general partner. However, pursuant to the regulatory net worth
requirements, net worth may not be less than $50,000, but is not required
to exceed $1,000,000.
<PAGE>
PORTFOLIO BOOST, L.L.C.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
At September 30, 1998, the Company's regulatory net worth under applicable
guidelines was $1,188,026 as follows:
<TABLE>
<CAPTION>
<S> <C>
Total members' equity $ 538,026
Add subscriptions receivable from
nonvoting members 650,000
----------
Total regulatory net worth $1,188,026
==========
</TABLE>
Subscriptions receivable are evidenced by promissory notes which are due on
demand and are secured by letters of credit issued by financial
institutions for the benefit of the Company.
4. MEMBERS' EQUITY
Members' Equity at September 30, 1998 consists of:
Voting Nonvoting
------ ---------
Units Outstanding 100 100
The voting member is responsible for the management of the Company.
Profit and Loss Allocations
---------------------------
Net losses of the Company are generally allocated first to the Voting
Member to the extent of its capital account balance and then to the
Nonvoting Members.
Earnings of the Company attributable to CBCRT are allocated to the Voting
Member. The remaining net profits (Net Profits) of the Company are
generally allocated (i) first to Nonvoting Members to the extent of
previously allocated losses; (ii) second to the Voting Member to the extent
of previously allocated losses; (iii) third to Nonvoting Members equal to
an aggregate of 28% of Net Profits of the Company; and (iv) the balance of
Net Profits to the Voting Member.
<PAGE>
PORTFOLIO BOOST, L.L.C.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
Distributions
-------------
Annual distributions accrue to Nonvoting Members through December 31, 2001,
in an amount equal to an aggregate of 28% of the Company's Net Profits, if
any. Any accrued and unpaid distributions are payable as of December 31,
2001. However, a Nonvoting Member may request an annual distribution in an
amount equal to the tax liability attributable to that member's Net Profit
allocations.
Nonvoting Members shall also receive distributions, payable annually, in an
amount equal to an aggregate of 28% of the Company's Net Profits, if any,
for the years 2002 through 2004.
The Voting Member may receive distributions at any time, provided the net
worth of the Company exceeds the sum of $700,000 plus the accrued
distributions payable to Nonvoting Members.
Return of Nonvoting Member Capital Account
------------------------------------------
Under the Company's operating agreement, the Company has agreed to pay the
Nonvoting Members within thirty days after December 31, 2001, an amount
equal to the capital account of each member less any unpaid subscription
receivable balance. If requested by a Nonvoting Member, the Voting Member
has agreed to make capital contributions if the Company is unable to
otherwise make such payments.
Subscriptions Receivable
------------------------
The subscriptions receivable from Nonvoting Members are due on demand at
the option of the Company. These balances are secured by letters of credit
issued by financial institutions for the benefit of the Company.
5. RELATED PARTY TRANSACTIONS
The residential rental property is leased to a relative of the officer of
the Company.
<PAGE>
PORTFOLIO BOOST, L.L.C.
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
- --------------------------------------------------------------------------------
The investments in marketable securities are traded through Vacation
Investors, Inc. The officer of the Company is the sole shareholder,
director and officer of Vacation Investors, Inc. as well as a registered
representative.
6. MERGER WITH CORN BELT MANAGEMENT, INC.
Corn Belt Management, Inc. was merged with the Company on May 22, 1998 in a
transaction accounted for at historical cost as the entities were under
common control. The initial capital contribution of the Voting Member
consisted of the net assets of Corn Belt Management, Inc., of $417,413. The
capital account of the Voting Member was subsequently reduced by
distributions and results of operations through September 30, 1998.
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Partnership's Limited Partnership Agreement provides that the
Partnership shall defend, indemnify, and hold the General Partner harmless from
and against any loss, liability, damage, cost or expense incurred by the General
Partner and arising from any act, omission, activity or conduct undertaken by or
on behalf of the Partnership and reasonably believed by the General Partner to
be within the scope of authority conferred on it by the Limited Partnership
Agreement. Such indemnity is available only if the General Partner (a) acted in
good faith and in a manner the General Partner reasonably believed to be in, or
not opposed to, the best interests of the Partnership, and (b) the act,
omission, activity or conduct in question did not constitute negligence or
misconduct. No indemnification may be made with respect to alleged violations
of federal or state securities laws unless (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations, or (ii) such claim has been dismissed by a court with prejudice on
the merits; or (iii) a court approves a settlement of the claims against the
indemnitee and finds that the indemnification of the settlement and related
costs and expenses should be made. In the case of (iii), the indemnified party
must apprise the court of the position of the Securities and Exchange Commission
and of the securities administrator of the state in which the plaintiffs in the
underlying case claim they were offered or sold Units with respect to
indemnification for securities laws violations before seeking any approval from
the court for indemnification.
The Articles of Organization of Portfolio Boost, L.L.C., the General
Partner of the Partnership, provide that a voting member of the General Partner
shall not be personally liable to the General Partner or its members for damages
for breach of a fiduciary duty as a voting member, except for liability (i) for
breach of the voting member's duty of loyalty to the General Partner or its
members, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or (iii) for a transaction
from which the voting member derives an improper personal benefit or wrongful
distribution in violation of Section 490A.807 of the Iowa Limited Liability
Company Act. The Articles of Organization of the General Partner further
provide that if the foregoing Act or any other applicable law is amended to
authorize the further elimination or limitation of the liability of members,
then the liability of the members of the General Partner will be eliminated or
limited to the extent of any such amendment without any further action on behalf
of the General Partner or its members.
The Operating Agreement of the General Partner provides indemnification for
each person who is or was a member of the General Partner to the maximum extent
that a corporation has authority to indemnify a director of the corporation by
or under the Iowa Business Corporation Act or other applicable law, as the same
now exists or may hereafter be amended or changed, but in the case of any such
amendment or change, only to the extent that the amendment or change would
permit broader indemnification than is then currently the case. Any person's
right to indemnification is conditioned upon the General Partner being afforded
an opportunity to participate directly on behalf of such person in any such
claim, action, suit or proceeding or any settlement discussions relating
thereto, and with respect to any settlement or other non-adjudicated disposition
of any of the foregoing, entitlement to indemnification is also conditioned upon
the prior approval of the General Partner of the proposed settlement or other
non-adjudicated disposition. The General Partner's Operating Agreement also
would permit the General Partner to purchase and maintain insurance to provide
such an indemnification.
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commisson registration fee.. $ 7,575.76
Legal Fees and Expenses............................. 65,000.00
Accounting Fees and Expenses........................ 8,000.00
Expenses relating to conversion for EDGAR filing.... 6,000.00
Printing............................................ 11,000.00
Blue Sky and NASD Filing Fees....................... 18,085.00
Miscellaneous....................................... 10,000.00
TOTAL $125,660.76
===========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The Partnership sold 1 Unit to Jeff Raun on September 1, 1998, for $1,000
in order to create an Intial Limited Partner. This Unit will be returned and
the money refunded upon admission of the next Limited Partner.
No commissions were paid with respect to this sale.
ITEM 27. EXHIBITS
1. Sales Agreement
2.1 Limited Partnership Agreement - Portfolio Boost II, L.P. (See Exhibit
A to Prospectus)
2.2 Articles of Organization of Portfolio Boost, L.L.C.
2.3 Operating Agreement of Portfolio Boost, L.L.C
5. Opinion of Nyemaster, Goode, Voigts, West, Hansell & O'Brien, P.C.
8. Opinion of Nyemaster, Goode, Voigts, West, Hansell & O'Brien, P.C.
regarding certain federal income taxation matters
10.1 Advisory Agreement of Quiet Systems Limited
10.2 Letter Agreement with Frischmeyer Trading Corporation
10.3 Account documents with First Options of Chicago, Inc. (the futures
commission merchant)
10.4 Subscription Agreement, Suitability Standards Requirement Form and
Acknowledgment of Receipt Form (see Exhibit B to Prospectus)
10.5 Fee Agreement with Quiet Systems Limited
10.6 Escrow Agreement with First American Bank
23.1 Consent of Nyemaster, Goode, Voigts, West, Hansell & O'Brien, P.C.
(included in Exhibits 5 and 8 hereto)
23.2 Consent of Independent Auditors, Roth & Company, P.C.
<PAGE>
ITEM 28. UNDERTAKINGS
(a) Not Applicable
(b) Not Applicable
(c) Not Applicable
(d) Not Applicable
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and 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 Act 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 a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer 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.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of
Warrenville, State of Illinois on November 12, 1998.
PORTFOLIO BOOST II, L.P.
PORTFOLIO BOOST, L.L.C., General Partner
By: /s/Jeffrey A. Raun
---------------------------------
Jeffrey A. Raun, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
/s/ Jeffrey A. Raun
--------------------------------------------------------------------------
Jeffrey A. Raun, Sole Officer of and Sole Owner of the Voting Member of
Portfolio Boost, L.L.C. November 12, 1998
<PAGE>
INDEX TO EXHIBITS
TO REGISTRATION STATEMENT ON FORM SB-2
OF PORTFOLIO BOOST II, L.P.
Description of
Exhibit Document
- ------- --------------
1 Sales Agreement
2.1 Limited Partnership Agreement--Portfolio Boost II, L.P. (See
Exhibit A to Prospectus)
2.2 Articles of Organization of Portfolio Boost, L.L.C.
2.3 Operating Agreement of Portfolio Boost, L.L.C.
5 Opinion of Nyemaster, Goode, Voigts, West, Hansell & O'Brien,
P.C.
8 Opinion of Nyemaster, Goode, Voigts, West, Hansell & O'Brien,
P.C. regarding certain federal income taxation matters
10.1 Advisory Agreement of Quiet Systems Limited
10.2 Letter Agreement with Frischmeyer Trading Corporation
10.3 Account documents with First Options of Chicago, Inc. (the
futures commission merchant)
10.4 Subscription Agreement, Suitability Standards Requirement Form
and Acknowledgment of Receipt Form (See Exhibit B to Prospectus)
10.5 Fee Agreement with Quiet Systems Limited
10.6 Escrow Agreement with First American Bank
23.1 Consent of Nyemaster, Goode, Voigts, West, Hansell & O'Brien,
P.C. (included in Exhibits 5 and 8 hereto)
23.2 Consent of Independent Auditors, Roth & Company, P.C.
<PAGE>
EXHIBIT 1
<PAGE>
SALES AGREEMENT
THIS SALES AGREEMENT is entered into as of this 17th day of June, 1998, by
and between Portfolio Boost II, L.P., an Iowa limited partnership (the
"Partnership"), and Vacation Investors, Inc., an Iowa corporation ("VII").
Portfolio Boost, L.L.C., an Iowa limited liability company (the "General
Partner"), is also a party hereto for purposes of Sections 2, 7 and 8 below.
RECITALS
WHEREAS the Partnership is an Iowa limited partnership of which the General
Partner is the general partner; and
WHEREAS the Partnership desires to raise capital to engage in the business
of speculative trading of various domestic and foreign futures contracts and
options and contemplates raising such capital through the offering of up to a
maximum of $25,000,000 of units of limited partnership interests ("Units")
pursuant to a Registration Statement on Form SB-2 to be filed with the
Securities and Exchange Commission (the "SEC") (the "Offering"); and
WHEREAS VII is a member in good standing of the National Association of
Securities Dealers, Inc. ("NASD"), is registered as a broker dealer with the
SEC, and is or will be, as the case may be, licensed by the appropriate
regulatory agency in each state in which Units may be offered and sold; and
WHEREAS the Partnership desires to retain VII as its exclusive sales agent
to use its best efforts to sell the Units, and VII is willing and desires to
serve as the exclusive sales agent for the sale of the Units on a best efforts
basis, all upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the Recitals, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Engagement.
----------
(a) Subject to the terms and conditions herein set forth, the
Partnership hereby engages and appoints VII as the Partnership's exclusive agent
to use VII's best efforts to sell Units for the Partnership's account. VII
hereby accepts such engagement and appointment and covenants, warrants and
agrees that all Units sold by it will be sold according to all of the terms and
conditions of the Offering, the Rules of Fair Practice of the NASD and all state
and federal laws applicable to VII's selling activities. Neither VII nor any
other person shall give any information or make any representations, warranties
or guarantees in connection with any offer or sale of any Units other than
<PAGE>
as contained in the Prospectus utilized in connection with the Offering (the
"Prospectus") or in any other written materials as may be expressly authorized
in writing by the Partnership from time to time.
(b) VII shall use its best efforts as the Partnership's agent,
promptly following receipt of written notice from the Partnership of the
effective date of the Offering, to sell the Units, with all offers and sales to
in all events be only at the price per Unit to be specified in, and in such
quantities and to such persons and according to such terms as are contained in,
the Prospectus and the related Registration Statement on Form SB-2 and the
various related state Registration Statements (collectively, the "Registration
Statements"). VII shall comply with all requirements set forth in the
Prospectus and the Registration Statements, including, without limitation, the
Escrow Agreement included as an exhibit thereto (the "Escrow Agreement"). As
provided in the Escrow Agreement, during the Escrow Period (as that term is
defined in the Escrow Agreement), VII shall (i) instruct all subscribers to make
checks for subscriptions payable to "First American Bank--Escrow Agent For PB
I," and (ii) promptly (and in all events by 12:00 noon of the next business day
after receipt by VII) transmit all checks received from subscribers directly to
the Escrow Agent (as that term is defined in the Escrow Agreement). VII shall
use and distribute only the Prospectus, sales literature and advertising
material that has been prepared or distributed by the Partnership, and such
other sales literature and advertising material as shall conform in all respects
to all applicable securities and other laws, rules, regulations and orders,
including, without limitation, the Securities Act of 1933, and as shall be
expressly approved in writing by the Partnership. The Partnership reserves the
right to establish such additional procedures as it may deem necessary to insure
compliance with the requirements of the Offering and of any applicable laws,
rules, regulations or orders, and VII shall comply with all such additional
procedures to the extent that it has received notice thereof.
(c) During the term of this Agreement, the Partnership shall have full
authority to take such action as it may deem advisable with respect to all
matters pertaining to VII's activities and performance under this Agreement.
(d) The Units shall be offered and sold only where the Units may be
legally offered and sold and only to such persons as shall be legally qualified
to purchase the Units. The Partnership currently contemplates selling the Units
in the states listed in the attached Exhibit A, and unless VII shall receive
notice from the Partnership authorizing the offering and sale of Units in any
states other than those set forth on Exhibit A, no Units shall be offered or
sold except in such states. The Partnership also reserves the right, in its
sole discretion, to determine to not offer and sell any Units, or to at any time
and for any reason discontinue the offer and sale of Units, as the case may be,
in any state set forth on Exhibit A, and VII shall not offer and sell or shall
discontinue the further offer and sale of Units, as the case may be, in any such
state upon receipt of notice from the Partnership to such effect.
(e) Notwithstanding anything herein which may appear to be to the
contrary, VII shall have no obligation under this Agreement to purchase any of
the Units for its own account.
2
<PAGE>
2. Compensation to VII. The General Partner agrees, subject to the
-------------------
following and to Section 8 below, to pay VII the following fees for the services
to be provided by VII pursuant to this Agreement:
(a) The General Partner shall pay VII a fee (the "Fee") on each new
subscription (including any additional subscription by an existing limited
partner in the Partnership) which is both accepted and collected by the
General Partner and the Partnership in the given calendar month in an
amount calculated by multiplying (i) the dollar amount of such new
subscription (the "Subscription Amount"), by (ii) 1.875%. The aggregate
amount of Fees payable by the General Partner with respect to any given
calendar month shall be payable within ten (10) business days of the close
of that month.
(b) If the limited partner who contributed a Subscription Amount to
the Partnership has not, at any time before the Second Fee Date (as that
term is defined below) caused the limited partner's capital account with
the Partnership to fall below the Subscription Amount by reason of
liquidations of units in the Partnership by the limited partner (the
"Second Fee Condition"), the General Partner shall pay VII a fee (the
"Second Fee") in an amount calculated by multiplying (i) the Subscription
Amount, by (ii) 1.875%. The term Second Fee Date means the date which is
the two (2) year anniversary of the date upon which the Subscription Amount
was effective (as determined by the Limited Partnership Agreement of the
Partnership) as a capital contribution to the Partnership. If a Second Fee
is payable by the General Partner, it shall be paid within ten (10)
business days of the Second Fee Date. For purposes of determining whether
the Second Fee Condition has been satisfied, the limited partner's capital
account shall be increased by the amount of any distributions made to the
limited partner by the Partnership, and by the amount of any
Partnership losses which have been allocated to the limited partner's
capital account (the "Loss Adjustment").
(c) If the limited partner who contributed a Subscription Amount to
the Partnership has not, at any time before the Third Fee Date (as that
term is defined below) caused the limited partner's capital account with
the Partnership to fall below the Subscription Amount by reason of
liquidations of units in the Partnership by the limited partner (the "Third
Fee Condition"), the General Partner shall pay VII a fee (the "Third Fee")
in an amount calculated by multiplying (i) the Subscription Amount, by (ii)
1.875%. The term Third Fee Date means the date which is the three (3) year
anniversary of the date upon which the Subscription Amount was effective
(as determined by the Limited Partnership Agreement of the Partnership) as
a capital contribution to the Partnership. If a Third Fee is payable by the
General Partner, it shall be paid within ten (10) business days of the
Third Fee Date. For purposes of determining whether the Third Fee Condition
has been satisfied, the limited partner's capital account shall be
increased by the amount of any distributions made to the limited partner by
the Partnership, and by the amount
3
<PAGE>
of the Loss Adjustment.
In the event a limited partner contributes Subscription Amounts in
different months, the Fee, Second Fee and Third Fee shall be calculated and
payable separately based on each such respective Subscription Amount. In this
circumstance, however, if the limited partner subsequently liquidates units in
the Partnership, the amount of the liquidation proceeds shall be applied pro
rata against the Subscription Amounts in question for purposes of determining
the Loss Adjustment and whether the Second Fee Condition and the Third Fee
Condition have been satisfied for each such subscription. By way of example, if
a limited partner contributes $10,000 in month one, then contributes an
additional $10,000 in month six, and then liquidates $5,000 of units, $2,500 of
said liquidation proceeds shall be applied against each of the two $10,000
Subscription Amounts for purposes of determining the Loss Adjustment and whether
the Second Fee Condition and the Third Fee Condition have been satisfied for
purposes of each such subscription.
VII acknowledges and agrees that it shall not be entitled to and shall not
receive any compensation whatsoever from the Partnership for the services to be
provided and performed by VII under this Agreement, and that VII's compensation
for such services shall be payable solely by the General Partner, and the
Partnership shall have no liability or responsibility whatsoever for any such
compensation. VII accordingly also agrees that any breach or default by the
General Partner in the payment of any such compensation from time to time shall
not constitute a breach or default of this Agreement and that VII shall continue
to timely and fully perform all of its services, duties and obligations under
this Agreement for the full term hereof notwithstanding any such breach or
default from time to time by the General Partner.
3. Conditions to VII's Obligations. VII's obligations hereunder are
-------------------------------
subject during the full term of this Agreement and the Offering to: (a) the
performance by the Partnership of its obligations hereunder; and (b) the
conditions that (i) the Registration Statement on Form SB-2 pertaining to the
Offering shall have been declared effective by the SEC and shall remain
effective; (ii) the NASD shall have indicated that it does not disapprove of the
underwriting arrangements with respect to the Offering; and (iii) no stop order
shall have been issued by the SEC suspending the effectiveness of the Offering.
4. Conditions to the Partnership's Obligations. The Partnership's
-------------------------------------------
obligations hereunder are subject during the full term of this Agreement and the
Offering to the conditions that: (a) the Registration Statement on Form SB-2
pertaining to the Offering shall have been declared effective by the SEC and
shall remain effective; (b) no stop order suspending the effectiveness of the
Offering or other order restraining the offer or sale of the Units shall have
been issued or proceedings therefor initiated or threatened by any state or
federal regulatory agency, including, without limitation, the SEC or the
Commodity Futures Trading Commission; and (c) VII shall have satisfactorily
performed all of its obligations hereunder.
4
<PAGE>
5. Covenants of the Partnership. The Partnership covenants, warrants and
----------------------------
represents, during the full term of this Agreement, that:
(a) It shall use its best efforts to prevent the sale of the Units
through persons other than VII.
(b) It shall provide VII, when received, with a copy of any letter
from the NASD in which the NASD indicates that it does not disapprove of the
underwriting arrangements with respect to the Offering.
(c) It shall use its best efforts to maintain the effectiveness of the
Registration Statement on Form SB-2 with the SEC and to file such amendments to
said Registration Statement as may be reasonably necessary for that purpose.
(d) It shall advise VII whenever and as soon as it receives or learns
of any order issued by the SEC or any state regulatory agency or any other
regulatory agency which suspends or withdraws any of the Registration
Statements, or prevents the use of the Prospectus, or which otherwise prevents
or suspends the Offering, or receives notice of any proceedings regarding any
such order.
(e) It shall use its best efforts to prevent the issuance of any order
described in subsection (d) above and to obtain the lifting of any such order if
issued.
(f) It shall give VII notice when the Offering becomes effective and
shall deliver to VII such number of copies of the Prospectus and any supplements
and amendments thereto, in the form in which filed with the SEC, as VII may
reasonably request in connection with the sale of the Units, which Prospectus
shall in all respects conform to the applicable requirements of the Securities
Act of 1933 and any applicable state securities law and all applicable rules and
regulations promulgated thereunder, and which Prospectus shall not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
they are made, not misleading.
(g) It shall make available such number of copies of the Prospectus as
VII reasonably requests for the purposes contemplated by the Securities Act of
1933 and any applicable state securities law and the rules and regulations
promulgated thereunder.
(h) It shall promptly notify VII of any amendments or supplements to
Prospectus and shall furnish VII with copies thereof.
(i) It shall keep VII fully informed of any material development to
which the Partnership is a party or which concerns the business and condition of
the Partnership.
5
<PAGE>
(j) It shall use its best efforts to cause the registration or
qualification of the Units for offering and sale under the securities laws of
all states listed on Exhibit A attached hereto, subject, however, to Section
1(d) above.
6. Covenants of VII. VII covenants, warrants and represents, and
----------------
undertakes that:
(a) Based upon a review, to the extent relevant to the Offering, of
the items referred to in Rule 2810(b)(3) of the Rules of Fair Practice of the
NASD, as set forth in the Prospectus and other materials made available to it by
the Partnership, it has reasonable grounds to believe that all material facts
relating to the Offering are adequately disclosed and provide a basis for
evaluating the Offering.
(b) In recommending to a prospective subscriber the purchase of Units,
VII shall have reasonable grounds to believe, on the basis of information
obtained from the prospective subscriber concerning the subscriber's investment
objectives, other investments, financial situation and needs, and any other
information known by VII, that the prospective subscriber satisfies the criteria
as to suitability set forth in Rule 2810(b)(2)(B)(i), and prior to executing a
purchase transaction with respect to Units, VII shall inform the prospective
subscriber of all pertinent facts relating to the liquidity and marketability of
the Units during the term of the investment. This representation will survive
the termination of this Agreement.
(c) It shall maintain in its files such records as are required by
applicable rules of the NASD and state securities commissions disclosing the
basis upon which the determination of suitability was reached as to each
subscriber who subscribes for Units through it.
(d) If a subscriber provides any subscription documents to VII, VII
shall provide the Partnership with such subscription documents.
(e) It undertakes to comply with all other applicable NASD Rules of
Fair Practice.
7. Payment of Costs and Expenses. Unless otherwise agreed by the General
-----------------------------
Partner from time to time, VII shall pay all costs and expenses incident to the
performance of VII's obligations under this Agreement, including:
(a) All expenses incident to the preparation, printing and filing of
all advertising originated by VII; and
(b) All other costs and expenses incurred in connection with VII's
sales efforts, except expenses which the Partnership has expressly assumed and
are incurred in connection with its due diligence with respect to the Offering.
6
<PAGE>
The amount of any costs and expenses of VII which may be reimbursed by the
General Partner in any consecutive forthcoming twelve (12) month period shall
not, when added to the Fees paid or payable on the aggregate subscriptions
accepted and collected by the General Partner and the Partnership during that
twelve (12) month period, exceed ten percent (10%) of such aggregate
subscriptions.
8. Term of Agreement. This Agreement shall become effective as of the
-----------------
date hereof. After this Agreement becomes effective, either party may terminate
it at any time for any reason by giving 30 days' prior written notice to the
other party; provided, however, that this Agreement shall in any event
-------- -------
automatically terminate at the first occurrence of any of the following events:
(a) a stop order suspending the effectiveness of the Offering or other order
restraining the offer or sale of the Units shall have been issued by the SEC and
such order is not withdrawn by the SEC within 10 business days of the issuance
of such order; (b) the Offering shall be terminated; or (c) VII's license or
registration to act as a broker-dealer shall be revoked or suspended by any
federal or state regulatory agency and such revocation or suspension is not
cured within 10 days from the date of such occurrence. No further Second Fees
or Third Fees shall be payable by the General Partner to VII from and after the
date of the termination of this Agreement, whether this Agreement is terminated
by the Partnership or VII, and for whatever reason, with or without cause. VII
shall, however, be entitled to receive Fees pursuant to Section 2(a) following
the termination of this Agreement with respect to any new subscriptions which
were accepted by the General Partner prior to the effective date of the
termination of this Agreement, provided such subscriptions are in fact
subsequently collected by the Partnership.
9. Notices. All notices and communications hereunder shall be in writing
-------
and, if sent to the Partnership, shall be mailed to:
Portfolio Boost II, L.P.
Attn: Portfolio Boost, L.L.C.
Cornerstone at Cantera
4320 Winfield Road, Suite 320
Warrenville, Illinois 60555
or, if sent to VII, shall be mailed to:
Vacation Investors, Inc.
Attn: President
Cornerstone at Cantera
4320 Winfield Road, Suite 320
Warrenville, Illinois 60555
10. Successors. This Agreement may not be assigned or transferred by VII
----------
by operation of law or otherwise.
7
<PAGE>
11. Construction.
------------
(a) This Agreement shall be governed by and construed in accordance
with the applicable laws of the State of Iowa and the laws of the United States,
but without regard to any provision or rule of law which would require the
application of the law of any other state or jurisdiction.
(b) Nothing in this Agreement shall constitute VII as in association
or in partnership with the Partnership and, instead, this Agreement shall only
constitute VII as an independent contractor (and not as an employee or other
agent of the Partnership) authorized by the Partnership to sell the Units
according to the terms expressly set forth herein.
(c) If any provision of this Agreement shall be deemed void, invalid
or ineffective for any reason, the remainder of the Agreement shall remain in
full force and effect.
(d) This Agreement embodies the entire understanding between the
parties hereto, and no variation, modification or amendment to this Agreement
shall be deemed valid or effective unless and until it is signed by both parties
hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PORTFOLIO BOOST II, L.P. VACATION INVESTORS, INC.
By: Portfolio Boost, L.L.C.
General Partner
By: /s/ Jeffrey A. Raun By: /s/ Jeffrey A. Raun
------------------------------- --------------------------------
Jeffrey A. Raun, Member and Jeffrey A. Raun, President
President
PORTFOLIO BOOST, L.L.C., for
purposes of Sections 2, 7 and 8
By: /s/ Jeffrey A. Raun
-------------------------------
Jeffrey A. Raun, President
8
<PAGE>
EXHIBIT A
TO SALES AGREEMENT
States in which Units will be offered:
California
Colorado
Connecticut
Delaware
Florida
Illinois
Indiana
New Jersey
North Carolina
Pennsylvania
Virginia
Washington
Wisconsin
9
<PAGE>
EXHIBIT 2.2
<PAGE>
ARTICLES OF ORGANIZATION
OF
PORTFOLIO BOOST, L.L.C.
TO THE SECRETARY OF STATE
OF THE STATE OF IOWA:
Pursuant to Section 301 of the Iowa Limited Liability Company Act, the
undersigned, acting as organizer, adopts the following articles of organization:
ARTICLE I
The name of the limited liability company is Portfolio Boost, L.L.C. (the
"Company").
ARTICLE II
The street address of the Company's initial registered office in Iowa is
700 Walnut, Suite 1600, Des Moines, Iowa 50309, and the name of the Company's
initial registered agent at that office is Wade H. Schut.
ARTICLE III
The street address of the principal office of the Company is 1s121
Cantigny, Winfield, Illinois 60190.
ARTICLE IV
The Company shall have perpetual duration.
ARTICLE V
The management of the Company shall be vested in its voting members in the
manner described in the Operating Agreement of the Company, and the nonvoting
members of the Company are not agents of the Company for the purpose of its
business or affairs or otherwise. No member's or any other person's act shall
bind the Company except as may be expressly authorized by the Operating
Agreement of the Company.
ARTICLE VI
A voting member of the Company shall not be personally liable to the
Company or to its members (whether voting members or nonvoting members) for
monetary damages for breach of fiduciary duty as a voting member, except for
liability (i) for a breach of the voting member's duty of
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loyalty to the Company or its members, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or
(iii) for a transaction from which the voting member derives an improper
personal benefit or a wrongful distribution in violation of Section 490A.807 of
the Iowa Limited Liability Company Act. If the Iowa Limited Liability Company
Act or other applicable law is hereafter amended to authorize the further
elimination or limitation of the liability of members (whether voting members or
nonvoting members), then the liability of a member of the Company, in addition
to the limitation on personal liability provided herein, shall be eliminated or
limited to the extent of such amendment, automatically and without any further
action, to the maximum extent permitted by law. Any repeal or modification of
this Article by the members of the Company shall be prospective only, and shall
not adversely affect any limitation on the personal liability, or any other
right or protection, of a member (whether a voting member or a nonvoting member)
of the Company with respect to any state of facts existing at or prior to the
time of such repeal or modification.
Dated this 20th day of May, 1998.
/s/Wade H. Schut
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Wade H. Schut, Organizer
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EXHIBIT 2.3
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OPERATING AGREEMENT
OF
PORTFOLIO BOOST, L.L.C.
THIS OPERATING AGREEMENT ("Agreement") is made and entered into as of the
21st day of May, 1998, by and among Vacation Partners, Inc., an Iowa corporation
("VPI"); Dr. Mark Westberg ("Dr. Westberg"); Rebecca Westberg ("Ms. Westberg");
Dr. Craig Rowles ("Dr. Rowles"); Elizabeth Rowles ("Ms. Rowles"); Dr. Alan Raun
("Dr. Raun"); Dorothy Raun ("Ms. Raun"); Daniel Frieberg ("Mr. Frieberg");
Kathleen Frieberg ("Ms. Frieberg"); and each person who may hereafter become a
Member (as that term is defined below) of Portfolio Boost, L.L.C. (the
"Company").
WHEREAS, VPI, Dr. Westberg, Ms. Westberg, Dr. Rowles, Ms. Rowles, Dr. Raun,
Ms. Raun, Mr. Frieberg and Ms. Frieberg are the Initial Members (as that term is
defined below) of the Company and desire to adopt and enter into this Agreement
to regulate the affairs of the Company, the conduct of its business, and the
relations of its Members.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
set forth below, the Members agree as follows:
ARTICLE I
DEFINITIONS
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1.1 DEFINITIONS. The following terms shall have the following meanings
-----------
for purposes of this Agreement (unless otherwise expressly provided herein):
(a) "ADDITIONAL MEMBER" shall mean any Person who or which is issued
-----------------
Units and is admitted as a Member of the Company pursuant to the procedures
set forth in Section 9.1 below at any time after the date of this
Agreement, other than the Initial Members and any Substitute Members (as
those terms are defined below).
(b) "ADJUSTED CAPITAL ACCOUNT" shall mean, with respect to each
-------------------------
Member, the Member's Capital Account (as that term is defined below) as
adjusted by the items described in Sections 1.704-2(g)(1), 1.704-2(i)(5)
and 1.704-1(b)(2)(ii)(d)(4), (5) and (6) of the Treasury Regulations (as
that term is defined below).
(c) "ARTICLES OF ORGANIZATION" shall mean the Articles of Organization
------------------------
of the Company, as amended from time to time.
(d) "CAPITAL ACCOUNT" shall mean, with respect to each Member, the
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Capital Contributions (as that term is defined below) to the Company by the
Member as of a given date, adjusted up to the date in question pursuant to
Article VI below.
(e) "CAPITAL CONTRIBUTION" shall mean any cash, property, or services
--------------------
rendered, or a promissory note or other binding obligation to contribute
cash or property or to perform services, which
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a Member contributes to the capital of the Company in the capacity of a
Member, whenever the same be made.
(f) "CODE" shall mean the Internal Revenue Code of 1986, as amended
----
from time to time, or corresponding provisions of subsequent superseding
federal revenue laws.
(g) "FISCAL YEAR" shall mean the Company's fiscal year, which shall be
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from the first day of January to the last day of December.
(h) "INITIAL MEMBERS" shall mean each of the Members of the Company
---------------
identified in Article III below, and "INITIAL MEMBER" shall mean any one of
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them.
(i) "IOWA ACT" shall mean the Iowa Limited Liability Company Act,
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currently at Chapter 490A of the Code of Iowa, as amended from time to
time.
(j) "MEMBERS" shall mean, collectively, each of the Initial Members,
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Additional Members and Substitute Members who are, as of a given time, a
member of the Company, whether said members are Voting Members or Nonvoting
Members (as those terms are defined below), and "MEMBER" shall mean any one
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of them.
(k) "NET PROFITS" shall mean, for each Fiscal Year, the income and
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gains of the Company determined in accordance with generally accepted
accounting principles consistently applied from year to year employed under
the cash method of accounting and as reported, separately or in the
aggregate, as appropriate, on the Company's information tax return filed
for federal income tax purposes, plus any income exempt from federal income
tax under the Code.
(l) "NET LOSSES" shall mean, for each Fiscal Year, the losses and
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deductions of the Company determined in accordance with generally accepted
accounting principles consistently applied from year to year employed under
the cash method of accounting and as reported, separately or in the
aggregate, as appropriate, on the Company's information tax return filed
for federal income tax purposes, plus any expenditures not deductible in
computing its taxable income and not properly chargeable to Capital
Accounts under the Code.
(m) "NONVOTING DISTRIBUTION" is defined in Section 7.2 below.
----------------------
(n) "NONVOTING DISTRIBUTION YEAR" is defined in Section 7.2 below.
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(o) "NONVOTING MEMBERS" shall mean the Persons (as that term is
-----------------
defined below) who are issued or are otherwise holding Nonvoting Units (as
that term is defined below), and "NONVOTING MEMBER" shall mean any one of
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them.
(p) "NONVOTING UNITS" shall mean Units (as that term is defined below)
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issued by the Company which do not entitle the holder thereof to exercise
any voting rights, except only with respect to the Special Voting Matters
(as that term is defined below) or in the event of the occurrence of a
Special Circumstance (as that term is defined below), but in any of those
events only up to the Return Date (as that term is defined below).
