<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d)
----- of the Securities Exchange Act of 1934
[Fee Required]
For the Fiscal Year Ended: October 31, 1998
____ Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
[No Fee Required]
Commission File Number: 0-9202
THE FUTURE FUND
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3033727
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o HEINOLD ASSET MANAGEMENT, INC.
440 South LaSalle
20th Floor
Chicago, Illinois 60605
---------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code:
(312) 663-7500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
The registrant is a limited partnership and, accordingly, has no voting stock
held by nonaffiliates or otherwise.
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PART I
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Item 1. Business.
--------
(a) General development of business. The Future Fund (the
"Partnership") is a limited partnership organized on November 30, 1978 pursuant
to a Limited Partnership Agreement (the "Limited Partnership Agreement") and
under the Uniform Limited Partnership Act of the State of Illinois. On July 31,
1987, the Partnership elected to be governed under the Illinois Revised Uniform
Limited Partnership Act. The Partnership engages in speculative trading of
futures and forward contracts.
Heinold Asset Management, Inc., a Delaware corporation, is the
General Partner of the Partnership and, in that capacity, performs various
administrative services. The General Partner was organized in 1982 to serve as
the general partner and pool operator for public and private commodity pools
sponsored by Heinold Commodities, Inc., an affiliate. Until March 31, 1996, the
General Partner was a wholly owned subsidiary of Geldermann, Inc., an Illinois
corporation ("Geldermann"). On March 31, 1996, the General Partner became a
wholly owned subsidiary of E.D. & F. Man Inc., a New York corporation with
headquarters in New York, New York. References herein to the "General Partner"
refer to Heinold Commodities, Inc. for the periods prior to November 1, 1988 and
to Heinold Asset Management, Inc. for periods on and after November 1, 1988.
Until June 1, 1995, Geldermann acted as the Partnership's futures
commission merchant or commodity broker. On that date, E.D. & F. Man
International Inc. (the "Commodity Broker") replaced Geldermann as the
Partnership's commodity broker. The General Partner and the Commodity Broker
perform various services related to the Partnership's trading pursuant to a
Customer Agreement.
The General Partner invested $128,000 in the Partnership at the
outset of trading and purchased additional Units for $6,500 during fiscal year
1985. The net asset value of the General Partner's interest in the Partnership,
after the redemption of 583 Unit-equivalents for $355,239 on October 1, 1988,
379 Unit-equivalents for $248,362 on November 1, 1991 and 111 Unit-equivalents
for $91,757 on October 31, 1994, was $251,904 as of October 31, 1998.
The Partnership's trading manager from the inception of trading
until August 1, 1988 had been Millburn Partners, a New Jersey partnership. On
August 1, 1988, Millburn Ridgefield Corporation, a Delaware corporation whose
sole shareholders consisted of the former partners of Millburn Partners, became
the commodity trading advisor for all public commodity pools previously managed
by Millburn Partners.
Effective January 1, 1990, the General Partner replaced Millburn
Ridgefield Corporation as the Partnership's trading manager with Baldwin
Financial Corporation, a Delaware corporation. The Management Contract with
Baldwin Financial Company was assigned to MC Baldwin Financial Company as of
January 1, 1992. MC Baldwin Financial Company served as trading manager for the
Partnership until December 31, 1995.
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Effective January 1, 1996, the General Partner entered into a
Trading Manager Agreement whereby it assumed the role of trading manager for the
Partnership (the "Trading Manager"). The Partnership is a multi-advisor
commodity pool and the Trading Manager allocates the assets of the Partnership
among several trading advisors to direct the Partnership's futures and forward
trading. References to the Trading Manager prior to January 1, 1996, refer to MC
Baldwin Financial Company and on and after January 1, 1996 to Heinold Asset
Management, Inc.
The Trading Manager receives a Management Fee at an annual rate
of 4% of the average month-end Net Asset Value, as defined, of the Partnership.
The Trading Manager will also receive an incentive fee equal to 20% of any New
Trading Profit attributable to each trading advisor to be calculated and paid
quarterly or annually.
On April 1, 1996, the Partnership, pursuant to an exemption from
the Commodity Futures Trading Commission (the "CFTC"), was permitted to cease
trading on a stand-alone basis. On that date, the Partnership elected to
continue to allocate a portion of its assets to managed accounts with commodity
trading advisors and to trade the remaining assets through participation in a
series of private general partnerships ("Account Partnerships") formed together
with other pools of which the General Partner acts as general partner. Only
pools of which the General Partner acts as general partner are permitted to
participate in these Account Partnerships, and all such pools share pro rata in
the profits and losses of the Account Partnerships based on the capital which
each pool contributes to each such Account Partnership. Because the Account
Partnerships combine the assets of numerous pools, they make it possible for
even the smaller pools to have access to a number of commodity trading advisors
without need of meeting each commodity trading advisors' minimum account size
requirements. Although the General Partner has agreed to various incremental
accounting procedures, the operation of the Account Partnerships should be
effectively transparent to the Unitholders. As of December 1, 1997, all of the
Partnership's assets were allocated to the Account Partnerships.
