<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1997
FILE NO. 33-86894
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
POST-EFFECTIVE
AMENDMENT NO. 3
TO THE
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IDS MANAGED FUTURES, L.P.
(Exact name of registrant as specified in Limited Partnership Agreement)
<TABLE>
<S> <C>
DELAWARE 06-1189438
(IRS employer identification
(Jurisdiction of formation) number)
</TABLE>
6793
(Primary standard industrial classification code number)
CIS INVESTMENTS, INC.
233 SOUTH WACKER DRIVE
SUITE 2300
CHICAGO, ILLINOIS 60606
(312) 460-4000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive office)
L. CARLTON ANDERSON
CIS INVESTMENTS, INC.
233 SOUTH WACKER DRIVE
SUITE 2300
CHICAGO, ILLINOIS 60606
(312) 460-4000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES OF COMMUNICATIONS TO:
PAUL C. KOSIN, ESQ.
CHAPMAN AND CUTLER
111 WEST MONROE STREET
CHICAGO, ILLINOIS 60603
(312) 845-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
Pursuant to the provisions of Rule 429 under the Securities Act of 1933,
this Registration Statement relates to Registration Statement No. 33-72240 filed
by the Registrant. The Prospectus forming a part of this Registration Statement
shall serve the purposes specified in Rule 429.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /X/
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 31, 1997
IDS MANAGED FUTURES, L.P.
$50,000,000 OF UNITS OF LIMITED PARTNERSHIP INTEREST
Minimum Purchase $1,000
IDS Managed Futures, L.P. (the "FUND") is a Delaware limited partnership
organized to engage in speculative trading of futures contracts, forward
contracts, physical commodities, and related options thereon. The Fund began
trading on June 16, 1987 with respect to its initial Units of limited
partnership interest in the amount of $7,372,260. The Fund registered an
additional $10,000,000 of Units effective March 29, 1993, and an additional
$20,000,000 of Units effective January 31, 1994. The Fund registered an
additional $50,000,000 worth of Units effective June 26, 1995, which together
with the unsold amount remaining from the 1994 offering have been continuously
offered by the Fund (the "CURRENT OFFERING"). As of June 30, 1997, $42,867,212
remained unsold and are currently being offered by the Fund. The offering of
Limited Partnership Interests shall continue until July 31, 1999, unless all of
the Units registered are sold prior to that date or the General Partners
determine to extend the Current Offering beyond such date. Any such
determination will be made based upon the number of Units remaining unsold as of
July 31, 1999. As of June 30, 1997, $16,397,909 worth of the Units have been
sold of the Current Offering. The Net Asset Value per Initial Unit at the
commencement of trading in 1987 was $225.43. As of June 30, 1997, the Net Asset
Value per Unit was $318.96; the Net Asset Value per Unit net of interest income
was $270.81; the Net Asset Value of the Fund was $43,172,357. At the close of
business on February 28, 1995, each Unit was divided into three Units (the
"3-FOR-1 SPLIT"), each of which had a Net Asset Value per Unit equal to the
previous Net Asset Value per Unit divided by three. Accordingly, the total
number of Units outstanding tripled as of that date. References in this
Prospectus to Net Asset Value per Unit after that date, therefore, are to a Net
Asset Value per Unit of a revalued Unit, approximately one-third the Net Asset
Value per Unit prior to the 3-for-1 split, which was $690.75. Past performance
is not necessarily indicative of future results. See "The Past Performance of
the Fund" for a description of the Fund's performance.
The Fund is administered by CIS Investments, Inc. ("CISI") and IDS Futures
Corporation ("IDS FUTURES"). CISI and IDS Futures are collectively referred to
herein as the "GENERAL PARTNERS." Cargill Investor Services, Inc. (the "CLEARING
BROKER"), an affiliate of CISI, acts as the Fund's clearing broker. American
Express Financial Advisors Inc. acts as the Fund's introducing broker (the
"INTRODUCING BROKER") and as the Fund's selling agent (the "SELLING AGENT").
American Express Financial Advisors Inc., an affiliate of IDS Futures, was named
IDS Financial Services Inc. until December 31, 1994. See "Conflicts of
Interest." The current trading advisors to the Fund are John W. Henry & Company,
Inc., Welton Investment Corporation and Sabre Fund Management Limited. For
recent developments regarding the Fund's trading advisors, see "The Trading
Advisors."
Additional units of limited partnership interest are being solicited until
July 31, 1999, unless all of the Units registered are sold prior to that date or
the General Partners determine to extend the Current Offering beyond that date
(the "OFFERING PERIOD"). Any such determination will be made based upon the
number of Units remaining unsold as of July 31, 1999. The units of limited
partnership interest offered by this Prospectus are collectively referred to
herein as the "UNITS." The minimum subscription (including subscriptions of
Individual Retirement Accounts, Keogh Plans and employee benefit pension plans)
is $1,000 although certain states may require a higher minimum subscription (see
Exhibit B); any greater subscription amount must be in increments of $100. Of an
initial $1,000 investment, approximately $910 will be available for trading by
the Fund, although this amount may be greater under certain circumstances.
Purchasers are likely to receive fractional Units. Additionally, each subscriber
to the Fund must represent that his or her net worth is at least $150,000 or, in
the alternative, he or she has a minimum annual gross income of at least $45,000
plus a net worth of at least $45,000.
THESE ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE OF RISK. THESE
SECURITIES ARE SUITABLE FOR INVESTMENT ONLY BY A PERSON WHO CAN AFFORD TO LOSE
HIS OR HER ENTIRE INVESTMENT. SEE "INTRODUCTORY STATEMENT--WHO SHOULD INVEST"
AND "RISK FACTORS."
(CONTINUED ON FOLLOWING PAGE)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
<TABLE>
<CAPTION>
PROCEEDS TO
THE
PRICE TO PUBLIC(1) SELLING COMMISSIONS(2) AND OFFERING EXPENSE CHARGE(3) FUND(3)(4)
<S> <C> <C> <C>
Per Unit Price...... Net Asset Value per Unit Sales Charge and Offering Expense Charge of 9.9%, (3)(4)
collectively, of Net Asset Value per Unit [minus
reductions in Sales Charge for certain subscriptions].
Total Maximum....... $42,867,212 $4,243,854 $ 38,623,358
</TABLE>
(NOTES BEGIN ON THE FOLLOWING PAGE)
The Units are being offered by the Selling Agent on a best-efforts basis.
Each subscriber will have a sixteen day "Free Look" period to determine whether
he or she wishes to have the Fund retain his or her subscription. See "Free Look
Alternative." Proceeds from subscriptions accepted during the Offering Period
will be held in escrow at First Trust National Association, St. Paul, Minnesota
(the "ESCROW AGENT"), prior to the time that the proceeds of such subscriptions
are applied to the purchase of Units. Subscribers will be paid interest on funds
deposited with the Escrow Agent within 30 days after the date on which they are
admitted to the Fund as Limited Partners, except that if any subscriber's
accrued interest is less than $10, such interest shall be paid to the Fund and
not to the subscriber. Subscription proceeds deposited with the Escrow Agent may
not be withdrawn by subscribers. See "Plan of Distribution."
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
The date of this Prospectus is , 1997.
<PAGE>
(CONTINUED FROM COVER PAGE)
An investment in the Fund involves significant risks, including the
following:
- The speculative and volatile nature of trading in commodity interests
which could result in the loss of all or a substantial part of an
investment.
- Substantial charges to the Fund which will require trading profits in 1997
of approximately 14.626% of average Net Asset Value in order to break
even.
- Reliance on the Trading Advisors to achieve trading profits.
- Conflicts of interest between the General Partners, the Trading Advisors,
and the Fund's brokers and the Fund.
- Restriction on redemption rights limiting liquidity.
For a detailed description of the foregoing risks and other risk factors
applicable to an investment in the Fund, see "Risk Factors" on page 29.
Units are being offered at a price per Unit equal to the Net Asset Value per
Unit as of the close of business on the last business day of the month in which
the General Partners accept such subscriptions and admit subscribers as Limited
Partners, plus the amount of the Sales Charge and the Offering Expense Charge on
a per Unit basis. See Notes 2 and 3 below for descriptions of the Sales Charge
and the Offering Expense Charge, respectively, and how they are calculated.
Representatives and employees of American Express Financial Advisors Inc. and
certain of its corporate affiliates ("AFFILIATED PURCHASERS") who purchase Units
will not be assessed a Sales Charge.
All subscription documents from a potential investor must be received by the
tenth calendar day of the month if they are to be considered for acceptance by
the Fund in that month. The Selling Agent will promptly send a confirmation of
the investment and a copy of the Fund's most recent monthly account statement to
the potential investor. The investor will then have sixteen days from the date
of the confirmation from the Selling Agent to determine whether he or she wishes
his or her subscription to be retained by the Fund. The potential investor must
notify the Selling Agent by mail or telephone (pursuant to instructions in the
notice from the Selling Agent) of his or her decision NOT to invest. No further
action is required in response to the notification from the Selling Agent if the
investor elects to subscribe. The investor's negative response must be received
by the Selling Agent within the sixteen day period. Investors electing to
withdraw their subscription pursuant to the above alternative will promptly
receive a return of their subscription funds from the escrow agent. The investor
may withdraw his or her subscription for any reason during this review period.
See the "Free Look Alternative."
All subscriptions are subject to acceptance by the General Partners. In the
event that offers to subscribe are rejected by the General Partners for any
reason, then all or the rejected portion of the tendered consideration for such
subscription shall be promptly returned to the purchaser.
The anticipated remaining duration of the Fund is approximately nine years;
the Fund's operations will cease on December 31, 2006. However, the Fund may
terminate its operations at an earlier date upon the occurrence of special
circumstances detailed in the Amended and Restated Limited Partnership Agreement
attached to this Prospectus as Exhibit A.
TRANSFERABILITY OF THE UNITS IS RESTRICTED AND THERE IS AND WILL BE NO
PUBLIC MARKET THEREFOR. UNITS ARE REDEEMABLE, SUBJECT TO CERTAIN CONDITIONS,
ONLY ON THE LAST TRADING DAY OF A MONTH UPON TEN DAYS' WRITTEN NOTICE TO THE
GENERAL PARTNERS. SEE "LIMITED PARTNERSHIP AGREEMENT" AND "REDEMPTIONS."
- --------------------------
NOTES:
(1) Units having an aggregate offering price of $42,867,212 are offered by this
Prospectus. Units will be offered to Affiliated Purchasers at a price equal
to 103.1% of Net Asset Value per Unit as of the close of business on the
last business day of the month in which the General Partners accept such
subscriptions and admit the subscribers as Limited Partners to the Fund and
to non-Affiliated Purchasers at a maximum price equal to 109.9% of Net Asset
Value per Unit as of the close of business on the last business day of the
month in
2
<PAGE>
which the General Partners accept such subscriptions and admit the
subscribers as Limited Partners to the Fund. The price for non-Affiliated
Purchasers may be less than the maximum stated depending on amount
subscribed. (See "DESCRIPTION OF CHARGES TO THE FUND--SALES CHARGE".) In
order to produce the maximum selling commission equivalent to 6% of the
gross per Unit price (the "SALES CHARGE") and a charge for other offering
expenses equivalent to 3% of the gross per Unit price (the "OFFERING EXPENSE
CHARGE"), a maximum Sales Charge and the Offering Expense Charge
(collectively, 9.8901% of the Net Asset Value per Unit) will be assessed on
subscriptions by non-Affiliated Purchasers. Affiliated Purchasers will
purchase Units during the Offering Period, as described above, at a price
equal to the Net Asset Value per Unit, plus the Offering Expense Charge. The
Offering Expense Charge will be assessed on subscriptions by Affiliated
Purchasers in order to defray offering expenses (not including a selling
commission). In no event shall reimbursement for total offering (including
selling commissions) expenses exceed an amount equal to 9% of the gross
proceeds of the offering. Purchasers are likely to receive fractional Units.