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(q) "PERSON" shall mean any individual, general partnership, limited
------
partnership, limited liability company, joint venture, trust, business
trust, cooperative, association or other entity of whatever nature.
(r) "REGULATORY ALLOCATIONS" shall mean the allocations pursuant to
----------------------
Sections 7.1(b), (c), (d) and (e) below.
(s) "RETURN DATE" is defined in Section 6.6 below.
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(t) "SPECIAL CIRCUMSTANCES" is defined in Section 5.7 below.
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(u) "SPECIAL VOTING MATTERS" is defined in Section 5.9 below.
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(v) "SUBSTITUTE MEMBER" shall mean any Person who or which is an
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assignee of a Unit or Units and who or which has been admitted as a Member
of the Company with respect to such Unit or Units pursuant to the
procedures set forth in Section 8.2 below.
(w) "TREASURY REGULATIONS" shall mean the Income Tax Regulations,
--------------------
including temporary regulations, promulgated under the Code, as such
regulations are amended from time to time.
(x) "UNITS" shall mean the capital units issued by the Company to its
----
Members in return for Capital Contributions, whether the same are Nonvoting
Units or Voting Units (as that term is defined below).
(y) "VOTING MEMBERS" shall mean the Persons who are issued or are
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otherwise holding Voting Units, and "VOTING MEMBER" shall mean any one of
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them.
(z) "VOTING UNITS" shall mean Units issued by the Company which
------------
entitle the holder thereof to exercise voting rights.
ARTICLE II
PURPOSE OF THE COMPANY
----------------------
The Company shall have the authority to engage in any lawful business or
businesses, and to engage in all other activities necessary, customary,
convenient, or incidental to any thereto.
ARTICLE III
UNITS OF INITIAL MEMBERS; CERTIFICATES
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3.1 UNITS AND CAPITAL CONTRIBUTIONS OF INITIAL MEMBERS. The names and
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addresses of the Initial Members and the number and class of Units to be issued
to each of the Initial Members are as follows:
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No. of Units
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Member Name, Address Voting Nonvoting
-------------------- ------ ---------
a. Vacation Partners, Inc. 100 -0-
1s121 Cantigny
Winfield, IL 60190
b. Dr. Mark Westberg and Rebecca -0- 57
Westberg, as joint tenants with
full rights of survivorship,
and not as tenants in common
13750 Lakeshore Drive
Clive, Iowa 50325
c. Dr. Craig Rowles and Elizabeth -0- 23
Rowles, as joint tenants with full
rights of survivorship, and not as
tenants in common
Rural Route 3
P.O. Box 26
Carroll, Iowa 51401
d. Dr. Alan Raun and Dorothy Raun, -0- 16
as joint tenants with full rights of
survivorship, and not as tenants in
common
229 50th
Cumming, Iowa 50061
e. Daniel and Kathleen Frieberg, as joint -0- 4
tenants with full rights of survivorship,
and not as tenants in common
225 50th
Cumming, Iowa 50061
The Capital Contributions to be made by the Initial Members for the above
specified Units are set forth in Schedule 1 attached to this Agreement. The
Company agrees to pay (or to reimburse an Initial Member for) all costs and fees
payable to the issuer of any letter of credit to be provided by an Initial
Member pursuant to Schedule 1 in order to obtain or maintain any such letter of
credit.
The Units of the Initial Members shall not be represented by certificates.
The Initial Members each hereby represent, warrant, acknowledge and agree
that (i) they are making their Capital Contribution to the Company and
purchasing their Units, and are otherwise entering into this Agreement and
becoming a Member of the Company, based solely upon their own independent
knowledge, inquiry, investigation, due diligence, belief and judgment, and (ii)
without limiting the preceding subclause (i), they have not relied upon any
representation or warranty from the Company, any other Initial Member, any
Person affiliated with any other Initial Member, or any other Person with
respect to any act, matter or thing whatsoever involving
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or relating to the Company, including, without limitation, the potential success
or profitability of the Company or the likelihood of or amount of any Nonvoting
Distributions. The Initial Members each also acknowledge and understand that the
business of the Company, at least as it relates to serving as the general
partner and/or commodity pool operator of Pools (as that term is defined in
Section 4.1(a) below), is a speculative, volatile, high risk business.
3.2 CERTIFICATES OF MEMBERSHIP INTEREST. The Voting Members may authorize
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the issue of some or all of the issued Units either with or without
certificates. If Units with certificates are authorized, the certificates shall
be in such form as the Voting Members shall prescribe. Any authorization for
Units without certificates shall not affect Units already represented by
certificates, if any, until the certificates are surrendered to the Company.
All Units and the interests represented thereby shall in all events be issued
and held upon and subject to all of the terms and conditions of this Agreement
(including, without limitation, Sections 8.1 and 8.2 below), and the Voting
Members may require that any certificates which may be issued to evidence any
Units shall bear a legend to such effect (in addition to any other legends as
the Voting Members may require).
3.3 EXECUTION OF CERTIFICATES. All certificates for Units shall be
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numbered in the order in which they shall be issued and shall be signed either
by (i) any Voting Member, or (ii) the President or a Vice President and the
Secretary or an Assistant Secretary of the Company, as any of the same may be
appointed pursuant to Section 4.5 below. The signatures of the Voting Member
and the referenced officers upon a certificate may be by facsimiles if the
certificate is countersigned by a transfer agent, or registered by a registrar,
other than the Company itself or an employee of the Company. In case any Voting
Member or officer who has signed or whose facsimile signature has been placed
upon a certificate for the Company shall have ceased to be a Voting Member or
such officer before such certificate is issued, the certificate may be issued by
the Company with the same effect as if he or she were a Voting Member or such
officer, as the case may be, at the date of issue of the certificate.
3.4 CANCELLATION. Every certificate surrendered to the Company for
------------
exchange or transfer shall be canceled, and no new certificate or certificates
shall be issued in exchange for any existing certificate until such existing
certificate shall have been so canceled, except in cases provided in Section 3.5
below. Provided, however, that the Voting Members may in all events authorize
the issue of Units without certificates in exchange for any surrendered and
canceled certificate. Every certificate surrendered to the Company for transfer
shall be properly endorsed for transfer.
3.5 LOST, DESTROYED, OR MUTILATED CERTIFICATES. In the event of the loss,
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theft or destruction of any certificate for any Unit, another may be issued in
its place pursuant to such regulations as the Voting Members may establish
concerning proof of such loss, theft or destruction and concerning the giving of
satisfactory indemnity or bond or bonds of indemnity.
3.6 UNIT RECORD AND OWNERSHIP. A record shall be kept by the Company of
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the names and addresses of all Members and the number and class of Units held by
each Member, and if the Units are represented by certificates, the respective
dates thereof and in case of cancellation, the respective dates of cancellation.
The Person in whose name Units stand on the books of the Company shall be deemed
the owner thereof for all purposes as regards the Company.
3.7 TRANSFERS OF UNITS. Transfers of Units shall be made only on the
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books of the Company by the record holder thereof, or by such holder's attorney
thereunto authorized by power of attorney duly executed and filed with the
Company, and on surrender of the certificate or certificates for such Units, if
any, properly endorsed
5
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for transfer and the payment of all taxes thereon. All Units and all interests
represented thereby shall in all events be transferrable only upon and subject
to all the terms and conditions of this Agreement (including without limitation,
Sections 8.1 and 8.2 below).
3.8 REGULATIONS. The Voting Members may make such other rules and
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regulations as they may deem necessary or appropriate concerning the issue,
transfer and registration of Units, so long as such rules and regulations are
not inconsistent with the Articles of Organization, this Agreement or applicable
law.
ARTICLE IV
RIGHTS AND DUTIES OF MEMBERS
----------------------------
4.1 MANAGEMENT. The business and affairs of the Company shall be managed
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under the direction of the Voting Members. Without limiting the generality of
the foregoing, the Voting Members shall have the power and authority, as a
group, on behalf of the Company:
(a) to organize or cause the organization of such number of limited
partnerships or other form of entities as the Voting Members may determine
from time to time to act as commodity pools (individually, a "Pool," and
collectively, the "Pools"), and to cause the Company to be and otherwise
act as and perform all of the duties and obligations of the commodity pool
operator and/or general partner, manager or other agent for such Pools;
(b) to cause the Company to become and otherwise act as and perform
all of the duties and obligations of the commodity pool operator and
general partner, manager or other agent for any existing Pools as the
Voting Members may determine from time to time, including, without
limitation, Corn Belt Commodities Round Trip Limited Partnership, an Iowa
limited partnership;
(c) to cause the Company to be registered or licensed as a commodity
pool operator and/or commodity trading advisor with the Commodity Futures
Trading Commission and the National Futures Association, and to prepare,
execute and file all applications and other documentation as is necessary
or appropriate thereto and to maintain any such registration or license;
(d) to employ or otherwise retain the services of such agents,
employees, managers, accountants, attorneys, consultants, experts and other
Persons (including, without limitation, commodity trading advisors,
introducing brokers, futures commission merchants and floor brokers) as the
Voting Members determine to be necessary or appropriate to carry out the
business and affairs of the Company or any Pool from time to time, whether
or not any such Persons so employed or retained are a Member or are
affiliated or related to any Member, all upon terms satisfactory to the
Voting Members, and to pay such fees, salaries, wages and other
compensation to such Persons from Company funds as the Voting Members shall
determine from time to time;
(e) to pay, extend, renew, modify, adjust, contest, submit to
arbitration, prosecute, defend or compromise, upon such terms as the Voting
Members may determine and upon such evidence as the Voting Members may deem
sufficient, any obligation, suit, liability, cause of action, claim,
counterclaim or other dispute, including, without limitation, taxes, either
in favor of or against the Company and/or any Pool;
6
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(f) to pay any and all fees and to make any and all other expenditures
which the Voting Members deem necessary or appropriate to or in connection
with the organization of the Company or any Pool, the registration,
offering and sale of any securities or other interests in the Company or
any Pool, the carrying out of the Company's obligations and
responsibilities with respect to any Pool, or otherwise to or with the
business and affairs of the Company or any Pool;
(g) to conduct and direct the banking business of the Company and to
invest any funds of the Company that are not required for or are otherwise
not committed to the conduct of the Company's business from time to time in
such manner as the Voting Members may from time to time determine,
including, without limitation, in certificates of deposit, commercial
paper, treasury bills, "sweep" accounts, and other investments;
(h) to negotiate, enter into, execute, acknowledge and deliver any and
all contracts, agreements. documents or instruments necessary or
appropriate to carry on the business or purposes of the Company or any
Pool, and with such Persons as the Voting Members shall from time to time
determine, including, without limitation, granting the commodity trading
advisor or advisors of the Company or any Pool a power of attorney to
effect trades on behalf of the Company or any Pool on a discretionary
basis; subscription agreements for any securities or other interests in any
Pools; checks, drafts, notes and other negotiable instruments; mortgages or
deeds of trust; security agreements; financing statements; documents
providing for the acquisition, mortgage or disposition of the Company's
property; assignments; bills of sale; leases; partnership agreements; and
all other contracts, agreements, instruments or documents necessary or
appropriate, in the opinion of the Voting Members, to the business of the
Company or any Pool;
(i) to cause to be paid any and all taxes, charges and assessments
that may be levied, assessed or imposed upon any of the assets of the
Company or any Pool, unless the same are contested in good faith by the
Voting Members;
(j) in connection with any offering of securities or any other
interests in the Company or any Pool, the Voting Members may, on behalf of
the Company and such Pool: (i) cause to be filed one or more Offering
Statements or Registration Statements and related documentation, and all
such amendments thereto as the Voting Members shall deem advisable from
time to time, with the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc. and/or any other domestic or
foreign authorities for the registration and offering of any securities or
other interests in the Company or any Pool in the United States or
elsewhere and one or more Offering Circulars or Prospectuses and amendments
and supplements thereto with the Commodity Futures Trading Commission and
the National Futures Association; (ii) register or otherwise qualify such
securities or other interests for offering and sale under the blue sky and
securities laws of such states of the United States and other domestic or
foreign jurisdictions as the Voting Members shall deem advisable; (iii)
make all such arrangements for the offering and sale of such securities or
other interests as the Voting Members shall deem appropriate, whether
pursuant to a registration of the securities or other interests or
otherwise; and (iv) take all such action with respect to the matters
described in the preceding subclauses (i) through (iii) as the Voting
Members shall deem advisable or appropriate.
(k) to take all such action as the Voting Members deem necessary or
appropriate to avoid the requirement that the Company or any Pool register
as an investment company under the Investment
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Company Act of 1940, as amended (the "1940 Act"), or to take all such
action as the Voting Members deem necessary or appropriate to register the
Company or any such Pool as an investment company under and to otherwise
bring the Company or such Pool in compliance with the 1940 Act;
(l) to acquire property from any Person as the Voting Members may
determine, and the fact that such Person is a Member or that a Member is
directly or indirectly affiliated or connected with any such Person shall
not prohibit the Voting Members from dealing with that Person;
(m) to borrow money for the Company from banks, other lending
institutions, a Member, or an affiliate of a Member on such terms as the
Voting Members deem appropriate, and in connection therewith, to mortgage,
encumber and grant security interests in the assets of the Company to
secure repayment of the borrowed sums;
(n) to purchase liability and other insurance to protect the Company's
property and business or any other potential obligations or liabilities of
the Company, including, without limitation, obligations and liabilities
arising under Article XI below;
(o) to hold and own any Company real and/or personal properties in the
name of the Company;
(p) to declare and pay distributions to the Members as described in
Section 7.2 below; and
(q) to do and perform any and all other acts and things whatsoever as
the Voting Members shall from time to time determine to be necessary or
appropriate to carry out any of the foregoing or any other term or
condition of this Agreement, or to the conduct or operation of the
Company's or any Pool's business and affairs from time to time, and not
inconsistent with applicable law, the Articles of Organization or this
Agreement.
4.2 NO LIABILITY FOR CERTAIN ACTS. A Member does not, in any way,
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guarantee the return of any Member's Capital Contributions or a profit for the
Members from the operations of the Company, except only as expressly provided in
Section 6.6 below with respect to VPI's agreements to pay the Return Amounts to
the Nonvoting Members. A Member is not personally liable for the acts or
omissions of or any debts, obligations, losses, duties or obligations of the
Company, except only to the extent of any unpaid Capital Contribution of the
Member.
4.3 MEMBERS HAVE NO EXCLUSIVE DUTY TO COMPANY. A Voting Member, solely
-----------------------------------------
by reason of being a Voting Member, shall not be required to manage the Company
as the Voting Members' sole and exclusive function, and any Member may have
other business interests and may engage in other activities in addition to those
relating to the Company, including interests and activities which are
competitive with the Company or any Pool. Neither the Company nor any Member
shall have any right, by virtue of this Agreement, to share or participate in
any such other investments or activities of any of the Members or to any income,
proceeds or other benefits derived therefrom.
4.4 SALARY. The salaries, benefits and all other compensation to be paid
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to or received by the Voting Members in consideration of their management
activities on behalf of the Company shall be fixed from time to time by the
Voting Members, and no Voting Member shall be prevented from receiving such
salary,
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benefits or other compensation by reason of the fact that the Voting Member is
also a Voting Member and/or Nonvoting Member of the Company.
4.5 OFFICERS. The Voting Members may appoint themselves or other
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individuals (whether or not employees or Members of the Company) as officers of
the Company, which may include, but shall not be limited to, any one or more of
the following: (a) a President; (b) one or more Vice Presidents; (c) a
Secretary; and (d) a Treasurer. The Voting Members may delegate all or any
portion of their day-to-day management responsibilities to any such officer or
officers, as determined by the Voting Members from time to time, and such
officers shall have the authority to contract for, negotiate on behalf of and
otherwise act for and on behalf of and represent the Company as so authorized by
the Voting Members. Unless the Voting Members decide otherwise, if the title is
one commonly used for officers of a business corporation formed under the Iowa
Business Corporation Act, the assignment of such title shall constitute the
delegation to such individual of the authority and duties that are normally
associated with that office, and any additional authority and duties, if any, as
may be set forth in the contract or resolution appointing the officer in
question; subject, however, to any specific delegation of authority and duties
or specific restriction on the authority and duties as may be made under or set
forth in any such contract or resolution. The officers shall in all events be
subject to the direction and control of the Voting Members.
If the Voting Members determine to appoint an officer or officers for the
Company, each such officer shall hold office until his or her successor shall
have been duly chosen and shall qualify or until his or her death or until he or
she shall resign or shall have been removed.
An officer may resign at any time by delivering written notice to the
Secretary, if one has been appointed by the Voting Members, or, in the absence
of a Secretary, to the Voting Members. A resignation is effective when the
notice is delivered to the Secretary or any Voting Member, as the case may be,
unless the notice specifies a later effective date. Any officer may be removed
by the Voting Members at any time, with or without cause, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Jeffrey A. Raun is hereby appointed by the Voting Members to be and serve
as the President, Treasurer and Secretary of the Company. As of the date of
this Operating Agreement, there were no other officers of the Company.
4.6 EXECUTION OF DOCUMENTS. Notwithstanding anything in this Agreement
----------------------
which may appear to be to the contrary, the Voting Members may authorize any
officer or officers or Voting Member or Voting Members to negotiate and enter
into any agreement or contract and to negotiate, execute and deliver any
instrument or document in the name of and on behalf of the Company, and such
authority may be general or confined to specific instances.
4.7 COMPANY BOOKS. The Voting Members shall maintain and preserve at the
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principal office of the Company relevant Company documents, including, but not
limited to (i) a current list of the full name and last known business address
of each Member; (ii) a copy of the Articles of Organization and all amendments
thereto; (iii) copies of the Company's federal, state and local income tax
returns and reports, if any, for the three most recent years; (iv) a copy of
this Agreement and all amendments thereto; and (v) copies of any financial
statements of the Company for the three most recent years.
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The Voting Members shall also cause such books and records to be kept as
are necessary or appropriate to determine and calculate the various allocations
and distributions which are to be made to the Nonvoting Members pursuant to this
Agreement.
Each Member has the right, for any purpose reasonably related to the
Member's interest as a member of the Company, and upon reasonable request and
during ordinary business hours, to (i) inspect and copy the above referenced
Company documents at the Member's expense, and (ii) obtain from the Voting
Members, from time to time upon reasonable demand (x) true and full information
regarding the state of the business and financial condition of the Company; (y)
promptly after they become available, a copy of the Company's federal, state and
local income tax returns for each year; and (z) other information regarding the
affairs of the Company as is just and reasonable.
4.8 PRIORITY AND RETURN OF CAPITAL. No Member shall have priority over
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any other Member, either as to the return of Capital Contributions or as to Net
Profits, Net Losses or distributions, except only as may be provided with
respect to (i) the payment of the Return Amounts to the Nonvoting Members in
Section 6.6 below, (ii) the allocation of Net Profits and Net Losses in Section
7.1 below, and (iii) distributions in Sections 7.2 and 10.2 below. This Section
4.8 shall also not apply to any loans (as distinguished from Capital
Contributions) which a Member has made to the Company.
4.9 WITHDRAWAL OF A MEMBER. A Member may not and does not have the power
----------------------
or right to withdraw or resign from the Company prior to the dissolution and
winding up of the Company, except only as provided with respect to the Nonvoting
Members in Section 8.4 below.
No Member shall cease to be a member of the Company because of the
occurrence of any act or circumstance, including, without limitation, those
matters specified in Section 490A.712 of the Iowa Act, except only as may be
otherwise expressly provided in this Agreement.
4.10 MEMBER REPRESENTATIVE. Any Member that is other than an individual
---------------------
shall designate and appoint one individual to act as the Member's exclusive
representative of the Member for all purposes related to the Company, including,
without limitation, for purposes of participation of the Member in all meetings
of the Members, the voting of the Units of the Member and the execution of any
written action evidencing action of the Members taken without a meeting. A
Member may change the identity of its representative at any time and from time
to time, in the Member's discretion, but shall provide prompt written notice of
any new representative to the other Members. VPI hereby designates Jeffrey A.
Raun as its initial representative for purposes of the Company.
4.11 MEMBER AUTHORITY LIMITED. Unless expressly authorized to do so by
------------------------
this Agreement or by the Voting Members or a properly authorized officer of the
Company, no Member, agent, or employee of the Company shall have any power or
authority to bind the Company in any way, to pledge its credit or to render it
liable pecuniarily for any purpose. No Member may delegate to any Person the
Member's rights and powers to manage and control the business and affairs of the
Company, except only (i) with respect to the Voting Members' right to manage the
business and affairs of the Company, as provided in Section 4.5 above regarding
the appointment of officers, and (ii) with respect to the voting of Units, as
provided in Section 5.11 below regarding to the giving of a proxy.
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ARTICLE V
MEETINGS OF MEMBERS; VOTING RIGHTS OF MEMBERS;
----------------------------------------------
MANNER OF ACTING OF MEMBERS
---------------------------
5.1 REGULAR MEETINGS AND SPECIAL MEETINGS OF VOTING MEMBERS. Regular
-------------------------------------------------------
meetings of the Voting Members shall be held at such place and at such times as
the Voting Members may by resolution fix and determine from time to time. No
notice shall be required for any regular meeting of the Voting Members.
Special meetings of the Voting Members, for any purpose or purposes, unless
otherwise affirmatively required by the Iowa Act, may be called by the President
(if one has been elected), or by any Voting Member or Voting Members holding at
least thirty percent (30%) of the total outstanding Voting Units.
5.2 PLACE OF MEETINGS. The Voting Members or the President, if the
-----------------
President is calling the meeting, may designate any place, either within or
outside the State of Iowa, as the place of meeting for any regular or special
meeting of the Voting Members or any meeting of the Members as a whole. If no
designation is made, the place of meeting shall be the principal office of the
Company.
5.3 NOTICE OF MEETINGS. Except as provided in Section 5.1 above with
------------------
respect to regular meetings of the Voting Members and in Sections 5.4 and 5.12
below, written notice stating the place, day and hour of all meetings of the
Voting Members and, in the case of a special meeting of the Voting Members, the
purpose or purposes for which the meeting is called, shall be given to each
Voting Member not less than ten (10) nor more than fifty (50) days before the
date of the meeting, either personally or by mail, by or at the direction of the
Voting Member or Voting Members or other person calling the meeting. If mailed,
such notice shall be given as provided in Section 12.1 below.
5.4 MEETING OF ALL MEMBERS. If all of the Voting Members or Members as a
----------------------
whole, as the case may be, shall meet at any time and place, either within or
outside of the State of Iowa, and consent to the holding of a meeting at such
time and place, such meeting shall be valid without call or notice, and at such
meeting lawful action may be taken.
5.5 CONDUCT OF BUSINESS. At all meetings of the Voting Members or the
-------------------
Members as a whole, as the case may be, the persons designated by the vote of
the Voting Members holding at least a majority of the total outstanding Voting
Units shall, respectively, preside at the meeting and act as secretary at the
meeting. At all meetings of the Voting Members or the Members as a whole, as
the case may be, business shall be transacted in such order as the person
designated to preside over the meeting may from time to time determine.
The Voting Members may adopt rules and regulations for the conduct of the
meetings of the Voting Members or the Members as a whole, as the case may be,
and for the management of the Company, so long as such rules and regulations are
not inconsistent with the Articles of Organization, this Agreement or the Iowa
Act.
5.6 RECORD DATE. The record date for the purpose of determining the
-----------
Voting Members or Members entitled to notice of or to vote at any meeting of the
Voting Members or the Members as a whole, as the case may be, shall be the date
on which notice of the meeting is mailed. A determination of the Voting Members
or Members entitled to notice of or to vote at any meeting of the Voting Members
or Members as a whole, as the
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case may be, which has been made as provided in this Section 5.6 shall also
apply to any adjournment of such meeting.
5.7 VOTING RIGHTS OF MEMBERS. The Voting Members shall have one vote for
------------------------
each Unit held by them, and shall be entitled to vote on any matter on which the
vote of the Voting Members or the Members as a whole, as the case may be, is
taken or is required by the Articles of Organization, this Agreement, the Iowa
Act or other applicable law.
Notwithstanding anything in this Agreement or otherwise which may appear to
be to the contrary, the Nonvoting Members shall not have any voting rights with
respect to any act or matter whatsoever, except only that:
(a) Nonvoting Units shall have voting rights as provided in Section
5.9 below with respect to any Special Voting Matters as may be otherwise
submitted for the vote of the Voting Members at any time prior to the
Return Date; and
(b) Nonvoting Units and Nonvoting Members shall be deemed to be, and
shall be treated for all purposes as, respectively, Voting Units and Voting
Members (except as provided below in this subparagraph (b)) in the event
either of the following circumstances (collectively, the "Special
Circumstances") occur before the Return Date, and in any such event only up
to the Return Date:
(i) the net worth (as that term is defined below in this Section
5.7) of the Company falls below the sum of $700,000 plus the amount of
any Nonvoting Distributions that are then owed to the Nonvoting
Members (the "Minimum Amount"), and then only for so long as the net
worth of the Company is below the Minimum Amount and in all events
only up to the Return Date; or
(ii) the death or total disability (as that term is defined
below in this Section 5.7) of Jeffrey A. Raun, and then only for so
long as Jeffrey A. Raun is totally disabled, if applicable, and in all
events only up to the Return Date.
Nonvoting Units and the Nonvoting Members shall not, however, be deemed to
be or treated as, respectively, Voting Units and Voting Members
notwithstanding the occurrence of a Special Circumstance, and shall in all
events continue to be treated as Nonvoting Units and Nonvoting Members with
respect to (i) the payment of the Return Amounts to the Nonvoting Members
as provided in Section 6.6 below; (ii) the allocation of Net Profits and
Net Losses under Section 7.1 below; (iii) distributions under Sections 7.2
and 10.2 below; and (iv) the sale and purchase of the Nonvoting Units as
provided in Section 8.4 below.
The Nonvoting Members shall not otherwise participate in the management of the
Company, and, as provided above, shall in all events have no right to
participate in the management of the Company (whether with respect to Special
Voting Matters or in the event of the occurrence of any Special Circumstance) at
any time after the Return Date. Nonvoting Members are also not in any event
agents of the Company for the purpose of its business or affairs or otherwise.
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The term "net worth" for purposes of subparagraph (b)(i) above in this
Section 5.7 shall mean the net worth of the Company as determined in accordance
with generally accepted accounting principles, consistently applied with respect
to the Company, as determined by the accountant or accounting firm then
servicing the Company, which determination shall be binding upon the Company and
the Members. The term "total disability" or "totally disabled" for purposes of
subparagraph (b)(ii) above in this Section 5.7 shall mean the inability of Mr.
Raun to provide the services required of Mr. Raun by the Company on a
substantially full time basis by reason of any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than three
(3) months. Any such determination shall be made by the Members and must be
based upon an independent third party medical opinion.
A Member may hold both Voting Units and Nonvoting Units. In such event,
the Member shall be a Voting Member with respect to the Member's Voting Units
and a Nonvoting Member with respect to the Member's Nonvoting Units for purposes
of this Agreement.
5.8 QUORUM. The Voting Members holding at least a majority of the total
------
outstanding Voting Units, represented in person or by proxy, shall constitute a
quorum at any meeting of the Members. In the absence of a quorum at any meeting
of the Members, a majority of the outstanding Voting Units so represented may
adjourn the meeting from time to time without further notice. At any such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The Voting Members present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
during such meeting of the Voting Members whose absence would cause less than a
quorum. The Nonvoting Members holding at least a majority of the total
outstanding Nonvoting Units, represented in person or by proxy, shall constitute
a quorum of the Nonvoting Members for purposes of any meeting of the Nonvoting
Members.
5.9 MANNER OF ACTING. The affirmative vote of the Voting Members holding
----------------
at least a majority of the total outstanding Voting Units shall be the act of
the Voting Members with respect to all acts or matters submitted to a vote of
the Voting Members, except only that the Company and the Voting Members shall
not take any of the actions described below (collectively, the "Special Voting
Matters") at any time prior to the Return Date without the additional
affirmative vote of the Nonvoting Members holding at least a majority of the
total outstanding Nonvoting Units:
(i) The sale, lease, exchange or other transfer or disposition
(other than the mortgage, pledge or other grant of security interest) of
all or substantially all of the assets of the Company other than in the
ordinary course of business of the Company;
(ii) The merger or consolidation of the Company with any other
Person, except that all of the Members hereby give their consent to the
merger of Corn Belt Management, Inc., an Iowa corporation, with and into
the Company upon such terms as the Voting Members may determine;
(iii) The voluntary dissolution of the Company;
(iv) The issuance of any Voting Units or Nonvoting Units to any
Initial Member other than the Voting Units and Nonvoting Units specified in
Article III above;
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(v) The issuance of any Units to any Additional Members;
(vi) The approval of the assignment of any Units to any Person or
the approval of any Substitute Member for any Units, except for assignments
and transfers by VPI as provided in Section 8.3 below; or
(vii) The amendment of the Articles of Organization of the Company or
this Agreement.
As provided in Section 5.7 above and in this Section 5.9, the Nonvoting Members
shall not have the right to vote on any Special Voting Matter, or any other act
or matter whatsoever, at any time after the Return Date. This Section 5.9 does
not grant Nonvoting Members any rights or privileges of a Voting Member, but
rather only grants Nonvoting Members the right to vote on any Special Voting
Matter as expressly provided above.
5.10 MEETINGS OF NONVOTING MEMBERS. The Nonvoting Members of the Company
-----------------------------
shall be entitled to attend any meeting of the Voting Members of the Company for
purposes of the Nonvoting Members having the opportunity to question the Voting
Members about the business and affairs of the Company, and the Nonvoting Members
shall be given notice of each regular and special meeting of the Voting Members
in the manner otherwise provided for the giving of notice of a special meeting
of the Voting Members in Section 5.3 above. The Nonvoting Members shall not be
entitled to vote on any act or matter submitted to the vote of the Voting
Members at any meeting, except only as expressly provided in Sections 5.7 and
5.9 above.
The Voting Members shall call a special meeting of the Members upon receipt
of a written request for such a special meeting from the Members holding at
least thirty percent (30%) of the total outstanding Units (whether Voting Units
or Nonvoting Units), which written request shall specify the purpose or purposes
of the special meeting. The Voting Members shall call a special meeting of the
Members within thirty (30) days of receipt of such a written notice and shall
provide a notice of the special meeting to all of the Members in the manner
otherwise provided for the giving of notice of a special meeting of the Voting
Members in Section 5.3 above. The Nonvoting Members shall not have the right to
vote on any act or matter submitted to the vote of the Voting Members at any
special meeting of the Members, except only as expressly provided in Sections
5.7 and 5.9 above.
5.11 PROXIES. At all meetings of the Voting Members or the Members as a
-------
whole, as the case may be, a Member may vote in person or by proxy executed in
writing by the Member or by a duly authorized attorney-in-fact. Any such proxy
must be filed with the Voting Members before or at the time of the meeting. No
proxy shall be valid after eleven (11) months from the date of its execution,
unless otherwise provided in the proxy.
5.12 ACTION BY MEMBERS WITHOUT A MEETING; TELEPHONIC MEETINGS. Action
--------------------------------------------------------
required or permitted to be taken at a meeting of the Voting Members, the
Nonvoting Members, or the Members as a whole, as the case may be, may be taken
without a meeting and without notice if the action is taken by all of the
Members entitled to vote on the acts or matters in question and is evidenced by
one or more written consents describing the action taken, signed by each Member
entitled to vote and delivered to the Voting Members for filing with the
Company's records. Action taken under this Section 5.12 is effective when all
Members entitled to vote have signed the consent, unless the consent specifies a
different effective date. The record date for determining the Members entitled
to take action without a meeting shall be the date the first Member signs a
written consent.
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Members (whether Voting Members and/or Nonvoting Members) may participate
in and hold a meeting by means of conference telephone or similar communications
equipment by means of which all Members participating in the meeting can hear
each other, and participation in such meeting shall constitute attendance and
presence in person at such meeting, except where a Member participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
5.13 WAIVER OF NOTICE. When any notice is required to be given to any
----------------
Member, a waiver thereof in writing signed by the Member entitled to such
notice, whether before, at, or after the time stated therein, shall be
equivalent to the giving of such notice.
ARTICLE VI
CONTRIBUTIONS TO THE COMPANY; UNITS AND CAPITAL ACCOUNTS
--------------------------------------------------------
6.1 CAPITAL CONTRIBUTIONS. Each Initial Member shall contribute such
---------------------
amount as is set forth in Schedule 1 attached to this Agreement as the Initial
Member's Capital Contribution for their respective Voting Units or Nonvoting
Units, as the case may be, set forth in Article III above. No subsequent
Capital Contributions may be required of any Initial Member, except only as
expressly provided in Section 6.6 below with respect to VPI.
6.2 UNITS. Each Member's Capital Contribution to the Company shall be
-----
represented by either Voting Units or Nonvoting Units. An unlimited number of
both Voting Units and Nonvoting Units are hereby authorized. The Initial
Members shall receive the number of Voting Units and/or Nonvoting Units as set
forth in Article III above. The issuance of any additional Voting Units or
Nonvoting Units to any Initial Member shall be subject to the vote of the Voting
Members who hold at least a majority of the total outstanding Voting Units, and,
if the Units are to be issued to the Initial Member prior to the Return Date,
also subject to the vote of the Nonvoting Members who hold at least a majority
of the total outstanding Nonvoting Units, as is provided in Section 5.9 above.
The issuance of Voting Units and/or Nonvoting Units to an Additional Member
shall be subject to the vote of the Voting Members who hold at least a majority
of the total outstanding Voting Units, and, if the Units are to be issued to the
Additional Member prior to the Return Date, also subject to the vote of the
Nonvoting Members who hold at least a majority of the total outstanding
Nonvoting Units, as is provided in Section 5.9 above and Section 9.1 below.
No Member shall have any preemptive or other right to acquire any Units the
Company may from time to time issue to any Person.
6.3 CAPITAL ACCOUNTS.
----------------
(a) A separate Capital Account will be maintained for each Member.
Each Member's Capital Account will be increased by (i) the amount of money
contributed by such Member to the Company; (ii) the Gross Asset Value (as
that term is defined in Section 6.5 below) of property contributed by such
Member to the Company (net of liabilities secured by such contributed
property that the Company is considered to assume or take subject to under
Section 752 of the Code); and (iii) the amount of Net Profits allocated to
such Member pursuant to Section 7.1 below. Each Member's Capital
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Account will be decreased by (i) the amount of money distributed to such
Member by the Company; (ii) the Gross Asset Value of property distributed
to such Member by the Company (net of liabilities secured by such
distributed property that such Member is considered to assume or take
subject to under Section 752 of the Code); (iii) the amount of Net Losses
allocated to such Member pursuant to Section 7.1 below; and (iv) the
Member's share of expenditures described in Code Section 705(a)(2)(B).
(b) In the event of a permitted sale or exchange of a Unit, the
Capital Account of the transferor shall become the Capital Account of the
transferee to the extent it relates to the transferred Unit, subject to
Section 9.2 below.