The Partnership shall pay commodity brokerage commissions to the
Commodity Broker at an annual rate of 7% of month-end Net Assets per year, plus
National Futures Association ("NFA") and give-up fees.
Regulation
- ----------
Under the Commodity Exchange Act, as amended (the "Act"),
commodity exchanges and futures trading are subject to regulation by the CFTC.
The National Futures Association, a "registered futures association" under the
Act, is the only non-exchange self-regulatory organization for futures industry
professionals. The CFTC has delegated to the NFA responsibility for the
registration of "commodity trading advisors," "commodity pool operators,"
"futures commission merchants," "introducing brokers" and their respective
associated persons and "floor brokers." The Act requires "commodity pool
operators," such as the General Partner, "commodity trading advisors," such as
the Trading Manager and the Trading Advisors, and commodity brokers or "futures
commission merchants," such as the Commodity Broker, to be registered and to
comply with various reporting and record keeping requirements. The General
Partner, the Trading Advisors, and the Commodity Broker are all members of the
NFA. The CFTC may suspend a commodity pool operator's or commodity trading
advisor's registration if it
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finds that its trading practices tend to disrupt orderly market conditions or in
certain other situations. In the event that the registration of the General
Partner as a commodity pool operator or the Trading Advisors' registrations as
commodity trading advisors were terminated or suspended, the General Partner and
the Trading Advisors would be unable to continue to manage the business of the
Partnership, select the Trading Advisors and direct the Partnership's futures
and forward trading, respectively. Should the General Partner's registration be
suspended, termination of the Partnership might result.
As members of the NFA, the General Partner, the Trading Manager,
the Trading Advisors and the Commodity Broker are subject to NFA standards
relating to fair trade practices, financial condition and customer protection.
As the self-regulatory body of the futures industry, the NFA promulgates rules
governing the conduct of futures industry professionals and disciplines those
professionals which do not comply with such standards.
In addition to such registration requirements, the CFTC and
certain futures exchanges have established limits on the maximum net long or net
short position which any person may hold or control in particular futures
contracts. The CFTC has adopted a rule requiring all domestic futures exchanges
to submit for approval speculative position limits for all futures contracts
traded on such exchanges. Many exchanges also limit the changes in futures
contract prices that may occur during a single trading day. The Partnership may
trade on foreign commodity exchanges which are not subject to regulation by any
United States government agency.
(b) Financial information about industry segments. The
Partnership's business constitutes only one segment, speculative trading of
futures and forward contracts for financial reporting purposes. The Partnership
does not engage in sales of goods or services. The Partnership's revenue,
operating profit and total assets for each of the five fiscal years in the
period ended October 31, 1998 are set forth under "Item 6. Selected Financial
Data."
(c) Narrative description of business.
(1) See Items 1(a) and (b) above.
(i) through (xii) -- not applicable.
(xiii) -- the Partnership has no employees.
(d) Financial information about foreign and domestic operations
and export sales. The Partnership does not engage in sales of goods or
services. See "Item 1(b). Financial information about industry segments."
Item 2. Properties.
----------
The Partnership does not own any properties. Under the terms of
the Limited Partnership Agreement, the General Partner performs the following
services for the Partnership:
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(1) Manages the business of the Partnership. Pursuant to this
authority, the General Partner has entered into a Management Agreement with the
Partnership (under which the Trading Manager will serve as trading manager and
will retain trading advisors who will have complete discretion with respect to
determination of the Partnership's trading decisions) and a Customer Agreement
with the Commodity Broker (pursuant to which the Commodity Broker executes all
trades on behalf of the Partnership based on instructions of the trading
advisors selected by the Trading Manager).
(2) Maintains the Partnership's books and records, which Limited
Partners or their duly authorized representatives may inspect during normal
business hours for any proper purpose upon 10 days' written notice to the
General Partner.
(3) Furnishes each Limited Partner with a monthly statement
describing the performance of the Partnership which sets forth aggregate
incentive fee allocations, brokerage commissions and other expenses incurred or
accrued by the Partnership during the month.
(4) Forwards annual audited financial statements (including a
statement of financial condition and a statement of operations) to each Limited
Partner.
(5) Provides to each Limited Partner tax information necessary
for the preparation of his or her annual federal income tax return.
(6) Performs secretarial and other clerical responsibilities and
furnishes office space, equipment and supplies as may be necessary for
supervising the affairs of the Partnership.
(7) Administers the redemption of Units.
Item 3. Legal Proceedings.
-----------------
The General Partner is not aware of any pending legal proceedings
to which the Partnership is a party or to which any of its assets are subject.
In addition, there are no pending material proceedings involving the General
Partner or the Commodity Broker.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
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PART II
-------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
-----------------------------------------------------------------
(a) Market Information. There is no trading market for the
Units, and none is likely to develop. The Units are transferable only after
written notice has been given to and approved by the General Partner. Units may
be and have been redeemed upon 10 days' notice at their Net Asset Value as of
the end of any month, as provided in the Limited Partnership Agreement. In the
event that all Units for which redemption is requested cannot be redeemed as of
any redemption date, Units will be redeemed in the order that requests for
redemption have been received by the General Partner.