Subscriptions for Units which are received after the tenth calendar day of a
month will be held in the escrow account, due to the length of time required
to process subscriptions, and, if not rejected, the subscriber will be
admitted to the Fund at the subsequent admission of subscribers to the Fund
after the end of such month. Additional Limited Partners will be admitted to
the Fund not more frequently than the end of each full calendar month.
Additional Limited Partners will be admitted to the Fund as of the close of
business on the last business day of each full calendar month, PROVIDED that
such proceeds were received by the tenth calendar day of that month. The
Units are being offered by the Fund through the Selling Agent on a best-
efforts basis without any firm underwriting commitment. There can be no
assurance that any or all of the Units being offered will be sold. The Fund
and the General Partners will indemnify the Selling Agent and its
controlling persons against certain liabilities. See "Plan of Distribution."
As of the close of business February 28, 1995, the Net Asset Value per Unit
changed to reflect the 3-for-1 split in Units occurring on that date. For
purposes of comparison, purchasers should refer to the $690.75 Net Asset
Value per Unit on that date.
(2) On the day a subscriber is admitted to the Fund, the Selling Agent will
receive the Sales Charge from the proceeds of the offering with respect to
Units sold to investors other than Affiliated Purchasers. See "Plan of
Distribution." The maximum amount of such payments to the Selling Agent will
be $2,572,033 if all Units offered hereby are sold to investors other than
Affiliated Purchasers, and $42,867,212 in capital is raised in this offering
and no one purchaser subscribes for an amount more than $50,000. No Sales
Charge will be assessed with respect to Units purchased by Affiliated
Purchasers. (Units are offered to Affiliated Purchasers at a lower price per
Unit because no Sales Charge will be charged to such purchasers.) In
addition, the Selling Agent, as the Fund's Introducing Broker for trades in
commodity interests, receives a portion of the per trade commodity brokerage
commissions paid by the Fund in return for certain ongoing services to be
rendered to holders of Units, and such compensation could be deemed to be
underwriting compensation (and, therefore, to be additional offering
charges). See "Plan of Distribution" and "Charges to the Fund."
(3) The General Partners have agreed to advance the expenses of the Current
Offering (other than selling commissions), estimated at $1,500,000,
including legal, accounting, auditing, marketing, filing, registration and
recording fees, printing expenses, and escrow charges. Such $1,500,000
estimate is based upon an assumption that $50,000,000 in capital will be
raised in the complete offering which began on June 26, 1995 for purposes of
calculating the variable elements of such expenses. In return for advancing
such offering expenses, the General Partners will receive the Offering
Expense Charge with respect to Units sold to all purchasers. The General
Partners will not be reimbursed for the payment of such offering expenses
from any other source. If the aggregate Units sold during the Offering
Period do not produce sufficient funds for reimbursement of the funds
advanced by the General Partners for such offering expenses, the General
Partners will be responsible for the shortfall. If the aggregate Units sold
during the Offering Period produce funds in excess of those advanced by the
General Partners for such offering expenses, the General Partners will
retain any excess. See "Plan of Distribution." Notwithstanding the
foregoing, in no event will reimbursement for total offering expenses
(including selling commissions) exceed an amount equal to 9% of the gross
proceeds from the sale of Units, nor will any individual Limited Partner pay
more than 9% of the gross amount of his or her subscription toward such
reimbursement. This limitation on reimbursement of offering expenses is well
within the 15% limitation on such expenses under rules adopted by the
National Association of Securities Dealers, Inc.
3
<PAGE>
(4) The Units offered by this Prospectus will be offered through July 31, 1999
(the "OFFERING PERIOD"), unless all of such Units are previously sold or the
General Partners determine to extend the Offering Period beyond such date.
Proceeds of subscriptions will be deposited with the Fund's Clearing Broker
on the first trading day of the month after the subscriber has been admitted
to the Fund and the subscriber will receive Units in exchange. (See Note 1,
above.) Proceeds from subscriptions accepted during the Offering Period will
be held in escrow by First Trust National Association, St. Paul, Minnesota.
Subscriptions for Units received after the tenth calendar day of a month
will be held in the escrow account, if not rejected, until the subsequent
admission of subscribers to the Fund after the end of such month, and will
earn interest during that time. See "Plan of Distribution."
--------------------------
The Fund will furnish all holders of Units annual and monthly reports
complying with the regulations of the Commodity Futures Trading Commission. The
annual certified reports will contain audited, and the monthly reports
unaudited, financial information.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS
DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER BY ANY PERSON WITHIN ANY JURISDICTION TO ANY PERSON TO WHOM
SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO ITS DATE.
4
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR 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 DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES 18 AND 57
AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 13.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGE 29.
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.
5
<PAGE>
FREE LOOK ALTERNATIVE
COMMODITY FUTURES TRADING COMMISSION RULE 4.26(b) PROVIDES THAT IN
CONNECTION WITH SOLICITING PROSPECTIVE PARTICIPANTS FOR A COMMODITY POOL, THE
COMMODITY POOL OPERATOR MUST ATTACH TO THE DISCLOSURE DOCUMENT FOR THE POOL
COPIES OF THE POOL'S MOST CURRENT ACCOUNT STATEMENT. THE POOL OPERATORS FOR THIS
FUND HAVE REQUESTED, AND HAVE BEEN GRANTED, AN EXEMPTION FROM THIS RULE BY THE
COMMODITY FUTURES TRADING COMMISSION PURSUANT TO THE FUND'S "FREE LOOK
ALTERNATIVE."
UNDER THE FREE LOOK ALTERNATIVE, PROSPECTIVE PARTICIPANTS WILL SIGN AND
FORWARD, ALONG WITH THEIR INVESTMENT CHECK, THE APPROPRIATE SUBSCRIPTION
DOCUMENTS ATTACHED TO THIS DISCLOSURE DOCUMENT TO THE HOME OFFICE OF AMERICAN
EXPRESS FINANCIAL ADVISORS INC. AMERICAN EXPRESS FINANCIAL ADVISORS INC. WILL
THEN SEND A CONFIRMATION OF THE INVESTMENT AND A COPY OF THE FUND'S MOST RECENT
ACCOUNT STATEMENT TO THE PROSPECTIVE PARTICIPANT ON THE NEXT BUSINESS DAY. THE
MAILING OF THE CONFIRMATION AND ACCOUNT STATEMENT BY AMERICAN EXPRESS FINANCIAL
ADVISORS INC. MARKS THE BEGINNING OF THE "FREE LOOK" PERIOD.
THE FREE LOOK PERIOD IS 16 DAYS. DURING THIS TIME, PROSPECTIVE PARTICIPANTS
WILL HAVE THE OPPORTUNITY TO DETERMINE WHETHER THEY WISH THEIR SUBSCRIPTION
AMOUNT TO BE RETAINED BY THE FUND. PROSPECTIVE PARTICIPANTS MAY RESCIND THEIR
SUBSCRIPTIONS DURING THE FREE LOOK PERIOD FOR ANY REASON.
PROSPECTIVE PARTICIPANTS MAY NOTIFY AMERICAN EXPRESS FINANCIAL ADVISORS INC.
OF THEIR DECISION TO WITHDRAW THEIR SUBSCRIPTIONS EITHER BY MAIL OR BY
TELEPHONIC COMMUNICATION PURSUANT TO INSTRUCTIONS RECEIVED FROM AMERICAN EXPRESS
FINANCIAL ADVISORS INC. IN THE CONFIRMATION.
6
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
CERTAIN TERMS AND DEFINITIONS.............................................................................. 11
INVESTMENT REQUIREMENTS.................................................................................... 11
SUMMARY OF THE PROSPECTUS.................................................................................. 12
The Fund................................................................................................. 12
General Partners......................................................................................... 12
Estimate of the Fund's "Break-even" Point................................................................ 13
Break-even Point of the Fund............................................................................. 14
Investment Objective..................................................................................... 15
The Current Offering..................................................................................... 15
Business and Use of Proceeds............................................................................. 17
Management............................................................................................... 17
Trading Advisors......................................................................................... 17
Charges to the Fund...................................................................................... 18
Summary of Charges to the Fund........................................................................... 19
Sales Charge and Offering Expense Charge................................................................. 21
Risks and Conflicts of Interest.......................................................................... 21
Termination of Partnership............................................................................... 22
Financial Information.................................................................................... 22
Redemption of Units...................................................................................... 22
Distributions............................................................................................ 23
Transfers or Assignments of Units........................................................................ 23
Income Tax Aspects....................................................................................... 23
THE OFFERING............................................................................................... 24
The Offering Period...................................................................................... 24
Free Look Alternative.................................................................................... 25
Potential Advantages..................................................................................... 26
Plan of Distribution..................................................................................... 26
Use of Proceeds and Interest Payable..................................................................... 26
Suitability Standards.................................................................................... 26
INTRODUCTORY STATEMENT..................................................................................... 27
Who Should Invest........................................................................................ 27
RISK FACTORS............................................................................................... 29
The Commodity Futures Markets............................................................................ 29
Charges.................................................................................................. 32
Management and Incentive Fees.......................................................................... 32
Brokerage Fees......................................................................................... 32
Administrative Fee..................................................................................... 32
Break-even Point....................................................................................... 32
Trading Advisors......................................................................................... 33
Limited Partners and the Fund............................................................................ 38
Conflicts................................................................................................ 40
Taxation................................................................................................. 40
Regulation............................................................................................... 42
Credit Risks............................................................................................. 43
POTENTIAL ADVANTAGES OF THE FUND........................................................................... 43
CONFLICTS OF INTEREST...................................................................................... 44
PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS.................................................. 48
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
USE OF PROCEEDS............................................................................................ 50
SELECTED FINANCIAL DATA.................................................................................... 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF.................................................................... 53
Liquidity and Capital Resources.......................................................................... 53
Results of Operations.................................................................................... 53
Inflation................................................................................................ 57
CHARGES TO THE FUND........................................................................................ 57
Description of Charges to the Fund....................................................................... 58
Certain Definitions...................................................................................... 62
CAPITALIZATION............................................................................................. 64
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS........................................................... 64
THE GENERAL PARTNERS....................................................................................... 66
CISI..................................................................................................... 66
IDS Futures.............................................................................................. 68
PAST PERFORMANCE OF THE FUND............................................................................... 70
BROKERAGE ARRANGEMENTS..................................................................................... 79
The Clearing Broker...................................................................................... 79
The Introducing Broker................................................................................... 80
The Foreign Currency Broker.............................................................................. 80
GLOSSARY................................................................................................... 82
DESCRIPTION OF COMMODITY TRADING........................................................................... 86
Commodity Markets........................................................................................ 86
Hedgers and Speculators.................................................................................. 87
Commodity Prices......................................................................................... 87
Competition.............................................................................................. 88
Regulation............................................................................................... 88
Margins.................................................................................................. 92
TRADING POLICIES........................................................................................... 93
THE TRADING ADVISORS....................................................................................... 95
The Advisory Contracts................................................................................... 96
Commodity Trading Methods in General..................................................................... 97
John W. Henry & Company, Inc............................................................................. 98
The JWH Investment Philosophy............................................................................ 98
Principals of JWH........................................................................................ 99
Legal and Ethical Concerns............................................................................... 102
The Operating Committee.................................................................................. 102
The Investment Policy Committee.......................................................................... 102
The JWH Trading Method................................................................................... 103
JWH Trading Policies..................................................................................... 103
A Disciplined Investment Process....................................................................... 103
Program Modifications.................................................................................. 104
Physical and Cash Commodities.......................................................................... 104
Leverage............................................................................................... 104
Additions, Redemptions and Reallocation of Capital for Commodity Pool Accounts......................... 105
Other JWH Programs....................................................................................... 105
Welton Investment Corporation............................................................................ 105
Welton Investment Philosophy and Technology.............................................................. 106
Welton Investment Portfolios and Programs................................................................ 106
Diversified Portfolio.................................................................................... 107
</TABLE>
8
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<TABLE>
<S> <C>
Legal Concerns and Conflicts of Interest................................................................. 108
Other Welton Programs.................................................................................... 108
Sabre Fund Management Ltd................................................................................ 108
The Sabre Trading Method................................................................................. 108
Past Performance of JWH and Welton....................................................................... 108
DESCRIPTION OF UNITS....................................................................................... 114
PLAN OF DISTRIBUTION....................................................................................... 115
The Offering Period...................................................................................... 116
Free Look Alternative.................................................................................... 116
The Representation Agreement............................................................................. 117
Offering Expense Charge.................................................................................. 118
SUBSCRIPTION PROCEDURE..................................................................................... 119
REDEMPTIONS................................................................................................ 120
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT......................................................... 121
Nature of the Fund....................................................................................... 121
Management of the Fund................................................................................... 121
Distributions by the Fund................................................................................ 122
Redemptions.............................................................................................. 123
Additional Partners...................................................................................... 123
Transfers of Units....................................................................................... 123
Indemnification.......................................................................................... 123
Election, Removal and Withdrawal of General Partners..................................................... 124
Termination of the Fund.................................................................................. 124
Amendments and Meetings.................................................................................. 124
Fiscal Year.............................................................................................. 125
Reports and Accounting................................................................................... 125
FEDERAL INCOME TAX CONSIDERATIONS.......................................................................... 126
Partnership Status....................................................................................... 126
Partnership Taxation..................................................................................... 127
Recognition of Gain on Redemptions and Distributions..................................................... 128
Gains, Losses and Deductions............................................................................. 128
Straddles................................................................................................ 129
Other Information........................................................................................ 132
Fund Tax Audits.......................................................................................... 132
Foreign Investors........................................................................................ 133
State and Local Taxes.................................................................................... 133
LEGAL MATTERS.............................................................................................. 134
EXPERTS.................................................................................................... 134
ADDITIONAL INFORMATION..................................................................................... 134
ADDITIONAL DEFINITIONS..................................................................................... 135
FINANCIAL STATEMENTS....................................................................................... 135
Exhibit A--Amended and Restated Limited Partnership Agreement
Exhibit B--Subscription Requirements
Exhibit C--Subscription Agreement and Power of Attorney
Exhibit D--Request for Redemption
</TABLE>
9
<PAGE>
IDS MANAGED FUTURES, L.P.