(c) The manner in which Capital Accounts are to be maintained pursuant
to this Section 6.3 is intended, and shall be construed, so as to comply
with the requirements of Code Section 704(b) and the Treasury Regulations
promulgated thereunder, and in the event there exists any inconsistency,
the Code and said Treasury Regulations shall control.
(d) Upon liquidation of the Company, liquidating distributions will be
made in accordance with Section 10.2 below.
6.4 NO DEMAND OF MEMBER CAPITAL. A Member shall not be entitled to
---------------------------
demand or receive from the Company the liquidation of the Member's Units in the
Company until the Company is dissolved in accordance with the provisions hereof,
except only as expressly provided in Sections 6.6 and 8.4 below with respect to
the Nonvoting Units.
6.5 GROSS ASSET VALUE. "Gross Asset Value" means, with respect to any
-----------------
asset, the asset's adjusted basis for federal income tax purposes, except as
follows:
(a) The initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of such asset, as
determined by the Voting Members, provided that (i) the initial Gross Asset
Value of the respective promissory notes contributed to the Company by
certain of the Nonvoting Members shall be deemed to be the principal amount
of the promissory note in question, and (ii) the initial Gross Asset Value
of the assets contributed by VPI shall be deemed to be the amounts set
forth in Schedule 2 attached hereto;
(b) The Gross Asset Values of all Company assets shall be adjusted to
equal their respective gross fair market values, as determined by the
Voting Members, as of the following times: (i) the acquisition of an
additional Unit or Units by any new or existing Members in exchange for
more than a de minimis Capital Contribution; (ii) the distribution by the
Company to a Member of more than a de minimis amount of property as
consideration for a Unit; and (iii) the liquidation of the Company within
the meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations;
provided, however, that adjustments pursuant to clauses (i) and (ii) above
shall be made only if the Voting Members reasonably determine that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Members of the Company;
(c) The Gross Asset Value of any Company asset distributed to any
Member shall be adjusted to equal the gross fair market value of such asset
on the date of distribution as determined by the Voting Members; provided,
however, that the Gross Asset Value of the respective promissory notes
16
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contributed to the Company by the Nonvoting Members shall be deemed to be
the principal amount of the promissory note in question upon its surrender
to the Nonvoting Members pursuant to Section 6.6 below; and
(d) The Gross Asset Values of the Company's assets shall be increased
or decreased, as the case may be, to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or Code
Section 743(b), but only to the extent that such adjustments are taken into
account in determining Capital Accounts pursuant to Section 1.704-
1(b)(2)(iv)(m) of the Treasury Regulations; provided, however, that Gross
Asset Values shall not be adjusted pursuant to this paragraph 6.5(d) to the
extent that the Voting Members determine that an adjustment pursuant to
paragraph 6.5(b) above is necessary or appropriate in connection with a
transaction that would otherwise result in an adjustment pursuant to this
paragraph 6.5(d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to paragraphs 6.5(a) or 6.5(b) above or this paragraph 6.5(d),
such Gross Asset Value shall thereafter be adjusted by the depreciation
taken into account with respect to such asset for purposes of computing Net
Profits and Net Losses.
6.6 PAYMENT OF RETURN AMOUNT TO NONVOTING MEMBERS. The Company agrees to
---------------------------------------------
pay to each Nonvoting Member, at such time as is determined by the Voting
Members, in their sole discretion, but in all events within thirty (30) days
after December 31, 2001, an amount (the "Return Amount") equal to (i) the
Capital Account of the Nonvoting Member as of the close of the month immediately
preceding the date the Return Amount is paid by the Company, less (ii) the
principal amount of any promissory note given by the Nonvoting Member in
question as part of the Nonvoting Member's Capital Contribution, if any, that
has not been paid by such Nonvoting Member to the Company. The Company also
agrees to release and surrender the respective promissory notes given by certain
of the Nonvoting Members (as described in Schedule 1 attached hereto) to the
applicable Nonvoting Members along with the payment of the Return Amount.
VPI agrees that in the event the Company is unable, for whatever reason, to
pay all or any portion of the Return Amount owed to any Nonvoting Member, VPI
shall, if requested by the Nonvoting Member, in the Nonvoting Member's sole
discretion, contribute to the Company the amount owed by the Company to that
Nonvoting Member under this Section 6.6, which additional Capital Contribution
by VPI shall be utilized by the Company solely to satisfy its obligations to the
Nonvoting Member in question under this Section 6.6. VPI agrees to make any
such additional Capital Contribution to the Company within thirty (30) days of
the request therefor by the Nonvoting Member in question.
This Section 6.6 is solely for the benefit of the Nonvoting Members, and
not for any other Persons, including any creditors of the Company or any Pool.
The term "Return Date" for purposes of this Agreement shall, except as
provided in the following paragraph, mean the date on which the Company has
satisfied its obligations to all of the Nonvoting Members under this Section
6.6.
Notwithstanding the foregoing, however, the obligations of the Company and
VPI under this Section 6.6 with respect to each Nonvoting Member are subject to
and conditioned upon the Nonvoting Member in question being in full compliance
with all of the terms and conditions of this Agreement and any promissory note
given
17
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by such Nonvoting Member to the Company, and in the event a Nonvoting Member is
in breach or default under this Agreement or any such promissory note, the
Company and VPI shall not be required to pay the Return Amount to such Nonvoting
Member unless and until such Nonvoting Member has cured all such breaches or
defaults. In this circumstance, the term "Return Date" for purposes of this
Agreement shall mean the date on which the Company has satisfied its obligations
under this Section 6.6 to only the Nonvoting Members who are not in breach or
default under this Agreement or any promissory notes given by such Nonvoting
Members.
ARTICLE VII
ALLOCATIONS AND INCOME TAX; DISTRIBUTIONS
-----------------------------------------
7.1 ALLOCATIONS OF PROFITS AND LOSSES FROM OPERATIONS.
-------------------------------------------------
(a) Except as otherwise expressly provided in this Section 7.1 and as
may be otherwise required by Section 704(c) of the Code, the Net Losses and
Net Profits of the Company for each Fiscal Year shall be allocated as
follows. The Net Losses of the Company for each Fiscal Year shall be
allocated (i) first to the Voting Members, pro rata based upon the
respective number of Voting Units held by the Voting Members, but only up
to the amount of the respective Capital Accounts of the Voting Members (the
"First Loss Allocation"); (ii) if any Net Losses remain after the First
Loss Allocation, then to the Nonvoting Members who have contributed cash to
the Company, pro rata based upon the respective number of Nonvoting Units
held by such Nonvoting Members, but only up to the amount of such Nonvoting
Members' respective cash contributions to the Company (the "Second Loss
Allocation"); (iii) if any Net Losses remain after the Second Loss
Allocation, then to the Nonvoting Members whose Capital Contribution to the
Company includes a promissory note, pro rata based upon the respective
number of Nonvoting Units held by such Nonvoting Members, but only up to
the amount of the respective Capital Accounts of such Nonvoting Members
(the "Third Loss Allocation"). The Net Profits of the Company for each
Fiscal Year shall be allocated (i) first to the Nonvoting Members who
received a Third Loss Allocation, if any, pro rata based upon the
respective number of Nonvoting Units held by such Nonvoting Members, up to
the amount of their respective Third Loss Allocations (the "First Profit
Allocation"); (ii) if any Net Profits remain after the First Profit
Allocation, then to the Nonvoting Members who received a Second Loss
Allocation, if any, pro rata based upon the respective number of Nonvoting
Units held by such Nonvoting Members, up to the amount of their respective
Second Loss Allocations (the "Second Profit Allocation"); (iii) if any Net
Profits remain after the Second Profit Allocation, then to the Voting
Members, pro rata based upon the respective number of Voting Units held by
the Voting Members, up to the amount of their respective First Loss
Allocations, if any (the "Third Profit Allocation"); and (iv) if any Net
Profits remain after the Third Profit Allocation, then to the Nonvoting
Members, pro rata based upon the respective number of Nonvoting Units held
by the Nonvoting Members, in an aggregate amount equal to twenty-eight
percent (28%) of the Net Profits, with the balance of the Net Profits to
then be allocated to the Voting Members, pro rata based upon the respective
number of Voting Units held by the Voting Members. For purposes of
allocating the Net Losses and the Net Profits to the Nonvoting Members
pursuant to any of the foregoing, however, any income and gains or losses
and deductions, as the case may be, of the Company related to or otherwise
arising from Corn Belt Commodities Round Trip Limited Partnership, an Iowa
limited partnership for which the Company will serve as the general partner
and commodity pool operator, shall be excluded, with all Net Profits or Net
Losses, as the case may be, related to or otherwise arising from Corn Belt
Commodities Round Trip Limited Partnership to in all events be allocated
solely to the Voting Members
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pro rata based upon the respective number of Voting Units held by the
Voting Members. Any credit available for income tax purposes shall be
allocated among the Members in like fashion. Notwithstanding the foregoing
or any other term or condition of this Section 7.1 or of this Agreement
which may appear to be the contrary, however, no Net Losses of the Company
shall be allocated to the Nonvoting Members with respect to any Fiscal Year
commencing after the Return Date.
(b) Notwithstanding paragraph 7.1(a) above, no loss shall be allocated
to a Member if such allocation would cause such Member's Adjusted Capital
Account to become negative or to increase the negative balance thereof.
(c)(1) In the event any Member unexpectedly receives any adjustments,
allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4),
(5) or (6) of the Treasury Regulations, items of Company income and gain
shall be specially allocated to each such Member in an amount and manner
sufficient to eliminate, to the extent required by the Treasury
Regulations, the deficit balance of the Adjusted Capital Account of such
Member as quickly as possible, provided that an allocation pursuant to this
paragraph 7.1(c)(1) shall only be made if and to the extent such Member
would have a deficit balance in its Adjusted Capital Account after all
other allocations provided for in this Section 7.1 have been made as if
this paragraph 7.1(c)(1) were not in this Agreement.
(2) In the event any Member has a deficit Capital Account at the end
of any Fiscal Year which is in excess of the sum of (i) the amount such
Member is obligated to restore pursuant to any provision of this Agreement,
if any, and (ii) the amount such Member is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be
specially allocated items of Company income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
paragraph 7.1(c)(2) shall be made only if and to the extent that such
Member would have a deficit Capital Account in excess of such sum after all
other allocations provided for in this Section 7.1 have been made as if
paragraph 7.1(c)(1) above and this paragraph 7.1(c)(2) were not in this
Agreement.
(d)(1) Except as otherwise provided in Section 1.704-2(f) of the
Treasury Regulations, and notwithstanding any other provision of this
Section 7.1, if there is a net decrease in partnership minimum gain during
any Fiscal Year, each Member shall be specially allocated items of Company
income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal
Years) in an amount equal to such Member's share of the net decrease in
partnership minimum gain, determined in accordance with Treasury Regulation
Section 1.704-2(g). Allocations pursuant to the previous sentence shall be
made in proportion to the respective amounts required to be allocated to
each Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Section 1.704-2(f)(6) and 1.704-2(j)(2) of
the Treasury Regulations. This paragraph 7.1(d)(1) is intended to comply
with the minimum gain chargeback requirement in Section 1.704-2(f) of the
Treasury Regulations and shall be interpreted consistently therewith.
(2) Except as otherwise provided in Section 1.704-2(i)(4) of the
Treasury Regulations, and notwithstanding any other provision of this
Section 7.1, if there is a net decrease in partner nonrecourse debt minimum
gain attributable to a partner nonrecourse debt during any Fiscal Year,
each Member who has a share of the partner nonrecourse debt minimum gain
attributable to such partner nonrecourse debt, determined in accordance
with Section 1.704-2(i)(5) of the Treasury Regulations, shall be specially
19
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allocated items of Company income and gain for such Fiscal Year (and, if
necessary, subsequent Fiscal Years) in an amount equal to such Member's
share of the net decrease in partner nonrecourse debt minimum gain
attributable to such partner nonrecourse debt, determined in accordance
with Treasury Regulation Section 1.704-2(i)(4). Allocations pursuant to
the previous sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The items to be
so allocated shall be determined in accordance with Sections 1.704-2(i)(4)
and 1.704-2(j)(2) of the Treasury Regulations. This paragraph 7.1(d)(2) is
intended to comply with the minimum gain chargeback requirement in Section
1.704-2(i)(4) of the Treasury Regulations and shall be interpreted
consistently therewith.
(3) Nonrecourse deductions for any Fiscal Year shall be specially
allocated among the Members pro rata based upon the respective number of
Units held by the Members.
(4) Any partner nonrecourse deductions for any Fiscal Year shall be
specially allocated to the Member who bears the economic risk of loss with
respect to the partner nonrecourse debt to which such partner nonrecourse
deductions are attributable in accordance with Treasury Regulation Section
1.704-2(i)(1).
(e) To the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Code Section 734(b) or Code Section 743(b) is
required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to
be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if
the adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to
the Member in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to such Section of the
Treasury Regulations.
(f) Notwithstanding any other provision of this Agreement, the
Regulatory Allocations shall be taken into account in allocating items of
income, gain, loss and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other items and the
Regulatory Allocations to each Member shall be equal to the net amount that
would have been allocated to each such Member if the Regulatory Allocations
had not occurred. For purposes of applying the foregoing sentence,
allocations pursuant to this paragraph 7.1(f) shall only be made with
respect to allocations pursuant to paragraph 7.1(e) hereof to the extent
the Voting Members reasonably determine that such allocations will
otherwise be inconsistent with the economic agreement among the parties to
this Agreement.
(g) The Voting Members shall have reasonable discretion, with respect
to each Fiscal Year, to (i) apply the provisions of paragraph 7.1(f) hereof
in whatever order is likely to minimize the economic distortions that might
otherwise result from the Regulatory Allocations, and (ii) divide all
allocations pursuant to paragraph 7.1(f) hereof among the Members in a
manner that is likely to minimize such economic distortions.
7.2 DISTRIBUTIONS. The Nonvoting Members shall be entitled to receive a
-------------
distribution (each, a "Nonvoting Distribution") from the Company with respect to
the Fiscal Years of the Company ending December 31, 1998, December 31, 1999,
December 31, 2000, December 31, 2001, December 31, 2002, December 31, 2003 and
December 31, 2004 (individually, a "Nonvoting Distribution Year," and
collectively, the "Nonvoting
20
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Distribution Years"), in an amount equal to twenty-eight percent (28%) of the
Net Profits of the Company, if any, for the Nonvoting Distribution Year in
question; provided, however, that "Net Profits" for this purpose shall be
determined excluding the income and gains and the losses and deductions of the
Company related to or otherwise arising from Corn Belt Commodities Round Trip
Limited Partnership, an Iowa limited partnership for which the Company will
serve as the general partner and commodity pool operator. Each Nonvoting
Distribution shall be made pro rata based upon the respective number of
Nonvoting Units held by the Nonvoting Members. Each Nonvoting Distribution shall
be paid by the Company within thirty (30) days following the close of the
Nonvoting Distribution Year in question, and a Nonvoting Distribution shall be
deemed to be "owed" to the Nonvoting Members for purposes of this Agreement, if
otherwise payable, effective as of the last day of the Nonvoting Distribution
Year in question. No Nonvoting Distributions need be paid by the Company,
however, unless otherwise approved by the Voting Members, until after the close
of the December 31, 2001 Nonvoting Distribution Year, at which time the
Nonvoting Members shall be paid (without interest) all of the Nonvoting
Distributions which have accrued and are payable, if any, with respect to each
Nonvoting Distribution Year through December 31, 2001; provided, however, that
the Voting Members shall, if requested by a Nonvoting Member, pay a portion of
the Nonvoting Distribution payable by the Company with respect to any of the
Nonvoting Distribution Years ending on December 31, 1998, December 31, 1999,
December 31, 2000, or December 31, 2001 in an amount equal to the tax liability
of the Nonvoting Member in question for such Nonvoting Distribution. Losses in a
subsequent Nonvoting Distribution Year shall not affect any Nonvoting
Distributions payable with respect to prior Nonvoting Distribution Years.
The Nonvoting Members shall not be entitled to any other distributions from
the Company for any other purpose whatsoever or at any other time whatsoever.
All distributions of cash or other property to the Voting Members shall be
made to the Voting Members pro rata based upon the respective number of Voting
Units held by the Voting Members. All distributions to the Voting Members shall
be made in such amounts and at such times as are determined by the Voting
Members from time to time; provided, however, that no distribution shall be made
to the Voting Members during any Nonvoting Distribution Year in an amount which
would cause the net worth (as that term is defined in Section 5.7 above) of the
Company to fall below the Minimum Amount (as that term is also defined in
Section 5.7 above). The Nonvoting Members acknowledge and agree, however, that
the Voting Members may, at any time prior to March 31, 1999, declare and pay a
distribution to VPI in such amount so as to cause the Capital Contribution of
VPI to be anywhere between $170,000 and $180,000, even if such distribution
would otherwise be prohibited or restricted by the preceding sentence.
Notwithstanding the foregoing, all distributions, whether Nonvoting
Distributions or distributions to the Voting Members, shall in all events be
subject to Section 7.3 below.
All amounts withheld pursuant to the Code or any provisions of state or
local tax law with respect to any payment or distribution to the Members from
the Company shall be treated as amounts distributed to the relevant Member or
Members pursuant to this Section 7.2.
The last day of the Nonvoting Distribution Year in question shall be the
record date for the determination of the Nonvoting Members entitled to receive
payment of any Nonvoting Distribution. The date on which the resolution
declaring a distribution to the Voting Members is adopted by the Voting Members
shall be the record date for the determination of the Voting Members entitled to
receive payment of any distribution to the Voting Members.
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This Section 7.2 is not applicable to distributions payable to the Members
upon the dissolution of the Company, which distributions are governed by Section
10.2 below.
7.3 LIMITATION UPON DISTRIBUTIONS. No distribution shall be declared and
-----------------------------
paid to either the Nonvoting Members or the Voting Members if, after the
distribution is made: (a) the Company would not be able to pay its debts as
they became due in the usual course of business, or (b) the Company's total
assets would be less than the sum of its total liabilities, plus the amount that
would be needed (if any), if the Company were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of Members
whose preferential rights are superior to the rights of the Members receiving
the distribution.
7.4 INTEREST ON AND RETURN OF CAPITAL CONTRIBUTIONS. No Member shall be
-----------------------------------------------
entitled to interest on its Capital Contribution or to return of its Capital
Contribution, except only as expressly provided in Section 6.6 above with
respect to the payment of the Return Amounts to the Nonvoting Members.
7.5 LOANS TO COMPANY. Nothing in this Agreement shall prevent any Member
----------------
from making secured or unsecured loans to the Company by agreement with the
Company.
7.6 RETURNS AND OTHER ELECTIONS. The Voting Members shall cause the
---------------------------
preparation and timely filing of all tax returns required to be filed by the
Company pursuant to the Code and all other tax returns deemed necessary and
required in each jurisdiction in which the Company does business. Copies of
such returns shall be furnished to the Members within a reasonable time after
the end of the Company's Fiscal Year. All elections permitted to be made by the
Company under federal or state laws shall be made by the Voting Members.
7.7 TAX MATTERS PARTNER. Jeffrey A. Raun is hereby designated the Tax
-------------------
Matters Partner of the Company for purposes of Chapter 63 of the Code and the
Treasury Regulations thereunder. The Tax Matters Partner may be changed from
time to time by the Voting Members.
ARTICLE VIII
TRANSFERABILITY AND SUBSTITUTE MEMBERS
--------------------------------------
8.1 ASSIGNMENT OF UNITS. Except as provided in Sections 8.3 and 8.4
-------------------
below, no Member may assign any of its Units, in whole or in part, or pledge,
grant a security interest, lien or other encumbrance in or against any or all of
the Member's Units, or any right or interest therein or thereunder, except with
the prior vote or written consent of the Voting Members holding at least a
majority of the total outstanding Voting Units, and, if the assignment is to
occur prior to the Return Date, also the prior vote or written consent of the
Nonvoting Members holding at least a majority of the total outstanding Nonvoting
Units. Except as provided in Section 8.3 below, an assignment of a Unit (even
if made in accordance with the preceding sentence) does not entitle the assignee
to participate in the management and affairs of the Company or to become a
Substitute Member or to otherwise exercise any rights of a Member (including,
without limitation, the right to vote and to receive notice of meetings), but
rather only entitles the assignee to receive, to the extent assigned, only the
distributions to which the assignor would otherwise be entitled to with respect
to the Unit in question. Notwithstanding the foregoing or any other term or
condition of this Agreement which may appear to be to the contrary, no Member
shall in any event assign or have the right to assign a Unit, or any portion
thereof, if such assignment would result in the termination of the Company or
the Company's tax year for federal income tax purposes or violate or cause the
22
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Company to violate any applicable law or governmental rule or regulation,
including, without limitation, any applicable federal or state securities law,
rule or regulation.
8.2 RIGHT OF ASSIGNEE TO BECOME A SUBSTITUTE MEMBER. Except as provided
-----------------------------------------------
in Section 8.3 below, an assignee of a Unit may become a Substitute Member only
if the proposed Substitute Member executes an agreement accepting and adopting
the terms of the Articles of Organization and this Agreement, and if the Voting
Members holding at least a majority of the total outstanding Voting Units
consent thereto in writing, and, if the substitution is to occur prior to the
Return Date, the Nonvoting Members holding at least a majority of the total
outstanding Nonvoting Units also consent thereto in writing (in each case
including in such calculation the Unit or Units which have been assigned, which
may be voted by the Member which assigned such Unit or Units) . Any such
consent may be withheld in a Member's sole discretion. A Substitute Member
shall be admitted as a Member upon the later to occur of the events specified in
the preceding sentence. Section 903 of the Iowa Act shall apply to any such
transfers, except as expressly modified hereby. An assignee of a Unit who has
become a Substitute Member as to that Unit has the rights and powers, and is
subject to the restrictions and liabilities, of a Member as to such Unit under
the Articles of Organization, this Agreement and the Iowa Act.
8.3 VPI ASSIGNMENT RIGHTS. Notwithstanding Sections 8.1 and 8.2 above,
---------------------
VPI may from time to time assign any or all of its Units, in whole or in part,
without the consent of any of the other Voting Members or any Nonvoting Members,
to Jeffrey A. Raun, the spouse of Jeffrey A. Raun, any lineal descendent of
Jeffrey A. Raun, Erika Wurm, Krista Wurm, or to a trust for the benefit of
Jeffrey A. Raun, his spouse, any of his lineal descendants, Erika Wurm or Krista
Wurm. VPI may also cause any such assignee of any of its Units to be a
Substitute Member with respect to the Units without the vote or consent or any
other Voting Members or any Nonvoting Members; provided, however, that Jeffrey
A. Raun, his spouse, his lineal descendants, Erika Wurm, Krista Wurm or the
trust, as the case may be, shall take all such Units subject to all of the terms
and conditions of this Agreement and the provisions of the Articles of
Organization and shall execute an agreement accepting and adopting the terms and
conditions of this Agreement and the Articles of Organization.
8.4 REPURCHASE OF NONVOTING UNITS BY THE COMPANY. Provided the Company
--------------------------------------------
has complied with its obligations under Section 6.6 above, each of the Nonvoting
Members agree that they shall be deemed, without notice to or further action on
their part, to have sold and transferred all of their respective Nonvoting Units
to the Company for the aggregate price of $1.00 simultaneously with their
receipt of the Nonvoting Distribution payable, if any, with respect to the final
Nonvoting Distribution Year (or if a Nonvoting Distribution is not payable with
respect to such final Nonvoting Distribution Year, simultaneously with the close
of such Nonvoting Distribution Year). The sale and transfer of the Nonvoting
Units pursuant to this Section 8.4 shall not be subject to the prior consent or
vote of any of the other Nonvoting Members or any Voting Members, whether under
Sections 8.1 or 8.2 above or any other provision of this Agreement.
ARTICLE IX
ADDITIONAL MEMBERS AND ALLOCATIONS
----------------------------------
9.1 ADMISSION OF ADDITIONAL MEMBERS. A Person may, subject to the terms
-------------------------------
and conditions of this Agreement, become an Additional Member in the Company by
the sale of such number of Voting Units and/or Nonvoting Units and for such
Capital Contribution and upon such other terms and conditions as the Voting
Members holding at least a majority of the total outstanding Voting Units shall
determine, and, if the Units are to be issued prior to the Return Date, as the
Nonvoting Members holding at least a majority of the total
23
<PAGE>
outstanding Nonvoting Units shall also determine. An Additional Member shall be
admitted as a member of the Company upon receipt by the Company of the
Additional Member's Capital Contribution. No subsequent Capital Contributions
may be required of any Additional Member unless otherwise agreed as a condition
to the issuance of Units to such Additional Member.
9.2 ALLOCATIONS TO ASSIGNEES AND TO ADDITIONAL AND SUBSTITUTE MEMBERS.
-----------------------------------------------------------------
No assignee pursuant to Sections 8.1 or 8.3 above, Additional Member or
Substitute Member shall be entitled to any retroactive allocation of losses,
income or expense deductions incurred by the Company. The Voting Members may,
at their option, at the time an assignee, Additional Member or Substitute Member
is admitted, close the Company books (as though the Company's tax year had
ended) or make pro rata allocations of loss, income and expense deductions to
the assignee, Additional Member or Substitute Member for that portion of the
Company's Fiscal Year in which the assignee, Additional Member or Substitute
Member was admitted, in accordance with the provisions of Section 706(d) of the
Code and the Treasury Regulations promulgated thereunder.
ARTICLE X
DISSOLUTION AND TERMINATION
---------------------------
10.1 DISSOLUTION. The Company shall be dissolved upon the occurrence of
-----------
any of the following events:
(a) at the time or on the happening of an event specified in the Iowa
Act, the Articles of Organization or this Agreement to cause dissolution,
if any; or
(b) upon the affirmative vote of the Voting Members holding at least a
majority of the total outstanding Voting Units, and, if the dissolution is
to occur prior to the Return Date, also with the affirmative vote of the
Nonvoting Members holding at least a majority of the total outstanding
Nonvoting Units.
10.2 DISTRIBUTION OF ASSETS UPON DISSOLUTION. In settling accounts after
---------------------------------------
dissolution, the assets of the Company shall be distributed in the following
order:
(a) to creditors, including Members who are creditors (to the extent
permitted by law) in satisfaction of the liabilities of the Company, other
than for distributions to Members under Sections 490A.803 or 490A.805 of
the Iowa Act;
(b) to Members and former Members in satisfaction of liabilities for
distributions under Sections 490A.803 or 490A.805 of the Iowa Act,
including, without limitation, any Nonvoting Distributions owed the
Nonvoting Members;
(c) to Members of the Company in proportion to, and to the extent of,
the positive balances in their respective Capital Accounts, as determined
after taking into account all Capital Account adjustments for the Company's
Fiscal Year in which the liquidation occurs, and with respect to the
Nonvoting Members, after deducting from their respective Capital Accounts
the principal amount of any promissory note given by the Nonvoting Member
as part of the Nonvoting Member's Capital
24
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Contribution to the Company, if any, that has not been paid by such
Nonvoting Member to the Company; and then
(d) to the Voting Members of the Company pro rata based upon the
respective number of Voting Units held by the Voting Partners.
10.3 ARTICLES OF DISSOLUTION. When all debts, liabilities and obligations
-----------------------
have been paid and discharged or reasonably adequate provisions have been made
therefor and all of the remaining property and assets have been distributed to
the Members, articles of dissolution shall be executed and filed with the Iowa
Secretary of State. Thereafter, the existence of the Company shall cease,
except for the purpose of suits, other proceedings and appropriate action as may
be expressly provided in the Iowa Act. The Voting Members shall thereafter have
authority to distribute any Company property discovered after dissolution,
convey real estate and take such other action as may be necessary on behalf of
and in the name of the Company.
10.4 WINDING UP. Except as provided by law, upon dissolution each Member
----------
shall look solely to the assets of the Company for the return of its Capital
Account. If the Company property remaining after the payment or discharge of
the debts and liabilities of the Company is insufficient to return the Capital
Account of a Member, such Member shall have no recourse against the Company or
any other Member. Further, no Member shall be required to restore any deficit
in the Member's Capital Account and such deficit shall not be treated as an
asset of the Company. The winding up of the affairs of the Company and the
distribution of its assets shall be conducted exclusively by the Voting Members,
who are hereby authorized to take all actions necessary to accomplish such
distribution, including without limitation, selling any Company assets the
Voting Members deem necessary or appropriate to sell.
ARTICLE XI
INDEMNIFICATION
---------------
Each person who is or was a Member of the Company who is made a party to
or a witness in, or is threatened to be made a party to or a witness in, any
threatened, pending or completed claim, action, suit or proceeding, whether
civil, criminal, administrative or investigative (including a grand jury
proceeding) and whether formal or informal, by reason of the fact that such
person (i) is or was a Member of the Company; or (ii) while a Member of the
Company, is or was serving at the request of the Company as a manager, member,
director, officer, general partner, partner, trustee, employee or agent of
another individual, person, limited liability company, corporation, limited
partnership, partnership, joint venture, trust, employee benefit plan or other
entity or enterprise, shall be indemnified and held harmless by the Company with
respect to such claim, action, suit or proceeding to the maximum extent that a
corporation has authority to indemnify a director of the corporation by or under
the Iowa Business Corporation Act or other applicable law, as the same now
exists or as it may hereafter be amended or changed (but, in the case of any
such amendment or change, only to the extent that such amendment or change
empowers the Company to provide broader indemnification than said law empowered
the Company to provide prior to such amendment or change). Any such
indemnification shall include, without limitation, indemnification against
reasonable costs and expenses (including attorneys' fees), judgments, fines,
penalties (including an excise tax assessed with respect to an employee benefit
plan) and amounts paid in settlement actually and reasonably incurred by such
person in connection with any such claim, action, suit or proceeding or any
appeal thereof. A person's right to such indemnification (except with respect
to proceedings seeking to enforce indemnification under this Article) shall,
however, be conditional upon the Company being afforded the opportunity to
participate directly on behalf of such person in such claim, action, suit or
proceeding
25
<PAGE>
or any settlement discussions relating thereto, and with respect to any
settlement or other nonadjudicated disposition of any threatened or pending
claim, action, suit or proceeding, entitlement to indemnification shall be
further conditional upon the prior approval by the Company of the proposed
settlement or nonadjudicated disposition. Approval or disapproval by the Company
of any proposed settlement or other nonadjudicated disposition shall not subject
the Company to any liability to or require indemnification or reimbursement of
any party who the Company would not otherwise have been required to indemnify or
reimburse.
The right to indemnification conferred in this Article shall include the
right to payment or reimbursement by the Company of reasonable expenses incurred
in connection with any such claim, action, suit or proceeding in advance of its
final disposition; provided, however, that the payment or reimbursement of such
expenses in advance of the final disposition of such claim, action, suit or
proceeding shall be made only upon delivery to the Company of (i) a written
undertaking by or on behalf of the person claiming indemnification under this
Article to repay all amounts so advanced if it shall ultimately be determined
that such person is not entitled to be indemnified under this Article or
otherwise, and (ii) a written affirmation of such person's good faith belief
that such person has met the applicable standard of conduct necessary to require
indemnification by the Company pursuant to this Article or otherwise.
The provisions of this Article shall be deemed a contract between the
Company and each Member who is a member of the Company at any time while this
Article and the relevant provisions of the Iowa Limited Liability Company Act or
other applicable law are in effect, and any repeal or modification of the Iowa
Limited Liability Company Act or other applicable law or of this Article shall
not adversely affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any claim, action, suit or
proceeding theretofore or thereafter brought or threatened based in whole or in
part upon any such state of facts.
The Company may, by action of the Voting Members of the Company, provide
indemnification to such of the officers, employees and agents of the Company to
such extent and to such effect as the Voting Members shall determine to be
appropriate and authorized by applicable law, as the same now exists or as it
may hereafter be amended.
Except only as may be limited by the affirmative requirements of applicable
law, the indemnification and advancement of expenses provided by or granted
pursuant to this Article shall not be deemed exclusive of any other rights which
a person seeking indemnification or advancement of expenses may have or
hereafter acquire or become entitled to under any statute, provision of the
Articles of Organization or Operating Agreement of the Company, agreement, vote
of Members or otherwise.
This Article shall be applicable to all claims, actions, suits or
proceedings commenced after the effective date hereof, whether arising from acts
or omissions occurring before or after the effective date hereof. Each person
who is now serving or who shall hereafter serve as a Member of the Company shall
be deemed to be doing so in reliance upon the rights of indemnification provided
for in this Article, and such rights of indemnification shall continue as to a
person who has ceased to be a Member, and shall inure to the benefit of the
heirs, executors, legal or personal representatives, administrators, and
successors of such a person. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify each Member of the Company to the maximum
extent permitted by any applicable portion of this Article that shall not have
been invalidated.
26
<PAGE>
Notwithstanding anything in this Article to the contrary, the Company shall
(except with respect to proceedings initiated to enforce rights of
indemnification to which a person is entitled under this Article or otherwise)
indemnify a person in connection with a claim, action, suit or proceeding (or
part thereof) initiated by such person only if the initiation of such claim,
action, suit or proceeding (or part thereof) was authorized by the Voting
Members of the Company.
The Company may purchase and maintain insurance, at its expense, to protect
itself and any person who is or was a Member, officer, employee or agent of the
Company, or while a Member of the Company, is or was serving at the request of
the Company as a manager, member, director, officer, general partner, partner,
trustee, employee or agent of another individual, person, limited liability
company, corporation, limited partnership, partnership, joint venture, trust,
employee benefit plan or other entity or enterprise against any liability
asserted against such person and incurred by such person in such capacity, or
arising out of such person's status as such, whether or not the Company would
have the power to indemnify such person against such liability under the
provisions of this Article, the Iowa Limited Liability Company Act or otherwise.
The Company may create a trust fund, grant a security interest and/or use other
means (including, without limitation, letters of credit, surety bonds and/or
similar arrangements), as well as enter into contracts providing for
indemnification to the maximum extent permitted by law and including as a part
thereof any or all of the foregoing, to ensure the payment of such sums as may
be necessary to effect full indemnification. The Company's obligation to make
indemnification and pay expenses pursuant to this Article shall be in excess of
any insurance purchased and maintained by the Company and such insurance shall
be primary. To the extent that indemnity or expenses of the person entitled to
indemnification and payment of expenses pursuant to this Article are paid on
behalf of or to such person by such insurance, such payments shall be deemed to
be in satisfaction of the Company's obligation to such person to make
indemnification and pay expenses pursuant to this Article.
ARTICLE XII
MISCELLANEOUS PROVISIONS
------------------------
12.1 NOTICES. Any notice, demand, or communication desired or required to
-------
be given under this Agreement shall be deemed to have been sufficiently given or
served for all purposes when delivered personally (including delivery by a
recognized courier service such as Airborne Express or Federal Express) to the
party or to an executive officer of the party to whom the same is directed, or
when deposited in the United States mail, sent registered or certified mail,
postage and charges prepaid, addressed to the Company or to the Member in
question at the address of the Member as it appears in the Company's records.