(b) Holders. As of November 1, 1998, there were 612 holders of
Units.
(c) Dividends. No distributions or dividends have been made on
the Units and the General Partner has no present intention to make any.
Item 6. Selected Financial Data.
-----------------------
The following is a summary of operations of the Partnership for
each of the five fiscal years in the period ended October 31, 1998.
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<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal Fiscal Fiscal
Year Ended Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31, October 31,
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net gain (loss) on
trading of futures
and forward contracts 2,170,135 $ 2,385,992 $ 3,994,809 $ 2,226,647 $ 257,407
Interest income 612,846 685,611 685,594 845,122 599,540
----------- ----------- ----------- ----------- -----------
Total income 2,782,981 3,071,603 4,680,403 3,071,769 856,947
=========== =========== =========== =========== ===========
Brokerage commissions 972,546 1,109,170 1,002,522 1,181,262 1,289,379
Management fees 544,528 556,956 622,696 675,007 736,788
Incentive fees 367,066 430,609 663,447 452,602 167,041
Other 55,302 53,799 77,024 95,150 82,639
----------- ----------- ----------- ----------- -----------
Total expenses 1,939,442 2,150,534 2,365,689 2,404,021 2,275,847
=========== =========== =========== =========== ===========
Net income (loss) $ 843,539 $ 921,069 $ 2,314,714 $ 667,748 $(1,418,900)
=========== =========== =========== =========== ===========
Net income (loss)
allocated to:
General Partner $ 16,394 $ 14,117 $ 32,898 $ 6,634 $ (21,004)
=========== =========== =========== =========== ===========
Limited Partners $ 827,145 $ 906,952 $ 2,281,816 $ 661,114 $(1,397,896)
=========== =========== =========== =========== ===========
Net income (loss) for a unit
of partnership interest
(for a unit outstand-
ing throughout
each year) $ 74.52 $ 64.17 $ 149.53 $ 30.16 $ (63.46)
=========== =========== =========== =========== ===========
Total assets $14,045,326 $15,019,983 $14,864,152 $15,244,909 $17,666,836
=========== =========== =========== =========== ===========
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
-----------------------------------------------------------------------
Reference is made to "Item 6. Selected Financial Data." and
"Item 8. Financial Statements and Supplementary Data." The information
contained therein is essential to, and should be read in conjunction with, the
following analysis.
Capital Resources
- -----------------
The Partnership does not intend to raise any additional capital
through borrowing and because it is a closed-end fund, it cannot sell any
additional Units unless it undertakes a new public offering, which would require
another registration with the Securities and Exchange Commission. Due to the
nature of the Partnership's business, it will make no significant capital
expenditures, and substantially all its assets are and will be represented by
cash, U.S. Treasury securities and investments in futures and forward contracts.
Liquidity
- ---------
Many United States commodity exchanges limit fluctuations in
futures contract prices during a single day by regulations referred to as "daily
price fluctuation limits" or "daily limits." During a single trading day, no
trades may be executed at prices beyond the daily limit. Once the price of a
futures contract has reached the daily limit for that day, positions in that
contract can neither be taken nor liquidated. 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 which
could exceed the margin initially committed to such trades. In addition, even
if futures prices have not moved the daily limit, the Partnership may not be
able to execute futures trades at favorable prices if little trading in such
contracts is taking place. Generally, forward contracts can be closed out at
the discretion of the Trading Advisor. However, if the market is not liquid, it
could prevent the timely closeout of an unfavorable position until the delivery
date, regardless of the changes in their value or the Trading Advisors'
investment strategies. Other than these limitations on liquidity, which are
inherent in the Partnership's trading operations, the Partnership's assets are
highly liquid and are expected to remain so.
Results of Operations
- ---------------------
Operating results showed a profit for the fiscal years ended
October 31, 1998, October 31, 1997 and October 31, 1996.
The Net Asset Value per Unit as of October 31, 1998, October 31,
1997 and October 31, 1996 was $1,145.02, $1,070.50 and $1,006.33, respectively.
For fiscal year 1998, the Partnership recorded gains even though
the first six months resulted in losses with the Net Asset Value per Unit
declining from $1,070.50 at October 31, 1997 to $996.74 at April 30, 1998.
Losses occurred during this period primarily due to short positions in the
Deutschemark, Swiss franc, Danish krone, Spanish peseta, French franc and
Italian lire against the U.S. dollar. During the second half of fiscal 1998, the
Partnership
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experienced gains from short positions in the Nikkei 225 index and the IMM S&P
500. These positions were profitable due to Japan's continued political deadlock
over its troubled banking system and the deepening financial turmoil in Russia.
Gains were also realized from short positions in the energy and metal sectors.
Net Asset Value per Unit as of October 31, 1997, December 31, 1997, April 30,
1998 and October 31, 1998 was $1,070.50, $1,067.02, $996.74 and $1,145.02,
respectively.