c/o CIS Investments, Inc.
233 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
(312) 460-4000
------------------------
GENERAL PARTNERS
<TABLE>
<S> <C>
CIS Investments, Inc. IDS Futures Corporation
233 South Wacker Drive IDS Tower 10
Minneapolis, Minnesota
Suite 2300 55440
Chicago, Illinois 60606 (612) 671-3131
(312) 460-4000
</TABLE>
10
<PAGE>
CERTAIN TERMS AND DEFINITIONS
Knowledge of various terms and concepts relating to the trading and the
regulation of commodities and commodity trading is necessary for a prospective
investor to determine whether to participate in the Fund. Reference is made to
the "GLOSSARY" in this Prospectus. The Glossary is designed to assist the
prospective investor in understanding the terms and concepts used in this
Prospectus.
INVESTMENT REQUIREMENTS
The minimum investment in the Fund is $1,000; any greater subscription
amount must be in increments of $100. In the Subscription Agreement and Power of
Attorney, a copy of which is attached hereto as Exhibit C, each investor must
represent that he or she has had an opportunity to review the Prospectus and is
satisfied that he or she has had an opportunity to ask questions relating to,
but not limited to, the risk of losing his or her entire investment, and that he
or she has (1) a net worth of at least $150,000 (exclusive of home, furnishings
and automobiles) or (2) a net worth of at least $45,000 (exclusive of home,
furnishings and automobiles) and a minimum annual gross income in the most
recent tax year of at least $45,000. The administrators of the securities laws
of certain states have imposed additional suitability requirements and higher
minimum investment amounts for residents of such states. The Subscription
Requirements (Exhibit B) list such additional suitability and investment
requirements. The General Partners may reject any subscription. All
subscriptions are irrevocable. The General Partners and the Selling Agent are
responsible for making every reasonable effort to determine that the purchase of
Units is a suitable and appropriate investment for each investor, based on
information provided by the investor regarding his or her financial situation
and investment objectives.
KEOGH AND SELF-DIRECTED IRA PLANS. The minimum initial investment for Keogh
or H.R. 10 Plans ("Keoghs") and self-directed individual retirement accounts
("IRAs") is $1,000. See Exhibit B--Subscription Requirements.
EMPLOYEE BENEFIT PLANS. A trustee of any trust related to any "employee
pension benefit plan" or "pension plan" as such terms are defined in Section
3(2) of the Employee Retirement Income Security Act of 1974 ("ERISA") ("Employee
Benefit Plan") must make the representations and warranties summarized above as
such representations and warranties are applied, respectively, to the "employer"
or "employee organization," as such terms are defined in, respectively, Section
3(5) and 3(4) of ERISA, sponsoring any such pension plan. Other representations
are set forth in Exhibit C--Subscription Agreement and Power of Attorney. In
determining whether an investment in the Fund is suitable for a particular plan,
the prospective subscriber should be aware that investment activities of
Employee Benefit Plans are subject to numerous restrictions under the provisions
of the Internal Revenue Code, ERISA, and, possibly, state laws. The minimum
investment for Employee Benefit Plans is $1,000. See "RISK FACTORS" and
"PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS."
11
<PAGE>
SUMMARY OF THE PROSPECTUS
This summary is intended to highlight certain information contained in the
body of this Prospectus. This summary is qualified in its entirety by the
information appearing more fully elsewhere in the Prospectus and the description
of any document is qualified in its entirety by the information appearing
elsewhere in the Prospectus and the Amended and Restated Agreement to Limited
Partnership attached hereto as Exhibit A.
<TABLE>
<S> <C>
The Fund.......................... IDS Managed Futures, L.P. is a limited partnership
organized on December 16, 1986 under the Delaware
Revised Uniform Limited Partnership Act. See Amended and
Restated Limited Partnership Agreement, attached as
Exhibit A. The principal offices of the Fund are located
at 233 South Wacker Drive, Suite 2300, Chicago, Illinois
60606 and the telephone number for the Fund is (312)
460-4000. The books and records of the Fund will also be
kept there. The date of this Prospectus is
, 1997. The Fund began trading on June
16, 1987 with respect to its initial units of limited
partnership units (the "INITIAL UNITS"). The Fund's
initial capitalization was $7,372,260. The Net Asset
Value per Unit at the commencement of trading on June
16, 1987, was $225.43. A registration statement offering
$10,000,000 in aggregate Units became effective on March
29, 1993 and $9,022,985 of Limited Partnership Interests
were sold through January 31, 1994, leaving $977,015 of
Units to be sold. Another registration statement
offering $20,000,000 plus the unsold $977,015 in
aggregate Units became effective on January 31, 1994. As
of April 30, 1995, $20,734,879 of Units had been sold
since March 29, 1993, in the continuous offering,
leaving 9,265,121 of Units unsold from the 1994
offering. A registration statement offering $50,000,000
in aggregate units plus the amount unsold from the 1994
offering became effective on June 26, 1995 (the "CURRENT
OFFERING"). The Current Offering will continue until
July 31, 1999, unless all of the units are sold prior to
that date or the General Partners determine to extend
the Current Offering beyond such date. Any such
determination will be made based upon the number of
Units remaining unsold as of July 31, 1999. The
continuous offerings have resulted in $37,132,788 worth
of Limited Partnership Interests sold as of June 30,
1997. As of June 30, 1997, the Net Asset Value per Unit
was $318.96 and net capital contributions were
$36,845,292. See "PAST PERFORMANCE OF THE FUND," on page
70.
General Partners.................. The General Partners of the Fund are IDS Futures
Corporation ("IDS FUTURES"), a wholly-owned subsidiary
of IDS Management Corporation, which is itself a
wholly-owned subsidiary of American Express Financial
Corporation, the corporate parent of the Fund's Selling
Agent/Introducing Broker, and CIS Investments, Inc.
("CISI"), a wholly-owned subsidiary of the Fund's
Clearing Broker. They are responsible for administering
the Fund's affairs. The General Partners are registered
under the Commodity Exchange Act, as amended, as
commodity pool
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
operators (and are currently acting as the Fund's
commodity pool operators) and are members of the
National Futures Association ("NFA"). CISI is registered
with the NFA as a commodity pool operator effective
December 13, 1985 and IDS Futures is registered as a
commodity pool operator effective February 4, 1987. The
principal offices of CISI are located at 233 S. Wacker
Drive, Suite 2300, Chicago, Illinois 60606. The records
of the Fund are kept at CISI's principal offices in
Chicago. The principal offices of IDS Futures are
located at IDS Tower 10, Minneapolis, Minnesota 55440.
This Prospectus................... The General Partners first intend to use the Prospectus
on , 1997.
Estimate of the Fund's
"Break-even" Point................ During the first twelve months of an investment by a new
Limited Partner who is not an Affiliated Purchaser, the
initial investment will be subject to expenses of
approximately 14.626% taking into account the 6% Sales
Charge and the 3% Offering Expense Charge. Thereafter,
the estimated break-even calculation for the Fund will
be reduced by the one time 6% Sales Charge and the 3%
Offering Expense Charge to 5.626% per annum. If the Fund
were unable to achieve such profits, its assets are
likely to be depleted by expenses during the year. There
is no assurance that these anticipated percentages of
expenses will in fact be incurred by the Fund. These
estimates should not be interpreted as representations
by the Fund of the actual amounts of operating expenses
of the Fund. In addition, there can be no assurance that
the expenses to be incurred by the Fund will not exceed
the amounts as estimated or that there will not be any
other expense.
</TABLE>
13
<PAGE>
BREAK-EVEN POINT OF THE FUND
IDS MANAGED FUTURES, L.P.
ESTIMATED "BREAK-EVEN" CALCULATION
FOR THE FUND'S 1997 YEAR OF OPERATION
<TABLE>
<CAPTION>
DOLLARS PERCENTAGE
---------- --------------
<S> <C> <C> <C> <C>
Minimum Investment Amount(1)..................................... $ 1,000.00
Sales Charge(1).................................................. 60.00 6.00%
Offering Expense Charge(1)....................................... 30.00 3.00%
Administrative Fees(2)........................................... 13.75 1.375%
Advisory Management Fees(3)...................................... 36.20 3.62%
Advisory Incentive Fees(4)....................................... 11.31 1.131%
Brokerage Commission and Trading Fees(5)......................... 30.00 3.00%
Portion to Introducing Broker.................................. 17.14 1.714%
Portion to Clearing Broker..................................... 12.86 1.286%
Periodic Operating Expenses(6)................................... 10.00 1.00%
Less Interest Income(7).......................................... 45.00 4.50%
Interest Income at 90 Day T-Bill Rate.......................... 50.00 5.00%
Less Portion retained by Clearing Broker....................... 5.00 .50%
BREAK-EVEN POINT:*............................................... $ 146.26 14.626%
---------- --------------
---------- --------------
</TABLE>
- ------------------------
* Amount of Trading Income required for the Fund's Net Asset Value per Unit
(Redemption Value) at the end of one year to equal the Selling Price per
Unit/Percentage of Minimum Investment Amount.
(1) Units will be purchased at the Fund's month-end Net Asset Value per Unit. A
6% Sales Charge and a 3% Offering Expense Charge will be deducted from the
gross investment amount before the net investment units are calculated.
(2) The Administrative Fees payable to the General Partners will total 1.375% of
the Fund's Net Asset Value on the first day of its fiscal year.
(3) As of the date of this Prospectus, John W. Henry & Company, Inc. is managing
approximately 65% of the assets of the Fund at a management fee of 4% per
annum, Welton Investment Corporation is managing approximately 30% of the
assets of the Fund at a management fee of 3% per annum and Sabre Fund
Management Limited is managing approximately 5% of the assets of the Fund at
a management fee of 3% per annum. The weighted average equals a current
combined management fee of 3.62% per annum.