12.2 APPLICATION OF IOWA LAW. This Agreement, and the application and
-----------------------
interpretation hereof, shall be governed exclusively by its terms and by the
laws of the State of Iowa, and specifically the Iowa Act.
12.3 WAIVER OF ACTION FOR PARTITION. Each Member irrevocably waives any
------------------------------
right that it may have to maintain any action for partition with respect to the
property of the Company.
12.4 EXECUTION OF ADDITIONAL INSTRUMENTS. Each Member hereby agrees to
-----------------------------------
execute such other and further statements of interest and holdings,
designations, powers of attorney and other instruments necessary to comply with
any laws, rules or regulations, or to evidence the Members' authority hereunder.
27
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12.5 CONSTRUCTION. Whenever the singular number is used in this Agreement
------------
and when required by the context, the same shall include the plural, and the
masculine gender shall include the feminine and neuter gender and vice versa.
12.6 HEADINGS. The headings in this Agreement are inserted for convenience
--------
of reference only and are in no way intended to and do not describe, interpret,
define, or limit the scope, extent or intent of this Agreement or any provision
hereof.
12.7 WAIVERS. The failure of any party to seek redress for violation of
-------
or to require or insist upon the strict performance of any covenant or condition
of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
12.8 RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies provided by
------------------------------
this Agreement are cumulative and the use of any one right or remedy by any
party shall not preclude or waive the right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights the parties
may have by law, statute, ordinance, in equity or otherwise.
12.9 SEVERABILITY. If any provision of this Agreement or the application
------------
thereof to any Person or circumstance shall be held to be invalid, illegal or
unenforceable to any extent, the remainder of this Agreement and the application
thereof shall not be affected thereby and shall be enforceable to the fullest
extent permitted by law. In the event any provision of this Agreement is held
to be unenforceable as written, but enforceable if modified, then such provision
shall be deemed to be amended to such extent as shall be necessary for such
provision to be enforceable and it shall be enforced to that extent.
12.10 HEIRS, SUCCESSORS AND ASSIGNS. This Agreement shall be binding
-----------------------------
upon and shall inure to the benefit of the Members and their respective heirs,
successors, legal representatives and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
the Members and their respective heirs, successors, legal representatives and
permitted assigns any rights, remedies, liabilities or obligations under or by
reason of this Agreement.
12.11 CREDITORS. None of the provisions of this Agreement shall be for
---------
the benefit of or enforceable by any creditor of the Company.
12.12 COUNTERPARTS. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original but all of which shall constitute one and
the same instrument.
12.13 ENTIRE AGREEMENT. The Articles of Organization, this Agreement and
----------------
all other exhibits and schedules hereto constitute the entire agreement among
the Members pertaining to the subject matters hereof and supersede all
negotiations, preliminary agreements and all prior or contemporaneous
discussions and understandings of the Members or any of them in connection with
the subject matters hereof. All exhibits and schedules are incorporated into
this Agreement as if set forth in their entirety and constitute a part hereof.
12.14 FEDERAL INCOME TAX ELECTIONS. The Voting Members, on behalf of the
----------------------------
Company, may make all elections for federal income tax purposes, including, but
not limited to, the following:
28
<PAGE>
(a) To the extent permitted by applicable law and regulations, elect
to use an accelerated depreciation method on any depreciable unit of the
assets of the Company; and
(b) In case of a transfer of a Unit of any Member, the Company may
elect, pursuant to Sections 734, 743 and 754 of the Code, to adjust the
basis of the assets of the Company.
12.15 INDEMNIFICATION. In addition to any other indemnities provided for
---------------
in this Agreement or otherwise available at law, in equity or otherwise, each
Member shall defend, indemnify and hold the Company and each of the other
Members harmless from and against any loss, claim, liability, damage, cost or
expense (including, without limitation, court costs and reasonable attorneys'
fees) arising in connection with or resulting from any breach of warranty,
misrepresentation or nonfulfillment of any agreement on the part of the Member
under this Agreement.
IN WITNESS WHEREOF, each Member has entered into this Agreement as of the
day and year first above written.
VACATION PARTNERS, INC.
By /s/ Jeffrey A. Raun /s/ Dr. Mark Westberg
------------------------------- ----------------------------------
Jeffrey A. Raun, President Dr. Mark Westberg
/s/ Dr. Craig Rowles /s/ Rebecca Westberg
- ---------------------------------- ----------------------------------
Dr. Craig Rowles Rebecca Westberg
/s/ Elizabeth Rowles /s/ Dr.Alan Raun
- ---------------------------------- ----------------------------------
Elizabeth Rowles Dr. Alan Raun
/s/ Daniel Frieberg /s/ Dorothy Raun
- ---------------------------------- ----------------------------------
Daniel Frieberg Dorothy Raun
/s/ Kathleen Frieberg
- ----------------------------------
Kathleen Frieberg
Schedule 1 - Capital Contributions of the Initial Members
Schedule 2 - Gross Asset Value of Assets Contributed by VPI
29
<PAGE>
SCHEDULE 1
This Schedule 1 is a part of that certain Operating Agreement (the "Agreement")
of Portfolio Boost, L.L.C. (the "Company") dated as of May 21, 1998.
Capitalized terms not otherwise defined in this Schedule 1 shall have the
meanings given them in the Agreement.
1. Vacation Partners, Inc. ("VPI"). The Capital Contribution of VPI for the
-------------------------------
Voting Units set forth in Section 3.1 of the Agreement shall be and
constitute the assets which shall be transferred and conveyed to the
Company pursuant to the merger of Corn Belt Management, Inc., an Iowa
corporation, with and into the Company, which merger shall be effectuated
as soon as is reasonably practical following the execution of the Agreement
by all of the Initial Members. The assets of Corn Belt Management, Inc.
shall be deemed to be the Capital Contribution of VPI because of and
pursuant to the ownership of all of the issued and outstanding shares of
stock of both VPI and Corn Belt Management, Inc. by Jeffrey A. Raun. VPI
shall be admitted as a Voting Member of the Company with respect to all of
the Voting Units set forth in Section 3.1 of the Agreement effective upon
the date of the filing of Articles of Merger with the Iowa Secretary of
State with respect to the merger of Corn Belt Management, Inc. with and
into the Company. VPI shall be entitled to a distribution from the Company
in such amount so as to cause the Capital Contribution of VPI to be
anywhere between $170,000 and $180,000, as provided in Section 7.2 of the
Agreement.
2. Dr. Westberg and Ms. Westberg. The Capital Contribution of Dr. Westberg
-----------------------------
and Ms. Westberg for the Nonvoting Units to be issued to them as set forth
in Section 3.1 of the Agreement shall be (i) $300,000 in cash or other
immediately available funds; and (ii) a demand promissory note from Dr.
Westberg and Ms. Westberg to the Company in the aggregate principal amount
of $100,000 (the "Westberg Promissory Note"), such promissory note to be in
the form attached to this Schedule 1 as Exhibit "A." The Westberg
Promissory Note shall be secured by a letter of credit in the amount of
$100,000 from a bank or other financial institution satisfactory to the
Company and upon terms and conditions otherwise satisfactory to the
Company. The terms and conditions of the letter of credit must, at a
minimum, be sufficient so as to allow the Westberg Promissory Note to be
considered as an asset of the Company for purposes of calculating the
Company's net worth. Dr. Westberg and Ms. Westberg shall be admitted as a
Nonvoting Member of the Company effective upon receipt by the Company of
both the $300,000 referred to in subclause (i) above and the issuance to
the Company of both the Westberg Promissory Note and the letter of credit
which is to secure the Westberg Promissory Note as provided above.
3. Dr. Rowles and Ms. Rowles. The Capital Contribution of Dr. Rowles and Ms.
-------------------------
Rowles for the Nonvoting Units to be issued to them as set forth in Section
3.1 of the Agreement shall be $130,000 in cash or other immediately
available funds. Dr. Rowles and Ms. Rowles shall be admitted as a
Nonvoting Member of the Company upon receipt by the Company of the $130,000
referred to above.
4. Dr. Raun and Ms. Raun. The Capital Contribution of Dr. Raun and Ms. Raun
---------------------
for the Nonvoting Units to be issued to them as set forth in Section 3.1 of
the Agreement shall be a demand promissory note from Dr. Raun and Ms. Raun
to the Company in the aggregate principal amount of $450,000 (the "Raun
Promissory Note"), such promissory note to be in the form attached to this
Schedule 1 as Exhibit "A." The Raun Promissory Note shall be secured by a
letter of credit in the amount of $450,000 from a bank or other financial
institution satisfactory to the Company and upon terms and conditions
otherwise satisfactory to the Company. The terms and conditions of the
letter of credit must, at a minimum, be sufficient so as to allow the Raun
Promissory Note to be considered as an asset of the Company for purposes of
calculating the Company's net worth. Dr. Raun and Ms. Raun shall be
admitted as a
<PAGE>
Nonvoting Member of the Company effective upon receipt by the Company of
the Raun Promissory Note and the letter of credit which is to secure the
Raun Promissory Note as provided above.
5. Mr. Frieberg and Ms. Frieberg. The Capital Contribution of Mr. Frieberg
-----------------------------
and Ms. Frieberg for the Nonvoting Units to be issued to them as set forth
in Section 3.1 of the Agreement shall be a demand promissory note from Mr.
Frieberg and Ms. Frieberg to the Company in the aggregate principal amount
of $100,000 (the "Frieberg Promissory Note"), such promissory note to be in
the form attached to this Schedule 1 as Exhibit "A." The Frieberg
Promissory Note shall be secured by a letter of credit in the amount of
$100,000 from a bank or other financial institution satisfactory to the
Company and upon terms and conditions otherwise satisfactory to the
Company. The terms and conditions of the letter of credit must, at a
minimum, be sufficient so as to allow the Frieberg Promissory Note to be
considered as an asset of the Company for purposes of calculating the
Company's net worth. Mr. Frieberg and Ms. Frieberg shall be admitted as a
Nonvoting Member of the Company effective upon receipt by the Company of
the Frieberg Promissory Note and the letter of credit which is to secure
the Frieberg Promissory Note as provided above.
VACATION PARTNERS, INC.
By: /s/ Jeffrey A. Raun /s/ Dr.Mark Westberg
------------------------------- ----------------------------------
Jeffrey A. Raun, President Dr. Mark Westberg
Date: May 21, 1998 Date: May 21, 1998
/s/ Dr. Craig Rowles /s/ Rebecca Westberg
- ------------------------------------ ----------------------------------
Dr. Craig Rowles Rebecca Westberg
Date: May 21, 1998 Date: May 21, 1998
/s/ Elizabeth Rowles /s/ Dr. Alan Raun
- ------------------------------------ ----------------------------------
Elizabeth Rowles Dr. Alan Raun
Date: May 21, 1998 Date: May 21, 1998
/s/ Daniel Frieberg /s/ Dorothy Raun
- ------------------------------------ ------------------------------
Daniel Frieberg Dorothy Raun
Date: May 21, 1998 Date: May 21, 1998
/s/ Kathleen Frieberg
- ------------------------------------
Kathleen Frieberg
Date: May 21, 1998
<PAGE>
, 1998
$------------ ------------------------------------------
Date
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to pay
to the order of Portfolio Boost, L.L.C. (including its successors and assigns,
the "Company"), at such place as the Company shall from time to time direct, the
principal sum of $_________, without interest, except as provided below.
Principal shall be payable in full upon the demand of the Company, which demand
may be made to either or both of the undersigned at any time and for whatever
reason. The Company shall also have the right to demand, from time to time and
for whatever reason, payment of only a portion of the principal.
All payments shall be applied first in payment of any and all costs and
expenses incurred by the Company which the undersigned are obligated to pay
pursuant to this Note or any agreement or document securing this Note, and the
remainder in reduction of principal.
Payments of principal not made upon demand shall bear interest at the rate
of fifteen percent (15%) per annum from the date of the demand until paid. The
undersigned, jointly and severally, agree to pay attorneys' fees and all costs
and expenses, including court costs, incurred by the Company in connection with
any efforts to collect, enforce or otherwise protect or realize upon this Note
or any collateral securing this Note.
This Note is secured by a letter of credit in the amount of $______ and
issued to the Company by _____________________________ on or around the date
hereof (the "Letter of Credit"), and by all other existing and future liens and
security interests created by security agreements, mortgages or any other
collateral or security documents or agreements now or hereafter between or among
the Company and either or both of the undersigned or the Company and any
endorsers, sureties or guarantors of this Note.
Presentment, demand, protest, notice of demand or protest, notice of
nonpayment and all other notices whatsoever are hereby waived by the undersigned
and by all persons otherwise obligated hereunder, whether as makers, endorsers,
guarantors, sureties or otherwise. Without affecting the liability of any
maker, endorser, surety, guarantor or other person obligated hereunder, the
Company may, without notice, renew or extend the time for payment, accept
partial payments, release or impair any collateral or other security for the
payment of this Note, or release or agree not to sue any party liable or
obligated on this Note. The Company is not required to first resort to any
collateral or other security for payment before bringing an action hereon
against either or both of the undersigned or any endorser, surety, guarantor or
other person.
EXHIBIT "A"
TO
SCHEDULE 1
<PAGE>
This Note shall be governed by and construed in accordance with the laws of
the State of Iowa, but without regard to provisions thereof relating to
conflicts of law.
In the event any provision of this Note is held invalid, illegal or
unenforceable, in whole or in part, the remaining provisions of this Note shall
not be affected thereby and shall continue to be valid and enforceable. In the
event any provision of this Note is held to be invalid, illegal or unenforceable
as written, but valid, legal and enforceable if modified, then such provision
shall be deemed to be amended to such extent as shall be necessary for such
provision to be valid, legal and enforceable and it shall be enforced to that
extent.
The undersigned, jointly and severally, hereby represent and warrant to the
Company that (i) this Note constitutes the legal, valid and binding obligation
of both of the undersigned, enforceable against both of the undersigned in
accordance with its terms; (ii) the Letter of Credit can be drawn upon by the
Company upon demand and without satisfaction of any conditions other than a
certification by the Company that a demand has been made under this Note which
has not been satisfied by the undersigned; (iii) the Letter of Credit shall
remain in place (through renewals or otherwise) and shall stand as collateral
and security for this Note until this Note has been paid in full or has
otherwise been released by the Company; and (iv) the Letter of Credit
constitutes the legal, valid and binding obligation of both of the undersigned
and of ____________________________, enforceable in accordance with its terms.
This Note is given as partial consideration for the nonvoting units to be
issued to the undersigned by the Company pursuant to the May 21, 1998 Operating
Agreement of the Company, and this Note is also subject to the terms and
conditions of said Operating Agreement.
The undersigned each hereby acknowledge receipt of a copy of this Note.
____________________________
____________________________
<PAGE>
EXHIBIT 5
<PAGE>
(515) 283-3108
(515) 283-3146
November 12, 1998
Portfolio Boost II, L.P.
Cornerstone at Cantera
4320 Winfield Road, Suite 320
Warrenville, Illinois 60555
Re: Offering of Units of Limited Partnership
Interest in Portfolio Boost II, L.P.
Ladies and Gentlemen:
We have acted as counsel to Portfolio Boost II, L.P. (the "Limited
Partnership") in connection with the organization of the Limited Partnership and
the proposed offering of units of limited partnership interest in the Limited
Partnership (the "Units") pursuant to a registration statement on Form SB-2
filed with the Securities and Exchange Commission on or around the date hereof
(the "Registration Statement"). For purposes of this opinion, we have made such
investigations and examined such documents and questions of law as we have
deemed necessary and appropriate. In such investigations and examinations, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals and the conformity to authentic originals
of all documents submitted as certified or authentic copies.
Based on the foregoing and subject to the qualifications set forth below,
we are of the opinion that when the Registration Statement shall have been
ordered effective by the Securities and Exchange Commission and the Units have
been issued and sold pursuant to the terms described in the Registration
Statement, the Units will be legally issued, fully paid and non-assessable;
provided, however, that (a) under the provisions of the Iowa Uniform Limited
Partnership Act (the "Act"), a limited partner may become liable as a general
partner of a limited partnership if, in addition to the exercise of rights and
powers as a limited partner, the limited partner participates in the control of
the limited partnership's business or knowingly permits the limited partner's
name to be used in the name of the limited partnership, (b) under the provisions
of the Act, a limited partner who has received the return of any part of the
limited partner's capital contribution without violation of the limited
partnership agreement or the Act is liable, for one (1) year after the return,
to the limited partnership for the amount of the returned contribution to the
extent necessary to discharge the liabilities of the limited partnership to all
creditors who extended credit to the limited partnership during the period the
contribution was held by the limited partnership, (c) under the provisions of
the Act, a limited partner who has received the return of any part of the
limited partner's capital contribution in violation of the limited partnership
agreement or of the Act is liable, for six (6) years after the return, to the
limited partnership for the amount of the contribution wrongfully returned, and
(d) under the Act, if the certificate of limited partnership or certificate of
amendment or cancellation of a limited partnership contains a false statement,
one who suffers loss by reliance on the statement may recover damages from a
limited partner who knew the statement to be false at the time the certificate
was executed.
We hereby consent (i) to be named in the Registration Statement and in the
Prospectus which constitutes a part thereof as the attorneys for the Limited
Partnership who will pass upon the legality of the Units being offered, and (ii)
to the inclusion of this opinion as Exhibit 5 to the Registration Statement.
Except only as expressly set forth herein, we express no opinion in
connection with the matters contemplated by the Registration Statement, and no
opinion may be implied or inferred. Without limiting the generality of the
foregoing, we express no opinion on (i) the limited partnership agreement of the
Limited Partnership, (ii) any federal or state securities exemption,
qualification, registration or disclosure laws or regulations, or (iii) the
accuracy or completeness of any tables, charts, graphs, financial statements or
any other information included in the Registration Statement or in the
Prospectus which constitutes a part thereof.
The opinions expressed herein are made as of the date hereof and we do not
undertake to update this opinion with respect to any changes of which we may
later become aware.
This letter is limited in its use solely to reliance by you. No other
person or entity may rely or claim reliance on this letter; and it is not to be
quoted in whole or in part or otherwise referred to or furnished to any person
or entity without the prior written consent of this firm.
Respectfully submitted,
NYEMASTER, GOODE,
VOIGTS, WEST, HANSELL &
O'BRIEN, P.C.
By /s/ Wade H. Schut
-------------------------------------
Wade H. Schut
<PAGE>
EXHIBIT 8
<PAGE>
(515) 283-3108
(515) 283-3122
November 12, 1998
Portfolio Boost, L.L.C.
Portfolio Boost II, L.P.
Attention: Mr. Jeffrey A. Raun
Cornerstone at Cantera
4320 Winfield Road, Suite 320
Warrenville, Illinois 60555
RE: Portfolio Boost II, L.P., an Iowa Limited Partnership
Dear Mr. Raun:
On behalf of Portfolio Boost II, L.P. (the "Partnership"), a limited
partnership formed under the Uniform Limited Partnership Act of the State of
Iowa (the "Iowa Act"), you have requested our opinion regarding certain tax
matters related to the Partnership.
We have reviewed the preliminary Prospectus, including the Limited
Partnership Agreement of the Partnership (the "Partnership Agreement") and the
other Exhibits referred to therein (collectively, the "Prospectus"), included in
the Registration Statement on Form SB-2 filed with Securities and Exchange
Commission on or around the date hereof. We have reviewed relevant provisions
of the Iowa law and relevant provisions of the Internal Revenue Code of 1986, as
amended ("Code"). We have also reviewed Treasury Regulations issued under the
Code ("Regulations") and various published interpretations of the Code and
Regulations. Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in the Partnership Agreement.
<PAGE>
Jeffrey A. Raun
November 12, 1998
Page 2
We are relying upon the facts stated in the Prospectus which you have
represented to us to be accurate and complete in all material respects. We are
not aware of any reason to believe that such facts and analyses are not accurate
in all material respects.
We are also relying upon your representations that (a) at all times the
Partnership will be operated in accordance with the Iowa Act, as applicable, and
the Partnership Agreement, (b) the aggregate deductions to be claimed by the
Partners as their distributive share of the Partnership net losses for the first
two years of operation of the Partnership will not exceed the amount of equity
capital invested in the Partnership, (c) no creditor who makes a loan to the
Partnership will have or acquire as a result of making the loan any direct or
indirect interest in the capital, profits or property of the Partnership other
than as a secured creditor, (d) interests in the Partnership will not be (1)
traded on an established securities market, or (2) readily tradable on a
secondary market (or the substantial equivalent thereof) and (e) the Partnership
will not elect to be taxed as a corporation.
You have requested our opinion concerning the Federal income tax analysis
presented in the Prospectus.
Our analysis is based upon the facts described in the Prospectus which
reflect the facts as you have represented them to us as of this date. We assume
the facts as related to us therein accurately and completely describe all
material activities affecting the Partnership which you can reasonably foresee.
Based on our review and your representations described heretofore,
including the facts as set forth in the Prospectus, and subject to the
limitations which follow, (i) we are not aware of any material Federal income
tax consequences from participating in the Partnership which have been omitted
from the Prospectus, (ii) we are not aware of any Federal income tax
consequences set forth in the Prospectus which have been materially misstated,
and (iii) we believe that more likely than not in the aggregate the material tax
benefits associated with an investment in the Partnership will be realized.
The material tax benefits which we believe will exist as described in the
Prospectus may be divided into the following major categories: (1) the right of
the Partners to claim tax treatment accorded partners by the Code, including
classification of the Partnership as a partnership for Federal income tax
purposes and not as an association taxable as a corporation; (2) the allocation
of Partnership profits and losses in accordance with the terms of the
Partnership Agreement; (3) the cost of a Partner's Units as constituting the
Partner's beginning basis in those Units; (4) the deduction or amortization of
certain start-up and organizational expenditures; (5) the treatment of commodity
transactions of the Partnership as Section 1256 contracts or other commodity
transactions as the case may be; and (6) the presence of a profit motive for the
venture.
<PAGE>
Jeffrey A. Raun
November 12, 1998
Page 3
We cannot render an opinion as to whether certain tax aspects of the
venture will affect the realization of the aggregate tax benefits, because the
factual nature of certain determinations make it impossible to render an opinion
as to the allocation of certain business expenditures between deductible
business expenses, expenditures which are capitalized and amortized as start-up
expenditures, expenditures which are capitalized and amortized as organizational
expenditures, and syndication expenses which are neither deductible nor
amortizable.
Our opinion is based upon current law and published Internal Revenue
Rulings, Internal Revenue Procedures, Regulations and court decisions
(collectively, the "Published Interpretations") all of which are subject to
change prospectively or retroactively. The opinions herein express our best
judgment of the law and Published Interpretations, but our opinion is not
binding upon the Internal Revenue Service or the courts, either of which may
reach different conclusions than ours. We believe we have reasonably relied
upon the facts as represented by you. However, generally, the facts which you
have represented relate to future activities which you have predicted but which
you cannot assure. Any change in the facts, whether past or prospective, may
adversely affect our opinion. Further, we express no opinion as to whether the
Internal Revenue Service may successfully challenge factual determinations which
are made by you such as, without limitation, allocation of costs and expenses.
You have not analyzed the state and local income tax consequences related
to participation in the Partnership and have so stated in the "Federal Income
Tax Aspects" section of the Prospectus. Consequently, you have not requested
our analysis or opinion of any aspect of the state and local tax consequences
which may flow from participation in the Partnership, and no opinion with
respect thereto is expressed by us.
In connection with our rendering of the above opinions, please be advised
that we have examined only the documents indicated.
We are members of the Bar of the State of Iowa and do not hold ourselves
out as experts on the laws of any other state or foreign country. Consequently,
we express no opinion with respect to the laws of any jurisdiction other than
the State of Iowa.
We hereby consent (i) to being named in the "Federal Income Tax Aspects"
section of the Prospectus as the attorneys who will render certain opinions for
the Partnership related to certain federal income tax aspects related to the
Partnership and an investment in the Partnership, and (ii) to the inclusion of
this opinion as Exhibit 8 to the Registration Statement on Form SB-2 to be filed
with the Securities and Exchange Commission along with the Prospectus, and as
exhibits to the Registration Statements to be filed with the applicable
securities authorities of the states listed on Schedule I attached to this
letter.
<PAGE>
Jeffrey A. Raun
November 12, 1998
Page 4
This letter is limited to the matters stated herein and no opinion is
implied or may be inferred beyond the matters expressly stated herein. Without
limiting the generality of the foregoing, we express no opinion on the accuracy
or completeness of any tables, charts, graphs, or financial statements included
in the Prospectus.
Very truly yours,
NYEMASTER, GOODE, VOIGTS, WEST,
HANSELL & O'BRIEN, P.C.
By:/s/ Steven J. Roy
-------------------------------
Steven J. Roy
<PAGE>
SCHEDULE I
----------
California
Colorado
Connecticut
Delaware
Florida
Illinois
Indiana
New Jersey
North Carolina
Pennsylvania
Virginia
Washington
Wisconsin
<PAGE>
EXHIBIT 10.1
<PAGE>
QUIET SYSTEMS LIMITED
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT ("Agreement") is made and entered into as of the
date set forth in the ACCEPTANCE section on the signature page hereof by and
between Quiet Systems Limited (the "Company"), and Portfolio Boost II, L.P., an
Iowa limited partnership ("Client"). Portfolio Boost, L.L.C., an Iowa limited
liability company serving as the general partner of Client, is also a party
hereto for the limited purposes set forth herein.
WHEREAS, Client desires to retain the Company as Client's trading advisor
with respect to the ACCOUNT (as that term is defined in Section 1 below) upon
the terms and conditions set forth in this Agreement, and the Company desires to
act as trading advisor for Client with respect to the ACCOUNT upon such terms
and conditions.
NOW, THEREFORE, in consideration of the recital set forth above and the
mutual agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Client and the Company hereby agree as follows:
1. Client hereby authorizes the Company to commence trading on Client's
behalf pursuant to this Agreement with the aggregate amount of funds set forth
in Schedule 1 attached hereto as the "Initial Account Size."
Of the amount constituting the Initial Account Size, Client has deposited
or will deposit, as the case may be, the amount of funds (in margin-qualifying
assets) set forth in Schedule 1 attached hereto as the "Actual Funds" in a
trading account (the "ACCOUNT") established with the futures commission merchant
designated in Schedule 2 attached hereto (the "FCM"). Client also has
deposited, or already has on deposit, as the case may be, in other accounts with
the FCM the amount of funds, if any, set forth in Schedule 1 attached hereto as
the "Committed Funds," all of which Committed Funds are available for transfer
to the ACCOUNT in accordance with all applicable conditions evidencing
accessibility and control and all other requirements of the United States
Commodity Futures Trading Commission, the FCM and the Company. Client
acknowledges and agrees that the Committed Funds will be available at all times
for transfer to the ACCOUNT until three (3) business days after the date the
Company has received written notice to the contrary from Client, and Client
authorizes the FCM to transfer funds from the other accounts in which Committed
Funds are deposited to the ACCOUNT as may be directed by the Company from time
to time. Client also authorizes the FCM to provide the Company, upon request by
the Company from time to time, with a written statement indicating the amount of
funds remaining in the other accounts held by the FCM in which Committed Funds
are deposited. The authorizations set forth in this Section 1 shall not in any
way limit, restrict or modify any separate agreement between Client and the FCM
pursuant to which Client has authorized the FCM to transfer funds from and
between Client's accounts with the FCM, including from any other such accounts
to the ACCOUNT. The amount of Committed Funds shall be the amount of funds set
forth as the "Committed Funds" in Schedule 1 attached hereto until three (3)
business days after the date of receipt of written notice by the Company from
Client advising the Company of a reduction or an increase in the amount of the
Committed Funds. Client
<PAGE>
acknowledges and agrees that in the event Client lowers the amount of the
Committed Funds, the Company will have the sole discretion to determine when to
close out trades in order to cause the amount of funds being traded by the
Company on Client's behalf pursuant to this Agreement to be within the Nominal
Account Size (as that term is defined below).
The balance of the Initial Account Size [i.e., the amount by which the
Initial Account Size exceeds the sum of the Actual Funds and the Committed
Funds], if any, is the amount of funds set forth in Schedule 1 attached hereto
as the "Notional Funds." If Notional Funds are zero dollars, the sum of the
Actual Funds deposited in the ACCOUNT and the Committed Funds must be equal to
the Initial Account Size. The amount of Notional Funds shall be the amount of
funds set forth as the "Notional Funds" in Schedule 1 attached hereto until
three (3) business days after the date of receipt of written notice by the
Company from Client advising the Company of a reduction or an increase in the
amount of the Notional Funds. Client acknowledges and agrees that in the event
Client lowers the amount of the Notional Funds, the Company will have the sole
discretion to determine when to close out trades in order to cause the amount of
funds being traded by the Company on Client's behalf pursuant to this Agreement
to be within the Nominal Account Size (as that term is defined below). Client
acknowledges that Client has read and understood the risks and other disclosures
regarding the use of Notional Funds as set forth in the Disclosure Document (as
that term is defined in Section 11 below).
The aggregate amount of funds committed by Client for trading pursuant to
this Agreement at any given time shall be an amount equal to the sum of the
following amounts at the particular time in question (the "Nominal Account
Size"): (i) the Actual Funds, increased to reflect profits and additions to the
ACCOUNT and unrealized profits on open positions held in the ACCOUNT, and
decreased to reflect losses and withdrawals from the ACCOUNT and unrealized
losses on open positions held in the ACCOUNT; (ii) the Committed Funds, if any;
and (iii) the Notional Funds, if any.
This Agreement is applicable to, and the Nominal Account Size shall be
traded in, the trading program of the Company designated in Schedule 1 attached
hereto (the "Program").
2. Client hereby constitutes, appoints, and authorizes the Company as
Client's agent and attorney-in-fact to buy, sell (including short sales),
spread, hold, trade in, dispose of, and otherwise enter into, execute and deal
in, on margin or otherwise, domestic and/or foreign futures contracts, futures
options contracts, cash contracts, interbank spot and forward contracts, and any
other domestic or foreign contracts, agreements or other transactions or
commitments in any commodities, currencies, financial instruments, securities,
indices or other interests or items whatsoever traded in the Program from time
to time, and including, without limitation, the right, power and authority to
make or take delivery of an underlying commodity, currency, instrument, security
or other interest or item for and on behalf of Client, all in the Company's sole
discretion.
Client hereby gives and grants to the Company full power and authority to
do every act and thing or to omit to do any act or thing requisite, necessary,
or appropriate, in the Company's sole
2
<PAGE>
discretion, to fully effectuate the intent and purposes of this Agreement and
trading on Client's behalf pursuant hereto, all in Client's name, place and
stead and all as fully and in the same manner and with the same force and effect
as Client might or could do if personally present. Without limiting the
generality of any of the foregoing, Client acknowledges and agrees that all
trades may be entered, directed and effectuated by the Company in its sole
discretion and without any approval by and without any prior notification to
Client, and Client directs the FCM to accept, execute and clear all orders for
trades in the ACCOUNT that are entered or otherwise directed by the Company or
any of the Company's agents, employees, contractors or consultants, or by
Frischmeyer Trading Corporation, an Iowa corporation, as Client's agent under
that certain related agreement between Client and Frischmeyer Trading
Corporation (the "FTC Agreement").
Client hereby fully ratifies and confirms any and all orders and
transactions made and actions taken by the Company with respect to the ACCOUNT
or otherwise on behalf of or for the account of Client.
The power and authority and other rights granted to the Company under this
Agreement are in addition and cumulative to, and are not limited or restricted
by or a limitation or restriction on or of, any other powers or authority or
rights granted to the Company in any other agreement, document or instrument,
including, without limitation, any granted pursuant to or in any agreement,
document, or instrument provided by Client at the request of the FCM.
3. All transactions entered, directed or effected by the Company in or for
the ACCOUNT shall be subject to the constitution, by-laws, rules, regulations,
and customs of the exchange or market where executed and its clearinghouse, if
any, and to all applicable laws, rules, and regulations of any applicable
governmental authority.
The Company is hereby authorized to take or to omit to take and shall not
be liable to Client for taking any action or failing to take any action which
the Company, in its sole discretion, deems necessary or appropriate in order to
comply or to avoid noncompliance with any such constitution, by-law, law, rule,
regulation, or custom.
4. Client shall be solely responsible and liable for and shall timely pay
and fulfill all margins, margin calls, options premiums, brokerage and floor
commissions and fees, exchange and National Futures Association fees, and any
and all other fees, costs and expenses charged or incurred by the FCM, Client's
introducing broker, their respective agents, or any other third parties in
connection with any trade or otherwise in connection with the ACCOUNT. The
Company shall have no responsibility or liability whatsoever for any such fees,
costs or expenses.
5. All transactions effected in, for or through the ACCOUNT shall be for
Client's account and at Client's sole risk and expense. The Company makes no
representation, warranty, or guarantee whatsoever as to the success or
profitability of the ACCOUNT or of the Program or the Company's trading methods
or decisions, and Client acknowledges that Client is not entering into this
Agreement
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<PAGE>
in consideration of and has received no such representation, warranty, or
guarantee from the Company or any other person or entity.
6. Notwithstanding anything herein or otherwise which may appear to be to
the contrary, neither the Company nor any of its shareholders, directors,
officers, employees, agents, affiliates, consultants or contractors
(collectively, the "Company Affiliates") shall be in any way liable to Client or
any other person or entity except only for acts or omissions which constitute
willful misconduct or fraud; provided, however, that nothing in this Agreement
is intended or shall be construed as imposing any personal or individual
liability upon any of the Company Affiliates.
Client shall defend, indemnify and hold the Company and each and all of the
Company Affiliates harmless from and against any and all liability, damage,
loss, cost, and/or expense (including, without limitation, arbitration costs and
fees, court costs and reasonable attorneys' fees) in any way arising from or in
connection with or otherwise in any way resulting from any of them acting
pursuant to this Agreement, including, without limitation, with or from (i) any
trade or other transaction made in, for or through the ACCOUNT; (ii) any breach
of warranty, misrepresentation or other nonfulfillment of any agreement on the
part of Client under this Agreement or under any other agreement or document
regarding the ACCOUNT; or (iii) the Company's investigating or defending any
such liability, damage, loss, cost or expense.
7. As compensation for the Company's services, the Company shall receive
(i) a monthly fee (the "Management Fee") of one twelfth of one percent of
Client's Net Assets (as that term is defined below) as of the close of business
on the last business day of each month; and (ii) a quarterly incentive fee (the
"Incentive Fee") of ten percent (10%) of the New Trading Profits (as that term
is defined below) of Client for each quarter, if any; provided, however, that
the amount of fees (whether Management Fees, Incentive Fees, or both) payable to
the Company with respect to any time period shall be reduced and lowered by the
aggregate amount of fees (the "FTC Fees") payable by Client or Portfolio Boost,
L.L.C. to Frischmeyer Trading Corporation under the FTC Agreement with respect
to that time period. The terms "Net Assets" and "New Trading Profits" for this
purpose shall have the meanings given them in the Limited Partnership Agreement
of Client, as the same may be amended from time to time (the "LPA"), and shall
otherwise be calculated and determined in the same manner as provided in the
LPA.