The Partnership recorded gains for fiscal year 1997. Due to the
downward trend in interest rates, the Partnership profited from long positions
in financial instruments. Other profits were realized in long U.S. index
positions due to the continued strength of the U.S. stock market. Further gains
were made in long agricultural positions. Although trading in long precious
metal positions proved unprofitable, such losses were not enough to offset the
Partnership's gains.
Gains were realized by the Partnership in fiscal year 1996.
Although losses did occur in short positions in the foreign currency sector as
well as the financial and metals markets, such losses were more than offset by
the Partnership's profitable trading. The Partnership's gains resulted largely
from profitable trades made in long U.S. and foreign financial positions. These
trades were profitable due to a downward trend in interest rates. Other profits
were realized in short positions in the agricultural market and long positions
in the energy market. .
Inflation is not a significant factor in the Partnership's
profitability.
Impact of Year 2000
Like other financial and business organizations and individuals
around the world, the Partnership could be adversely affected if its computer
systems and those of its service providers, including affiliates of the General
Partner, do not properly process and calculate date-related information relating
to the year 2000. The General Partner is taking steps that it believes are
reasonably designed to address any problems with respect to the computer systems
that it uses and to obtain satisfactory assurances that comparable steps are
being taken by its service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
Partnership.
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
Financial statements are listed on page F-1 of this report.
The supplementary financial information specified by Item 302 of
Regulation S-K is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
---------------------------------------------------------------
Not applicable.
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The Partnership filed a Form 8-K on January 16, 1997 indicating a
change in auditors for the fiscal year ended October 31, 1997. Such Form 8-K is
herein incorporated by reference. A report from Deloitte & Touche LLP dated
December 13, 1996 is filed as part of the financial statements to this report.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The Partnership has no directors or executive officers. The
Partnership is managed by its General Partner. There are no "significant
employees" of the Partnership.
The General Partner is a commodity pool operator registered with
the NFA.
Item 11. Executive Compensation.
----------------------
The Partnership has no directors or officers. The General
Partner performs the services described in "Item 2. Properties." herein. E. D.
& F. Man International Inc. acts as the Partnership's commodity broker pursuant
to the Customer Agreement described in "Item 1(a). General development of
business."
The General Partner participates in any appreciation in the net
assets of the Partnership in proportion to its investment in it.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
(a) Security ownership of certain beneficial owners.
-----------------------------------------------
The Partnership knows of no person who owns beneficially more
than 5% of the Units.
(b) Security ownership of management.
--------------------------------
Under the terms of the Limited Partnership Agreement, the
Partnership's affairs are managed by the General Partner. The Trading Manager
pursuant to its Management Agreement with the Partnership, enters into
Management Contracts with the Trading Advisors who have discretionary authority
over the Partnership's futures and forward contract trading. The General
Partner owned 220 Unit-equivalents valued at $251,904 as of October 31, 1998,
1.83% of the Partnership's total equity.
(c) Changes in control.
------------------
None
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Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
See "Item 11. Executive Compensation" and "Item 12. Security
Ownership of Certain Beneficial Owners and Management."
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
---------------------------------------------------------------
(a)(1) Financial Statements:
--------------------
See Index to Financial Statements, infra.
(a)(2) Financial Statement Schedules:
-----------------------------
All Schedules are omitted for the reason that they are not
required, are not applicable, or because equivalent information has been
included in the financial statements or the notes thereto.
(a)(3) Exhibits as required by Item 601 of
-----------------------------------
Regulation S-K:
--------------
(3) Articles of Incorporation and By-Laws:
-------------------------------------
(a) Limited Partnership Agreement dated as of November 27, 1978,
as amended on February 15, 1979.
(b) Certificate of Limited Partnership of the Partnership as
filed with the Cook County Recorder of Deeds on November 30, 1978.
The above exhibits are incorporated by reference from the Form
10-K Annual Report filed by the Partnership for the period ended October 31,
1978.
(c) Form LP-1205 of the Partnership, as filed with the Illinois
Secretary of State on July 31, 1987, electing to be governed under the Illinois
Revised Uniform Limited Partnership Act.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K for the fiscal year ended October 31, 1987.
(10) Material Contracts:
(a) Joint Venture Agreement dated as of April 1, 1987 between
the Partnership and Millburn Partners.
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(b) Customer Agreement dated as of April 1, 1987 between the
Joint Venture and Geldermann.
The above exhibits are incorporated by reference from the
Partnership's report on Form 10-K for the fiscal year ended October 31, 1987.
(c) Amendment No. 1 to the Joint Venture Agreement between the
Partnership and Millburn Partners dated December 31, 1987.
(d) Amendment No. 1 to the Customer Agreement between the Joint
Venture and Geldermann dated December 31, 1987.
(e) Amendment No. 2 to the Joint Venture Agreement between the
Partnership and Millburn Ridgefield Corporation dated December 31, 1988.
The above exhibits are incorporated by reference from the
Partnership's report on Form 10-K for the Fiscal Year ended October 31, 1988.
(f) Management Agreement dated December 14, 1989 between the
Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 16, 1990.