(4) John W. Henry & Company, Inc. receives an incentive fee of 15% of new net
trading profits, Welton Investment Corporation receives an incentive fee of
18% of new trading profits and Sabre Fund Management Limited receives an
incentive fee of 18% of new trading profits, in each case exclusive of
interest income. The incentive fees of $11.31 shown above are equal to
16.14% (see weighted average in Note 3 above) of total trading income of
$146.48 minus $30.00 of brokerage commissions and trading fees, $36.20 of
management fees and $10.00 of periodic operating expenses.
(5) Brokerage Commissions payable by the Fund with respect to the trading
directed by its trading advisors have ranged from approximately 2.46% - 6.2%
of the Fund's average annual Net Asset Value over the past ten years of
trading. An estimate of 3.0% of the Net Asset Value, however, is used in
this table to reflect the current brokerage rate in effect that was reduced
by 30% on September 1, 1995. The actual brokerage commissions paid for
calendar year 1996 was 2.49%.
(6) Periodic Operating Expenses are estimated at 1% of the Fund's average annual
Net Asset Value.
14
<PAGE>
(7) The Fund will earn interest income on its assets deposited at the Clearing
Broker. Based on the assumption that interest rates will be unchanged in
1997, an investment in 90 day T-Bills is estimated to earn income of 5.00%.
The Fund is paid 90% of the 90 day T-Bill rate by the Clearing Broker.
Interest income to the Fund in 1997 therefore is estimated to be 4.50% of
the Net Asset Value. Net interest income earnings for the Fund in 1996 were
approximately 4.50% of the Net Asset Value.
<TABLE>
<S> <C>
Investment Objective......... The Fund has been developed with the objective of achieving
substantial capital appreciation over the long term through
professionally managed speculative trading in futures
contracts, forward currency contracts, physical commodities
and related options thereon on exchanges and markets located
in the United States and abroad.
The Current Offering......... The initial closing for the Current Offering was held on
August 31, 1995, and the amounts of subscriptions then
received and accepted by the General Partners were
contributed to the capital of the Fund. At the initial
closing, the Fund sold 4,971.9361 Units for an aggregate
purchase price of $1,403,011. The Selling Agent was paid
$78,012 in commissions in connection with the initial
closing.
On September 29, 1995, the second closing of the Current
Offering of the Fund was held. On that date, 5,239.90322
Units were sold for an aggregate purchase price of
$1,463,490. The Selling Agent received $82,886 in
commissions.
On October 31, 1995, the third closing of the Current
Offering of the Fund was held. On that date, 3,626.91790
Units were sold for an aggregate purchase price of
$1,007,100. The Selling Agent received $54,054 in
commissions.
On November 30, 1995, the fourth closing of the Current
Offering of the Fund was held. On that date, 2,310.75812
Units were sold for an aggregate purchase price of $658,600.
The Selling Agent received $36,566 in commissions.
On December 29, 1995, the fifth closing of the Current
Offering of the Fund was held. On that date, 2,033.75749
Units were sold for an aggregate purchase price of $600,900.
The Selling Agent received $34,694 in commissions.
On January 31, 1996, the sixth closing of the Current
Offering of the Fund was held. On that date, 2574.69436
Units were sold for an aggregate purchase price of $792,900.
The Selling Agent received $46,834 in commissions.
On February 29, 1996, the seventh closing of the Current
Offering of the Fund was held. On that date, 745.08625 Units
were sold for an aggregate purchase price of $221,700. The
Selling Agent received $13,302 in commissions.
On March 29, 1996, the eighth closing of the Current
Offering of the Fund was held. On that date, 1,342.41333
Units were sold for an aggregate price of $398,800. The
Selling Agent received $23,928 in commissions.
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
On April 30, 1996, the ninth closing of the Current Offering
of the Fund was held. On that date, 1044.5715 Units were
sold for an aggregate price of $321,200. The Selling Agent
received $19,272 in commissions.
On May 31, 1996, the tenth closing of the Current Offering
of the Fund was held. On that date, 948.69410 Units were
sold for an aggregate price of $284,400.00. The Selling
Agent received $16,884 in commissions.
On June 28, 1996, the eleventh closing of the Current
Offering of the Fund was held. On that date, 1873.56174
Units were sold for an aggregate price of $564,600.00. The
Selling Agent received $33,576 in commissions.
On July 31, 1996, the twelfth closing of the Current
Offering of the Fund was held. On that date, 2,741.08454
Units were sold for an aggregate price of $808,100.00. The
Selling Agent received $39,926 in commissions.
On August 30, 1996, the thirteenth closing of the Current
Offering of the Fund was held. On that date, 1,158.14663
Units were sold for an aggregate price of $346,500.00. The
Selling Agent received $20,290 in commissions.
On September 30, 1996, the fourteenth closing of the Current
Offering of the Fund was held. On that date, 1582.16 Units
were sold for an aggregate price of $488,700.00. The Selling
Agent received $28,202 in commissions.
On October 31, 1996, the fifteenth closing of the Current
Offering of the Fund was held. On that date, 881.74 Units
were sold for an aggregate price of $298,100. The Selling
Agent received $17,686 in commissions.
On November 29, 1996, the sixteenth closing of the Current
Offering of the Fund was held. On that date, 1088.60 Units
were sold for an aggregate price of $392,900. The Selling
Agent received $23,474 in commissions.
On December 31, 1996, the seventeenth closing of the Current
Offering of the Fund was held. On that date, 1831.44066
Units were sold for an aggregate price of $650,100. The
Selling Agent received $37,806 in commissions.
On January 31, 1997, the eighteenth closing of the Current
Offering of the Fund was held. On that date, 2,459.93 Units
were sold for an aggregate price of $907,200. The Selling
Agent received $54,432 in commissions.
On February 28, 1997, the nineteenth closing of the Current
Offering of the Fund was held. On that date, 2870.22 Units
were sold for an aggregate price of $1,059,200. The Selling
Agent received $63,402 in commissions.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
On March 31, 1997, the twentieth closing of the Current
Offering was held. On that date, 3,834.12 Units were sold
for an aggregate price of $1,404,800. The Selling Agent
received $77,188 in commissions.
On April 30, 1997, the twenty-first closing of the Current
Offering was held. On that date 3,653.19 Units were sold for
an aggregate price of $1,313,000. The Selling Agent received
$73,280 in commissions.
On May 30, 1997, the twenty-second closing of the Current
Offering was held. On that date, 2,983.23 Units were sold
for an aggregate price of $1,012,600. The Selling Agent
received $56,016 in commissions.
The proceeds received at each of these closings were
deposited in the Fund's trading account maintained by the
Clearing Broker.
The Fund suspended the sales of the Units temporarily from
April 30, 1997 through the date of this Prospectus.
Therefore there were no monthly closings in June, July or
August of 1997.
Business and Use of The Fund trades speculatively commodity interests, including
Proceeds..................... futures contracts, forward contracts, physical commodities,
and related options thereon pursuant to the trading
instructions of independent trading advisors. See "THE
TRADING ADVISORS." All assets of the Fund are and will be
deposited in the Fund's accounts with Cargill Investor
Services, Inc., the Fund's clearing broker (the "CLEARING
BROKER"). The Clearing Broker credits the Fund at month's
end with interest income on 100% of the Fund's average
monthly net assets on deposit at the Clearing Broker at a
rate equal to 90% of the average yield on the 90-day U.S.
Treasury bills issued during that month (the "CLEARING
BROKER RATE"). The Clearing Broker will benefit from
interest earned on such funds in excess of the amounts paid
to the Fund. See "CHARGES TO THE FUND." Approximately 20% to
60% of the Fund's assets have historically been committed as
initial margin for trading and the General Partners expect
that approximately 20% to 60% of the Fund's assets will
continue to be committed as initial margin for trading.
However, from time to time the percentage of assets
committed as margin may be more or less than such historical
range. See "USE OF PROCEEDS."
Management................... The Fund's General Partners are responsible for the
management of the Fund, including the hiring of trading
advisors and brokers. See "THE GENERAL PARTNERS." American
Express Financial Advisors Inc. and Cargill Investor
Services, Inc., affiliates of the General Partners, act as
the introducing and clearing brokers, respectively, for the
Fund. See "CONFLICTS OF INTEREST" and "BROKERAGE
ARRANGEMENTS." Except in extraordinary circumstances,
Limited Partners will have no right to vote concerning
questions of management, and it is not expected that
meetings of Limited Partners will be held.
Trading Advisors............. Currently, John W. Henry & Company, Inc.
("JWH-REGISTERED TRADEMARK-") manages approximately 65% of
the Fund's assets, Welton Investment Corporation ("WELTON")
manages approximately 30% of the Fund's
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
assets and Sabre Fund Management Limited ("SABRE") manages
approximately 5% of the Fund's assets. (JWH, Welton and
Sabre are sometimes hereinafter referred to individually as
a "TRADING ADVISOR" and collectively as the "TRADING
ADVISORS"). The Trading Advisors are not affiliated with
each other, the Fund's General Partners, the Clearing
Broker, the Introducing Broker, or the Selling Agent. JWH
and Sabre acted as the trading advisors to the Fund since
its inception (each an "ORIGINAL TRADING ADVISOR" or
together the "ORIGINAL TRADING ADVISORS"). On July 8, 1997,
Welton became a Trading Advisor. See "THE TRADING ADVISORS."
Pursuant to an advisory contract, the Original Trading
Advisors independently directed trading for the Fund's
assets. Each Original Trading Advisor was initially
allocated an equal portion of the Fund's assets to manage.
On February 7, 1991, the Fund's assets were reallocated in
order to adjust the then-current allocation so that each
Original Trading Advisor had an equal portion of the Fund's
assets to manage. Effective July 8, 1997, 65% of the
proceeds solicited during the Current Offering will be
allocated to JWH to be traded in accordance with the
Financial and Metals Portfolio, 30% of such proceeds will be
allocated to Welton to be traded in accordance with the
Welton Diversified Portfolio and 5% will be allocated to
Sabre to be traded in accordance with the Sabre Pattern
Recognition Program for Diversified Accounts. The Fund's
current advisory contract with JWH and with Sabre, as
amended, will terminate on December 31, 1997, subject to the
right of the Fund to renew such contract for either or both
of JWH and Sabre for two additional one year terms. The
Fund's advisory contract with Welton will terminate on
December 31, 1998, subject to the right of the Fund to renew
such contract for three additional one year terms. Subject
only to certain trading policies of the Fund and to the
right of the General Partners to terminate the advisory
contracts under certain circumstances and the right of JWH
to terminate its contract on 60 days' notice, the Trading
Advisors will continue to independently make trading
decisions regarding the Fund's assets allocated to them. The
General Partners will not generally be in a position to
intervene concerning the frequency of trades, the percentage
of the Fund's assets committed as margin for futures
contracts or the amount of brokerage commissions.
Charges to the Fund.......... SUMMARY. The Fund pays substantial management,
administrative, and incentive fees to the General Partners
and trading advisors, as well as brokerage commissions to
the Introducing Broker and the Clearing Broker. The General
Partners each receive an annual administrative fee on the
first business day of each fiscal year of the Fund. These
fees and expenses are summarized below and are described in
detail under "CHARGES TO THE FUND."
</TABLE>
18
<PAGE>
SUMMARY OF CHARGES TO THE FUND
The Fund is subject to the following charges, which are described in greater
detail on page 57. These charges disclose the compensation that the General
Partners and their affiliates and the Trading Advisors may receive from the Fund
either directly or indirectly.
<TABLE>
<CAPTION>
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
John W. Henry & Company, Inc. (One Quarterly incentive fee, based on 15% of Trading Profits, if any, in
of the Trading Advisors) Trading Profits. each quarter attributable to
trading directed by it.
Monthly management fee based on Net 1/3 of 1% of month-end Net Asset
Asset Value of the Fund. Value of Fund assets subject to
its management (a 4% annual rate).
Welton Investment Corporation (One Quarterly Incentive Fee based on 18% of Trading Profits, if any, in
of the Trading Advisors) Trading Profits. each quarter attributable to
trading directed by it.
Monthly management fee based on Net 1/4 of 1% of month-end Net Asset
Asset Value of the Fund. Value of Fund subject to its
management (a 3% annual rate)
Sabre Fund Management Limited (One Quarterly incentive fee, based on 18% of Trading Profits, if any, in
of the Trading Advisors) Trading Profits. each quarter attributable to
trading directed by it.