The Management Fee and the Incentive Fee shall be payable to the Company
solely by Portfolio Boost, L.L.C., and Client is not liable or responsible in
any way for the payment of either the Management Fee or the Incentive Fee. The
Management Fee and the Incentive Fee (less the amount of any FTC Fees, as
provided above) shall be payable to the Company by Portfolio Boost, L.L.C. on,
respectively, a monthly and quarterly basis, within ten (10) business days of
the respective dates on which the monthly management fee and the quarterly
incentive fee payable to Portfolio Boost, L.L.C. by Client under the LPA are
paid by Client to Portfolio Boost, L.L.C. from time to time. If this Agreement
is terminated, whether by Client or the Company and for whatever reason, on a
date other than the end of a month (with respect to Management Fees) or quarter
(with respect to Incentive Fees), then such respective fees will be calculated
as if such termination date were the
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<PAGE>
end of a month or quarter, respectively, and Portfolio Boost, L.L.C. shall pay
such fees prorated to such date, notwithstanding the termination of this
Agreement. Portfolio Boost, L.L.C. is a party to this Agreement solely for
purposes of agreeing to pay the Management Fee and the Incentive Fee to the
Company as provided in this Section 7.
8. Client hereby authorizes and directs the FCM to deliver to the Company,
and to Frischmeyer Trading Corporation as Client's agent under the FTC
Agreement, copies of all daily confirmations, daily and monthly activity or
account statements, and all other documents and records relating to the ACCOUNT
as the Company or Frischmeyer Trading Corporation may request or direct from
time to time. Delivery of all such confirmations, statements, documents or other
records may be effected by such methods and procedures as may be established and
agreed to by the Company, Frischmeyer Trading Corporation and the FCM from time
to time, in their sole discretion, including, without limitation, by hand
delivery, fax, e-mail or other computer systems access and/or hookups. Delivery
of all confirmations, statements, documents and records shall be made as soon as
is possible, but Client agrees that if delivery of any daily confirmation or
daily activity or account statement is not made, for whatever reason, at least
one-half hour before the opening of trading on the next day on which at least
one United States exchange is open for trading, Client will not seek to hold and
will not hold the Company or Frischmeyer Trading Corporation liable for any
losses resulting from any errors which may have been disclosed on such daily
confirmation or statement.
9. Client may make partial or total withdrawals from the ACCOUNT three (3)
business days after notifying the Company in writing, subject, however, to any
additional requirements or restrictions as may be established by the FCM from
time to time. Client acknowledges and agrees, however, that if it is necessary
to liquidate or close out any open positions in order to satisfy Client's
withdrawal request, Client will not seek to hold and will not hold the Company
liable for liquidating or closing out any open positions in order to satisfy
Client's withdrawal request, even if, without limitation, the Company would
otherwise not have liquidated or closed out the open positions at that time.
The Company also reserves and shall have the right, but not the obligation, to
liquidate or close out any or all such open positions as the Company deems
appropriate in the event of a partial withdrawal by Client which would reduce
the ACCOUNT balance to a level such that the Company believes, in its sole
discretion, that the ACCOUNT cannot be traded pursuant to the Program. Any
notice of withdrawal by Client shall in no event affect any liabilities in any
way resulting from trades or positions initiated prior or concurrent to the
notice of withdrawal. In the absence of a written withdrawal notice from Client
as provided above, all accumulated profits in the ACCOUNT, if any, will be
retained in the ACCOUNT as part of the Nominal Account Size and for trading in
the Program pursuant to this Agreement. Any withdrawals from the ACCOUNT shall
lower the Nominal Account Size, but shall not lower the amount of the Committed
Funds or the Notional Funds, if any.
Client may make additions to the ACCOUNT from time to time, at which time
or times all of the representations, warranties, acknowledgments and agreements
set forth in this Agreement and in all other agreements or documents regarding
the ACCOUNT will be deemed to be given again and expressly confirmed by Client.
Any additions to the ACCOUNT shall increase the Nominal Account Size, and shall
not lower the amount of the Committed Funds or the Notional Funds, if any.
5
<PAGE>
10. This Agreement shall become effective only after it has been duly
signed by Client and has been accepted by the Company pursuant to the Company's
execution of this Agreement in the ACCEPTANCE section below. This Agreement
shall thereafter remain in full force and effect until terminated by either
Client or the Company as provided in this Section 10.
This Agreement may be terminated by Client or Client's legal
representative, as the case may be, at any time, for any reason or no reason, by
giving written notice of termination to the Company, which written notice shall
be deemed effective only upon the Company's actual receipt of such written
notice.
The Company may terminate this Agreement at any time, with or without
cause, for any reason or no reason, effective ten (10) days (three (3) days in
the event of any breach or default of this Agreement by Client) following the
giving of written notice of termination to Client or Client's legal
representative, as the case may be, by the Company. The Company may also
terminate this Agreement effective upon the giving of notice of termination to
Client in the event any transaction is made in the ACCOUNT by any other advisor
or by Client without the prior knowledge and approval of the Company.
Upon the termination of this Agreement, whether by Client or the Company,
and for whatever reason, the control of trading decisions shall revert to
Client, and the Company shall not liquidate or close out any then open trades or
positions or initiate or execute any new trades or positions without the
direction and consent of Client.
The termination of this Agreement shall not effect any trades entered,
directed or effected prior to the effective time and date of termination or any
liability or obligation of the parties hereunder which shall accrue prior to
such termination, including, without limitation, any liability for loss or
damage on account of breach. The termination of this Agreement (by either party
and for whatever reason) shall also not affect the terms or provisions hereof
which contemplate performance by or continuing obligations of Client beyond the
termination hereof, including, without limitation, the obligations of Client
under Section 6 above, all of which shall continue in effect notwithstanding any
termination hereof.
11. Client represents and warrants to the Company that all of the
information set forth in this Agreement and all of the information or
documentation otherwise provided by Client to the Company is true, correct and
complete as of the date hereof, and Client further represents, warrants and
agrees that Client shall immediately advise the Company if there should be any
change in any of such information. Client also represents and warrants to the
Company that (i) this Agreement constitutes the valid and binding agreement of
Client, enforceable in accordance with its terms; (ii) Client has complied and
will continue to comply with all laws, rules, regulations and orders applicable
to this Agreement and all of the transactions contemplated hereby, including,
without limitation, obtaining and maintaining any licenses, registrations,
qualifications and memberships as are necessary under any applicable law, rule,
regulation or order; and (iii) there are no actions, suits, proceedings, or
investigations pending, or to the knowledge of Client, threatened, against
Client or any of its principals or affiliates, before any court, arbitrator,
governmental authority, self-regulatory
6
<PAGE>
organization or any securities or commodities exchange, an adverse decision in
which could materially affect Client's ability to comply with and perform its
obligations under this Agreement.
Client also hereby represents and warrants to the Company that Client is
willing and financially able to assume the high risks of trading under the
Program, and that Client is aware of the numerous risks involved in trading
under the Program, including, without limitation, (i) the highly volatile, high
risk and speculative nature of trading in futures and options; (ii) the
possibility that Client's entire investment may be lost and that Clients
liability could greatly exceed the assets in the ACCOUNT; (iii) the fact that
the ACCOUNT will be subject to Management Fees, FTC Fees and substantial
brokerage commissions and other fees and costs regardless of whether profits are
earned; and (iv) that even if the Company instructs the FCM to use its best
efforts to close out some or all of the open positions in the ACCOUNT at a
particular time, there is no assurance that the FCM will be able to close out
such position or positions at that time and/or without incurring substantial
losses. CLIENT ALSO HEREBY ACKNOWLEDGES AND REPRESENTS AND WARRANTS TO THE
COMPANY THAT CLIENT HAS RECEIVED, READ AND UNDERSTOOD THE COMPANY'S DISCLOSURE
DOCUMENT FOR THE COMPANY'S TRADING PROGRAMS (THE "DISCLOSURE DOCUMENT"),
INCLUDING, WITHOUT LIMITATION, ALL OF THE RISK FACTORS, CONFLICTS OF INTEREST
AND DESCRIPTIONS OF FEES SET FORTH IN THE DISCLOSURE DOCUMENT.
If Client is an entity, Client and the individual executing this Agreement
on behalf of Client each represent and warrant to the Company that (i) such
individual is of full legal age in the jurisdiction in which such individual
resides and is legally competent to execute this Agreement; (ii) such individual
has full power and authority to execute this Agreement on behalf of Client and
to make the representations, warranties, acknowledgments and agreements
contained herein for Client and on Client's behalf; (iii) Client has full power
and authority to execute, deliver and perform this Agreement, and the execution,
delivery and performance of this Agreement and all of the transactions
contemplated hereby, including, without limitation, the establishment of the
ACCOUNT and the Nominal Account Size, have been authorized by the governing
board of Client (if required) and do not and will not violate or constitute a
breach or default under the governing documents of Client; and (iv) Client is
duly organized, validly existing and in good standing under the laws of the
jurisdiction under which Client was incorporated or organized.
If Client is an individual, Client represents and warrants to the Company
that Client is of full legal age in the jurisdiction in which Client resides and
is legally competent to execute, deliver and fully perform this Agreement.
All covenants, agreements, acknowledgments, representations and warranties
of Client set forth in this Agreement shall survive the execution and delivery
hereof and remain in full force and effect irrespective of any investigation
made by or on behalf of the Company.
12. Notwithstanding anything herein or otherwise which may appear to be to
the contrary, Client is solely liable for and bears the risk of all errors,
problems and other acts or omissions whatsoever of Client's introducing broker,
the FCM, Frischmeyer Trading Corporation, any exchange
7
<PAGE>
or clearinghouse and/or any other third parties, and of all of their affiliates,
principals, agents and employees, including, without limitation, in executing
the Company's instructions or otherwise. Client acknowledges and agrees that,
notwithstanding Section 8 above, the Company has no duty, responsibility or
obligation to supervise or monitor any of such persons or entities. Client also
acknowledges the FCM shall have sole custody of Client's funds, and the sole
responsibility for providing Client with confirmations of trades, daily and
monthly account statements and all other account statements.
13. All notices or communications desired or required to be made or given
hereunder shall be in writing, and shall be sent to, respectively, the addresses
appearing below the Company's and Client's signatures to this Agreement. A
notice is deemed given for purposes of this Agreement upon the hand delivery of
such notice or upon deposit of the notice with an overnight courier service or
in the mail, postage prepaid and sent certified or registered. Either party may
from time to time designate in writing any other address to which notices and
communications to such party may be sent.
14. This Agreement may not be assigned by either party without the prior
express written consent of the other party. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, successors, legal representatives and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto (and their respective heirs, successors, legal
representatives and permitted assigns) any rights, remedies, liabilities or
obligations under or by reason of this Agreement; provided, however, that (i)
the Company Affiliates shall have the protections and rights provided in Section
6 above and Sections 19 and 20 below; and (ii) Frischmeyer Trading Corporation
shall have the rights and protections as provided in Sections 2 and 8 above.
Client acknowledges and agrees that Frischmeyer Trading Corporation has not
agreed and does not agree to perform any of the duties or obligations of the
Company under this Agreement, other than as may be provided in the FTC
Agreement, and that the Company has not agreed and does not agree to perform any
of the duties or obligations of Frischmeyer Trading Corporation under the FTC
Agreement. Client also acknowledges and agrees that a condition to the Company's
obligations under this Agreement is that Client at all times maintain the FTC
Agreement in full force and effect or such other similar agreement with another
person acceptable to the Company, in its sole discretion. In the event another
person is utilized for this purpose in the future, Client agrees to execute an
addendum to this Agreement containing such amendments to this Agreement as the
Company reasonably determines to be necessary.
15. This Agreement, the Disclosure Document, the Exempt Account and
Qualified Eligible Client Representation Agreement given by Client to the
Company, and any arbitration agreement as may be entered into between Client and
the Company or otherwise given by Client to the Company, constitute the entire
agreement between the parties hereto pertaining to the subject matters hereof
and supersede all negotiations, preliminary agreements and all prior or
contemporaneous discussions and understandings of the parties hereto in
connection with the subject matters hereof. All schedules attached to this
Agreement are incorporated into this Agreement by this reference as if set forth
in full, and constitute a part hereof.
8
<PAGE>
16. No amendment, modification, supplement, termination or waiver of or to
any provision of this Agreement, nor consent to any departure therefrom, shall
be implied from any course of dealing between the parties or from the failure of
a party to assert its rights under this Agreement on any occasion or series of
occasions or shall otherwise be effective unless the same shall be in writing
and signed by or on behalf of the party to be charged with the enforcement
thereof. Any amendment, modification or supplement of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure from the terms of any provision of this Agreement, shall be
effective only in the specific instance and for the specific purpose for which
made or given. No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy.
17. In the event any provision of this Agreement is held invalid, illegal
or unenforceable, in whole or in part, the remaining provisions of this
Agreement shall not be affected thereby and shall continue to be valid and
enforceable. In the event any provision of this Agreement is held to be invalid,
illegal or unenforceable as written, but valid, legal and enforceable if
modified, then such provision shall be deemed to be amended to such extent as
shall be necessary for such provision to be valid, legal and enforceable and it
shall be enforced to that extent. Any finding of invalidity, illegality or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
18. This Agreement shall be deemed to have been made in, and shall be
governed by and construed and enforced in accordance with the laws of the Cayman
Islands, British West Indies, but without regard to provisions thereof relating
to conflicts of law or which otherwise require the application of or reference
to the law of any other jurisdiction.
19. Client and the Company agree that any claim, counterclaim, grievance,
demand, dispute, action, proceeding or other controversy in any way arising from
or out of, in connection with, or otherwise relating to the ACCOUNT, any trade
or other transaction regarding the ACCOUNT, or otherwise from or out of, with
or to any of the Company's agreements with (including this Agreement and the
agreements and documents referred to in Section 15 above), services to or for or
the Company's relationship with Client (a "Claim") shall be resolved on Grand
Cayman in the Cayman Islands, British West Indies, whether such resolution is
through arbitration, the courts or otherwise. Accordingly, Client and the
Company hereby irrevocably and unconditionally agree that any arbitration
proceedings between Client and the Company with respect to any Claim shall be
held on Grand Cayman, and to the extent that arbitration is not pursued or is
otherwise not available with respect to any Claim and Client or the Company
desire to pursue such Claim in the courts or otherwise, Client and the Company
hereby irrevocably and unconditionally consent and submit to the exclusive
jurisdiction of the courts or other applicable authorities located on Grand
Cayman with respect to such Claim. Actions to enforce orders or judgments
(whether obtained through arbitration, the courts or otherwise) may, however, be
brought in any appropriate jurisdiction. Client and the Company irrevocably
consent to the service of any and all process with
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respect to any Claim by the delivery of copies of such process to them at their
respective address specified for notices to be given hereunder or by certified
mail direct to such address. EACH OF THE PARTIES HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT TO A JURY TRIAL WITH RESPECT TO ANY CLAIM. ANY
ACTION OR PROCEEDING (WHETHER IN ARBITRATION, IN THE COURTS OR OTHERWISE) WITH
RESPECT TO ANY CLAIM MUST BE COMMENCED WITHIN ONE (1) YEAR AFTER THE DATE THE
CLAIM AROSE OR ACCRUES OR THE CLAIM SHALL BE LOST AND FOREVER BARRED. A "Claim"
for purposes of this Section 19 shall include a Claim between Client and the
Company and between or among Client and any one or more of the Company or the
Company Affiliates.
20. Notwithstanding anything contained in this Agreement or otherwise
which may appear to be to the contrary, and in addition to the limitation on the
liability of the Company and the Company Affiliates set forth in Section 6
above, if any term or condition of this Agreement to be performed or observed by
the Company or any act or omission of the Company to be taken pursuant to this
Agreement is in any way restricted, affected or rendered impossible of
performance or observance due to any act of God or any force majeure (including,
without limitation, flood, storm, weather, war, civil disturbance, fire or
casualty), or any communication line failure, computer failure, power failure,
mechanical failure, equipment malfunction or failure, computer virus, software
error or interruption, labor dispute, governmental rule, act or omission of any
third party, or any other factor beyond the reasonable control of the Company,
the Company shall, for so long as any such condition exists, be excused from
such performance or observance. Neither the Company nor any Company Affiliate
shall have any liability whatsoever to Client for any losses, damages, costs or
expenses in any way incurred by Client in any such circumstance or due to the
Company's failure or partial failure to perform in any such circumstance.
21. Client acknowledges that, as provided in the Disclosure Document, the
Company may execute trades through such futures commission merchants or floor
brokers as the Company may select from time to time, with instructions to "give
up" such trades to the FCM for clearing. Client agrees to pay all "give up"
fees in this circumstance as provided in the Disclosure Document. Client agrees
to execute and deliver a separate authorization to the Company, such futures
commission merchants and floor brokers as are selected by the Company and the
FCM regarding the matters addressed in this Section 21 promptly following any
request therefor by the Company.
22. This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts (including by facsimile
transmission), and all of said counterparts taken together shall be deemed to
constitute one and the same instrument, and in making proof hereof it shall not
be necessary to produce or account for more than one such counterpart.
23. This Agreement shall not be construed more strongly against any party
regardless of who is more responsible for its preparation.
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24. Words and phrases herein shall be construed as in the singular or
plural number and as masculine, feminine or neuter gender, according to the
context.
25. If more than one person is signing this Agreement as Client, each
representation, warranty, agreement or other undertaking herein is and shall be
a joint and several representation, warranty, agreement or undertaking of each
of such persons, and the foregoing grants of powers, authorities and rights to
the Company are and shall be a joint and several grant by each of such persons.
Actions of any one Client pursuant to this Agreement shall conclusively bind all
such Clients. Unless otherwise specifically stated, an ACCOUNT in joint names
creates a joint tenancy with full rights of survivorship, and not a tenancy in
common.
26. Nothing contained in this Agreement and no action taken or omitted to
be taken by the parties pursuant hereto shall be deemed to constitute the
parties a partnership, an association, a joint venture or other entity
whatsoever.
27. Client hereby authorizes the Company to provide to the FCM a copy of
this Agreement or copies of such sections and provisions from this Agreement as
the Company may from time to time determine. The FCM is hereby authorized and
directed by Client to fully act in accordance with and rely upon all of the
authorizations and directions given to the FCM under this Agreement, without
notice to or further verification or authorization from Client.
28. PURSUANT TO AN EXEMPTION FROM THE COMMODITY FUTURES TRADING COMMISSION
IN CONNECTION WITH ACCOUNTS OF QUALIFIED ELIGIBLE CLIENTS, THIS ACCOUNT DOCUMENT
IS NOT REQUIRED TO BE, AND HAS NOT BEEN, FILED WITH THE COMMISSION. THE
COMMODITY FUTURES TRADING COMMISSION DOES NOT PASS UPON THE MERITS OF
PARTICIPATING IN A TRADING PROGRAM OR UPON THE ADEQUACY OR ACCURACY OF COMMODITY
TRADING ADVISOR DISCLOSURE. CONSEQUENTLY, THE COMMODITY FUTURES TRADING
COMMISSION HAS NOT REVIEWED OR APPROVED THE COMPANY'S TRADING PROGRAMS OR THIS
ACCOUNT DOCUMENT.
IN WITNESS WHEREOF, Client has executed this Agreement as of the 27th day
of August, 1998.
CLIENT
PORTFOLIO BOOST II, L.P. PORTFOLIO BOOST, L.L.C., solely
By: Portfolio Boost, L.L.C., for purposes of Section 7 above
General Partner
By: /s/Jeffrey A. Raun
--------------------------
Jeffrey A. Raun, President By: /s/Jeffrey A. Raun
--------------------------
Jeffrey A. Raun, President
Cornerstone at Cantera
4320 Winfield Road, Suite 320
Warrenville, Illinois 60555
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____________________________________
Client's address
1-877-RRRATIO
____________________________________
Client's phone number
630-393-7611
______________________________
Client's Fax Number
ACCEPTANCE
This Agreement is hereby accepted by Quiet Systems Limited as of the 27th
day of August, 1998.
QUIET SYSTEMS LIMITED
By: /s/John Leo O'Brien, President
-----------------------------------
Title
British American Centre, Phase 3
Dr. Roy's Drive
George Town, Grand Cayman
Cayman Islands
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SCHEDULE 1
This Schedule 1 is a part of that certain Advisory Agreement by and between
the undersigned and Quiet Systems Limited, which is of even date herewith and to
which this Schedule 1 is attached (the "Agreement"). Capitalized terms utilized
in this Schedule 1 which are not otherwise defined in this Schedule 1 shall have
the meanings given to them in the Agreement.
The Initial Account Size, Actual Funds, Committed Funds and Notional Funds
for purposes of the Agreement are as follows:
$500,000 - Initial Account Size $ -0- - Committed Funds
$500,000 - Actual Funds $ -0- - Notional Funds
All of the above amounts are set forth in United States dollars.
This Agreement is applicable to the following specified Program (please
check or place initials in the line beside the applicable Program):
____ - FOREX INDEX Program ____ - Diversified Program
X - Financial Program
- ----
PORTFOLIO BOOST II, L.P.
By: Portfolio Boost, L.L.C., General Partner
By: /s/Jeffrey A. Raun
----------------------------------------
Jeffrey A. Raun, President
Date: August 27, 1998
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SCHEDULE 2
This Schedule 2 is a part of that certain Advisory Agreement by and between
the undersigned and Quiet Systems Limited, which is of even date herewith and to
which this Schedule 2 is attached (the "Agreement"). Capitalized terms utilized
in this Schedule 2 which are not otherwise defined in this Schedule 2 shall have
the meanings given to them in the Agreement.
The FCM for purposes of the Agreement is as follows:
LBS Division of
First Options of Chicago, Inc. Mark Kirschner, Vice President
------------------------------- --------------------------------
Name of FCM Name and Title of Individual
Contact at FCM
8111 W. Jackson 312-461-8218
-------------------------------------------------------------------------
Suite 1904 FCM's Phone Number
-------------------------------
Chicago, Illinois 60604
-------------------------------
FCM's Address 312-461-8212
--------------------------------
FCM's Fax Number
PORTFOLIO BOOST II, L.P.
By: Portfolio Boost, L.L.C.,
General Partner
By: /s/Jeffrey A. Raun
----------------------------
Jeffrey A. Raun, President
Date: August 27, 1998
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EXHIBIT 10.2
<PAGE>
Frischmeyer Trading Corporation
1422 Central Avenue
Fort Dodge, Iowa 50501
RE: APPOINTMENT AS SPECIAL AGENT
----------------------------
Ladies and Gentlemen:
In connection with the undersigned's having entered into an advisory
agreement ("Advisory Agreement") with Quiet Systems Limited of George Town,
Grand Cayman, Cayman Islands ("QSL"), a commodity trading advisor ("CTA")
registered with the United States Commodity Futures Trading Commission ("CFTC"),
this letter will serve as your appointment, subject to your acceptance hereof,
as agent of the undersigned to receive the trading signals generated by QSL in
its capacity as a CTA for the undersigned and for communicating the trades
therefrom to the introducing broker or futures commission merchant selected by
the undersigned. The undersigned acknowledges, understands and agrees that you
will not exercise any discretion whatsoever in determining what trades will be
made on behalf of the undersigned, but will rather merely review the technical
signals generated by the various QSL programs which are the subject of the
undersigned's Advisory Agreement with QSL and communicate the trades which are
directed to be made pursuant thereto to the introducing broker or futures
commission merchant. The Advisory Agreement is applicable to the account of the
undersigned which will be traded in the trading program of QSL designated
beneath the undersigned's signature hereto.
As agent of the undersigned, you shall also receive and maintain records on
behalf of the undersigned of trade confirmations, statements of purchase and
sale, statements of open trade equity and monthly activity statements and all
other statements or documents generated as a result of such trading in
accordance with the Advisory Agreement between the undersigned and QSL. You are
hereby authorized to provide copies of such documentation as received from the
introducing broker or futures commission merchant in your capacity as
ministerial agent of the undersigned, if so requested by QSL, to QSL.
The undersigned has received, read, understood and acknowledged receipt of
the Disclosure Document of QSL. The undersigned has also entered into the
Advisory Agreement with QSL. Copies of both of the foregoing as acknowledged or
executed by the undersigned have been provided to you. In connection with your
appointment hereunder, the undersigned has authorized and directed QSL in
writing (either in such Advisory Agreement or by separate writing, a copy of
which has been provided to you) to deduct from
<PAGE>
Frischmeyer Trading Corporation
Page 2
fees paid by the undersigned to QSL, amounts equal to your Fees hereunder, from
time to time, and to remit the same directly to you.
The undersigned agrees and acknowledges that you shall not be liable in any
manner whatsoever for any trading losses, any expenses, claims, judgments or
other economic obligations to the undersigned arising out of or as a result of
your appointment hereunder or the undersigned's Advisory Agreement with QSL, or
any mistakes, transmission failures, exchange rate fluctuations or otherwise
unless such economic loss or losses is or are directly caused by your gross
negligence or willful misconduct as finally adjudicated by a court of competent
jurisdiction. In this connection, the undersigned hereby acknowledges and
agrees that this letter of appointment shall be governed by and construed under
the laws of the State of Iowa, without regard to its conflict of laws
principles, and that venue for any such adjudication, whether by way of
litigation or arbitration, shall lie in Fort Dodge, Webster County, Iowa, and
for this purpose the undersigned hereby submits to such jurisdiction and venue.
For your services hereunder, Portfolio Boost, L.L.C., the General Partner
of the undersigned agrees to pay you $200 per month ("Fees"). You may annually
increase your Fees hereunder provided you give the undersigned not less than
thirty (30) days prior written notice of such increase and the undersigned does
not notify you in writing within ten days after receipt of your notice of the
undersigned's objection to such increase. You acknowledge that the undersigned
(excluding Portfolio Boost, L.L.C.) is not responsible or liable to you for the
payment of Fees, and that the Fees are the sole responsibility of Portfolio
Boost, L.L.C.
Your appointment hereunder shall continue in full force and effect for so
long as the Advisory Agreement between the undersigned and QSL remains in full
force and effect, and such appointment shall automatically terminate upon the
termination of such Advisory Agreement. If the undersigned timely objects to a
fee increase under the immediately preceding paragraph you shall have the right
to resign your appointment hereunder upon written notice to the undersigned.
This is a personal services agreement. It may not be assigned by you or
the undersigned to any other person, firm or corporation unless such other
person, firm or corporation is an affiliate of or owned or controlled by you or
the undersigned, respectively. This appointment shall be binding upon the
undersigned and the undersigned's successors, legal representatives and assigns.
This appointment shall be effective only after you have indicated your written
acceptance below and shall commence upon execution by the undersigned of its
Advisory Agreement with QSL.
<PAGE>
Frischmeyer Trading Corporation
Page 3
Please indicate your acceptance of your appointment on the terms and
conditions set forth above by signing and returning the enclosed copy of this
letter.
Very truly yours,
Portfolio Boost II, L.P.
By: Portfolio Boost, L.L.C., General
Partner
By: /s/ Jeffrey A. Raun
--------------------------------------
Jeffrey A. Raun, President
Date: August 27, 1998
Trading Program of QSL to which this
Letter Agreement Applies:
Financial Program
With respect to the Fifth Paragraph hereof
(regarding Fees):
Portfolio Boost, L.L.C., for itself
By: /s/ Jeffrey A. Raun
--------------------------------------
Jeffrey A. Raun, President
Date: August 27, 1998
Accepted and Agreed:
Frischmeyer Trading Corporation
By:/s/ Michael Frischmeyer
------------------------------
Date: August 27, 1998
<PAGE>
EXHIBIT 10.3
<PAGE>
<TABLE>
<CAPTION>
NEW ACCOUNT FORM
FIRST OPTIONS OF CHICAGO, INC. PARTNERSHIP ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ACCOUNT TITLE AND MAILING ADDRESS DUPLICATE STATEMENTS TO:
- ---------------------------------------------------------- ----------------------------------------------------
- ---------------------------------------------------------- ----------------------------------------------------
- ---------------------------------------------------------- ----------------------------------------------------
- ---------------------------------------------------------- ----------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
PARTNERSHIP TAX ID [_] TAX ID APPLIED FOR PRINCIPAL PURPOSE OF PARTNERSHIP.
- --------------------
DATE __________________
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL PARTNER-I
- ------------------------------------------------------------------------------------------------------------------------------------
NAME EMPLOYER'S NAME (State if Self Employed)
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL SECURITY NO. TAXPAYER ID NO. TITLE BUSINESS TELEPHONE NO.
- - - ( )
- ------------------------------------------------------------------------------------------------------------------------------------
HOME ADDRESS BUSINESS ADDRESS
- ------------------------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CITY STATE ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR OF BIRTH HOME TELEPHONE NO. TYPE OF BUSINESS
( )
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIBE INVESTMENT AND FUTURES TRADING EXPERIENCE
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL PARTNER-II
- ------------------------------------------------------------------------------------------------------------------------------------
NAME EMPLOYER'S NAME (State if Self Employed)
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL SECURITY NO. TAXPAYER ID NO. TITLE BUSINESS TELEPHONE NO.
- - - ( )
- ------------------------------------------------------------------------------------------------------------------------------------
HOME ADDRESS BUSINESS ADDRESS
- ------------------------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CITY STATE ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR OF BIRTH HOME TELEPHONE NO. TYPE OF BUSINESS
( )
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIBE INVESTMENT AND FUTURES TRADING EXPERIENCE
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL PARTNER-III
- ------------------------------------------------------------------------------------------------------------------------------------
NAME EMPLOYER'S NAME (State if Self Employed)
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL SECURITY NO. TAXPAYER ID NO. TITLE BUSINESS TELEPHONE NO.
- - - ( )
- ------------------------------------------------------------------------------------------------------------------------------------
HOME ADDRESS BUSINESS ADDRESS
- ------------------------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CITY STATE ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR OF BIRTH HOME TELEPHONE NO. TYPE OF BUSINESS
( )
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIBE INVESTMENT AND FUTURES TRADING EXPERIENCE
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL PARTNER-IV
- ------------------------------------------------------------------------------------------------------------------------------------
NAME EMPLOYER'S NAME (State if Self Employed)
- ------------------------------------------------------------------------------------------------------------------------------------
SOCIAL SECURITY NO. TAXPAYER ID NO. TITLE BUSINESS TELEPHONE NO.
- - - ( )
- ------------------------------------------------------------------------------------------------------------------------------------
HOME ADDRESS BUSINESS ADDRESS
- ------------------------------------------------------------------------------------------------------------------------------------
CITY STATE ZIP CITY STATE ZIP
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR OF BIRTH HOME TELEPHONE NO. TYPE OF BUSINESS
( )
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIBE INVESTMENT AND FUTURES TRADING EXPERIENCE
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-1-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ACCOUNT DESCRIPTION: (check one) INVESTMENT OBJECTIVE: (check all that apply)
<S> <C>
[_] General Partnership (include Partnership Agreement) [_] Speculation
[_] Limited Partnership (include Limited Partnership Agreement) [_] Hedging
[_] Pension Plan (include Plan & Supplement Form) [_] Spreading
[_] Trust (include Trust Agreement) [_] Arbitrage
[_] Other ____________________________________________________ [_] Other ______________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
INDICATE BELOW ANY REGISTRATIONS THE ABOVE PARTNERS HOLD:
NAME: REGISTERED WITH CFTC AS: NFAID#: REGISTERED WITH SEC AS:
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Does this account, or do any principals of this account:
. Control the trading of any other accounts with us? [_] Yes [_] No FOR EXCHANGE MEMBERS ONLY:
. Have a financial interest in the trading of any
other accounts with us? [_] Yes [_] No OWN LEASE EXCHANGE ACRONYM
. Have any other futures accounts with us? [_] Yes [_] No [_] [_] CBOT __________
(If Yes, provide names and numbers of other accounts [_] [_] AM __________
below.) [_] [_] GIM __________
[_] [_] IDEM __________
Do any other non-related persons or entities: [_] [_] COM __________
. Control the trading of this account? [_] Yes [_] No [_] [_] CME __________
(If Yes, provide name and address below.) [_] [_] IMM __________
. Have a financial interest in this account? [_] Yes [_] No [_] [_] IOM __________
(If Yes, provide name, address and % of financial [_] [_] KCBT __________
interest below.) [_] [_] PHBT __________
. Guarantee this account? [_] Yes [_] No [_] [_] PHLX __________
(If Yes, provide copy of written guaranty.) [_] [_] CBOE __________
- -------------------------------------------------------------------------------
[_] [_] AMEX __________
- -------------------------------------------------------------------------------
Have any participants in this account now or in the past, whether or [_] [_] PSE __________
not this was publicly disclosed, been suspended, expelled, fined, barred, [_] [_] NYFE __________
censured or otherwise disciplined by any regulatory body or by any [_] [_] NYSE __________
securities or commodities exchange or association or been refused [_] [_] OTHER __________
membership therein? [_] Yes [_] No
If Yes, explain on separate sheet. FOC Equity Account # __________
Have any participants in this account ever been subject to federal
or state bankruptcy proceedings, receivership, or similar
proceedings (voluntary or involuntary)? [_] Yes [_] No
If Yes, explain on separate sheet.
- ------------------------------------------------------------------------------------------------------------------------------------
CUSTOMER CONTACTS: BROKER IS AUTHORIZED TO DEBIT ACCOUNT FOR
CHARGES INCLUDING, BUT NOT LIMITED TO:
________________________________________________________________________________
Partner Responsible for Account Relationship Title Phone
[_] Membership Lease [_] Floor Brokerage
________________________________________________________________________________ Payment
Trader Title Phone
[_] Insurance [_] Telecommunications
________________________________________________________________________________
Operations Title Phone [_] Rent [_] Jackets & Printing
________________________________________________________________________________ Other ________________
FAX Number TELEX Number
In Emergencies: ________________________________________________
Authorized Signature Date
_______________________________________________________________________________
Name Title Business Phone Home Phone
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-ii-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
PARTNERSHIP AGREEMENT
In consideration of First Options of Chicago, Inc. ("Broker") opening and
carrying a partnership account in the name of __________________________, a duly
organized partnership organized under the laws of the state of ___________, of
which each of the undersigned is a general partner, the undersigned jointly and
severally agree that each of the following named persons, to wit:
Print Names
_________________________________ __________________________________
_________________________________ __________________________________
shall have authority on behalf of the partnership to buy, sell (including short
sales), and otherwise deal in, on margin or otherwise, commodities, commodity
futures contracts and commodity options; to receive on behalf of the partnership
account demands, notices, confirmations, reports, statements of account and
communications of every kind; to receive on behalf of the partnership account
money, securities and property of every kind and to dispose of same; to make on
behalf of the partnership account agreements relating to any of the foregoing
matters and to terminate or modify same or waive any of the provisions thereof;
and generally to deal with Broker on behalf of the partnership account as fully
and completely as if he alone were interested in said account, all without
notice to the other or others interested in said account. The authority hereby
conferred shall remain in force until written notice of its revocation addressed
to Broker is delivered at its office.