(g) Amendment No. 1 to the Management Contract dated December
31, 1991 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the
Partnership's report on Form 8-K filed on January 28, 1991.
(h) Amendment No. 2 to the Management Contract dated December
31, 1992 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 31, 1993.
(i) Amendment No. 3 to the Management Contract dated December
31, 1993 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 31, 1994.
(j) Amendment No. 4 to the Management Contract dated December
31, 1994 between the Partnership and the Trading Manager.
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The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 31, 1995.
(k) Trading Manager Agreement dated January 1, 1996 among the
Partnership and the Trading Manager.
(l) Form of General Partnership Agreement among various
commodity pools of which Heinold Asset Management, Inc. acts as sole general
partner.
(m) Form of Management Contract among each Account Partnership
and each trading advisor.
(n) Form of Management Contract among the Partnership and each
trading advisor.
The above exhibits are incorporated by reference from the
Partnership's report on Form 10-K filed on January 31, 1996.
(o) Back Office Service Agreement dated November 1, 1996 among
Managed Asset Service Corp., the General Partner and the Partnership.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K filed on January 28, 1997.
(b) Reports on Form 8-K
-------------------
The Partnership did not file any reports on Form 8-K during the
quarter ended October 31, 1998.
(27) Financial Data Schedule
-----------------------
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago and State of Illinois on the 27th day of January, 1999.
THE FUTURE FUND
By HEINOLD ASSET MANAGEMENT, INC.
General Partner
By /s/ Thomas M. Harte
-------------------
Thomas M. Harte
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the General Partner of the Registrant in the capacities and on the date
indicated.
Title with
Signature General Partner Date
- --------- --------------- ----
/s/ Thomas M. Harte President (chief operating January 27, 1999
- -------------------- officer) and Director
Thomas M. Harte
/s/ Judith M. Kula Chief Financial Officer January 27, 1999
- -------------------- (principal accounting officer)
Judith M. Kula
/s/ Mary T. Bergonia Director January 27, 1999
- --------------------
Mary T. Bergonia
/s/ Gary M. Rindner Director January 27, 1999
- --------------------
Gary M. Rindner
/s/ Ira Polk Director January 27, 1999
- --------------------
Ira Polk
(Being the principal executive officer, the principal financial
and accounting officer, and a majority of the directors of Heinold Asset
Management, Inc.)
HEINOLD ASSET General Partner of January 27, 1999
MANAGEMENT, INC. Registrant
By /s/ Thomas M. Harte
-------------------
Thomas M. Harte
President
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Financial Statements
The Future Fund
(An Illinois Limited Partnership)
Years ended October 31, 1998, 1997, and 1996
with Report of Independent Auditors
<PAGE> 16
THE FUTURE FUND
(An Illinois Partnership)
FINANCIAL STATEMENTS
Years ended October 31, 1998, 1997, and 1996
CONTENTS
Report of Independent Auditors............................................. 1
Financial Statements
Statements of Financial Condition.......................................... 2
Statements of Operations................................................... 3
Statements of Changes in Partners' Equity.................................. 4
Statements of Cash Flows................................................... 5
Notes to Financial Statements.............................................. 6
<PAGE> 17
Report of Independent Auditors
The Partners
The Future Fund
We have audited the accompanying statements of financial condition of The Future
Fund (the Partnership) as of October 31, 1998 and 1997, and the related
statements of operations, changes in partners' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's General Partner. Our responsibility is to express an opinion on
these financial statements based on our audits. The financial statements of The
Future Fund for the year ended October 31, 1996, was audited by other auditors
whose report dated December 13, 1996, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Future Fund at October 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Chicago, Illinois
December 18, 1998
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INDEPENDENT AUDITORS' REPORT
To the General Partner and
Limited Partners of
The Future Fund:
We have audited the accompanying statements of operations, changes in partners'
equity and cash flows of The Future Fund (the "Partnership") for the year ended
October 31, 1996. These financial statements are the responsibility of the
Partnership's General Partner. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of the Partnership's operations and its cash flows for the
year ended October 31, 1996, in conformity with generally accepted accounting
principles.
/s/DELOITTE & TOUCHE LLP
- --------------------------
Chicago, Illinois
December 13, 1996
<PAGE> 19
The Future Fund
(An Illinois Limited Partnership)
Statements of Financial Condition
<TABLE>
<CAPTION>
OCTOBER 31
1998 1997
---------------------------
<S> <C> <C>
ASSETS
Investment in affiliated general partnerships $ 5,862,347 $ 1,491,685
Equity in commodity trading accounts:
Net unrealized trading gains on open contracts - 356,939
Due from affiliated broker 8,182,979 13,171,359
---------------------------
Total assets $14,045,326 $15,019,983
===========================
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Brokerage commissions $ 81,812 $ 81,156
Redemptions payable 45,801 32,072
Management fees 46,034 43,588
Incentive fees 83,648 200,625
Other 20,417 7,502
---------------------------
Total liabilities 277,712 364,943
Partners' equity:
Limited partners (11,804 and 13,470 units outstanding
at October 31, 1998 and 1997, respectively) 13,515,710 14,419,530
General Partner (220 unit equivalents outstanding
at October 31, 1998 and 1997) 251,904 235,510
---------------------------
Total partners' equity 13,767,614 14,655,040
---------------------------
Total liabilities and partners' equity $14,045,326 $15,019,983
===========================
Net asset value per outstanding unit of partnership
interest $ 1,145.02 $ 1,070.50
===========================
</TABLE>
See accompanying notes.