Monthly management fee based on Net 1/4 of 1% of month-end Net Asset
Asset Value of the Fund. Value of Fund assets subject to
its management (a 3% annual rate).
American Express Financial Advisors Portion of commodity brokerage $20 per round turn trade.
Inc. (The Selling Agent and the commissions and currency brokerage
Introducing Broker) commissions.
Sales Charge. 6% of the first $50,000 subscribed,
4% of the second $50,000, 2% of
the subsequent $400,000, and 1% of
any amount of the subscription
exceeding $500,000.
IDS Futures Corporation (One of the Annual administrative fee. 1.125% of Net Asset Value on first
General Partners) day of Fund's fiscal year.
CIS Investments, Inc. (One of the Annual administrative fee. 0.25% of Net Asset Value on first
General Partners) day of Fund's fiscal year.
Cargill Investor Services, Inc. (The Portion of commodity brokerage $15 per round turn trade of the
Clearing Broker) commissions. total $35 per round turn trade
commission.
Reimbursement of delivery, Actual payments to third parties in
insurance, storage, NFA, connection with the Fund's
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------------------------ ------------------------------------ ------------------------------------
clearing, give-up, electronic trading.
trading, EFP and exchange
transaction fees, and any other
charges paid to third parties.
<S> <C> <C>
Financial benefit from interest Interest earned on Fund assets in
income. excess of the amount of interest
paid to the Fund. From 1987 to
1996 this amount ranged between
.41% to 1.66% of the Fund's Net
Asset Value. The General Partners
anticipate future percentages to
remain at the lower end of this
range due to an increase in the
interest rate credited to the Fund
by the Clearing Broker in July of
1993.
CIS Financial Services, Inc. (The Portion of currency brokerage A maximum of $15 per round turn
Currency Broker) commissions. trade of the total $35 per round
turn trade commission.
Unrelated entities that are Periodic legal, accounting, Actual expenses incurred, estimated
unaffiliated with the General auditing, printing, recording and at approximately 1% of the Fund's
Partners filing fees, and postage charges. Net Asset Value annually.
Extraordinary expenses. Not subject to estimate.
The General Partners Offering Expense Charge. 3% of the subscription proceeds to
cover legal, auditing, accounting,
marketing and other offering
expenses. The General Partners
will pay any expenses in excess of
this percentage. If the total
Offering Charge received exceeds
actual expenses, the difference
shall be retained by the General
Partners. The Sales Charge and the
Offering Charge together will not
in any event exceed an amount
equal to 9% of the gross proceeds
from the sale of Units, and no
Limited Partner will pay more than
9% of the gross proceeds of his or
her subscription toward such
reimbursement.
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<PAGE>
THE SUMMATION OF THE ADMINISTRATIVE FEES, PERIODIC OPERATING EXPENSES, ANY
BROKERAGE COMMISSIONS AND TRANSACTION FEES AND COSTS TO BE PAID BY THE FUND, ANY
ADVISORY FEES (EXCLUDING INCENTIVE FEES), AND ANY FINANCIAL BENEFIT FROM
INTEREST INCOME EARNED ON FUND ASSETS IN EXCESS OF THE INTEREST PAID TO THE FUND
SHALL TOTAL NO MORE THAN 12% OF THE FUND'S NET ASSET VALUE AVAILABLE FOR TRADING
ON A FISCAL YEAR BASIS, AND THE NET ASSET VALUE AVAILABLE FOR TRADING SHALL NOT
EXCEED 100% OF THE FUND'S NET ASSET VALUE. THE GENERAL PARTNERS WILL ANNUALLY
REVIEW THE TOTAL OF THESE EXPENSES PAID BY THE FUND TO ENSURE THAT THEY DO NOT
EXCEED 12% OF THE NET ASSET VALUE AVAILABLE FOR TRADING. SHOULD THESE EXPENSES
TOTAL MORE THAN 12% OF THE NET ASSET VALUE AVAILABLE FOR TRADING, THE GENERAL
PARTNERS WILL PAY AND WILL NOT BE REIMBURSED BY THE FUND FOR SUCH EXCESS.
IN ADDITION, IF THESE SPECIFIED OPERATING CHARGES EXCEED 10.5% OF THE FUND'S
AVERAGE NET ASSET VALUE BASED ON NET ASSET VALUE ON THE FIRST DAY OF EACH MONTH
DURING ANY FISCAL YEAR OF THE FUND, THE GENERAL PARTNERS WILL NOTIFY ALL LIMITED
PARTNERS OF SUCH EVENT IN WRITING. (THIS LIMITATION DOES NOT APPLY TO THE SALES
CHARGE OR OFFERING EXPENSE CHARGE, WHICH ARE PAID DIRECTLY OUT OF THE PROCEEDS
OF THE OFFERING.)
ALSO, ALL LIMITED PARTNERS WILL BE NOTIFIED IN WRITING BY THE GENERAL
PARTNERS PRIOR TO ANY ACTION BY THE GENERAL PARTNERS TO INCREASE ANY FEE RATES,
AND ANY SUCH PROPOSED RATE INCREASES WILL NOT BE IMPLEMENTED UNTIL AFTER LIMITED
PARTNERS HAVE RECEIVED SUCH WRITTEN NOTICE AND HAVE HAD AN OPPORTUNITY TO REDEEM
UNITS.
FOR A DETAILED DESCRIPTION OF THE CHARGES TO THE FUND, SEE "DESCRIPTION OF
CHARGES TO THE FUND" ON PAGE 57.
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Sales Charge and Offering
Expense Charge............... SALES CHARGE. The Selling Agent will receive from the
proceeds of the offering the Sales Charge for each Unit sold
to an investor other than an Affiliated Purchaser. The Sales
Charge is equivalent to 6% of the gross per Unit price for
the first $50,000 of a subscription, 4% for the next
$50,000, 2% of the next $400,000, and 1% of any amount of an
investor's total subscription that exceeds $500,000.
REIMBURSEMENT OF OFFERING EXPENSES. The General Partners
will receive from the proceeds of the offering the Offering
Expense Charge for each Unit sold to an investor. The
Offering Expense Charge is 3% of the gross per Unit price.
Offering expenses include legal, accounting, auditing,
marketing, filing, registration and recording fees, printing
expenses and escrow charges. If the total Offering Expense
Charge received by the General Partners exceeds the actual
offering expenses incurred, the excess shall be retained by
the General Partners.
Risks and Conflicts of
Interest..................... An investment in the Fund is speculative, involves
substantial risks and a Limited Partner may lose his or her
entire investment. The risks of an investment in the Fund
include, but are not limited to, the speculative nature of
trading in commodity interests, including futures contracts
traded on both U.S. exchanges and non-U.S. exchanges and
forward contracts, and the substantial charges which the
Fund will pay for brokerage, administrative and advisory
services, regardless of whether any profits are achieved.
Risks inherent in investing in the
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21
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Fund are discussed under "RISK FACTORS." Reference is also
made to conflicts of interest resulting from the
relationships among the Introducing Broker, the Clearing
Broker, and the General Partners, and certain other
relationships. See "CONFLICTS OF INTEREST."
Termination of Partnership... Under the Amended and Restated Limited Partnership
Agreement, the Fund will terminate on the first to occur of
the following: (1) December 31, 2006; (2) receipt by the
General Partners of a notice to dissolve the Fund at a
specified time by Limited Partners owning more than 50% of
the outstanding Units of Limited Partnership Interest
(including Units held by Affiliated Purchasers but not
including Units held by the General Partners or their
corporate affiliates), which notice is sent by registered
mail to the General Partners not less than ninety days prior
to the effective date of such dissolution; (3) withdrawal,
removal, insolvency, bankruptcy, legal disability, or
dissolution of the General Partners (unless the Fund is
continued as provided in the Amended and Restated Limited
Partnership Agreement); (4) the insolvency or bankruptcy of
the Fund; or (5) any event which makes unlawful the
continued existence of the Fund. In addition, if the Net
Asset Value per Unit decreases below $125 at the close of
business on any trading day (after adding back any
distributions from the Fund to the Limited Partners), the
Fund will close out all open positions as expeditiously as
possible and suspend trading. No assurance can be given that
the Fund will be able to close out all open positions
without incurring substantial additional losses. Unless the
General Partners then elect to withdraw, a special
redemption date will be declared. Limited Partners who elect
to redeem their Units on such a special redemption date will
receive from the Fund for each Unit redeemed an amount equal
to the Net Asset Value per Unit determined at the close of
business on the special redemption date. If after a special
redemption date the Fund's Net Asset Value is at least
$500,000, the Fund will resume trading unless the General
Partners then elect to withdraw. Notwithstanding the
foregoing, the Fund will terminate if its Net Asset Value
has declined to below $500,000 as of the close of business
on any trading day. See "AMENDED AND RESTATED LIMITED
PARTNERSHIP AGREEMENT."
Financial Information........ Financial Statements with respect to financial information
concerning the Fund and the General Partners appear at the
end of this Prospectus.
Redemption of Units.......... No redemptions are permitted by a subscriber during the
first six months after an investor has been first admitted
to the Fund. Thereafter, subject to certain conditions, a
Limited Partner may require the Fund to redeem some or all
of his or her Units as of the close of trading on the last
trading day of a month upon ten days written notice to the
Fund, with redemption at the Net Asset Value thereof as of
such close of trading. The right of redemption may be
temporarily suspended upon the occurrence of certain events.
Under certain circumstances, a Limited Partner might be
required to repay to the Fund for a period of three years
after redemption of Units the amount of the redemption if
the Limited Partner knowingly received
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22
<PAGE>
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<S> <C>
such distribution in violation of applicable law. See
"REDEMPTIONS." In the event of any suspension, Units will
thereafter be redeemed at the Net Asset Value thereof as of
the close of trading of the trading day on which they are
redeemed. A special redemption date shall be declared by the
General Partners in the event of a decrease in the Net Asset
Value per Unit below $125 (after adding back any
distributions) at the close of business on any trading day,
unless the General Partners elect to withdraw.
Distributions................ Distributions of profits, if any, will be made at the
discretion of the General Partners. There is no assurance
that such distributions will be made, and tax liabilities
incurred by a Limited Partner as a result of profitable
trading by the Fund may exceed any distributions which he or
she receives from the Fund. The General Partners have not
made any distributions and do not currently intend to make
regular distributions. See "RISK FACTORS."
Transfers or Assignments of
Units........................ The Amended and Restated Limited Partnership Agreement
provides for the limited transfer or assignment of Units. No
transfer or other assignment of Units may be made without
written notice to the General Partners and no assignee of a
Limited Partner may become a substituted Limited Partner
except with the consent of the General Partners. A
substituted Limited Partner will be subject to all of the
restrictions and liabilities of his or her predecessor in
interest. See "AMENDED AND RESTATED LIMITED PARTNERSHIP
AGREEMENT" and Exhibit A--Amended and Restated Limited
Partnership Agreement.
Income Tax Aspects........... A Limited Partner's share of the Fund's income and loss will
be derived primarily from the Fund's trading activities and
interest income. It is expected that a substantial portion
of this income or loss will be derived from trading "Section
1256 Contracts" (E.G., futures contracts traded on a
domestic exchange, on a world exchange or certain foreign
currency contracts). Limited Partners are expected to be
allocated a substantial portion of the Fund's interest
income attributable to Units for federal income tax
purposes. Such interest income will be taxed as ordinary
income. See "FEDERAL INCOME TAX CONSIDERATIONS."
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23
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
The Offering Period.......... A registration statement and prospectus became effective on
June 26, 1995 for the offer and sale of $50,000,000 worth of
Units. Post- Effective Amendment No. 1 and related
prospectus became effective on July 31, 1996 and contained
updated financial and certain other information.