The undersigned further authorize Broker, in the event of death or retirement of
any of the members of said partnership, to take such actions, require such
documentation, retain such portion of or restrict transactions in said account
as Broker may deem advisable to protect Broker against any liability, penalty or
loss under any present or future law otherwise. It is further agreed that in the
event of the death or retirement of any member of the said partnership, the
remaining members will immediately cause Broker to be notified of such fact.
Subject to the provisions hereof, all notices or communications for the
undersigned in respect of the partnership account are to be directed to:
________________________________________________ Name of Account (Please Print)
NOTE: ALL GENERAL PARTNERS MUST SIGN.
Print Names Signatures Date
______________________________________ ________________________________________
______________________________________ ________________________________________
______________________________________ ________________________________________
______________________________________ ________________________________________
-iii-
<PAGE>
[LOGO OF FIRST OPTIONS OF CHICAGO, INC. APPEARS HERE]
FIRST OPTIONS OF CHICAGO, INC.
440 South LaSalle
Chicago, IL. 60605-1028
312-362-3000
111 Broadway 1900 Market Street 220 Montgomery Street
New York, NY 10006 Philadelphia, PA 19103 San Francisco, CA 94101
212-346-7000 215-963-7000 415-398-1255
<PAGE>
[LOGO FIRST OPTIONS OF CHICAGO, INC.]
- --------------------------------------------------------------------------------
CUSTOMER ACCOUNT AGREEMENT
FUTURES AND OPTIONS AND FUTURES
In consideration of First Options of Chicago, Inc. ("Broker") accepting and
maintaining one or more accounts and agreeing to act as broker for the
undersigned ("Customer"), Customer acknowledges and agrees to the following
terms and conditions with respect to any of Customer's accounts with Broker or
Broker's affiliates for the purchase and sale of commodities, commodity futures
contracts, commodity options and other property.
1. TRANSACTIONS SUBJECT TO INDUSTRY REGULATIONS AND STANDARDS
All transactions shall be subject to the regulations of all applicable
government authorities and self-regulatory agencies including, but not limited
to, the constitutions and rules of the clearing house, exchange, or market where
executed. Customer understands that Broker is obligated to comply with all
applicable laws and regulations including those of regulatory and
self-regulatory organizations and agrees that Broker shall not be liable to
Customer as a result of any action taken by Broker to comply with any ruling,
interpretation or directive of such organization.
2. MARGIN AND COLLATERAL
Customer will maintain such margin and collateral as Broker may require from
time to time and will pay on demand any amount owing with respect to any of
Customer's accounts. Customer understands that Broker's margin requirements may
exceed those set by any exchange and may be increased without prior notice,
including with respect to existing positions.
Customer acknowledges that if Broker fails to receive sufficient funds to pay
for any commodity or to satisfy any demand for initial or variation margin
within a reasonable time after demand, and, in the absence of unusual
circumstances, one hour shall be deemed a reasonable time, Broker shall be
entitled, but not obligated, to sell any property held by Broker in any of
Customer's accounts, offset any open positions and liquidate Customer's
accounts in whole or in part. Customer recognizes that under present
regulations and practices Broker is not required to give Customer prior notice
of such actions and Customer will be liable for any resulting loss.
3. LIEN
Any property which belongs to Customer or in which Customer may have any
interest held by Broker or carried in any of Customer's accounts with Broker or
any of Broker's affiliates shall be subject to a general lien for the discharge
of Customer's obligations to Broker, including unmatured and contingent
obligations. The term "property" as used in this agreement means any and all
credit balances, securities, monies, options, commodities, contracts for the
future delivery of commodities, forward contracts, or contracts otherwise
relating to commodities or securities and all property customarily dealt in by
brokerage firms, both on registered exchanges and in permissible non-exchange
transactions, Customer understands that Broker may commingle all monies received
from Customer, except to the extent proscribed by the Commodity Exchange Act and
all other applicable laws and regulations.
4. COMMISSIONS
Customer agrees to pay such commission rates as Broker may from time to time
charge, as well as other costs and fees (including, without limitation, fees
imposed by the National Futures Association, exchanges or other regulatory or
self-regulatory organizations) arising out of Broker's provision of services
hereunder. Customer understands that Broker may change its commissions without
notice.
5. RIGHT OF FIRM TO LIQUIDATE POSITIONS OR CANCEL OPEN ORDERS
Customer understands and agrees that Broker may, whenever Broker considers it
necessary for Broker's protection: (A) sell, exercise, offset or otherwise
liquidate any or all securities, commodity futures contract, options, commodity
forward contracts, leverage contracts or physical commodities long in any of
Customer's accounts; (B) buy in, offset or otherwise liquidate any or all
securities, commodity futures contracts, options, commodity forward contracts,
leverage contracts or physical commodities short in any of Customer's accounts;
(C) cancel any outstanding orders, close out any or all outstanding contracts,
refuse to take orders that establish new positions or liquidate any of
Customer's accounts; (D) sell or set off and apply any other property Broker may
hold for Customer (whether held as margin or for safekeeping or otherwise) or
any credit balance in any of Customer's accounts; (E) buy or sell securities,
commodity futures contracts, options, commodity forward contracts, leverage
contracts or physical commodities to enter into and liquidate, straddle or
spread positions with respect to any securities, commodity futures contracts,
options, commodity forward contracts, leverage contracts or physical commodities
long or short in any of Customer's accounts. Customer recognizes that Broker is
not required to give Customer prior notice of any such action and that Customer
remains liable for all costs, expenses or debit balances incurred in connection
therewith.
6. FUTURES CONTRACT LIQUIDATING AND DELIVERY INSTRUCTIONS
At least two business days prior to the first notice day in the case of long
positions in futures or forward contracts, and at least two business days prior
to the last trading day in the case of short positions in futures or forward
contracts, Customer agrees either to give Broker instructions to liquidate or
make or take delivery under such futures or forward contracts, and will deliver
to Broker sufficient funds and any documents required in connection with such
delivery. If such instructions or such funds or documents are not received as
required by this paragraph, Broker may, without notice to Customer, either
liquidate Customer's positions or make delivery or take delivery on Customer's
behalf on such terms and conditions as Broker deems reasonable and Customer
shall remain liable for all costs, expenses or debit balances incurred in
connection therewith.
7. OPTIONS TRANSACTIONS
Customer acknowledges and understands the risks of buying and selling options on
commodity futures contracts; the risks of such
-1-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
option trading caused by a limit move in the underlying commodity futures
contract; and has been advised of the commissions and fees associated with
trading options and that such costs are charged on a `per side' basis.
8. OPTION CONTRACT LIQUIDATING AND EXERCISING INSTRUCTIONS
Customer is fully responsible for taking action to exercise an option contract.
Broker shall not be required to take any action with respect to an option
contract, including any action to exercise a valuable option prior to its
expiration date, except upon express instructions from Customer. In this
connection, Customer understands that the exchanges, boards of trade, markets
and clearing houses have established exercise cut-off times for the tender of
exercise instructions and that Customer's options will become worthless in the
event that Customer does not deliver instructions by Broker's established
expiration times: Customer agrees and further understands that Broker has
established exercise cut-off times which may be different from the times
established by the exchanges, boards of trade, markets and clearing houses.
Customer hereby agrees to waive any and all claims for damage or loss which
Customer might have against Broker arising out of the fact that an option was
not exercised.
Customer understands that Broker randomly assigns exercise notices to all
customers. All short option positions are subject to assignment at any time,
including positions established on the same day that exercises are assigned.
Exercise assignment notices are allocated randomly from among all of Broker's
customers' short option positions which are subject to exercise.
9. POSITION LIMITS
Customer agrees not to exceed the position limits set by any federal agency,
exchange or regulatory authority for Customer's accounts, acting alone or in
concert with others. Customer acknowledges that Broker has the right to limit
the number of positions in Customer's account(s). Customer agrees to abide by
all other applicable laws, rules and regulations with respect to maintaining
account(s) with Broker. Customer acknowledges that under applicable rules Broker
may be required to provide the CFTC or exchanges with information concerning
Customer's futures and options positions and related data.
10. FOREIGN CURRENCY RISK
Customer agrees that in the event that Customer directs Broker to enter into any
transaction on an exchange on which such transactions are effected in a foreign
currency: (a) any profit or loss arising as a result of a fluctuation in the
exchange rate effecting such currency will be entirely for Customer's account
and risk, (b) all initial and subsequent deposits for margin purposes shall be
made in U.S. Dollars, in such amounts as Broker may in its sole discretion
require, (c) Broker is authorized to convert funds in Customer's account into
and from such foreign currency at a rate of exchange determined by Broker in
its sole discretion on the basis of then prevailing money markets.
11. RESPONSIBILITY FOR LOSSES
Customer agrees and acknowledges that Broker is financially liable to the
exchange clearing house of which Broker is a member, and to the clearing members
through which Broker clears transactions on exchanges of which Broker is not a
clearing member, for deficit balances occurring in Customer's accounts. Customer
therefore agrees to hold Broker harmless, indemnify and defend Broker against
any and all losses sustained by Broker resulting from deficit balances which may
occur in Customer's account(s).
Customer agrees and acknowledges that deficit balances in any of Customer's
account(s) shall be charged with interest and such other costs, fees or charges
(including reasonable fee of attorneys who may be Broker's employees or
employees of Broker's affiliates) as Broker may make in the collection of this
deficit.
In consideration for Broker carrying the account(s), Customer will in no way
hold Broker responsible for any losses, including losses incurred by Customer
following Broker's trading recommendations or suggestions. Customer agrees to
give written notification to the Compliance Department in the event of
unresolved disputed transactions or other similar problems.
12. CONFIRMATION AND STATEMENT OF ACCOUNTS
Reports of executions of orders shall be deemed conclusive and binding
immediately upon Customer receiving the report of execution. Statements of
account(s) shall be conclusive and binding if not objected to immediately. All
communications sent to Customer at the address given to Broker from time to time
shall constitute personal delivery to Customer. Customer understands that Broker
may tape record conversations without further notice and without assuming
responsibility to make or retain such tape recordings.
13. AUTHORIZATION TO TRANSFER FUNDS
This will serve as Customer's authority for Broker, whenever in Broker's
absolute discretion Broker deems it appropriate, to transfer between Customer's
regulated commodity accounts and any other account maintained with Broker, any
amount of excess funds, equities, securities or other property. Such transfers
shall be used to satisfy margin calls or to reduce or satisfy in full any
indebtedness in any of Customer's accounts with Broker, provided that Broker
shall, within a reasonable time after making such transfer, send a written
confirmation of the transfer to Customer. "Regulated Commodity" means any
account covered by the Commodity Exchange Act at the time of such transaction.
14. EXTRAORDINARY EVENTS
Broker shall not be liable for losses caused directly or indirectly by
government restrictions, exchange or market actions, suspension of trading, war,
strikes, or for delays in the transmission of orders due to breakdown or failure
of transmission or communication facilities, or to any other causes beyond
Broker's reasonable control or anticipation.
15. THE AGREEMENT
This agreement is made under and shall be covered by the laws of the United
States and the State of Illinois. It shall inure to the benefit of Customer's
heirs, successors and assigns, as well as Broker's successors, by merger,
consolidation or otherwise, and assigns, and Broker may transfer Customer's
account(s) to any such successor or assign.
No suit, arbitration, reparations proceeding, claim or action arising out of or
relating to this agreement may be maintained by any party to it unless commenced
within two years after the claim or cause of action has occurred.
If any provisions herein should become inconsistent with laws,
-2-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- -----------------------------------------------------------------------------
rules or regulations of any government or regulatory body having jurisdiction
over the subject matter, such provisions shall be deemed to be modified or
rescinded in accordance with any such laws, rules or regulations.
If any provision or condition of this agreement shall be held to be invalid or
unenforceable by any court, or regulatory or self-regulatory agency or body,
such invalidity or unenforceability shall attach only to such provision or
condition. The validity of the remaining provisions and conditions shall not be
affected and this agreement shall be carried out as if any such invalid or
unenforceable provision or condition were not contained herein.
This agreement may not be terminated or modified orally. It shall continue in
full force and effect until terminated by Broker or by Customer in writing to
Broker's main office. Broker's failure to insist at any time upon strict
compliance with any terms of this agreement or any continued course of such
conduct on Broker's part shall not constitute a waiver of any of Broker's rights
as described herein.
Captions used in this agreement are for convenience of reference only and shall
not be construed so as to affect the meaning of the text hereof.
This agreement supersedes any other customer agreement Customer has previously
held with Broker.
16. VERIFICATION OF INFORMATION
All information furnished to Broker in connection with the opening of Customer's
account(s) and all documents supplied by Customer, including financial
statements, are true, complete and correct. Broker is entitled to rely on this
information until Broker receives written notice of any change, which Customer
agrees to furnish promptly should any material changes occur. As part of this
agreement, Customer understands that an investigation may be made pertaining to
Customer's credit standing and account. If such investigation is conducted,
Customer understands that Customer has the right to make a written request,
within a reasonable period of time, for a complete and accurate disclosure of
the nature and scope of such investigation. Customer understands that there are
risks in trading, some of which are described in the Disclosure Statements
delivered to Customer.
Customer has read, fully understood and agrees to the foregoing terms and
conditions of the Customer Agreement.
FOR CORPORATIONS/PARTNERSHIPS
____________________________________________________
Print Name of Corporation or Partnership
____________________________________________________
Authorized Signature Date
____________________________________________________
Print Name & Title
FOR INDIVIDUAL/JOINT ACCOUNTS
(All account participants must sign)
____________________________________________________
Signature Date
____________________________________________________
Signature Date
____________________________________________________
Signature Date
- --------------------------------------------------------------------------------
FOR FOREIGN DOMICILED CUSTOMERS:
SERVICE OF PROCESS
In accordance with Regulation 15.05 promulgated by the Commodity Futures Trading
Commission, foreign brokers, traders and customers of a U.S. Futures Commission
Merchant ("FCM") are deemed to have designated such FCM as the agent for service
of process for purposes of accepting delivery and service of any communication
issued by or on behalf of the Commission to the foreign broker, trader or
customer with respect to any futures or option contracts which are or have been
maintained in such accounts carried by the FCM, unless another agent in the
United States has been designated. Customer hereby designates First Options of
Chicago, Inc. as its agent for such service of process.
FOR CORPORATIONS/PARTNERSHIPS
_____________________________________________________
Print Name of Corporation or Partnership
_____________________________________________________
Authorized Signature Date
_____________________________________________________
Print Name & Title
FOR INDIVIDUAL/JOINT ACCOUNTS
(All account participants must sign)
_____________________________________________________
Signature Date
_____________________________________________________
Signature Date
_____________________________________________________
Signature Date
-3-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
RISK DISCLOSURE STATEMENT FOR
FUTURES AND OPTIONS
This brief statement does not disclose all of the risks and other
significant aspects of trading in futures and options. In light of the risks,
you should undertake such transactions only if you understand the nature of the
contracts (and contractual relationships) into which you are entering and the
extent of your exposure to risk. Trading in futures and options is not suitable
for many members of the public. You should carefully consider whether trading is
appropriate for you in light of your experience, objectives, financial resources
and other relevant circumstances.
FUTURES
1. Effect of 'Leverage' or 'Gearing'.
Transactions in futures carry a high degree of risk. The amount of initial
margin is small relative to the value of the futures contract so that
transactions are 'leveraged' or 'geared'. A relatively small market movement
will have a proportionately larger impact on the funds you have deposited or
will have to deposit: this may work against you as well as for you. You may
sustain a total loss of initial margin funds and any additional funds deposited
with the firm to maintain your position. If the market moves against your
position or margin levels are increased, you may be called upon to pay
substantial additional funds on short notice to maintain your position. If you
fail to comply with a request for additional funds within the time prescribed,
your position may be liquidated at a loss and you will be liable for any
resulting deficit.
2. Risk-reducing orders or strategies.
The placing of certain orders (e.g. 'stop-loss' orders, where permitted
under local law, or 'stop-limit' orders) which are intended to limit losses to
certain amounts may not be effective because market conditions may make it
impossible to execute such orders. Strategies using combinations of positions,
such as 'spread' and 'straddle' positions may be as risky as taking simple
'long' or 'short' positions.
OPTIONS
3. Variable degree of risk.
Transactions in options carry a high degree of risk. Purchasers and sellers
of options should familiarize themselves with the type of options (i.e. put or
call) which they contemplate trading and the associated risks. You should
calculate the extent to which the value of the options must increase for your
position to become profitable, taking into account the premium and all
transaction costs.
The purchaser of options may offset or exercise the options or allow the
options to expire. The exercise of an option results either in a cash settlement
or in the purchaser acquiring or delivering the underlying interest. If the
option is on a future, the purchaser will acquire a futures position with
associated liabilities for margin (see the section on Futures above). If the
purchased options expire worthless, you will suffer a total loss of your
investment which will consist of the option premium plus transaction costs. If
you are contemplating purchasing deep-out-of-the-money options, you should be
aware that the chance of such options becoming profitable ordinarily is remote.
Selling ('writing' or 'granting') an option generally entails considerably
greater risk than purchasing options. Although the premium received by the
seller is fixed, the seller may sustain a loss well in excess of that amount.
The seller will be liable for additional margin to maintain the position if the
market moves unfavorably. The seller will also be exposed to the risk of the
purchaser exercising the option and the seller will be obligated to either
settle the option in cash or to acquire or deliver the underlying interest. If
the option is on a future, the seller will acquire a position in a future with
associated liabilities for margin (see the section of Futures above). If the
option is 'covered' by the seller holding a corresponding position in the
underlying interest or a future of another option, the risk may be reduced. If
the option is not covered, the risk of loss can be unlimited.
Certain exchanges in some jurisdictions permit deferred payment of the
option premium, exposing the purchaser to liability for margin payments not
exceeding the amount of the premium. The purchaser is still subject to the risk
of losing the premium and transaction costs. When the option is exercised or
expires, the purchaser is responsible for any unpaid premium outstanding at that
time.
ADDITIONAL RISKS COMMON TO FUTURES AND OPTIONS
4. Terms and conditions of contracts.
You should ask the firm with which you deal about the terms and conditions
of the specific futures or options which you are trading and associated
obligations (e.g. the circumstances under which you may become obligated to
make or take delivery of the underlying interest of a futures contract and, in
respect of options, expiration dates and restrictions on the time for exercise).
Under certain circumstances the specifications of outstanding contracts
(including the exercise price of an option) may be modified by the exchange or
clearing house to reflect changes in the underlying interest.
5. Suspension or restriction of trading and pricing relationships.
Market conditions (e.g. illiquidity) and/or the operation of the rules of
certain markets (e.g. the suspension of trading in any contract or contract
month because of price limits or "circuit breakers") may increase the risk of
loss by making it difficult or impossible to effect transactions or
liquidate/offset positions. If you have sold options, this may increase the risk
of loss.
-4-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
Further, normal pricing relationships between the underlying interest and
the future, and the underlying interest and the option may not exist. This can
occur when, for example, the futures contract underlying the option is subject
to price limits while the option is not. The absence of an underlying reference
price may make it difficult to judge "fair" value.
6. Deposited cash and property.
You should familiarize yourself with the protections accorded money or
other property you deposit for domestic and foreign transactions, particularly
in the event of a firm insolvency or bankruptcy. The extent to which you may
recover your money or property may be governed by specific legislation or local
rules. In some jurisdictions, property which had been specifically identifiable
as your own will be prorated in the same manner as cash for purposes of
distribution in the event of a shortfall.
7. Commission and other charges.
Before you begin to trade, you should obtain a clear explanation of all
commission, fees and other charges for which you will be liable. These charges
will affect your net profit (if any) or increase your loss.
8. Transactions in other jurisdictions.
Transactions on markets in other jurisdictions, including markets formally
linked to a domestic market, may expose you to additional risk. Such markets may
be subject to regulation which may offer different or diminished investor
protection. Before you trade you should enquire about any rules relevant to your
particular transactions. Your local regulatory authority will be unable to
compel the enforcement of the rules or regulatory authorities or markets in
other jurisdictions where your transactions have been effected. You should ask
the firm with which you deal for details about the types of redress available in
both your home jurisdiction and other relevant jurisdictions before your start
to trade.
9. Currency risks.
The profit or loss in transactions in foreign currency denominated
contracts (whether they are traded in your own or another jurisdiction) will be
affected by fluctuations in currency rates where there is a need to convert from
the currency denomination of the contract to another currency.
10. Trading facilities.
Most open-outcry and electronic trading facilities are supported by
computer-based component systems for the order-routing, execution, matching,
registration or clearing of trades. As with all facilities and systems, they are
vulnerable to temporary disruption or failure. Your ability to recover certain
losses may be subject to limits on liability imposed by the system provider, the
market, the clearing house and/or member firms. Such limits may vary: you should
ask the firm with which you deal for details in this respect.
11. Electronic trading.
Trading on an electronic trading system may differ not only from trading in
an open-outcry market but also from trading on other electronic trading systems.
If you undertake transactions on an electronic trading system, you will be
exposed to risks associated with the system including the failure of hardware
and software. The result of any system failure may be that your order is either
not executed according to your instructions or is not executed at all.
12. Off-exchange transactions.
In some jurisdictions, and only then in restricted circumstances, firms are
permitted to effect off-exchange transactions. The firm with which you deal may
be acting as your counterparty to the transaction. It may be difficult or
impossible to liquidate an existing position, to assess the value, to determine
a fair price or to assess the exposure to risk. For these reasons, these
transactions may involve increased risks. Off-exchange transactions may be less
regulated or subject to a separate regulatory regime. Before you undertake such
transactions, you should familiarize yourself with applicable rules and
attendant risks.
I hereby acknowledge that I have received and understood this risk disclosure
statement.
________________________________________________________________________________
FOR CORPORATIONS/PARTNERSHIPS FOR INDIVIDUAL/JOINT ACCOUNTS
(All account participants must sign)
________________________________________ _____________________________________
Print Name of Corporation or Partnership Signature Date
________________________________________ _____________________________________
Authorized Signature Date Signature Date
________________________________________ _____________________________________
Print Name & Title Signature Date
-8-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
FUTURES-BASED PRODUCTS ADDITIONAL MARGIN/RISK GUIDELINES
In consideration of First Options of Chicago, Inc.'s ("First Options")
right to revise its policies from time to time, either generally or with respect
to any particular account, as First Options, in its sole and absolute discretion
deems necessary, the undersigned ("Customer") agrees to the following
margin/risk guidelines applicable to futures-based products carried by First
Options in accounts of Customer ("Account"):
1. The risk exposure in any Account shall not exceed the current net
liquidating balance in any Account, given a market move of +/-1, 2 or 3 standard
deviations, as calculated by the First Options.
2. With respect to Customers trading index related products, assuming a market
gap of +/-20%, the risk exposure of the Account shall not exceed 120% of the
current net liquidating balance in the Account with a maximum risk exposure
limited to one million dollars ($1,000,000) above the Account's net liquidating
balance.
3. Customer will maintain margin and collateral within Account as required by
First Options.
4. Should the Account result in a deficit net liquidating balance, First
Options may require Customer to sign documentation, satisfactory to First
Options, acknowledging Customer's obligation to First Options. Should this
documentation be required, Customer's trading activity may be restricted by
First Options pending receipt of such signed documentation.
5. First Options may restrict Customer's ability to place opening trades if
Account is in a deficit net liquidating position.
6. Any Lessee Customer who is not guaranteed by another member may not execute
opening trades unless the net liquidating balance in the Account exceeds
$10,000.
First Options monitors risk exposure in accounts when a position in any one
product may expose the account to a loss of 50% or more of its current net
liquidating balance given a market move of +/-1, 2 or 3 standard deviations.
The above guidelines apply to both intraday positions and those carried
overnight. Accounts which fail to abide by these guidelines may be deemed by
First Options as not having sufficient margin. As a result, under the Customer
Agreement between Customer and First Options, First Options shall have
authority, as set forth in Section 5 of that Agreement, to liquidate or adjust
positions. In addition, under such circumstances, First Options shall have
authority to open new positions in the Account to reduce exposure in the
Account.
The undersigned Customer acknowledges that it has received, read and understands
First Options' additional margin/risk guidelines for futures-based products
carried by First Options.
________________________________________________________________________________
FOR CORPORATIONS/PARTNERSHIPS FOR INDIVIDUAL/JOINT ACCOUNTS
(All account participants must sign)
________________________________________ ______________________________________
Print Name of Corporation or Partnership Signature Date
________________________________________ ______________________________________
Authorized Signature Date Signature Date
________________________________________ ______________________________________
Print Name & Title Signature Date
-6-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
HEDGE DESIGNATION AND CUSTOMER INSTRUCTIONS
(FOR BONA FIDE HEDGE ACCOUNTS ONLY)
The undesigned ("Customer") hereby confirms that all orders which the Customer
initiates for the purchase or sale of futures or options contracts for this
account will represent bona fide hedges, as defined by the Commodity Futures
Trading Commission ("CFTC"), against spot positions or commitments in accordance
with section 4a(3) of the Commodity Futures Trading Commission Act of 1974, as
amended and Regulation 1.3(z) promulgated thereunder, and with any amendments or
CFTC interpretations which may be made in the future.
It is agreed that positions carried in this account will be strictly for hedge
purposes, and not for speculation, and that a separate account must be used to
accommodate non-hedge trades. It is further agreed that you can rely on the
representation that all trades made in this account are bona fide hedges and
that you shall have no obligation to inquire or verify the nature of such trades
or incur any liability if, in fact, they may not be such.
It is understood and the Customer agrees that this account is subject to hedge
margins and to other rules and regulations as prescribed for hedge accounts by
the various commodity exchanges and the CFTC.
This notification is a continuing one and shall remain in force until cancelled
in writing by the Customer.
The Customer is familiar with all laws, rules, and regulations concerning
hedging in such contracts.
List contracts to be hedged:
________________ __________________ _________________ __________________
THIS ELECTION IS FURNISHED TO YOU BECAUSE RULE 190.06(D) OF THE COMMODITY
FUTURES TRADING COMMISSION REQUIRES IT:
Each hedge account customer must specify when undertaking its first hedging
contract whether, in the unlikely event of the broker's bankruptcy, the customer
prefers that the trustee: (Check one)
[_] liquidate all open futures contracts without first attempting to contact
customer for instructions; OR
[_] attempt to contact customer for instructions with respect to the
disposition of all open futures contracts.
FOR CORPORATION/PARTNERSHIPS FOR INDIVIDUAL/JOINT ACCOUNTS
(All account participants must sign)
________________________________________ ______________________________________
First Name of Corporation or Partnership Signature Date
________________________________________ ______________________________________
Authorized Signature Date Signature Date
________________________________________ ______________________________________
Print Name & Title Signature Date
-7-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
CATEGORIES FOR COMMODITY OPTION TRADERS
The CFTC requires us to have appropriate commercial business designations for
each commercial option account carried on our books. A commercial business
category must be assigned to each customer by commodity when the trading
represents commercial activity. A commercial options trader is one who trades
options for purposes other than speculation.
Please check one of the following:
[_] I trade commodity options as a customer. I am not a commercial user of
options.
[_] I am a commercial user of options and fall under the following commercial
business designations. Please circle all applicable categories.
<TABLE>
<S> <C>
OPTION--SUGAR, COCOA, AND COFFEE "C" OPTION--GRAINS, SOYBEANS, AND SOYBEAN PRODUCTS
1. Producer 26. Grain or Soybean Producer
2. Merchant or Dealer 27. Producer Cooperative
3. Refiner/Processor 28. Other Elevator Operator or Merchant
4. Manufacturer 29. Processor, Including Feed Manufacturing
5. Other Commercial and Crushing
30. Livestock Feeder
OPTION--PRECIOUS METALS 47. Soybean Oil Refiner
6. Producer 31. Other Commercial
7. Refiner
8. Dealer OPTION--LIVESTOCK
9. Commercial End User 32. Farmer or Rancher
46. Fabricator or Alloyer 33. Commercial Feedlot Operator
10. (Deleted) 34. Other Livestock Feeder
11. Other Commercial 35. Marketing Agency and/or Commission
Merchant
OPTION--PETROLEUM 36. Packer or Other Meat Processor
39. Crude Oil Producer 37. Meat Wholesaler, Retailer, or Buyer
40. Crude Oil Reseller 38. Other Commercial
12. Refiner
13. Product Marketer and/or Distributor OPTIONS--COTTON AND FROZEN CONCENTRATED
14. End User ORANGE JUICE
15. Other Commercial 41. Producer/Grower
42. Producer/Cooperative
OPTION--FINANCIAL INSTRUMENTS/FOREIGN EXCHANGE 43. Merchant
16. Savings and Loan, Mortgage Bank, or Thrift 44. Mill Operator/Processor
Institution 45. Other Commercial
17. Commercial Bank
18. Insurance Company OPTION--FOREST PRODUCTS
19. Pension and Retirement Fund 48. Producers
20. Mutual Fund 49. Remanufacturers
21. Broker/Dealer 50. Wholesalers
22. Foundation or Endowment 51. Retailers and Builders
23. Other Commercial 52. Other Commercial
24. Importer/Exporter of Goods and Services
25. Investor/Issuer of Foreign Currency
Denominated Securities
</TABLE>
-8-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
ARBITRATION AGREEMENT
The undersigned ("Customer") agrees that any claim, grievance or controversy
arising out of or relating to Customer(s) account, to transactions pursuant to
the Customer Agreement or the breach thereof, shall be settled by arbitration in
accordance with rules, then in effect, of the National Futures Association, or
the contract market upon which the transaction giving rise to claim was
executed. Customer shall have the right of election as to which of the tribunals
listed below shall conduct the arbitration. If Customer does not make such
election by registered mail addressed to First Options of Chicago, Inc.
("Broker") at Broker's main office within forty-five days after demand by Broker
that Customer make such election, then Broker may make such election. Broker
agrees to pay any incremental fees which may be assessed by the forum for the
provision of a "mixed panel" of arbitrators, unless the arbitrators determine
that Customer has acted in bad faith in initiating or conducting the
proceedings. Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. If Customer seeks reparations under
Section 14 of the Commodity Exchange Act (the "Act") and the CFTC (defined
below) declines to institute reparation proceedings, the claim or grievance will
be subject to this arbitration agreement. Any aspects of the claims or
grievances that are not subject to the reparations procedures (that is, do not
constitute a violation of the Act or rules thereunder) may be required to be
submitted to the arbitration procedure set forth in this agreement.
THREE FORUMS EXIST FOR THE RESOLUTION OF COMMODITY DISPUTES: CIVIL COURT
LITIGATION, REPARATIONS AT THE COMMODITY FUTURES TRADING COMMISSION (CFTC) AND
ARBITRATION CONDUCTED BY A SELF REGULATORY OR OTHER PRIVATE ORGANIZATION.
THE CFTC RECOGNIZES THAT THE OPPORTUNITY TO SETTLE DISPUTES BY ARBITRATION MAY
IN SOME CASES PROVIDE MANY BENEFITS TO CUSTOMERS, INCLUDING THE ABILITY TO
OBTAIN AN EXPEDITIOUS AND FINAL RESOLUTION OF DISPUTES WITHOUT INCURRING
SUBSTANTIAL COSTS. THE CFTC REQUIRES, HOWEVER, THAT EACH CUSTOMER INDIVIDUALLY
EXAMINE THE RELATIVE MERITS OF ARBITRATION AND THAT YOUR CONSENT TO THIS
ARBITRATION AGREEMENT BE VOLUNTARY.
BY SIGNING THIS AGREEMENT, YOU: (1) MAY BE WAIVING YOUR RIGHT TO SUE IN A COURT
OF LAW; AND (2) ARE AGREEING TO BE BOUND BY ARBITRATION OF ANY CLAIMS OR
COUNTERCLAIMS WHICH YOU OR FIRST OPTIONS OF CHICAGO, INC. MAY SUBMIT TO
ARBITRATION UNDER THIS AGREEMENT, YOU ARE NOT, HOWEVER, WAIVING YOUR RIGHT TO
ELECT INSTEAD TO PETITION THE CFTC TO INSTITUTE REPARATIONS PROCEEDINGS UNDER
SECTION 14 OF THE COMMODITY EXCHANGE ACT WITH RESPECT TO ANY DISPUTE WHICH MAY
BE ARBITRATED PURSUANT TO THIS AGREEMENT. IN THE EVENT A DISPUTE ARISES, YOU
WILL BE NOTIFIED IF FIRST OPTIONS OF CHICAGO, INC. INTENDS TO SUBMIT THE DISPUTE
TO ARBITRATION. IF YOU BELIEVE A VIOLATION OF THE COMMODITY EXCHANGE ACT IS
INVOLVED AND IF YOU PREFER TO REQUEST A SECTION 14 "REPARATIONS" PROCEEDING
BEFORE THE CFTC, YOU WILL HAVE 45 DAYS FROM THE DATE OF SUCH NOTICE IN WHICH TO
MAKE THAT ELECTION. SEE 17 CFR 180.1-180.5.
YOU NEED NOT SIGN THIS AGREEMENT TO OPEN AN ACCOUNT WITH FIRST OPTIONS OF
CHICAGO, INC.
FOR CORPORATIONS/PARTNERSHIPS FOR INDIVIDUAL/JOINT ACCOUNTS
(All account participants must sign)
________________________________________ ______________________________________
Print Name of Corporation or Partnership Signature Date
________________________________________ ______________________________________
Authorized Signature Date Signature Date
________________________________________ ______________________________________
Print Name & Title Signature Date
-9-
<PAGE>
FIRST OPTION OF CHICAGO, INC.
- --------------------------------------------------------------------------------
TAX INFORMATION
W-9 OR W-8 CERTIFICATION
Name____________________________________________________________________________
Address_________________________________________________________________________
City: State, Zip _______________________________________________________________
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
W-9 SECTION
- --------------------------------------------------------------------------------------------------------------------------------
Part I TAXPAYER IDENTIFICATION NUMBER--FOR ALL ACCOUNTS Part II FOR PAYEES EXEMPT FROM
- ------------------------------------------------------------------------------------------ BACKUP WITHHOLDING (SEE
INSTRUCTIONS)
Enter your taxpayer identification number in the -------------------------------
appropriate box. For most individuals, this is Social Security number ---------------------------------
your social security number. If you do not have
a number, see How to Obtain a TIN -------------------------------
OR
Note: If the account is in more than one name, see --------------------------------
the chart on page 2 for guidelines on which number Employer Identification number
to give the payer.
--------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
CERTIFICATION -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends; or
the IRS has notified me that I am no longer subject to backup withholding
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after
being notified by IRS that you were subject to backup withholding you received
another notification from IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see Certification under Specific
Instructions.)