2
<PAGE> 20
The Future Fund
(An Illinois Limited Partnership)
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
INCOME
Net realized trading gains on closed
contracts $1,959,226 $4,156,566 $1,865,930
Change in net unrealized gain or loss on
open contracts 210,909 (1,770,574) 2,128,879
Brokerage commissions (972,546) (1,109,170) (1,002,522)
----------------------------------------
1,197,589 1,276,822 2,992,287
Interest income 612,846 685,611 685,594
----------------------------------------
1,810,435 1,962,433 3,677,881
EXPENSES
Management fees 544,528 556,956 622,696
Incentive fees 367,066 430,609 663,447
Other 55,302 53,799 77,024
----------------------------------------
966,896 1,041,364 1,363,167
----------------------------------------
Net income $ 843,539 $ 921,069 $2,314,714
========================================
Net income for a unit of partnership
interest (for a unit outstanding
throughout each year):
General Partner $ 74.52 $ 64.17 $ 149.53
========================================
Limited Partners $ 74.52 $ 64.17 $ 149.53
========================================
Net income allocated to:
General Partner $ 16,394 $ 14,117 $ 32,898
========================================
Limited Partners $ 827,145 $ 906,952 $2,281,816
========================================
</TABLE>
See accompanying notes.
3
<PAGE> 21
The Future Fund
(An Illinois Limited Partnership)
Statements of Changes in Partners' Equity
Years ended October 31, 1998, 1997, and 1996
<TABLE>
LIMITED GENERAL
PARTNERS PARTNER TOTAL
---------------------------------------
<S> <C> <C> <C>
Partners' equity at October 31, 1995 $14,863,803 $188,495 $15,052,298
Addition of 939 units of limited
partnership interest 797,000 - 797,000
Redemption of 4,241 units of limited
partnership interest (3,808,106) - (3,808,106)
Net income 2,281,816 32,898 2,314,714
---------------------------------------
Partners' equity at October 31, 1996 14,134,513 221,393 14,355,906
Redemption of 576 units of limited
partnership interest (621,935) - (621,935)
Net income 906,952 14,117 921,069
---------------------------------------
Partners' equity at October 31, 1997 14,419,530 235,510 14,655,040
Redemption of 1,666 units of limited
partnership interest (1,730,965) - (1,730,965)
Net income 827,145 16,394 843,539
---------------------------------------
Partners' equity at October 31, 1998 $13,515,710 $251,904 $13,767,614
=======================================
</TABLE>
See accompanying notes.
4
<PAGE> 22
The Future Fund
(An Illinois Limited Partnership)
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 843,539 $ 921,069 $2,314,714
Adjustments to reconcile net income to net
cash provided by operating activities:
Change in assets and liabilities:
Due from affiliated broker 4,988,380 (1,029,389) (462,296)
Investment in affiliated general
partnerships (4,370,662) 873,558 843,053
Net unrealized trading gains on
open contracts 356,939 - -
Brokerage commissions 656 (5,513) (2,263)
Management fees 2,446 (11,793) 4,563
Incentive fees (116,977) (88,298) 288,923
Other 12,915 924 1,157
-----------------------------------------------
Net cash provided by operating activities 1,717,236 660,558 2,987,851
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of limited partnership
interests (1,717,236) (660,558) (2,987,851)
-----------------------------------------------
Net change in cash - - -
Cash at beginning of year - - -
-----------------------------------------------
Cash at end of year $ - $ - $ -
===============================================
</TABLE>
See accompanying notes.
5
<PAGE> 23
The Future Fund
(An Illinois Limited Partnership)
Notes to Financial Statements
1. ORGANIZATION OF THE PARTNERSHIP
The Future Fund (Partnership) was organized in November 1978, under the Illinois
Uniform Limited Partnership Act, for purposes of engaging in the speculative
trading of futures, options on futures, and forward contracts. Heinold Asset
Management, Inc. (HAMI), a wholly owned subsidiary of E.D. & F. Man, Inc., is
the general partner of the Partnership (General Partner).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN AFFILIATED GENERAL PARTNERSHIPS
Investments in affiliated general partnerships are valued at fair value as
determined by the General Partner. In determining fair value, the General
Partner utilizes the valuations of the underlying partnerships. The underlying
partnerships value their financial instruments on a mark-to-market basis of
accounting. The income from investments in affiliated general partnerships is
presented in the statements of operations on a pro rata basis.
DUE FROM AFFILIATED BROKER
Due from affiliated broker consists of balances, including interest receivable,
due from E.D. & F. Man International, Inc. (Man). Man, an affiliate of HAMI,
pays the Partnership interest on the Partnership's daily balance at a rate equal
to 90% of the published 90-day Treasury bill rate.