Post-Effective Amendment No. 3 and related prospectus became
effective on , 1997, extending the offering
period of the Units and updating financial and certain other
information. The offering period for Units (the "OFFERING
PERIOD") will extend to July 31, 1999, or such earlier date
when the total amount of Units registered are sold. The
General Partners may determine to extend the Offering Period
beyond July 31, 1999 based upon the number of Units
remaining unsold as of such date.
Units are being offered hereby during the Offering Period
through the Selling Agent on a best-efforts basis without
any firm underwriting commitment. Units are offered to
Affiliated Purchasers at a price per Unit equal to the Net
Asset Value per Unit as of the close of business on the last
business day of the month in which the General Partners
accept such subscriptions and admit subscribers as Limited
Partners, plus the amount of the Offering Expense Charge on
a per Unit basis, and to non-Affiliated Purchasers at a
price per Unit equal to the Net Asset Value per Unit as of
the last business day of the month in which the General
Partners accept such subscriptions, plus the amount of the
Sales Charge and the Offering Expense Charge on a per Unit
basis. Limited Partners are likely to receive fractional
Units. Due to a 3-for-1 split in Units that occurred at the
close of business on February 28, 1995, the Net Asset Value
per Unit thereafter was altered to one-third of the Net
Asset Value per Unit prior to that date. Subscriptions for
Units which are received after the tenth calendar day of a
month will be held in the escrow account, due to the length
of time required to process subscriptions, and, if not
rejected, the subscriber will be admitted to the Fund at the
subsequent admission of subscribers to the Fund after the
end of such month. If the subscription is rejected, in whole
or in part for any reason (which is in the sole discretion
of the General Partners), the subscription funds or the
rejected portion thereof will be promptly returned to the
subscriber without interest. Additional Limited Partners
will be admitted to the Fund not more frequently than the
end of each full calendar month. Additional Limited Partners
will be admitted to the Fund as of the close of business on
the last business day of each full calendar month, PROVIDED
that such proceeds were received by the tenth calendar day
of that month. See "FREE LOOK ALTERNATIVE."
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24
<PAGE>
<TABLE>
<S> <C>
The minimum subscription (including the minimum subscription
for Individual Retirement Accounts, Keogh Plans and Employee
Benefit Plans) is $1,000; any greater subscription amount
must be in increments of $100. Checks should be made out to
First Trust National Association, St. Paul, Minnesota as
escrow agent for the Fund (the "ESCROW AGENT"). All money or
other consideration received or accepted in connection with
this offering will be promptly forwarded through American
Express Financial Advisors Inc. to the Escrow Agent.
Subscriptions for Units received after the tenth calendar
day of a month will be held in the escrow account at the
Escrow Agent, if not rejected, until the subsequent
admission of subscribers to the Fund after the end of such
month, and will earn interest during that time. The interest
earned will be paid to subscribers within 30 days after the
date on which they are admitted as Limited Partners, except
that if any subscriber's accrued interest is less than $10,
such interest shall be paid to the Fund and not to the
subscriber. All subscriptions for Units are irrevocable by
subscribers, and subscriptions may be rejected in the sole
discretion of the General Partners. The Fund shall pay to
the Selling Agent from the proceeds of the offering a
selling commission in an amount equal to the Sales Charge
for each Unit sold to an investor other than an Affiliated
Purchaser. In return for advancing offering expenses (other
than selling commissions) the General Partners will receive
the Offering Expense Charge for each Unit sold to an
investor. See "PLAN OF DISTRIBUTION."
Free Look Alternative........ All subscription documents from a potential investor must be
received by the Selling Agent by the tenth calendar day of
the month if they are to be considered for acceptance by the
Fund in that month. The Selling Agent will promptly send a
confirmation of the investment and a copy of the Fund's most
recent monthly account statement to the potential investor.
The investor will then have sixteen days from the date of
the confirmation from the Selling Agent to determine whether
he or she wishes his or her subscription to be retained by
the Fund. The potential investor must notify the Selling
Agent by mail or telephone (pursuant to instructions in the
notice from the Selling Agent) of his or her decision NOT to
invest. No further action is required in response to the
notification from the Selling Agent if the investor elects
to subscribe. The investor's negative response must be
received by the Selling Agent not later than sixteen days
from the date of the confirmation from the Selling Agent.
Investors electing to withdraw their subscription pursuant
to the above alternative will promptly receive a return of
their subscription funds from the escrow agent. The investor
may withdraw his or her subscription for any reason during
this review period. All subscriptions are subject to
acceptance by the General Partner. See "PLAN OF
DISTRIBUTION--FREE LOOK ALTERNATIVE."
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25
<PAGE>
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Potential Advantages......... The Fund, utilizing the combined purchasing power of its
Limited Partners' funds, provides investors with the
opportunity to obtain certain advantages which might
otherwise be unavailable to them if they were to engage
individually in trading commodity interests. Such potential
advantages include diversification, limited liability,
professional trading management, administrative convenience,
interest income and reduction in brokerage commissions. See
"INTRODUCTORY STATEMENT--POTENTIAL ADVANTAGES OF THE FUND."
Plan of Distribution......... The Units are being offered through the Selling Agent on a
best-efforts basis without any firm underwriting commitment.
All subscriptions received during the Offering Period will
be held in escrow by the Escrow Agent, if not rejected,
until the subsequent admission of subscribers to the Fund,
and will earn interest during that time. Any subscription
may be rejected in whole or in part by the General Partners
in their discretion, but no subscription may be revoked by
the subscriber. Other than the Units of General Partnership
Interest and one Unit of Limited Partnership Interest
purchased by a principal of IDS Futures to permit
organization of the Fund as a Delaware limited partnership,
none of the General Partners, the Trading Advisors, the
Introducing Broker, the Clearing Broker or their principals
have any beneficial interest in the Fund, although any of
such persons or entities may subscribe for Units for
investment purposes. See "PLAN OF DISTRIBUTION" and
"SUBSCRIPTION PROCEDURE."
Use of Proceeds and Interest
Payable...................... The proceeds of the offering will be deposited in the Fund's
commodity trading accounts with the Clearing Broker. 100% of
such proceeds will be used to trade speculatively commodity
futures contracts, forward contracts and other commodity
interests (including options thereon), pursuant to the
independent direction of JWH, Welton and Sabre with respect
to that portion of the Fund's assets allocated to each of
them. The Fund receives in each month interest earned on
100% of its average monthly net assets on deposit at the
Clearing Broker at the Clearing Broker Rate which is 90% of
the average 90-day Treasury bill rate for Treasury bills
issued during that month. Approximately 20% to 60% of the
assets of the Fund have historically been committed as
initial margin or premiums for trading in commodity
interests. The General Partners believe that approximately
20% to 60% of the assets of the Fund will continue to be
committed as initial margin or premiums for trading in
commodity interests, but from time to time the percentage of
assets committed as margin may be more or less than that
historical range. See "USE OF PROCEEDS."
Suitability Standards........ Each investor must represent in the Subscription Agreement
and Power of Attorney attached hereto as Exhibit C that he
or she is able to assume the risk inherent in an investment
in the Fund and that his or her net worth or net worth and
minimum annual gross income in combination satisfy certain
requirements. See "INVESTMENT REQUIREMENTS."
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26
<PAGE>
INTRODUCTORY STATEMENT
IDS Managed Futures, L.P. was organized on December 16, 1986, as a limited
partnership under the laws of the State of Delaware and will terminate not later
than December 31, 2006. It is administered by its General Partners, IDS Futures
Corporation ("IDS FUTURES"), a Minnesota corporation, and CIS Investments, Inc.
("CISI"), a Delaware corporation. The Fund engages in speculative trading of
futures contracts, forward contracts, physical commodities and related options
thereon. Its Amended and Restated Limited Partnership Agreement is appended to
this Prospectus as Exhibit A.
The Fund is seeking to sell additional units of limited partnership interest
("UNITS") because the Fund has been successful in achieving substantial capital
appreciation for its investors. Further, at this time, the General Partners
believe that there is a lack of similar investment products for investors in the
market place. Lastly, a larger fund has benefits to current and prospective
investors because it permits greater diversification of positions, and
therefore, potentially less volatility.
The General Partners reopened the Fund on March 29, 1993 when a registration
statement filed with the Securities and Exchange Commission (File No. 33-45375)
for the sale of $10,000,000 of Units of Limited Partnership Interest was
declared effective by the SEC. This offering continued until January 31, 1994.
The Fund registered an additional $20,000,000 of Units effective January 31,
1994 (File No. 33-72240). The Fund registered an additional $50,000,000 of Units
effective June 26, 1995 (File No. 33-86894). As of June 30, 1997, the three
offerings have sold $37,132,788 worth of Units, leaving $42,867,212 available
for sale. As of June 30, 1997, the total net capital contributions to the Fund
were $36,845,292. This offering of Limited Partnership Interests shall continue
until July 31, 1999, unless all of the remaining Units are sold prior to that
date or the General Partners determine to extend the Current Offering beyond
such date.
Trades are executed and cleared through Cargill Investor Services, Inc., an
affiliate of CISI, one of the Fund's General Partners. The Fund's introducing
broker is American Express Financial Advisors Inc., an affiliate of IDS Futures,
one of the Fund's General Partners. JWH, Welton and Sabre currently act as the
trading advisors for the Fund (the "TRADING ADVISORS"). JWH along with Sabre
acted as the Fund's trading advisors since the Fund's inception on June 16,
1987. On July 8, 1997, Welton became a Trading Advisor. The Fund currently has
an advisory contract with JWH and Sabre which will continue until December 31,
1997, which may be renewed by the Fund for two additional one-year periods and
is subject to termination by JWH on 60 days notice. The Fund's advisory contract
with Welton will continue until December 31, 1998 and may be renewed by the Fund
for three additional one-year periods. The Fund currently pays to the Trading
Advisors a quarterly incentive fee based on Trading Profits attributable to
trading directed by the respective Trading Advisors and a monthly management fee
based on that portion of the Fund's Net Asset Value subject to the respective
Trading Advisor's management at month's end. See "CHARGES TO THE FUND."
WHO SHOULD INVEST
PURCHASE OF THE UNITS OFFERED HEREBY SHOULD BE MADE ONLY BY THOSE PERSONS
WHO CAN AFFORD TO BEAR THE RISK OF A TOTAL LOSS OF THEIR INVESTMENT. THE GENERAL
PARTNERS RESERVE THE RIGHT TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART. THE
FUND WILL INCUR SIGNIFICANT EXPENSES, SUCH AS BROKERAGE COMMISSIONS AND
ADMINISTRATIVE AND MANAGEMENT FEES AND EXPENSES, WHICH MUST BE RECOUPED BEFORE
ANY PROFIT CAN BE GENERATED FOR THE FUND AND ITS LIMITED PARTNERS.
Each subscriber will be required to make certain representations as to his
or her net worth and income. See "INVESTMENT REQUIREMENTS" and the Subscription
Agreement and Power of Attorney attached as Exhibit C. The Units are subject to
restrictive redemption provisions; Units may not be redeemed during the first
six months after purchase by an investor. See "REDEMPTIONS." THE
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<PAGE>
GENERAL PARTNERS BELIEVE THAT PROSPECTIVE INVESTORS SHOULD CONSIDER THE UNITS AS
A LONG-TERM INVESTMENT IN ORDER TO PERMIT THE TRADING TECHNIQUES OF THE TRADING
ADVISORS TO FUNCTION OVER A SIGNIFICANT TIME PERIOD. THERE IS NO PUBLIC MARKET
FOR THESE UNITS AND NONE IS LIKELY TO DEVELOP.
Prospective investors should not enter this program with expectations of
sheltering income or receiving cash distributions. See "RISK FACTORS--LIMITED
PARTNERS WILL BE TAXED ON INCOME AND PROFITS WHETHER OR NOT DISTRIBUTED." If
losses accrue to the Fund, a Limited Partner's distributive share will likely be
treated as a capital loss and may be available for offsetting capital gains from
other sources. However, to the extent the Limited Partner has no net capital
gains from other sources, such loss may be used only to a limited extent, under
current United States tax law, as a deduction from ordinary income. Due to such
limitations, the Fund is not a "tax shelter" in that Fund losses will not
materially reduce a Limited Partner's federal income tax arising from his or her
ordinary income. See "FEDERAL INCOME TAX CONSIDERATIONS." POTENTIAL INVESTORS
ARE URGED TO CONSULT THEIR PERSONAL TAX ADVISORS ON ALL MATTERS INVOLVING THEIR
PERSONAL INCOME TAX SITUATIONS.