- --------------------------------------------------------------------------------
PLEASE
SIGN
HERE SIGNATURE > DATE >
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
W-8 SECTION
- --------------------------------------------------------------------------------
Check here ______ if this is the account of an EXEMPT FOREIGN PERSON meeting
each of the following requirements:
1. You are neither a citizen nor a resident of the United States;
2. You have not been nor plan to be in the United States for a period
aggregating 183 or more days during the calendar year; and
3. The gains from your transactions with the broker are not effectively
connected (related) to any U.S. trade or business you are engaged in or plan
to engage in during the year, or your country has a tax treaty with the
United States that exempts your transactions from U.S. taxes.
If your mailing address is within the United States, please provide your
non-United States address below:
Name ___________________________________________________________________________
Address ________________________________________________________________________
City ___________________________ Country _________________ Postal Zone ________
- --------------------------------------------------------------------------------
CERTIFICATION:
Under the penalties of perjury, I certify that the information provided on this
W-8 form is true, correct, and complete.
______________________________________ ___________________________________
Authorized Signature Print Name & Title Date
- --------------------------------------------------------------------------------
-10-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC.
- --------------------------------------------------------------------------------
ACCOUNT APPROVAL (For Internal Use Only)
- --------------------------------------------------------------------------------
Salescode:_________________ Account Number:_______________________
- --------------------------------------------------------------------------------
Type of Membership:________________________________________________________
Badge Acronym:_________ _________ Broker Number:_________ ________
Commission: [_] Regular [_] Special (Attached)
Interest Group:___________________ Business Line Code:___________________
Equity Account Number:____________ Account Association:__________________
Customer Service Representative:___________________________________________
Name Phone
Soliciting Broker:_________________________________________________________
Name Phone
- --------------------------------------------------------------------------------
___________________________________________________________________________
Accounts Sponsor's Approval Date
___________________________________________________________________________
FCC Approval Date
- --------------------------------------------------------------------------------
-11-
<PAGE>
[LOGO OF FIRST OPTIONS OF CHICAGO,INC. APPEARS HERE]
FIRST OPTIONS OF CHICAGO, INC.
440 South LaSalle
Chicago,IL 60605-1028
312-362-3000
111 Broadway 1900 Market Street 220 Montgomery Street
New York, NY 10006 Philadelphia, PA 19103 San Francisco, CA 94101
212-346-7000 215-963-7000 415-398-1255
<PAGE>
[LOGO OF FIRST OPTIONS OF CHICAGO, INC. APPEARS HERE]
CUSTOMER AGREEMENTS
AND RISK DISCLOSURE
STATEMENT
PLEASE RETAIN
<PAGE>
[LOGO OF FIRST OPTIONS OF CHICAGO, INC.] CUSTOMER COPY
- --------------------------------------------------------------------------------
CUSTOMER ACCOUNT AGREEMENT
FUTURES AND OPTIONS ON FUTURES
In consideration of First Options of Chicago, Inc, ("Broker") accepting and
maintaining one or more accounts and agreeing to act as broker for the
undersigned ("Customer"), Customer acknowledges and agrees to the following
terms and conditions with respect to any of Customer's accounts with Broker or
Broker's affiliates for the purchase and sale of commodities, commodity futures
contracts, commodity options and other property.
1. TRANSACTIONS SUBJECT TO INDUSTRY REGULATIONS AND STANDARDS
All transactions shall be subject to the regulations of all applicable
government authorities and self-regulatory agencies including, but not limited
to, the constitutions and rules of the clearing house, exchange, or market where
executed. Customer understands that Broker is obligated to comply with all
applicable laws and regulations including those of regulatory and self-
regulatory organizations and agrees that Broker shall not be liable to Customer
as a result of any action taken by Broker to comply with any ruling,
interpretation or directive of such organization.
2. MARGIN AND COLLATERAL
Customer will maintain such margin and collateral as Broker may require from
time to time and will pay on demand any amount owing with respect to any of
Customer's accounts. Customer understands that Broker's margin requirements may
exceed those set by any exchange and may be increased without prior notice,
including with respect to existing positions.
Customer acknowledges that if Broker fails to receive sufficient funds to pay
for any commodity or to satisfy any demand for initial or variation margin
within a reasonable time after demand, and, in the absence of unusual
circumstances, one hour shall be deemed a reasonable time, Broker shall be
entitled, but not obligated, to sell any property held by Broker in any of
Customer's accounts, offset any open positions and liquidate Customer's accounts
in whole or in part. Customer recognizes that under present regulations and
practices Broker is not required to give Customer prior notice of such actions
and Customer will be liable for any resulting loss.
3. LIEN
Any property which belongs to Customer or in which Customer may have any
interest held by Broker or carried in any of Customer's accounts with Broker or
any of Broker's affiliates shall be subject to a general lien for the discharge
of Customer's obligations to Broker, including unmatured and contingent
obligations. The term "property" as used in this agreement means any and all
credit balances, securities, monies, options, commodities, contracts for the
future delivery of commodities, forward contracts, or contracts otherwise
relating to commodities or securities and all property customarily dealt in by
brokerage firms, both on registered exchanges and in permissible non-exchange
transactions. Customer understands that Broker may commingle all monies received
from Customer, except to the extent proscribed by the Commodity Exchange Act and
all other applicable laws and regulations.
4. COMMISSIONS
Customer agrees to pay such commission rates as Broker may from time to time
charge, as well as all other costs and fees (including, without limitation, fees
imposed by the National Futures Association, exchanges or other regulatory or
self-regulatory organizations) arising out of Broker's provision of services
hereunder. Customer understands that Broker may change its commissions without
notice.
5. RIGHT OF FIRM TO LIQUIDATE POSITIONS OR CANCEL OPEN ORDERS
Customer understands and agrees that Broker may, whenever Broker considers it
necessary for Broker's protection: (A) sell, exercise, offset or otherwise
liquidate any or all securities, commodity futures contracts, options, commodity
forward contracts, leverage contracts or physical commodities long in any of
Customer's accounts; (B) buy in, offset or otherwise liquidate any or all
securities, commodity futures contracts, options, commodity forward contracts,
leverage contracts or physical commodities short in any of Customer's accounts;
(C) cancel any outstanding orders, close out any or all outstanding contracts,
refuse to take orders that establish new positions or liquidate any of
Customer's accounts; (D) sell or set off and apply any other property Broker may
hold for Customer (whether held as margin or for safekeeping or otherwise) or
any credit balance in any of Customer's accounts; (E) buy or sell securities,
commodity futures contracts, options, commodity forward contracts, leverage
contracts or physical commodities to enter into and liquidate, straddle or
spread positions with respect to any securities, commodity futures contracts,
options, commodity forward contracts, leverage contracts or physical commodities
long or short in any of Customer's accounts. Customer recognizes that Broker is
not required to give Customer prior notice of any such action and that Customer
remains liable for all costs, expenses or debit balances incurred in connection
therewith.
6. FUTURES CONTRACT LIQUIDATING AND DELIVERY INSTRUCTIONS
At least two business prior to the first notice day in the case of long
positions in futures or forward contracts, and at least two business days prior
to the last trading day in the case of short positions in futures or forward
contracts, Customer agrees either to give Broker instructions to liquidate or
make or take delivery under such futures or forward contracts, and will deliver
to Broker sufficient funds and any documents required in connection with such
delivery. If such instructions or such funds or documents are not received as
required by this paragraph, Broker may, without notice to Customer, either
liquidate Customer's positions or make delivery or take delivery on Customer's
behalf on such terms and conditions as Broker deems reasonable and Customer
shall remain liable for all costs, expenses or debit balances incurred in
connection therewith.
7. OPTIONS TRANSACTIONS
Customer acknowledges and understands the risks of buying and selling options on
commodity futures contracts; the risks of such
-1-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC. CUSTOMER COPY
- --------------------------------------------------------------------------------
option trading caused by a limit move in the underlying commodity futures
contract; and has been advised of the commissions and fees associated with
trading options and that such costs are charged on a 'per side' basis.
8. OPTION CONTRACT LIQUIDATING AND EXERCISING INSTRUCTIONS
Customer is fully responsible for taking action to exercise an option contract.
Broker shall not be required to take any action with respect to an option
contract, including any action to exercise a valuable option prior to its
expiration date, except upon express instructions from Customer. In this
connection, Customer understands that the exchanges, boards of trade, markets
and clearing houses have established exercise cut-off times for the tender of
exercise instructions and that Customer's options will become worthless in the
event that Customer does not deliver instructions by Broker's established
expiration times. Customer agrees and further understands that Broker has
established exercise cut-off times which may be different from the times
established by the exchanges, boards of trade, markets, and clearing houses.
Customer hereby agrees to waive any and all claims for damage or loss which
Customer might have against Broker arising out of the fact that an option was
not exercised.
Customer understands that Broker randomly assigns exercise notices to all
customers. All short option positions are subject to assignment at any time,
including positions established on the same day that exercises are assigned.
Exercise assignment notices are allocated randomly from among all of Broker's
customers' short option positions which are subject to exercise.
9. POSITION LIMITS
Customer agrees not to exceed the position limits set by any federal agency,
exchange or regulatory authority for Customer's accounts, acting alone or in
concert with others. Customer acknowledges that Broker has the right to limit
the number of positions in Customer's account(s). Customer agrees to abide by
all other applicable laws, rules and regulations with respect to maintaining
account(s) with Broker. Customer acknowledges that under applicable rules Broker
may be required to provide the CFTC or exchanges with information concerning
Customer's futures and options positions and related data.
10. FOREIGN CURRENCY RISK
Customer agrees that in the event that Customer directs Broker to enter into any
transaction on an exchange on which such transactions are effected in a foreign
currency: (a) any profit or loss arising as a result of a fluctuation in the
exchange rate effecting such currency will be entirely for Customer's account
and risk, (b) all initial and subsequent deposits for margin purposes shall be
made in U.S. Dollars, in such amounts as Broker may in its sole discretion
require, (c) Broker is authorized to convert funds in Customer's account into
and from such foreign currency at a rate of exchange determined by Broker in its
sole discretion on the basis of then prevailing money markets.
11. RESPONSIBILITY FOR LOSSES
Customer agrees and acknowledges that Broker is financially liable to the
exchange clearing house of which Broker is a member, and to the clearing members
through which Broker clears transactions on exchanges of which Broker is not a
clearing member, for deficit balances occurring in Customer's accounts. Customer
therefore agrees to hold Broker harmless, indemnify and defend Broker against
any and all losses sustained by Broker resulting from deficit balances which may
occur in Customer's account(s).
Customer agrees and acknowledges that deficit balances in any of Customer's
account(s) shall be charged with interest and such other costs, fees or charges
(including reasonable fee of attorneys who may be Broker's employees or
employees of Broker's affiliates) as Broker may make in the collection of this
deficit.
In consideration for Broker carrying the account(s), Customer will in no way
hold Broker responsible for any losses, including losses incurred by Customer
following Broker's trading recommendations or suggestions. Customer agrees to
give written notification to the Compliance Department in the event of
unresolved disputed transactions or other similar problems.
12. CONFIRMATION AND STATEMENT OF ACCOUNTS
Reports of executions of orders shall be deemed conclusive and binding
immediately upon Customer receiving the report of execution. Statements of
account(s) shall be conclusive and binding if not objected to immediately. All
communications sent to Customer at the address given to Broker from time to time
shall constitute personal delivery to Customer. Customer understands that Broker
may tape record conversations without further notice and without assuming
responsibility to make or retain such tape recordings.
13. AUTHORIZATION TO TRANSFER FUNDS
This will serve as Customer's authority for Broker, whenever in Broker's
absolute discretion Broker deems it appropriate, to transfer between Customer's
regulated commodity accounts and any other account maintained with Broker, any
amount of excess funds, equities, securities or other property. Such transfers
shall be used to satisfy margin calls or to reduce or satisfy in full any
indebtedness in any of Customer's accounts with Broker, provided that Broker
shall, within a reasonable time after making such transfer, send a written
confirmation of the transfer to Customer. "Regulated Commodity" means any
account covered by the Commodity Exchange Act at the time of such transaction.
14. EXTRAORDINARY EVENTS
Broker shall not be liable for losses caused directly or indirectly by
government restrictions, exchange or market actions, suspension of trading, war,
strikes, or for delays in the transmission of orders due to breakdown or failure
of transmission or communication facilities, or to any other causes beyond
Broker's reasonable control or anticipation.
15. THE AGREEMENT
This agreement is made under and shall be covered by the laws of the United
States and the State of Illinois. It shall inure to the benefit of Customer's
heirs, successors and assigns, as well as Broker's successors, by merger,
consolidation or otherwise, and assigns, and Broker may transfer Customer's
account(s) to any such successor or assign.
No suit, arbitration, reparations proceeding, claim or action arising out of or
relating to this agreement may be maintained by any party to it unless commenced
within two years after the claim or cause of action has occurred.
If any provisions herein should become inconsistent with laws,
-2-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC. CUSTOMER COPY
- --------------------------------------------------------------------------------
rules or regulations of any government or regulatory body having jurisdiction
over the subject matter, such provisions shall be deemed to be modified or
rescinded in accordance with any such laws, rules or regulations.
If any provision or condition of this agreement shall be held to be invalid or
unenforceable by any court, or regulatory or self-regulatory agency or body,
such invalidity or unenforceability shall attach only to such provision or
condition. The validity of the remaining provisions and conditions shall not be
affected and this agreement shall be carried out as if any such invalid or
unenforceable provision or condition were not contained herein.
This agreement may not be terminated or modified orally. It shall continue in
full force and effect until terminated by Broker or by Customer in writing to
Broker's main office. Broker's failure to insist at any time upon strict
compliance with any terms of this agreement or any continued course of such
conduct on Broker's part shall not constitute a waiver of any of Broker's rights
as described herein.
Captions used in this agreement are for convenience of reference only and shall
not be construed so as to affect the meaning of the text hereof.
This agreement supersedes any other customer agreement Customer has previously
held with Broker.
16. VERIFICATION OF INFORMATION
All information furnished to Broker in connection with the opening of Customer's
account(s) and all documents supplied by Customer, including financial
statements, are true, complete and correct. Broker is entitled to rely on this
information until Broker receives written notice of any change, which Customer
agrees to furnish promptly should any material changes occur. As part of this
agreement, Customer understands that an investigation may be made pertaining to
Customer's credit standing and account. If such investigation is conducted,
Customer understands that Customer has the right to make a written request,
within a reasonable period of time, for a complete and accurate disclosure of
the nature and scope of such investigation. Customer understands that there are
risks in trading, some of which are described in the Disclosure Statements
delivered to Customer.
Customer has read, fully understood and agrees to the foregoing terms and
conditions of the Customer Agreement.
________________________________________________________________________________
FOR FOREIGN DOMICILED CUSTOMERS:
SERVICE OF PROCESS
In accordance with Regulation 15.05 promulgated by the Commodity Futures Trading
Commission, foreign brokers, traders and customers of a U.S. Futures Commission
Merchant ("FCM") are deemed to have designated such FCM as the agent for service
of process for purposes of accepting delivery and service of any communication
issued by or on behalf of the Commission to the foreign broker, trader or
customer with respect to any futures or option contracts which are or have been
maintained in such accounts carried by the FCM, unless another agent in the
United States has been designated. Customer hereby designates First Options of
Chicago, Inc. as its agent for such service of process.
-3-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC. CUSTOMER COPY
- --------------------------------------------------------------------------------
RISK DISCLOSURE STATEMENT FOR FUTURES AND OPTIONS
This brief statement does not disclose all of the risks and other
significant aspects of trading in futures and options. In light of the risks,
you should undertake such transactions only if you understand the nature of the
contracts (and contractual relationships) into which you are entering and the
extent of your exposure to risk. Trading in futures and options is not suitable
for many members of the public. You should carefully consider whether trading is
appropriate for you in light of your experience, objectives, financial resources
and other relevant circumstances.
FUTURES
1. Effect of 'Leverage' or 'Gearing'.
Transactions in futures carry a high degree of risk. The amount of initial
margin is small relative to the value of the futures contract so that
transactions are 'leveraged' or 'geared'. A relatively small market movement
will have a proportionately larger impact on the funds you have deposited or
will have to deposit: this may work against you as well as for you. You may
sustain a total loss of initial margin funds and any additional funds deposited
with the firm to maintain your position. If the market moves against your
position or margin levels are increased, you may be called upon to pay
substantial additional funds on short notice to maintain your position. If you
fail to comply with a request for additional funds within the time prescribed,
your position may be liquidated at a loss and you will be liable for any
resulting deficit.
2. Risk-reducing orders or strategies.
The placing of certain orders (e.g. 'stop-loss' orders, where permitted
under local law, or 'stop-limit' orders) which are intended to limit losses
to certain amounts may not be effective because market conditions may make it
impossible to execute such orders. Strategies using combinations of positions,
such as 'spread' and 'straddle' positions may be as risky as taking simple
'long' or 'short' positions.
OPTIONS
3. Variable degree of risk.
Transactions in options carry a high degree of risk. Purchasers and sellers
of options should familiarize themselves with the type of options (i.e. put or
call) which they contemplate trading and the associated risks. You should
calculate the extent to which the value of the options must increase for your
position to become profitable, taking into account the premium and all
transaction costs.
The purchaser of options may offset or exercise the options or allow the
options to expire. The exercise of an option results either in a cash settlement
or in the purchaser acquiring or delivering the underlying interest. If the
option is on a future, the purchaser will acquire a futures position with
associated liabilities for margin (see the section on Futures above). If the
purchased options expire worthless, you will suffer a total loss of your
investment which will consist of the option premium plus transaction costs. If
you are contemplating purchasing deep-out-of-the-money options, you should be
aware that the chance of such options becoming profitable ordinarily is remote.
Selling ('writing' or 'granting') an option generally entails considerably
greater risk than purchasing options. Although the premium received by the
seller is fixed, the seller may sustain a loss well in excess of that amount.
The seller will be liable for additional margin to maintain the position if the
market moves unfavorably. The seller will also be exposed to the risk of the
purchaser exercising the option and the seller will be obligated to either
settle the option in cash or to acquire or deliver the underlying interest. If
the option is on a future, the seller will acquire a position in a future with
associated liabilities for margin (see the section on Futures above). If the
option is 'covered' by the seller holding a corresponding position in the
underlying interest or a future or another option, the risk may be reduced. If
the option is not covered, the risk of loss can be unlimited.
Certain exchanges in some jurisdictions permit deferred payment of the
option premium, exposing the purchaser to liability for margin payments not
exceeding the amount of the premium. The purchaser is still subject to the risk
of losing the premium and transaction costs. When the option is exercised or
expires, the purchaser is responsible for any unpaid premium outstanding at that
time.
ADDITIONAL RISKS COMMON TO FUTURES AND OPTIONS
4. Terms and conditions of contracts.
You should ask the firm with which you deal about the terms and conditions
of the specific futures or options which you are trading and associated
obligations (e.g. the circumstances under which you may become obligated to make
or take delivery of the underlying interest of a futures contract and, in
respect of options, expiration dates and restrictions on the time for exercise).
Under certain circumstances the specifications of outstanding contracts
(including the exercise price of an option) may be modified by the exchange or
clearing house to reflect changes in the underlying interest.
5. Suspension or restriction of trading and pricing relationships.
Market conditions (e.g. illiquidity) and/or the operation of the rules of
certain markets (e.g. the suspension of trading in any contract or contract
month because of price limits or "circuit breakers") may increase the risk of
loss by making it difficult or impossible to effect transactions or
liquidate/offset positions. If you have sold options, this may increase the risk
of loss.
-4-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC. CUSTOMER COPY
- --------------------------------------------------------------------------------
Further normal pricing relationships between the underlying interest and
the future, and the underlying interest and the option may not exist. This can
occur when, for example, the futures contract underlying the option is subject
to price limits while the option is not. The absence of an underlying reference
price may make it difficult to judge "fair" value.
6. Deposited cash and property.
You should familiarize yourself with the protections accorded money or
other property you deposit for domestic and foreign transactions, particularly
in the event of a firm insolvency or bankruptcy. The extent to which you may
recover your money or property may be governed by specific legislation or local
rules. In some jurisdictions, property which had been specifically identifiable
as your own will be prorated in the same manner as cash for purposes of
distribution in the event of a shortfall.
7. Commission and other charges.
Before you begin to trade, you should obtain a clear explanation of all
commission, fees and other charges for which you will be liable. These charges
will affect your net profit (if any) or increase your loss.
8. Transactions in other jurisdictions.
Transactions on markets in other jurisdictions, including markets formally
linked to a domestic market, may expose you to additional risk. Such markets may
be subject to regulation which may offer different or diminished investor
protection. Before you trade you should enquire about any rules relevant to your
particular transactions. Your local regulatory authority will be unable to
compel the enforcement of the rules of regulatory authorities or markets in
other jurisdictions where your transactions have been effected. You should ask
the firm with which you deal for details about the types of redress available in
both your home jurisdiction and other relevant jurisdictions before you start to
trade.
9. Currency risks.
The profit or loss in transactions in foreign currency-denominated
contracts (whether they are traded in your own or another jurisdiction) will be
affected by fluctuations in currency rates where there is a need to convert from
the currency denomination of the contract to another currency.
10. Trading facilities.
Most open-outcry and electronic trading facilities are supported by
computer-based component systems for the order-routing, execution, matching,
registration or clearing of trades. As with all facilities and systems, they are
vulnerable to temporary disruption or failure. Your ability to recover certain
losses may be subject to limits on liability imposed by the system provider, the
market, the clearing house and/or member firms. Such limits may vary: you should
ask the firm with which you deal for details in this respect.
11. Electronic trading.
Trading on an electronic trading system may differ not only from trading in
an open-outcry market but also from trading on other electronic trading systems.
If you undertake transactions on an electronic trading system, you will be
exposed to risks associated with the system including the failure of hardware
and software. The result of any system failure may be that your order is either
not executed according to your instructions or is not executed at all.
12. Off-exchange transactions.
In some jurisdictions, and only then in restricted circumstances, firms are
permitted to effect off-exchange transactions. The firm with which you deal may
be acting as your counterparty to the transaction. It may be difficult or
impossible to liquidate an existing position, to assess the value, to determine
a fair price or to assess the exposure to risk. For these reasons, these
transactions may involve increased risks, Off-exchange transactions may be less
regulated or subject to a separate regulatory regime. Before you undertake such
transactions, you should familiarize yourself with applicable rules and
attendant risks.
I hereby acknowledge that I have received and understood this risk disclosure
statement.
-5-
<PAGE>
FIRST OPTIONS OF CHICAGO, INC. CUSTOMER COPY
- --------------------------------------------------------------------------------
FUTURES-BASED PRODUCTS ADDITIONAL MARGIN/RISK GUIDELINES
In consideration of First Options of Chicago, Inc.'s ("First Options")
right to revise its policies from time to time, either generally or with respect
to any particular account, as First Options, in its sole and absolute discretion
deems necessary, the undersigned ("Customer") agrees to the following
margin/risk guidelines applicable to futures-based products carried by First
Options in accounts of Customer ("Account"):
1. The risk exposure in any Account shall not exceed the current net liquidating
balance in any Account given a market move of +/-1,2 or 3 standard deviations,
as calculated by First Options.
2. With respect to Customers trading index related products, assuming a market
gap of +/-20%, the risk exposure of the Account shall not exceed 120% of the
current net liquidating balance in the Account with a maximum risk exposure
limited to one million dollars ($1,000,000) above the Account's net liquidating
balance.
3. Customer will maintain margin and collateral within Account as required by
First Options.
4. Should the Account result in a deficit net liquidating balance, First Options
may require Customer to sign documentation, satisfactory to First Options,
acknowledging Customer's obligation to First Options. Should this documentation
be required, Customer's trading activity may be restricted by First Options
pending receipt of such signed documentation.
5. First Options may restrict Customer's ability to place opening trades if
Account is in a deficit net liquidating position.
6. Any Lessee Customer who is not guaranteed by another member may not execute
opening trades unless the net liquidating balance in the Account exceeds
$10,000.
First Options monitors risk exposure in accounts when a position in any one
product may expose the account to a loss of 50% or more of its current net
liquidating balance given a market move of +/-1, 2 or 3 standard deviations.
The above guidelines apply to both intraday positions and those carried
overnight. Accounts which fail to abide by these guidelines may be deemed by
First Options as not having sufficient margin. As a result, under the Customer
Agreement between Customer and First Options, First Options shall have
authority, as set forth in Section 5 of that Agreement to liquidate or adjust
positions. In addition, under such circumstances, First Options shall have
authority to open new positions in the Account to reduce exposure in the
Account.
The undersigned Customer acknowledges that it has received, read and understands
First Options' additional margin/risk guidelines for futures-based products
carried by First Options.
-6-
<PAGE>
[LOGO OF FIRST OPTIONS OF CHICAGO, INC.]
440 South LaSalle
Chicago, IL 60605-1028
312-362-3000
111 Broadway 1900 Market Street 220 Montgomery Street
New York, NY 10006 Philadelphia, PA 19103 San Francisco, CA 94101
212-346-7000 212-963-7000 415-398-1255
<PAGE>
[LOGO OF FIRST OPTIONS OF CHICAGO, INC. APPEARS HERE]
- --------------------------------------------------------------------------------
Personal/Corporate
Financial Statement
-------------------
PLEASE READ AND CHECK THE APPROPRIATE BOX BEFORE COMPLETING THE APPLICATION:
[_] INDIVIDUAL CREDIT. I am applying for credit in my name only and I am not
relying on or listing assets which are jointly owned as a basis for
repaying the credit applied for.
[_] JOINT CREDIT. We are applying for a joint account.
[_] PARTNERSHIP OR CORPORATE CREDIT.
<TABLE>
<S> <C>
INFORMATION REGARDING APPLICANT:
__________________________________________________________________ ___________________________________________________
APPLICANT NAME (FIRST, M.I, LAST) PLEASE PRINT SOCIAL SECURITY NUMBER
__________________________________________________________________ ___________________________________________________
PRESENT STREET ADDRESS HOME TELEPHONE NUMBER
__________________________________________________________________ ___________________________________________________
CITY, STATE, ZIP YEARS AT PRESENT ADDRESS
__________________________________________________________________ ___________________________________________________
EMPLOYER DATE OF BIRTH
__________________________________________________________________ ___________________________________________________
TYPE OF BUSINESS BUSINESS TELEPHONE NUMBER
__________________________________________________________________ ___________________________________________________
POSITION YEARS WITH PRESENT EMPLOYER
__________________________________________________________________ ___________________________________________________
BUSINESS STREET ADDRESS
__________________________________________________________________ ___________________________________________________
CITY, STATE, ZIP
__________________________________________________________________ ___________________________________________________
INFORMATION REGARDING CO-APPLICANT: (to be filled out only if applying for a joint account)
__________________________________________________________________ ___________________________________________________
CO-APPLICANT NAME SOCIAL SECURITY NUMBER
__________________________________________________________________ ___________________________________________________
PRESENT STREET ADDRESS HOME TELEPHONE NUMBER
__________________________________________________________________ ___________________________________________________
CITY, STATE, ZIP YEARS AT PRESENT ADDRESS
__________________________________________________________________ ___________________________________________________
EMPLOYER DATE OF BIRTH
__________________________________________________________________ ___________________________________________________
POSITION YEARS WITH PRESENT EMPLOYER
__________________________________________________________________ ___________________________________________________
BUSINESS STREET ADDRESS
__________________________________________________________________ ___________________________________________________
CITY, STATE, ZIP
__________________________________________________________________ ___________________________________________________
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
STATEMENT OF FINANCIAL CONDITION OF APPLICANT(S)
- -------------------------------------------------------------------------------
The following reflects the financial condition of myself and any co-applicant as
of ______________________________,19________ and is submitted for the purpose of
procuring,establishing and maintaining credit with you for myself or a third
party for whom I agree to execute a guaranty in your favor.
[_] Yes, I have included a copy of last year's tax return.
FILL ALL BLANKS TO THE NEAREST HUNDRED; WRITE "NO" OR "NONE" WHERE NECESSARY TO
COMPLETE INFORMATION.
<TABLE>
<CAPTION>
- -------------------------------------------------------------- --------------------------------------------------------------
ASSETS /1/ LIABILITIES
- -------------------------------------------------------------- --------------------------------------------------------------
<S> <C>
FROM SCHEDULE A FROM SCHEDULE H
CASH AND CASH ACCOUNTS NOTES PAYABLE-BANKS SECURED
- -------------------------------------------------------------- --------------------------------------------------------------
FROM SCHEDULE C FROM SCHEDULE H
GOVERNMENT SECURITIES NOTES PAYABLE-BANKS UNSECURED
- -------------------------------------------------------------- --------------------------------------------------------------
FROM SCHEDULE C FROM SCHEDULE H
LISTED SECURITIES NOTES PAYABLE-OTHERS
- -------------------------------------------------------------- --------------------------------------------------------------
FROM SCHEDULE C FROM SCHEDULE D
UNLISTED SECURITIES LIFE INSURANCE LOANS
- -------------------------------------------------------------- --------------------------------------------------------------
FROM SCHEDULE B
ACCOUNTS AND NOTES RECEIVABLE MARGIN ACCOUNTS
- -------------------------------------------------------------- --------------------------------------------------------------
FROM SCHEDULE D
CASH VALUE LIFE INSURANCE ACCOUNTS PAYABLE
- -------------------------------------------------------------- --------------------------------------------------------------
FROM SCHEDULE E FROM SCHEDULE E&J
REAL ESTATE OWNED (PERSONAL RESIDENCE) REAL ESTATE MORTGAGES
- -------------------------------------------------------------- --------------------------------------------------------------
FROM SCHEDULE J
REAL ESTATES OWNED (NON-PERSONAL RESIDENCE) REAL ESTATE TAX
- -------------------------------------------------------------- --------------------------------------------------------------
IRA/KEOGH ACCOUNTS DEFERRED/UNPAID INCOME TAXES
- -------------------------------------------------------------- --------------------------------------------------------------
FROM SCHEDULE F
DEFERRED COMPENSATION PLANS CREDIT CARDS
- -------------------------------------------------------------- --------------------------------------------------------------
AUTOMOBILE(S) MERCHANTS
- -------------------------------------------------------------- --------------------------------------------------------------
OTHER PERSONAL PROPERTY OTHER DEBTS (ITEMIZE)
- -------------------------------------------------------------- --------------------------------------------------------------
PARTNERSHIP/PROPRIETORSHIP EQUITY /2/
- -------------------------------------------------------------- --------------------------------------------------------------
OTHER ASSETS (ITEMIZE)
- -------------------------------------------------------------- --------------------------------------------------------------
TOTAL LIABILITIES
- -------------------------------------------------------------- --------------------------------------------------------------
TOTAL ASSETS NET WORTH (TOTAL ASSETS MINUS TOTAL LIABILITIES)
- -------------------------------------------------------------- --------------------------------------------------------------
</TABLE>
1 If any asset is owned other than by the undersigned individually, such as in
trust, joint tenancy, or nominee name, indicate this in the appropriate
schedule or on page 4.
2 If significant, attach a current balance sheet and profit and loss statement
of the business.
- --------------------------------------------------------------------------------
INCOME, EXPENDITURES, AND CONTINGENT LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL INCOME FOR THE YEAR ENDED _________ ANNUAL FIXED AND VARIABLE EXPENSES CONTINGENT LIABILITIES
- ------------------------------------------ -------------------------------------------- -------------------------------------
<S> <C> <C>
SALARY (GROSS) HOME MORTGAGE PAYMENT (PRINCIPAL & INT.) AS GUARANTOR/CO-MAKER
- ------------------------------------------ -------------------------------------------- -------------------------------------
BONUS AND COMMISSIONS LOAN PAYMENTS (EXCLUDE MORTGAGES) ON LEGAL CLAIMS
- ------------------------------------------ -------------------------------------------- -------------------------------------
DIVIDENDS TAXES (CITY, STATE, FEDERAL) ON LETTERS OF CREDIT
- ------------------------------------------ -------------------------------------------- -------------------------------------
INTEREST ALIMONY, CHILD SUPPORT, MAINT. OTHER (DETAIL)
- ------------------------------------------ -------------------------------------------- -------------------------------------
REAL ESTATE INCOME (NET) OTHER (ITEMIZE)
- ------------------------------------------ -------------------------------------------- -------------------------------------
ALIMONY, CHILD SUPPORT, MAINT*
- ------------------------------------------ -------------------------------------------- -------------------------------------
OTHER INCOME (DESCRIBE)
- ------------------------------------------ -------------------------------------------- -------------------------------------
- ------------------------------------------ -------------------------------------------- -------------------------------------
- ------------------------------------------ -------------------------------------------- -------------------------------------
[_] CHECK HERE IF NONE
- ------------------------------------------ -------------------------------------------- -------------------------------------
TOTAL TOTAL TOTAL
- ------------------------------------------ -------------------------------------------- -------------------------------------
</TABLE>
*Income from alimony, child support, or separate maintenance payments need not
be revealed if you do not choose to have it considered as a basis for repaying
your obligations.
<PAGE>
<TABLE>
<CAPTION>
- ----- ------------------------------------------------------------------------------------------------------------------------------
A CASH, CHECKING ACCOUNTS, SAVINGS ACCOUNTS, AND CERTIFICATES OF DEPOSIT
- ----- ------------------------------------------------------------------------------------------------------------------------------
PLEDGED
TYPE NAME OF FINANCIAL INSTITUTION CITY, STATE AMOUNT IN NAME OF ACCOUNT NO. YES/NO
- ------------ ---------------------------------- --------------- ------------ ----------------- -------------- -------
<S> <C> <C> <C> <C> <C> <C>
- ------------ ---------------------------------- --------------- ------------ ----------------- -------------- -------
- ------------ ---------------------------------- --------------- ------------ ----------------- -------------- -------
- ------------ ---------------------------------- --------------- ------------ ----------------- -------------- -------
- ------------ ---------------------------------- --------------- ------------ ----------------- -------------- -------
- ------------ ---------------------------------- --------------- ------------ ----------------- -------------- -------
- ----- ------------------------------------------------------------------------------------------------------------------------------
B NOTES AND ACCOUNTS RECEIVABLE
- ----- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
MATURITY INTEREST AMOUNT PLEDGED
NAME OF DEBTOR COLLATERAL MONTHLY PAYMENT DATE RATE OUTSTANDING PAYABLE TO WHOM YES/NO
- ------------------- ------------------ --------------- ------------ -------- ------------- ------------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------- ------------------ --------------- ------------ -------- ------------- ------------------ -------
- ------------------- ------------------ --------------- ------------ -------- ------------- ------------------ -------
- ------------------- ------------------ --------------- ------------ -------- ------------- ------------------ -------
- ----- ------------------------------------------------------------------------------------------------------------------------------
C SECURITIES OWNED: BONDS, STOCKS, GOVERNMENT SECURITIES (FOR DEFERRED COMPENSATION USE SCHEDULED F)
- ----- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NO. OF SHARES OR LISTED OR PLEDGED
PAR VALUE OF BONDS DESCRIPTION* UNLISTED IN NAME OF COST MARKET VALUE YES/NO
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
- ----------------------- --------------------------- ------------- ------------------ ------------- ----------------- -------
* Indicate if securities are restricted by contract or SEC regulation.