Man is registered with the Commodity Futures Trading Commission (CFTC) as a
futures commission merchant and is a member of the National Futures Association,
an industry self-regulatory agency. Man is also registered with the Securities
and Exchange Commission (SEC) and National Association of Securities Dealers,
Inc. (NASD) as a securities broker-dealer.
INCOME RECOGNITION
Realized and unrealized trading gains and losses on futures, options on futures,
and forward contracts, which represent the difference between cost and selling
price or quoted market value, are recognized currently. All trading activities
are accounted for on a trade date basis.
6
<PAGE> 24
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are not provided for by the Partnership because taxable income
(loss) of the Partnership is includable in the income tax returns of the
partners.
NET INCOME PER UNIT
Net income per unit of Partnership interest is equal to the change in net asset
value per unit from the beginning of the year to the end of the year. Unit
amounts are rounded to whole numbers for financial statement presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partner to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. LIMITED PARTNERSHIP AGREEMENT
The limited partners and the General Partner share in the profits and losses of
the Partnership in proportion to the number of units or unit equivalents held by
each partner. However, no limited partner is liable for obligations of the
Partnership in excess of its capital contribution and profits, if any.
Distributions (other than redemption of units), if any, are made on a pro rata
basis at the sole discretion of the General Partner.
Limited partners may redeem any or all of their units as of the end of any month
at net asset value per unit on ten days' prior written notice to the General
Partner. The Partnership is scheduled to be dissolved on July 1, 2025, or upon
the occurrence of certain events as specified in the limited partnership
agreement. The Partnership is closed to new subscriptions.
The Partnership bears the expenses incurred in connection with its activities.
These expenses include brokerage commissions, trading advisors' management and
incentive fees, legal, audit, tax return preparation, and filing fees. The
General Partner bears all other operating expenses.
7
<PAGE> 25
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT IN AFFILIATED GENERAL PARTNERSHIPS
Effective April 1, 1996, the Partnership began participating in a series of
private affiliated general partnerships (General Partnerships) formed together
with other HAMI limited partnerships. The General Partnerships engage in the
speculative trading of futures, options on futures, and forward contracts based
on their respective trading strategies. The Partnership shares pro rata in
profits and losses of such General Partnerships, based on the capital that the
Partnership commits, as defined, to each General Partnership.
A separate General Partnership is formed for each Commodity Trading Advisor
(Trading Advisor) that the General Partner selects to trade partnership assets.
An affiliate of the General Partner is the Trading Advisor for Heinold General
Partnership III. Under the terms of its management contract, each Trading
Advisor has sole responsibility for determining the General Partnership's
trades. As compensation for these services, each Trading Advisor receives a
monthly management fee based on a percentage of the Partnership's month-end
allocated assets, as defined. Each Trading Advisor also receives a quarterly or
annual incentive fee based on a percentage of new trading profits, as defined.
The incentive fee is retained by the Trading Advisors even when "trading
losses," as defined, occur in subsequent periods; however, no further incentive
fees are payable until such trading losses (other than those attributable to
redemptions) are recouped by the General Partnership. At October 31, 1998,
carryforward losses related to the Partnership for incentive fee purposes were
$130,244, $8,642, $66,508, $88,071, and $46,956 for General Partnerships II, V,
IX, X, and XI, respectively.
At October 31, 1998, investments in General Partnerships were as follows:
<TABLE>
<CAPTION>
ALLOCATED ASSETS
------------------------------------------
ADDITIONAL PROFIT
COMMITTED ALLOCATION
GENERAL PARTNERSHIP INVESTMENT CAPITAL TOTAL PERCENTAGE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Heinold General Partnership Account I $1,430,155 $ 870,320 $ 2,300,475 44.41%
Heinold General Partnership Account II 317,723 1,287,128 1,604,851 44.41
Heinold General Partnership Account III 1,442,492 1,746,292 3,188,784 44.41
Heinold General Partnership Account V 486,715 1,029,750 1,516,465 44.41
Heinold General Partnership Account IX 446,961 149,776 596,737 44.41
Heinold General Partnership Account X 1,239,180 1,877,284 3,116,464 44.41
Heinold General Partnership Account XI 499,121 987,389 1,486,510 44.41
-------------------------------------
$5,862,347 $7,947,939 $13,810,286
=====================================
</TABLE>
8
<PAGE> 26
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT IN AFFILIATED GENERAL PARTNERSHIPS (CONTINUED)
Additional committed capital is included in due from affiliated broker on the
statements of financial condition.
The General Partnerships incur no expenses.