28
<PAGE>
RISK FACTORS
Prospective investors should carefully read the entire Prospectus (including
the Commodity Futures Trading Commission Risk Disclosure Statement on page 5 and
carefully consider the following risks before subscribing for Units. Since the
commodity markets involve substantial risks, an investment in the Units should
be made only after consulting with independent qualified sources of investment
and tax advice. Among the risks involved are the following:
THE COMMODITY FUTURES MARKETS
(1) COMMODITY INTEREST TRADING IS VOLATILE. A principal risk in commodity
futures trading is the volatility (price fluctuation) in the market prices of
commodities. The prices of commodities fluctuate rapidly and over wide ranges.
The profitability of the Fund will depend on identifying trends in fluctuations
in market prices. Prices of commodity futures contracts are affected by a wide
variety of complex and hard to predict factors, such as supply and demand of a
particular commodity, weather and climate conditions, governmental activities
and regulations, political and economic events and prevailing psychological
characteristics of the marketplace. See "DESCRIPTION OF COMMODITY
TRADING--COMMODITY PRICES" and "THE TRADING ADVISORS."
(2) COMMODITY FUTURES TRADING IS HIGHLY LEVERAGED. Commodity futures
contracts are traded on margins which typically range from 1% to 20% of the
value of the contract. The average margin is less than 10% of the value of the
contract. The low margin deposits normally required in commodity futures trading
permit an extremely high degree of leverage. A relatively small price movement
in a commodity futures contract may result in immediate and substantial loss to
the investor. Like other leveraged investments, a commodity futures transaction
may result in losses in excess of the amount invested. If the Fund invests a
substantial amount of its assets in a losing commodity futures trade, a
substantial reduction in the value of a Unit would result. Although the Fund may
lose more than its initial margin on a trade, the Fund, and not the Limited
Partners personally, will be subject to margin calls. See "DESCRIPTION OF
COMMODITY TRADING--MARGINS."
(3) COMMODITY FUTURES MARKETS 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 conditions, limits on open positions and/or daily price
fluctuation limits (see "GLOSSARY") imposed by both U.S. and non-U.S. exchanges
and approved by the Commodity Futures Trading Commission ("CFTC"). Daily price
fluctuation 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 the trading session. Once the market price of a commodity futures contract
reaches its daily price fluctuation limit, positions in the commodity can be
neither taken nor liquidated unless traders are willing to effect trades at or
within the limit. Because these limits only govern price movements for a
particular trading day, they do not limit losses. In certain commodities, the
daily price fluctuation limits may apply throughout the life of a contract, so
that the holder of a contract who cannot liquidate his or her position by the
end of trading on the last trading day for that contract may be required to make
or take delivery of the commodity.
Another instance of difficult or impossible execution occurs in markets
which lack sufficient trading liquidity. It is also possible for an exchange or
the CFTC to suspend trading in a particular contract, order immediate settlement
of a particular contract, or direct that trading in a particular contract be
conducted for liquidation only. For example, during periods in October 1987
trading in certain stock index futures was too illiquid for markets to function
properly and was at one point suspended. Although it is intended that the Fund's
Trading Advisors purchase and sell actively traded commodities, no assurance can
be given that such markets will be or remain liquid, or that Fund orders will be
executed at or near the desired prices. See "TRADING POLICIES."
(4) PERIOD OF UNPROFITABLE TRADING. Losses were posted to the Fund in 1994
(6.93%) and 1992 (3.47%). Total return for the calendar years 1994, 1995 and
1996 was 37.5% and total return for the years
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1992 through 1996 was 83.7%. A hypothetical $1,000 Net Asset Value per Unit of
the Fund, available at the beginning of each of those five years would have lost
$34.30 in 1992, gained $383.20 in 1993, lost $69.30 in 1994, gained $230.30 in
1995, and gained $200.80 in 1996.
(5) SPECIFIC RISKS OF TRADING IN OPTIONS ON COMMODITY FUTURES. The Fund
engages in trading options on commodity futures. No specific limitation on the
percentage or amount of such contracts, if any, engaged in by the Fund has been
imposed. The Trading Advisors have significantly less experience in trading
options on futures than they have in trading futures contracts. See "THE TRADING
ADVISORS." Although successful trading in options on futures contracts requires
many of the same skills required for successful futures trading, the risks
involved are somewhat different. Options trading may be restricted in the event
that trading in the underlying futures contract becomes restricted, and options
trading may itself be illiquid at times, irrespective of the condition of the
market in the underlying futures contract, making it difficult to offset option
positions. As of the date of this Prospectus trading in foreign options is
subject to approval of foreign options by the CFTC on a case-by-case basis. The
Fund will trade only in options, including foreign options, to purchase or sell
commodity futures contracts or physical commodities, if such options have been
approved for trading on a designated contract market by the CFTC.
(6) FORWARD CONTRACTS ON FOREIGN CURRENCIES ARE NOT TRADED ON EXCHANGES AND
LACK REGULATORY PROTECTIONS OF EXCHANGES. The Fund may engage in the trading of
forward contracts on foreign currencies pursuant to the direction of the Trading
Advisors for customer accounts. No specific limitation on the percentage or
amount of such contracts, if any, engaged in by the Fund has been imposed. See
"DESCRIPTION OF COMMODITY TRADING--COMMODITY MARKETS." A forward contract is a
contractual obligation to purchase or sell a specified quantity of a commodity
at a specified date in the future at a specified price and, therefore, is
similar to a futures contract. However, forward contracts are not traded on
exchanges and, as a consequence, investors in forward contracts are not afforded
the regulatory protections of such exchanges or the CFTC; rather banks and
dealers act as principals in such markets. Neither the CFTC nor banking
authorities regulate trading in forward contracts on currencies, and foreign
banks may not be regulated by any United States governmental agency. There are
no limitations on daily price moves in forward contracts. In addition,
speculative position limits are not applicable to forward contract trading,
although the principals with which the Fund may deal in the forward markets may
limit the positions available to the Fund as a consequence of credit
considerations. 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. In addition, the imposition of exchange
and credit controls or the fixing of currency exchange rates by governmental
authorities might limit forward trading to less than that which a Trading
Advisor would otherwise direct for the Fund. Not only are the forward markets
substantially unregulated, but it is also possible that the CFTC or certain
other governmental agencies may in the future attempt to prevent the Fund from
trading in the forward markets.
CIS Financial Services, Inc. ("CISFS"), will act as the forward contract
broker for the Fund and will arrange for the Fund to contract with one or more
banks as a direct counterparty of the Fund in order to make or take future
delivery of a specified lot of a particular currency. CISFS will guarantee the
obligations of the Fund for which it acts as Broker through lines of credit it
has established with the counterparty bank(s). The Fund initially expects to
engage in transactions in foreign exchange contracts with only one bank.
However, more banks may be added as counterparties in the future. Forward
contracts will be transacted only with banks having in excess of $100,000,000 of
capitalization. Since the Fund's inception, the Fund has not yet engaged in
trading forward contracts on foreign currencies. See "TRADING POLICIES," "RISK
FACTORS--FAILURE OF BROKERAGE FIRMS," "CHARGES TO THE FUND," and "BROKERAGE
ARRANGEMENTS."
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Because performance of forward contracts on currencies and other commodities
are not guaranteed by any exchange or clearinghouse, the Fund will be subject to
the risk of the inability or refusal on the part of the bank to perform with
respect to such contracts on the part of the principals or agents with or
through which the Fund trades. Any such failure or refusal, whether due to
insolvency, bankruptcy or other causes, could subject the Fund to substantial
losses. The Fund will not be excused from the performance of any forward
contracts into which it has entered due to the default of third parties or CISFS
in respect of other forward trades which in a Trading Advisor's trading strategy
were to have substantially offset such contracts. However, the Fund will only
transact foreign exchange contracts with well-capitalized banks as discussed
above.
(7) CONTRACTS OFFERED ON FOREIGN EXCHANGES SUBJECT TO DIFFERENT REGULATIONS
AND TRADING PRACTICES. The Fund engages in the trading of contracts on foreign
exchanges. Futures exchanges are being established in many countries,
particularly throughout Europe and Asia, and trading on those markets
constitutes a steadily increasing share of total worldwide volume in futures
trading. In some cases, the types of contracts traded on these exchanges
resemble those traded on U.S. futures exchanges, but in many other instances
there are no comparable U.S. contracts. Foreign exchanges are not regulated by
the CFTC or any other United States governmental agency. Therefore, options and
futures trading on any such exchange may be subject to more risks than trading
options and futures contracts on exchanges in the United States. For example,
some foreign markets, in contrast to United States exchanges, are "principals'
markets" similar to the forward markets in which performance is the
responsibility only of the individual member with whom the trader has entered
into a contract and not of any exchange or clearing corporation. Due to the
absence of a clearing house system on certain foreign markets, such markets are
significantly more susceptible to disruptions than are United States exchanges.
Moreover, the Fund is subject to whatever regulatory provisions are applicable
to transactions effected outside the United States, whether on foreign exchanges
or otherwise. Trading on foreign exchanges involves the additional risks of
expropriation, burdensome or confiscatory taxation, moratoriums, exchange and
investment controls or political or diplomatic events which might adversely
affect the Fund's trading activities. In addition, the rights and
responsibilities of the Fund in the event of an exchange or clearing house
default or bankruptcy are likely to differ from those existing on U.S.
exchanges. The General Partners are responsible for evaluating the risks of the
trading on non-U.S. exchanges. In trading on these exchanges, the Fund will also
be subject to the risk of changes in the exchange rates between the U.S. Dollar
and the currencies in which foreign contracts are margined and settled.
Although the CFTC is prohibited by statute from promulgating rules which
govern in any respect any rule, contract term or action of any foreign commodity
exchange, the CFTC has adopted rules to regulate the sale of foreign futures
contracts and foreign options within the United States. These regulations may
restrict the Fund's access to foreign markets by limiting the activities of
certain participants in such markets with whom the Fund could otherwise have
traded. See "CFTC RISK DISCLOSURE STATEMENT."
(8) EXCHANGE FOR PHYSICALS. The Fund may engage in exchanges for
physicals. See "GLOSSARY." The CFTC and/or futures exchanges could alter their
regulations of transactions involving exchanges for physicals. If the Trading
Advisors were to be prevented from making use of this trading technique for the
Fund, the trading performance of the Fund's account could be adversely affected.
(9) SPOT COMMODITY TRANSACTIONS. In spot commodity transactions
(transactions in physical commodities such as gold bullion), such spot
transactions are not regulated by the CFTC. Some of such transactions may be
entered into in conjunction with exchanges for physicals. The trading programs
employed by one or more of the Trading Advisors for the Fund may employ
exchanges for physical transactions. In any principal transactions entered into
by the Fund, the Fund is subject to the risk of the inability of, or refusal by,
a counterparty to perform with respect to the underlying contract.
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CHARGES
(10) THE FUND PAYS SUBSTANTIAL FEES, COMMISSIONS AND EXPENSES WHICH COULD
DEPLETE ITS ASSETS. See "CONFLICTS OF INTEREST--RELATIONSHIP OF THE GENERAL
PARTNERS, THE INTRODUCING BROKER, THE CLEARING BROKER, AND THE FOREIGN CURRENCY
BROKER," on page 45.
MANAGEMENT AND INCENTIVE FEES. JWH receives a quarterly incentive fee of
15%, Welton receives a quarterly incentive fee of 18% and Sabre receives a
quarterly incentive fee of 18%, in each case, of the Fund's Trading Profits
attributable to trading directed by it. In addition, JWH receives a monthly
management fee of 1/3 of 1%, Welton receives a monthly management fee of 1/4 of
1% and Sabre receives a monthly management fee of 1/4 of 1%, in each case of the
Fund's Net Asset Value subject to its management at month's end.