- ----- ------------------------------------------------------------------------------------------------------------------------------
D LIFE INSURANCE OWNED, INCLUDING GROUP INSURANCE
- ----- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PLEDGED
NAME OF INSURED NAME OF COMPANY POLICY OWNER BENEFICIARY AMOUNT CASH VALUE LOANS YES/NO
- ----------------------- ---------------------- ------------------ ------------------ --------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------- ---------------------- ------------------ ------------------ --------- ------------ -------- -------
- ----------------------- ---------------------- ------------------ ------------------ --------- ------------ -------- -------
- ----------------------- ---------------------- ------------------ ------------------ --------- ------------ -------- -------
- ----- ------------------------------------------------------------------------------------------------------------------------------
E REAL ESTATE OWNED AS PERSONAL RESIDENCE (NON-PERSONAL RESIDENCE(S)-USE SCHEDULE J)
- ----- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DATE CURRENT MORTGAGE MORTGAGE AMOUNT OF
ADDRESS TITLE IN NAME OF ACQUIRED PURCHASE PRICE MARKET VALUE AMOUNT MATURITY INSURANCE
- ------------------ ----------------------- -------- ------------------ ------------------ ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
#1
- ------------------ ----------------------- -------- ------------------ ------------------ ------------ ------------ ---------
#2
- ------------------ ----------------------- -------- ------------------ ------------------ ------------ ------------ ---------
MORTGAGE HOLDER #1: DESCRIPTION #1
- ----------------------------------------------------- -----------------------------------------------------------------------------
MORTGAGE HOLDER #2: DESCRIPTION #2
- ----------------------------------------------------- -----------------------------------------------------------------------------
- ----- ------------------------------------------------------------------------------------------------------------------------------
F VESTED INTEREST IN DEFERRED COMPENSATION PLANS
- ----- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DATE
NAME OF COMPANY AMOUNT AVAILABLE PAYOUT BASIS BENEFICIARY
- -------------------------------------- ------------- ------------- -------------------------------- ---------------------------
<S> <C> <C> <C> <C>
- -------------------------------------- ------------- ------------- -------------------------------- ---------------------------
- -------------------------------------- ------------- ------------- -------------------------------- ---------------------------
- ----- ------------------------------------------------------------------------------------------------------------------------------
G UNEXERCISED STOCK OPTIONS
- ----- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NUMBER EXERCISE PRICE CURRENT MARKET PRICE EXPIRATION
-------------------------------- -----------------------------
NAME OF COMPANY OF SHARES PER SHARE TOTAL PER SHARE TOTAL DATE
- -------------------------------- ----------------- ---------------- ------------ ------------ -------------- ----------
<S> <C> <C> <C> <C>
QUALIFIED:
- -------------------------------- ----------------- ---------------- ------------ ------------ -------------- ----------
NON QUALIFIED
- -------------------------------- ----------------- ---------------- ------------ ------------ -------------- ----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
H LOANS OUTSTANDING FROM BANKS, FINANCE COMPANIES, OR OTHER
- - ---------------------------------------------------------------------------------------------------------------------------------
DATE DATE INTEREST AMOUNT
LENDER AMOUNT BORROWED MADE DUE RATE OUTSTANDING COLLATERAL
- ------------------------ --------------------- -------- -------- ----------- --------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------ --------------------- -------- -------- ----------- --------------- -------------------
- ------------------------ --------------------- -------- -------- ----------- --------------- -------------------
- ------------------------ --------------------- -------- -------- ----------- --------------- -------------------
- ------------------------ --------------------- -------- -------- ----------- --------------- -------------------
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
I REFERENCES: BANKS, FINANCE COMPANIES, OR OTHER SOURCES OF PREVIOUS CREDIT
- - ---------------------------------------------------------------------------------------------------------------------------------
DATE SECURED
LENDER BORROWER OBTAINED HIGH CREDIT YES/NO
- ------------------------------ --------------------- --------------------- ------------------ -----------------------
<S> <C> <C> <C> <C>
- ------------------------------ --------------------- --------------------- ------------------ -----------------------
- ------------------------------ --------------------- --------------------- ------------------ -----------------------
- ------------------------------ --------------------- --------------------- ------------------ -----------------------
- ------------------------------ --------------------- --------------------- ------------------ -----------------------
</TABLE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------------
J REAL ESTATE NOT USED AS A PERSONAL RESIDENCE
- - ---------------------------------------------------------------------------------------------------------------------------------
PROPERTY #1
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DESCRIPTION, LOCATION,
& DATE ACQUIRED:
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE IN COST OF
NAME(S) OF: PER CENT OWNED: ENTIRE PROPERTY:
- ------------------------------------------------------------------------------------------------------------------------------------
ARE YOU OBLIGATED ON MORTGAGE MARKET VALUE OF YOUR APPRAISED MARKET VALUE
OR OTHER DEBT INSTRUMENT: OWNERSHIP INTEREST: OF ENTIRE PROPERTY:
- ------------------------------------------------------------------------------------------------------------------------------------
YOUR SHARE OF ANNUAL YOUR SHARE OF ANNUAL YOUR SHARE OF MORTGAGE
GROSS INCOME: DEBT SERVICE: BALANCE OR OTHER DEBT:
- ------------------------------------------------------------------------------------------------------------------------------------
PROPERTY #2
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION, LOCATION,
& DATE ACQUIRED:
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE IN COST OF
NAME(S) OF: PER CENT OWNED: ENTIRE PROPERTY:
- ------------------------------------------------------------------------------------------------------------------------------------
ARE YOU OBLIGATED ON MORTGAGE MARKET VALUE OF YOUR APPRAISED MARKET VALUE
OR OTHER DEBT INSTRUMENT: OWNERSHIP INTEREST: OF ENTIRE PROPERTY:
- ------------------------------------------------------------------------------------------------------------------------------------
YOUR SHARE OF ANNUAL YOUR SHARE OF ANNUAL YOUR SHARE OF MORTGAGE
GROSS INCOME: DEBT SERVICE: BALANCE OR OTHER DEBT:
- ------------------------------------------------------------------------------------------------------------------------------------
PROPERTY #3
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION, LOCATION,
& DATE ACQUIRED:
- ------------------------------------------------------------------------------------------------------------------------------------
TITLE IN COST OF
NAME(S) OF: PER CENT OWNED: ENTIRE PROPERTY:
- ------------------------------------------------------------------------------------------------------------------------------------
ARE YOU OBLIGATED ON MORTGAGE MARKET VALUE OF YOUR APPRAISED MARKET VALUE
OR OTHER DEBT INSTRUMENT: OWNERSHIP INTEREST: OF ENTIRE PROPERTY:
- ------------------------------------------------------------------------------------------------------------------------------------
YOUR SHARE OF ANNUAL YOUR SHARE OF ANNUAL YOUR SHARE OF MORTGAGE
GROSS INCOME: DEBT SERVICE: BALANCE OR OTHER DEBT:
- ------------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
K ADDITIONAL INFORMATION
- - ----------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
[_] Yes [_] No Are any assets pledged or debts secured except as shown?
[_] Yes [_] No Have you made a will? If so, name of Executor______________________________________________________________________
I understand that the LIT Division of First Options is relying on the information in this Financial Statement (including the
designation of my property as individually or jointly held) in deciding whether to establish or continue an account relationship and
to extend credit on the basis that I have requested it or have received it in the past, and any extension or renewal of such credit.
I warrant that this Financial Statement is true and correct on the date that it is made and that you may consider this statement as
continuing to be true and correct with respect to any future extensions of credit that you may make to me until you receive written
notice from me of any change. I authorize you to obtain any information necessary to verify statements made in this Financial
Statement including requesting a consumer report on myself and the Co-Applicant. I also authorize you to report your experience with
me to those who may lawfully receive such information. On request I will provide you with updated information. These warranties also
apply to Co-Applicant. You may retain this original application.
I HAVE READ, UNDERSTAND, AND AGREE TO MAKE THESE REPRESENTATIONS AND WARRANTIES.
___________________________________________________ ___________________________________________________________________
YOUR SIGNATURE DATE SIGNATURE OF CO-APPLICANT (JOINT CREDIT) DATE
</TABLE>
<PAGE>
EXHIBIT 10.5
<PAGE>
FEE AGREEMENT
THIS FEE AGREEMENT ("Agreement") is made and entered into as of the 13th
day of March, 1998, by and between Corn Belt Management, Inc., an Iowa
corporation ("CBM"), and Quiet Systems, Ltd., a corporation organized under the
laws of the Cayman Islands (the "Company").
RECITALS:
A. The Company was organized on March 13, 1998, for the purpose of providing
trading advice and related services to various third parties regarding
trading in futures contracts and options.
B. CBM has expressed an interest in establishing one or more limited
partnerships or other entities (each, a "Pool," and collectively, the
"Pools") which would retain the Company to direct the trading of the funds
of the Pool or Pools in futures contracts and options under one or more of
the various trading programs that may be established by the Company from
time to time (each, a "Program," and collectively, the "Programs").
C. CBM has substantial experience in raising capital for trading in futures
contracts and options through Pools, and the Company has determined that it
is in the best interests of the Company for CBM to establish one or more
such Pools because of, among other things, the potentially material amount
of capital that such a Pool or Pools might generate for trading by the
Company under one or more of its Programs, thereby generating potentially
material fees for the Company, and the general exposure for and recognition
of the Company's services that might be derived through the marketing and
existence of such Pools. The Company has also determined that it is in the
best interests of the Company to encourage CBM to establish and market one
or more such Pools as soon as is reasonably practical because the existence
of such a Pool or Pools would, among other things, materially assist and
advance the start-up of the Company's business through the customer base
and fees that would be generated for the Company by and through such a Pool
or Pools.
D. The Company is therefore willing to grant any Pools which are at any time
established by CBM (or any Affiliate of CBM, as that term is defined below)
and which retain the Company to direct the trading of such Pools a
reduction in the fees that the Company will otherwise from time to time
impose upon other clients whose accounts are being traded under the
Company's respective Programs.
<PAGE>
E. CBM desires to obtain such reduction in fees for its Pools, and the Company
desires to provide such reduction in fees, all upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the Recitals and the mutual agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and CBM agree as
follows:
1. The Company agrees that the monthly management fee and quarterly
incentive fee (or similar, analogous or related fees, however characterized)
that the Company will charge to any Pool which is at any time established by CBM
(or any Affiliate of CBM) and which retains the Company to direct the trading of
such Pool under any Program of the Company will in no event exceed,
respectively, (i) one percent (1%) of the Management Fee Calculation Base (as
that term is defined below); and (ii) ten percent (10%) of the Incentive Fee
Calculation Base (as that term is defined below), provided, however, that CBM
(or any Affiliate of CBM, as the case may be) (i) shall have registered the
offering of such pool within 30 days of the date on which the Company's
registration as a commodity trading advisor with the United States Commodity
Futures Trading Commission is first effective and (ii) shall have accepted an
aggregate of $500,000 U.S. in subscriptions to any one or more of such Pools
within six (6) months of such effective date.
CBM agrees to devote its best efforts to establishing and commencing the
marketing of one or more such Pools, but the Company acknowledges that CBM does
not guarantee or represent or warrant that it will have accepted an aggregate of
$500,000 U.S. in subscriptions in any one or more of such Pools on or before the
above referenced date. The Company also acknowledges that there is no limit on
the number of Pools that may be established by CBM (and any Affiliates of CBM),
but that CBM does not make any guaranties or any representations or warranties
with respect to the number of Pools that may be established by CBM (or any
Affiliate of CBM) from time to time nor with respect to the amount of funds or
other capital that may be generated or raised by any Pool or Pools from time to
time.
The term "Management Fee Calculation Base" means the most favorable
underlying basis or amount upon which the Company from time to time bases the
calculation of its management fee for any particular client under the particular
Program in question, whether that be the net assets of the client's account or
some other underlying basis or amount. The term "Incentive Fee Calculation Base"
means the most favorable underlying basis or amount upon which the Company from
time to time bases the calculation of its incentive fee for any particular
client under the particular Program in question, whether that be the new trading
profits of the client's account or some other underlying basis or amount.
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<PAGE>
2. The term "Affiliate of CBM" for purposes of this Agreement shall mean
any person or entity which, directly or indirectly, controls CBM, is controlled
by CBM, or is under common control with CBM, including, without limitation, any
corporation or other form of entity of which a majority of its issued and
outstanding stock or other ownership interests are owned by CBM, any Affiliate
of CBM, Jeffrey A. Raun, and/or the spouse or any lineal descendants of Jeffrey
A. Raun.
CBM (or any Affiliate of CBM) shall be deemed to have "established" a Pool
or Pools for purposes of this Agreement if, without limitation, CBM (or the
Affiliate of CBM, as the case may be) (i) is serving as the general partner (or
one of the general partners) of the Pool, if the Pool is a limited partnership,
(ii) is serving as the manager (or one of the managers) of or in a similar
capacity for the Pool, if the Pool is a limited liability company, or (iii) is
otherwise responsible for the general operations of the Pool, regardless of the
form of entity of the Pool.
The Company acknowledges and agrees that CBM (and any Affiliate of CBM)
shall at all times have the right to make any and all decisions regarding each
and every Pool, and to otherwise fully govern, control and otherwise direct any
and all aspects of each and every Pool, including, without limitation, regarding
and with respect to the organization, structure, offering, marketing, business
and operations of each and every Pool, all in CBM's (or the Affiliate of CBM's,
as the case may be) sole discretion. Without limiting the generality of the
foregoing, the Company acknowledges and agrees that CBM (and any Affiliate of
CBM) may market and promote each Pool in such manner and upon such terms and
conditions as CBM (or the Affiliate of CBM, as the case may be) may from time to
time determine, in its sole discretion, including, without limitation, with or
through any third party or parties (including any Affiliate of CBM) as CBM (or
the Affiliate of CBM, as the case may be) may from time to time determine.
3. The Company acknowledges and agrees that CBM (and any Affiliate of CBM)
may select the trading advisor or trading manager for any Pool or Pools in its
sole discretion, and that this Agreement does not obligate CBM (or any Affiliate
of CBM) to utilize the Company as the trading advisor or trading manager for any
Pool or Pools or otherwise on any exclusive basis. CBM (and any Affiliate of
CBM) shall also have the right, in its sole discretion, to utilize any other
trading advisor or trading manager or trading advisors or trading managers in
addition to the Company for any particular Pool at any time and from time to
time, and the Company agrees that in this circumstance CBM (or the Affiliate of
CBM, as the case may be) shall still be entitled to the reduction in the
Company's fees otherwise provided for in this Agreement. Without limiting the
generality of the foregoing, and in addition
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<PAGE>
thereto to the extent necessary, the Company also acknowledges that CBM (and any
Affiliate of CBM) may discontinue the use of the Company as the trading advisor
or trading manager for any Pool at any time, in its sole discretion, and that
any such termination shall not in any way affect the fees being imposed upon any
other Pools then still utilizing the Company, CBM's (or any Affiliate of CBM's)
right to establish additional or other Pools utilizing the Company and obtaining
the reduction in the fees provided for in this Agreement for such additional or
other Pools, or otherwise effectuate a termination of this Agreement, in whole
or in part.
CBM also acknowledges and agrees, however, that the Company shall have the
right to terminate providing services to any Pool at any time in accordance with
the Company's then normal and ordinary course terms and provisions for clients
of the Program in question, except to the extent that such termination would be
based in any way upon the calculation of or the amount of fees payable by the
Pool to the Company. CBM also acknowledges that the Company is free to enter
into any agreements with any other commodity pool operators or third parties
upon such terms and conditions as the Company may determine, in its sole
discretion, including agreements providing for a reduction in the fees that will
be imposed by the Company with respect to the accounts of or accounts generated
by such other commodity pool operators or third parties.
4. This Agreement may be terminated by the Company only upon the occurrence
of a Termination Event (as that term is defined below), and only effective
ninety (90) days following the giving of written notice thereof by the Company
to CBM, which written notice must be given within fifteen (15) days of the date
of occurrence of the Termination Event in question in order to be effective. If
the Company does not provide CBM with written notice of the termination of this
Agreement within fifteen (15) days of the date of occurrence of any Termination
Event, the Company shall not have the right to terminate this Agreement based
upon the occurrence of said Termination Event, notwithstanding the fact that
said Termination Event is not cured or otherwise continues in effect.
The term "Termination Event" shall mean (i) the termination or suspension
of CBM's registration as a commodity pool operator with the United States
Commodity Futures Trading Commission, unless such registration is renewed,
reinstated or otherwise obtained by CBM within sixty (60) days of such
termination or suspension; or (ii) the conviction of CBM, an Affiliate of CBM,
or any officer, director, employee or agent of CBM or any Affiliate of CBM for a
crime based upon illegal acts or omissions which are related to any Pool which
is then utilizing the Company as the Pool's trading manager or trading advisor,
unless such conviction is overturned or otherwise withdrawn within sixty (60)
days of the date of the initial conviction for the crime.
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Upon a proper and valid termination of this Agreement as provided above,
the Company may, in the Company's discretion, impose fees upon the Pools of CBM
and any Affiliate of CBM at what are the Company's then normal and ordinary
course rates under the particular Program in question.
5. This Agreement shall be governed by and construed in accordance with the
laws of the State of Iowa and of the United States, but without regard to
provisions thereof relating to conflicts of law.
6. No amendment, modification, supplement, termination or waiver of or to
any provision of this Agreement, nor consent to any departure therefrom, shall
be effective unless the same shall be in writing and signed by or on behalf of
the party to be charged with the enforcement thereof. Any amendment,
modification or supplement of or to any provision of this Agreement, any waiver
of any provision of this Agreement, and any consent to any departure from the
terms of any provision of this Agreement, shall be effective only in the
specific instance and for the specific purpose for which made or given.
7. In the event any provision of this Agreement is held invalid, illegal or
unenforceable, in whole or in part, the remaining provisions of this Agreement
shall not be affected thereby and shall continue to be valid and enforceable. In
the event any provision of this Agreement is held to be invalid, illegal or
unenforceable as written, but valid, legal and enforceable if modified, then
such provision shall be deemed to be amended to such extent as shall be
necessary for such provision to be valid, legal and enforceable and it shall be
enforced to that extent. Without limiting the generality of the foregoing, and
in addition thereto to the extent necessary, any finding of invalidity,
illegality or unenforceability in any jurisdiction shall not invalidate or
render invalid, illegal or unenforceable such provision in any other
jurisdiction.
8. All notices, demands and other communications desired or required to be
given hereunder ("Notices") shall be in writing and shall be given by: (i) hand
delivery to the address for Notices; (ii) delivery by express courier service to
the address for Notices; or (iii) sending the same by United States mail,
airmail postage prepaid, certified mail, return receipt requested, addressed to
the address for Notices.
All Notices shall be deemed given and effective upon the earlier to occur
of: (i) the hand delivery of such Notice to the address for Notices; (ii) two
business days (a day not a Saturday, Sunday or holiday recognized in either the
United States and the Cayman Islands) after the deposit of such Notice with an
express courier service by the time deadline for next day delivery
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<PAGE>
addressed to the address for Notices; or (iii) ten business days after
depositing the Notice in the United States mail as set forth above. All Notices
shall be addressed to the addresses set forth on the signature page hereof or to
such other persons or at such other place as any party thereto may by Notice
designate as a place for service of Notice.
9. Nothing contained in this Agreement and no action taken or omitted to be
taken by the parties pursuant hereto shall be deemed to constitute the parties a
partnership, an association, a joint venture or other entity, or to constitute
CBM or its affiliates an agent of the Company for any purpose.
10. This Agreement may not be assigned by CBM without the prior written
consent of the Company, which consent may not be unreasonably withheld by the
Company. Any change in the ownership of or the control of CBM (or any Affiliate
of CBM) shall not, however, be deemed to constitute an assignment of this
Agreement for purposes of this Section 10 or otherwise for this Agreement, and
changes in the ownership or control of CBM (or any Affiliate of CBM) may be made
without the consent of the Company. In the event of an assignment of this
Agreement by CBM, the term "CBM" for purposes of this Agreement shall mean the
assignee of CBM and the term "Affiliate of CBM" shall accordingly be interpreted
and based upon the assignee, and this Agreement shall otherwise be interpreted
accordingly.
11. This Agreement shall not be construed more strongly against any person
regardless of who is more responsible for its preparation.
12. This Agreement may be executed by one or more of the parties to this
Agreement on any number of separate counterparts, each of which shall be deemed
to be an original, but all of which together shall constitute one and the same
instrument.
13. Words and phrases herein shall be construed as in the singular or
plural number and as masculine, feminine or neuter gender, according to the
context.
14. The Company shall defend, indemnify and hold CBM (and the Pools and
Affiliates of CBM) harmless from any loss, liability, damage, cost or expense,
including court costs, arbitration costs and fees and reasonable attorneys'
fees, arising in connection with or resulting from any breach of warranty,
misrepresentation or nonfulfillment of any agreement on the part of the Company
under this Agreement. CBM shall defend, indemnify and hold the Company harmless
from any loss, liability, damage, cost or expense, including court costs,
arbitration costs and fees and reasonable attorneys' fees, arising in connection
with or resulting from any breach of warranty, misrepresentation or
nonfulfillment of any
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<PAGE>
agreement on the part of CBM (or any Affiliate of CBM) under this Agreement.
15. The Recitals set forth in the forepart of this Agreement are true and
correct and are an integral part of this Agreement.
16. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto (and to the benefit of the Pools and to the Affiliates of
CBM) and their respective heirs, successors, legal representatives and permitted
assigns. Nothing in this Agreement, express or implied, is intended to confer
upon any party other than the parties hereto and the Pools and the Affiliates of
CBM (and their respective heirs, successors, legal representatives and permitted
assigns) any rights, remedies, liabilities or obligations under or by reason of
this Agreement. The Company acknowledges and agrees that this Agreement shall
be enforceable by CBM, and also by any Pool and by any Affiliate of CBM, either
independently or in connection with CBM or any Affiliate of CBM.
17. This Agreement constitutes the entire agreement between the parties
hereto pertaining to the subject matters hereof and supersedes all negotiations,
preliminary agreements and all prior or contemporaneous discussions and
understandings of the parties hereto in connection with the subject matters
hereof.
IN WITNESS WHEREOF, the Company and CBM have entered into this Agreement as
of the day and year first above written.
CORN BELT MANAGEMENT, INC. QUIET SYSTEMS, LTD.
By: /s/Jeffrey A. Raun By: /s/Dr. Alan Raun
------------------------- ---------------------
Jeffrey A. Raun, President Dr. Alan Raun
1s121 Cantigny Chairman of the Board
Winfield, Illinois 60601 British American Centre,
Phase 3
Dr. Roy's Drive
George Town, Grand Cayman
Cayman Islands
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EXHIBIT 10.6
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made and entered into as of the 20th
day of June, 1998, by and among First American Bank, Fort Dodge, Iowa (the
"Escrow Agent"), Vacation Investors, Inc., an Iowa corporation (the
"Underwriter"), and Portfolio Boost II, L.P., an Iowa limited partnership (the
"Partnership").
RECITALS
A. The Partnership proposes to offer for sale to investors up to $25,000,000
of units of limited partnership interest (the "Securities") at an initial
offering price of $1,000 per unit.
B. The Underwriter intends to sell the Securities as the Partnership's agent
on a best-efforts part-or-none basis for 500 units, and on a best-efforts
basis for the remaining Securities (the "Offering").
C. The Partnership and the Underwriter desire to establish an escrow account
with the Escrow Agent in which funds received from subscribers will be
deposited pending completion of the Escrow Period (as defined below), and
First American Bank, Fort Dodge, Iowa desires to serve as Escrow Agent, all
in accordance with the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the Recitals and the mutual agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Establishment of Escrow Account. On or prior to the date of the
-------------------------------
commencement of the Offering, the parties shall establish an interest-bearing
escrow account with the Escrow Agent, which escrow account shall be entitled the
Portfolio Boost II, L.P. Escrow Account (the "Escrow Account"). During the
Escrow Period (as defined below), the Underwriter will instruct subscribers to
make checks for subscriptions payable to "First American Bank--Escrow Agent for
PB II." Any checks received that are made payable to a party other than the
Escrow Agent shall be returned to the Underwriter.
2. Escrow Period. The escrow period shall begin with the commencement
-------------
of the Offering and shall terminate upon the earlier to occur of the following
dates (the "Escrow Period"):
A. the date upon which the Escrow Agent confirms that it has received in
the Escrow Account gross proceeds of $500,000 in collected funds (the
"Minimum");
B. The expiration of nine (9) months from the date of the Prospectus
initially utilized by the Partnership in offering the Securities; or
<PAGE>
C. The date upon which a determination is made by the Partnership and the
Underwriter to terminate the offering prior to the sale of the
Minimum.
During the Escrow Period, the Partnership is aware and understands that it is
not entitled to any funds received into escrow and no amounts deposited in the
Escrow Account shall become the property of the Partnership or any other entity,
or be subject to the debts of the Partnership or any other entity.
3. Deposits into the Escrow Account. The Partnership and the Underwriter
--------------------------------
agree that they shall promptly (and in all events by 12:00 noon of the next
business day after receipt by them) transmit all monies received from
subscribers during the Escrow Period for the payment of Securities to the Escrow
Agent for deposit in the Escrow Account together with a written account of each
sale, which account shall set forth, among other things, the subscriber's name
and address, the number of Securities purchased, the amount paid therefor, and
whether the consideration received was in the form of a check, draft, or money
order. All monies so deposited in the Escrow Account are hereinafter referred
to as the "Escrow Funds."
4. Disbursements from the Escrow Account. In the event the Escrow Agent
-------------------------------------
does not receive deposits totaling the Minimum prior to the termination of the
Escrow Period, the Escrow Agent shall, within 10 business days of the
termination of the Escrow Period, refund to each subscriber the amount received
from the subscriber, without deduction, penalty, or expense to the subscriber,
along with each subscriber's pro-rata share of any interest earned on the Escrow
Funds, and the Escrow Agent shall notify the Partnership and the Underwriter of
its distribution of the Escrow Funds. The purchase money returned to each
subscriber shall be free and clear of any and all claims of the Partnership or
any of its creditors.
Although checks for the Minimum may have been tendered prior to or on the
close of the Escrow Period, in no event will the Escrow Funds be released to the
Partnership until the Minimum is received by the Escrow Agent in collected
funds. For purposes of this Agreement, the term "collected funds" shall mean
all funds received by the Escrow Agent which have cleared normal banking
channels and are in the form of cash.
5. Collection Procedure. The Escrow Agent is hereby authorized to
--------------------
forward each check for collection and, upon collection of the proceeds of each
check, deposit the collected proceeds in the Escrow Account. As an alternative,
the Escrow Agent may telephone the bank on which the check is drawn to confirm
that the check has been paid.
Any check returned unpaid to the Escrow Agent shall be returned to the
Underwriter. In such cases, the Escrow Agent will promptly notify the
Partnership of such return.
If the Partnership rejects any subscription for which the Escrow Agent has
already collected funds, the Escrow Agent shall promptly issue a refund check to
the rejected subscriber. If the Partnership rejects any subscription for which
the Escrow Agent has not yet collected funds but has submitted the subscriber's
check for collection, the Escrow Agent shall promptly issue a check in the
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<PAGE>
amount of the subscriber's check to the rejected subscriber after the Escrow
Agent has cleared such funds. If the Escrow Agent has not yet submitted a
rejected subscriber's check for collection, the Escrow Agent shall promptly
remit the subscriber's check directly to the subscriber.
6. Investment of Escrow Funds. The Escrow Agent may invest the Escrow
--------------------------
Funds only in Premier Savings, which is Escrow Agent's highest yielding savings
account.
7. Compensation of Escrow Agent. As the Escrow Agent's total
----------------------------
compensation for the performance of its escrow services, Escrow Agent shall
receive an aggregate fee (the "Escrow Agent Fee") of the greater of (i) $300.00;
or (ii) an amount determined by multiplying the total number of checks received
by Escrow Agent or issued by the Escrow Agent pursuant to this Agreement, by
$5.00. The Escrow Agent Fee shall be payable by the Partnership within fifteen
(15) days of the close of the Escrow Period. None of the Escrow Agent Fee, any
indemnification for any damages incurred by the Escrow Agent, or any monies
whatsoever shall, however, be paid out of or chargeable to the funds on deposit
in the Escrow Account.
8. Obligations of Escrow Agent. Escrow Agent shall be obligated only
---------------------------
for the performance of such duties as are specifically set forth in this
Agreement, and no additional duties shall be inferred herefrom or implied
hereby. The Escrow Agent may rely and shall be protected in acting or refraining
from acting on any instrument believed by it to be genuine and to have been
signed or presented by the proper party or parties.
9. Controversies. Should any controversy arise among the undersigned
-------------
with respect to this Agreement, or with respect to the right to receive all or
part of the Escrow Funds, including accrued interest thereon, Escrow Agent shall
have the right to institute an interpleader action in any court of competent
jurisdiction to determine the rights of the parties. Should such an action be
instituted, or should Escrow Agent become involved in litigation in any manner
on account of this Agreement or the Escrow Funds (not involving willful
misconduct, fraud, gross negligence or bad faith on the part of Escrow Agent),
the Partnership shall pay to Escrow Agent the reasonable attorneys' fees
incurred by Escrow Agent, together with any other expenses, losses, costs and
damages suffered by Escrow Agent, in connection with and resulting from such
litigation.
10. Other Terms and Provisions. Escrow Agent shall have no liability
--------------------------
under, or duty to inquire into, the terms and provisions of any other document
or instrument utilized in connection with the Offering, and it is agreed that
the duties of Escrow Agent are purely ministerial in nature, and that Escrow
Agent shall incur no liability whatsoever under this Agreement, except for acts
or omissions of the Escrow Agent involving or constituting willful misconduct,
fraud, gross negligence or bad faith.
Escrow Agent may consult with and rely on its attorneys with respect to any
matter related to this Agreement or Escrow Agent's obligations or rights
hereunder, and the indemnification referred to in Section 12 of this Agreement
shall include all reasonable and necessary attorneys' fees of Escrow Agent in
connection with such consultation.
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11. Resignation. Escrow Agent may, at any time, resign hereunder by
-----------
giving written notice of its resignation to the other parties hereto, at their
respective addresses set forth below, at least ten (10) days prior to the date
specified for such resignation to take effect, and upon the effective date of
such resignation the Escrow Funds, including all accrued interest, shall be
delivered by Escrow Agent to the person designated in writing by the Underwriter
and the Partnership, whereupon all of Escrow Agent's obligations hereunder shall
cease and terminate (except as hereinafter provided in this Section 11). If no
such person shall have been designated prior to the effective date of such
resignation, all obligations of Escrow Agent hereunder shall, nevertheless,
cease and terminate (except as hereinafter provided in this Section 11). Escrow
Agent's sole responsibility thereafter shall be to hold the Escrow Funds until
such time as the Escrow Agent delivers the Escrow Funds and accrued interest to
a person designated by the Partnership and the Underwriter or by a court of
competent jurisdiction. Notwithstanding the foregoing, nothing in this Section
11 releases Escrow Agent or relieves it of any of its obligations that existed
prior to the effective date of Escrow Agent's resignation, including, without
limitation, liability for willful misconduct, fraud, gross negligence or bad
faith.
12. Indemnification. The Underwriter and the Partnership agree to
---------------
indemnify, defend and hold Escrow Agent harmless from and against any and all
loss, damage, tax, liability and expense that may be incurred by Escrow Agent
and arising out of or in connection with its acceptance of appointment as escrow
agent hereunder, including reasonable attorneys' fees and other legal costs and
expenses of defending itself against any claim or liability in connection with
its performance hereunder, except in the case of willful misconduct, fraud,
gross negligence or bad faith on the part of Escrow Agent. The Partnership and
the Underwriter shall each pay one-half (1/2) of the cost of any indemnification
of the Escrow Agent pursuant to this Section 12. The provisions of this Section
12 shall survive the termination of this Agreement.
13. Notices. Any notice or demand desired or required to be given
-------
hereunder shall be in writing and deemed given when personally delivered
(including delivery by commercial overnight courier service), or when deposited
in the United States mail, postage prepaid, sent certified or registered, and
addressed as follows:
(a) If to the Partnership, to:
Portfolio Boost II, L.P.
Cornerstone at Cantera
4320 Winfield Road, Suite 320
Warrenville, Illinois 60555
Attention: Jeff Raun, President of
Portfolio Boost, L.L.C.
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(b) If to the Underwriter, to:
Vacation Investors, Inc.
Cornerstone at Cantera
4320 Winfield Road, Suite 320
Warrenville, Illinois 60555
Attention: Jeff Raun, President
(c) If to the Escrow Agent, to:
First American Bank
1207 Central Avenue
Fort Dodge, Iowa 50501
or to such other address or person as hereafter shall be designated in writing
by the applicable party.
14. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Iowa, but without regard to provisions
thereof relating to conflicts of law.
15. Titles or Captions. The titles or captions of sections and
------------------
paragraphs in this Agreement are provided for convenience of reference only and
shall not be considered a part hereof for purposes of interpreting or applying
this Agreement, and such titles or captions do not define, limit, extend,
explain or describe the scope or extent of this Agreement or any of its terms or
conditions.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument, and in making proof
hereof it shall not be necessary to produce or account for more than one such
counterpart.
17. Amendments. No amendment, modification, supplement, termination or
----------
waiver of or to any provision of this Agreement, nor consent to any departure
therefrom, shall be effective unless the same shall be in writing and signed by
or on behalf of each of the parties to this Agreement.
18. Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective heirs,
successors, legal representatives and permitted assigns.
19. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto pertaining to the subject matters hereof and
supersedes all negotiations, preliminary agreements and all prior or
contemporaneous discussions and understandings of the parties hereto in
connection with the subject matters hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PORTFOLIO BOOST II, L.P. FIRST AMERICAN BANK
By: Portfolio Boost, L.L.C.,
General Partner By: /s/ James A. Kerkhove, Vice President
-------------------------------------
and Trust Officer
-------------------------------------
Title
By: /s/ Jeffrey A. Raun By: /s/ LindaKay M. Fuller, Trust Officer
------------------------ --------------------------------------
Jeffrey A. Raun, President Title
and Secretary
VACATION INVESTORS, INC.
By: /s/ Jeffrey A. Raun
------------------------
Jeffrey A. Raun, President
and Secretary
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EXHIBIT 23.2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Portfolio Boost II, L.P.
on Form SB-2 of our reports dated October 15, 1998, appearing in Exhibit C and
Exhibit D of the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Roth & Company, P.C.
Des Moines, Iowa
/s/Roth & Company, P.C.
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November 12, 1998