Each of the General Partnerships had total assets (no liabilities) consisting of
the following at October 31, 1998:
NET UNREALIZED
HEINOLD GENERAL DUE FROM GAIN (LOSS) ON
PARTNERSHIP ACCOUNT AFFILIATED BROKER OPEN CONTRACTS TOTAL
- --------------------------------------------------------------------------------
I $3,182,762 $ 37,827 $3,220,589
II 736,513 (21,028) 715,485
III 2,836,420 411,954 3,248,374
V 1,020,746 75,295 1,096,041
IX 820,465 186,055 1,006,520
X 2,140,065 650,467 2,790,532
XI 735,775 388,205 1,123,980
At October 31, 1997, the Partnership was invested in Heinold General Partnership
Account I (GP I). Assets allocated to GP I as of October 31, 1997, were
$3,288,121, including committed funds of $1,796,436.
At October 31, 1997, GP I had total assets (no liabilities) consisting of the
following:
Due from affiliated broker $2,114,280
Net unrealized gain on open contracts 93,412
----------
$2,207,692
==========
Each General Partnership's funds are held by, and its transactions cleared
through, Man. These funds are used to meet minimum margin requirements for all
of the General Partnership's open positions as set by the exchange where each
futures contract is traded. These requirements are adjusted, as needed, due to
daily fluctuations in the values of the underlying positions. Certain positions
may be liquidated, if necessary, to satisfy resulting changes in margin
requirements. Forward contracts are entered into on an arm's-length basis with
ED&F Man Capital, Inc., an affiliate of the General Partner.
9
<PAGE> 27
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. MANAGED ACCOUNTS
Prior to December 1, 1997, the Partnership entered into various advisory
agreements directly with trading advisors (Managed Accounts). At October 31,
1998, however, the Partnership's assets were allocated solely to the affiliated
general partnerships (see Note 4).
Each trading advisor of the Managed Accounts received from the Partnership a
monthly management fee ranging from .083% to .333% (1% to 4% annually) of the
Partnership's month-end net asset value, as defined, and incentive fees ranging
from 15% to 20% (annual basis) of the Partnership's new trading profits, as
defined.
6. ADVISORY AND OTHER AGREEMENTS
With respect to the General Partnerships (see Note 4), the Partnership pays HAMI
a monthly management fee of .333% (4% annually) of the Partnership's month-end
allocated assets, as defined. HAMI in turn pays each trading advisor at a rate
of up to 4%. The Partnership pays the trading advisors an incentive fee ranging
from 15% to 20% (annual basis) of the Partnership's new trading profits, as
defined (see Note 4).
The Partnership has a brokerage contract with Man which provides that the
Partnership pay a monthly brokerage fee of .5833% (7% annually) of the
Partnership's month-end net assets, as defined, plus NFA fees and related
give-up charges.
7. DERIVATIVE FINANCIAL INSTRUMENTS
The General Partnerships trade derivative financial instruments. Derivative
financial instruments involve varying degrees of market risk whereby changes in
the level or volatility of interest rates, foreign currency exchange rates, or
market values of the underlying financial instruments or commodities may result
in changes in the value of the financial instrument in excess of the amounts
reflected in the summarized financial information of each respective General
Partnership in Note 4.
10
<PAGE> 28
THE FUTURE FUND
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Credit risk arises from the potential inability of counterparties to perform in
accordance with the terms of the contract. Each General Partnership's exposure
to credit risk associated with counterparty nonperformance is limited to the
current cost to replace all contracts in which the General Partnership has
gains. Exchange-traded financial instruments, such as futures and options on
futures, give rise to limited counterparty exposure as the clearing organization
acts as the counterparty to all contracts.
The Partnership has general partner liability with respect to its interest in
each of the General Partnerships.
The Partnership's and General Partnerships' assets held at Man are in segregated
accounts as required by the Commodity Futures Trading Commission.
* * * * *
11
<PAGE> 29
Oath of Commodity Pool Operator
To the best of my knowledge and belief, the information contained herein is
accurate and complete.
Heinold Asset Management, Inc.
(Pool Operator)
/s/ Judith M. Kula
- ------------------------------------
Judith M. Kula
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> BD
<CURRENCY> US DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> OCT-31-1998 OCT-31-1997
<PERIOD-START> OCT-31-1997 OCT-31-1996
<PERIOD-END> OCT-31-1998 OCT-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 0 0
<RECEIVABLES> 14,045,326 15,019,983
<SECURITIES-RESALE> 0 0
<SECURITIES-BORROWED> 0 0
<INSTRUMENTS-OWNED> 0 0
<PP&E> 0 0
<TOTAL-ASSETS> 14,045,326 15,019,983
<SHORT-TERM> 0 0
<PAYABLES> 277,712 364,943
<REPOS-SOLD> 0 0
<SECURITIES-LOANED> 0 0
<INSTRUMENTS-SOLD> 0 0
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 13,767,614 14,655,040
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 14,045,326 15,019,983
<TRADING-REVENUE> 2,170,135 2,385,992
<INTEREST-DIVIDENDS> 612,846 685,611
<COMMISSIONS> (972,546) (1,109,170)
<INVESTMENT-BANKING-REVENUES> 0 0
<FEE-REVENUE> 0 0
<INTEREST-EXPENSE> 0 0
<COMPENSATION> (966,896) (1,041,364)
<INCOME-PRETAX> 0 0
<INCOME-PRE-EXTRAORDINARY> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 843,539 921,069
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