BROKERAGE FEES. As of September 1, 1995, the Fund pays brokerage
commissions of $35 per round turn trade (plus NFA, exchange and clearing fees
and give-up, electronic trading and EFP fees, if applicable, to the Clearing
Broker), of which $15 is kept by the Clearing Broker and $20 is paid to the
Fund's Introducing Broker. Prior to that time, the Fund paid commissions of $50
per round turn trade, plus the fees mentioned above. There is no method to
predict accurately the amount of brokerage commissions which the Fund may pay
because those commissions will be entirely dependent on the volume of trading by
the Fund and the commission rates charged to the Fund from time to time. The
Fund has paid brokerage commissions, on an annual basis, of approximately 2.5% -
6.2% of the Fund's Net Asset Value. Based on currently anticipated commission
rates, the General Partners estimate that brokerage commissions, on an annual
basis, will approximate an amount in the lower end of the historical range.
Actual charges may differ substantially from the historical range and this
estimate, and will be determined by trading opportunities perceived by the
Trading Advisors.
ADMINISTRATIVE FEE. Each of the General Partners receives from the Fund an
annual administrative fee based on the Fund's Net Asset Value on the first
business day of each fiscal year of the Fund. The annual administrative fee
payable to IDS Futures is 1.125% of Fund's beginning Net Asset Value for each
fiscal year, and the annual administrative fee payable to CISI is 0.25% of the
Fund's beginning Net Asset Value for each fiscal year.
BREAK-EVEN POINT. The Fund is obligated to pay brokerage commissions and
certain charges incidental to trading, as well as the General Partners'
administrative fees, the Trading Advisors' management fees, and legal,
accounting, auditing, printing, recording and filing fees, postage charges, and
any extraordinary expenses regardless of whether the Fund realizes profits.
These payments may cause the Fund to terminate. The Fund will be required to
make trading profits of a very substantial magnitude to avoid depletion or
exhaustion of its assets from the aggregate of these charges. See "SUMMARY OF
THE PROSPECTUS--Estimate of the Fund's Break-even Point on page 13." For
example, if the Fund's Net Asset Value (as defined under "CHARGES TO THE
FUND--CERTAIN DEFINITIONS") declines to less than $500,000 as of the close of
business on any trading day, the Fund will terminate. See "AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT--TERMINATION OF FUND" and Exhibit A attached
hereto. Quarterly incentive fees payable to the Trading Advisors are based upon,
among other things, unrealized appreciation on open commodity positions, and any
such fees paid to the Trading Advisors will be retained by them even if the Fund
subsequently experiences losses. Such appreciation may never be realized by the
Fund. In addition, because the incentive fee is determined on a quarterly rather
than an annual basis, the Fund may pay substantial incentive fees to the Trading
Advisors during portions of the Fund's fiscal year even though subsequent losses
result in a yearly net loss for the Fund. Moreover, because incentive fees
payable to each Trading Advisor are calculated separately, it is possible that
one Trading Advisor may receive incentive fees in respect of Trading Profits
achieved on the assets managed by it during a quarter in which the other Trading
Advisor experiences losses on the assets that it manages which are greater than
the profits earned by the funds under management by the Trading
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Advisor receiving fees. Thus, it is possible that incentive fees could be
payable during a quarter in which the Net Asset Value per Unit actually has
declined. The Clearing Broker receives a significant benefit from a portion of
the interest generated by the Fund's assets. See "USE OF PROCEEDS."
(11) INCENTIVE FEE PAYMENTS PER UNIT WILL NOT MATCH PERFORMANCE PER UNIT
EXACTLY. The incentive fees payable to the Trading Advisors accrue monthly and
are payable quarterly, based on the increase in Net Asset Value of the funds
under management of the respective Trading Advisor, subject to certain
adjustments related to interest realized on those funds, distributions or
redemptions, and allocations or reallocations. See "CHARGES TO THE
FUND--DESCRIPTION OF CHARGES TO THE FUND" and "CHARGES TO THE FUND-- CERTAIN
DEFINITIONS." Whenever an incentive fee is payable to one or more of the Trading
Advisors, each outstanding Unit owned by a Limited Partner will pay a
proportionate amount of such incentive fee. This method of calculating and
paying incentive fees, while requiring each outstanding Unit to contribute
equally to payment of such fees, nonetheless creates a distortion in that not
every outstanding Unit is likely to have participated equally in the gains which
give rise to an incentive fee payment to a Trading Advisor. This is because
Units will be sold to Limited Partners at prices per Unit which are likely to
vary depending upon the time when particular Limited Partners purchase their
Units and are admitted to the Fund and the trading experience of the Fund. See
the Notes to the cover page of this Prospectus. The Fund as a whole may be
required to pay incentive fees to one or more Trading Advisors even though the
value of particular Units has remained the same or even declined since they were
purchased. On the other hand, a Limited Partner could purchase Units which
experience an increase in value although the Fund as a whole has not experienced
any Trading Profits during that period of time and consequently pays no
incentive fee. The extent of such distortions will depend on a variety of
factors including, but not limited to, the time at which particular Limited
Partners are admitted to the Fund, the prices at which Units are sold at such
times, the timing of the Fund's trading profits and losses, and the magnitude of
such admissions, profits and losses and the profitability of trading directed by
each Trading Advisor. Therefore, the amounts paid in incentive fees attributable
to certain Units may, from time to time, vary from the specific trading
performance (participation in profit or loss) experienced by those Units. If an
alternative method of calculating incentive fees were to be employed by the Fund
that matched the trading experience of Units to the incentive fee contribution
of Units, the amounts payable by Limited Partners in incentive fees with respect
to their Units would vary from those payable under the method that the Fund will
employ. In addition, if Units are purchased at a Net Asset Value per Unit which
reflects an accrued but unpaid incentive fee on unrealized Trading Profits
recognized as of such date, and such accrual is subsequently reversed in whole
or in part due to trading losses by the end of the current calendar quarter, the
reversal of the accrued incentive fee will be credited to all Units equally,
including the Units purchased at a Net Asset Value per Unit which already fully
reflected such accrual. This will result in the Net Asset Value per Unit of
previously outstanding Units being lower than it would have been had no new
Units been purchased at a price reflecting an accrued incentive fee, because the
"unaccrual" of the incentive fee resulting from the losses subsequent to the
date of such purchase would otherwise have accrued to the exclusive benefit of
the previously outstanding Units, not such Units plus the Units more recently
purchased.
TRADING ADVISORS
(12) RELIANCE ON TRADING ADVISORS FOR PROFITABLE PERFORMANCE.
TRADING METHODS. The Fund has an advisory contract with JWH and Sabre which
will continue until December 31, 1997, and an advisory contract with Welton
which will continue until December 31, 1998. The advisory contract with each of
JWH and Sabre is subject to extension by the Fund for two additional one-year
terms, and, as to JWH, is subject to termination by JWH upon 60 days' notice.
The advisory contract with Welton is subject to extension by the Fund for three
additional one-year terms. Each Trading Advisor will direct trading for the Fund
completely independently of the other Trading Advisors, and will have no
knowledge of trading decisions being made by the other Trading Advisors. No
assurance can be
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given that the trading techniques and strategies of any Trading Advisor will be
profitable in the future, or that the services of any Trading Advisor will
continue to be available to the Fund. The specific details of the Trading
Advisors' respective trading methods are proprietary; consequently, the Limited
Partners will not be able to determine the full details of those methods or
whether those methods as are described herein are being followed. See "THE
TRADING ADVISORS." Subject to the Fund's trading policies, each Trading Advisor
may alter its trading methods if it determines that such a change is in the best
interest of the Fund. Each Trading Advisor has agreed to notify the General
Partners of any such changes which it considers to be material. See "THE TRADING
ADVISORS." If the General Partners are so notified of a material change in an
advisor's trading methods, they will so notify the Limited Partners in the
monthly report to the Limited Partners.
CONFLICTS OF INTEREST. From time to time, the Trading Advisors (or their
affiliates) will manage additional accounts, and these accounts (see "CONFLICTS
OF INTEREST--OTHER COMMODITY POOLS AND ACCOUNTS"), together with that of the
Fund, will increase the level of competition for the same trades desired by the
Fund, including the priorities of order entry. There is no specific limit
imposed by the Fund on the Trading Advisors as to the number of accounts they
(or their affiliates) may manage. In addition, the positions of all of the
accounts owned or controlled by each of the Trading Advisors or their affiliates
are aggregated for the purposes of applying speculative position limits (see
"GLOSSARY" and "RISK FACTORS--EFFECTS OF SPECULATIVE POSITION LIMITS"), and such
aggregation might limit the number of contracts which can be traded or held by
the Fund pursuant to the direction of a Trading Advisor whose trading approaches
such limits. In fulfilling their responsibilities to the Fund, the General
Partners have required that the advisory contracts with the Trading Advisors
provide for notice to the General Partners by a Trading Advisor when the Fund's
positions are first included in an aggregate amount which equals ninety percent
(90%) with respect to JWH and Sabre and one hundred percent (100%) with respect
to Welton, of the applicable speculative limit and will promptly respond
thereafter to requests from the General Partners with respect to the percentage
of the applicable speculative limit reflected by the aggregate positions owned
or controlled by any Trading Advisor or any of its principals, employees or
agents. The advisory contracts have also provided for the right of the General
Partners to inspect each of the Trading Advisor's trading records for the
purpose of confirming that the Fund is being treated equitably by that Trading
Advisor with respect to modifications of trading strategy resulting from such
limits, as well as with respect to the assignment of priorities of order entry
to that Trading Advisor's accounts. Each Trading Advisor may, in directing
trading for other accounts, employ trading programs different from those
employed in connection with the Fund's trading. The performance of such other
trading programs may be more successful than the performance of programs
employed in connection with the Fund's trading. See also "RISK FACTORS--MULTIPLE
TRADING ADVISORS."
LIMITATION OF LIABILITY AND INDEMNIFICATION FOR TRADING ADVISORS. Each
Trading Advisor, its principals and employees will not be liable to the Fund,
the Limited Partners, any of their successors or assigns or the General Partners
except by reason of acts or omissions in contravention of the express terms of
its advisory contract or due to misconduct or negligence or for not having acted
in good faith in the reasonable belief that its actions were taken in, or not
opposed to, the best interests of the Fund.
The Fund will indemnify each Trading Advisor, its principals and employees
to the full extent permitted by law for any liability incurred in connection
with any acts or omissions related to the Trading Advisor's management of Fund
assets, PROVIDED that there has been no judicial determination that such
liability was the result of negligence, misconduct or breach of the advisory
contract nor any judicial determination that the conduct which was the basis for
such liability was not done in a good faith belief that it was in, or not
opposed to, the best interests of the Fund. Any such indemnification involving a
material amount, unless ordered or expressly permitted by a court, will be made
by the Fund only upon the opinion of mutually acceptable independent legal
counsel that the Trading Advisor has met the applicable standard of conduct
described above.
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CHANGE IN PRINCIPALS AND ADVISORS. Each Trading Advisor is dependent on the
services of its respective principals. If the services of such principals were
not available to a Trading Advisor, or were interrupted, the continued ability
of that Trading Advisor to render services to clients would be subject to
substantial uncertainty, and such services of the Trading Advisor could be
terminated completely.
If an advisory contract is terminated with respect to one or more Trading
Advisors, the General Partner would be required to make other arrangements for
providing advisory services if the Fund intends to continue trading. No
assurance can be given that the Trading Advisors' services will be available to
the Fund following the expiration of their advisory contracts or that the
Trading Advisors' services may not be earlier terminated. See "THE TRADING
ADVISORS--THE ADVISORY CONTRACTS." Upon termination of a Trading Advisor, the
General Partners may direct liquidation of all positions established by the
terminated Trading Advisor prior to commencement of trading directed by another
trading advisor with respect to those assets. With respect to any new trading
advisors retained by the Fund, fee arrangements which differ substantially from
those established with the Trading Advisors may be implemented.
(13) TRADING DECISIONS BASED ON TECHNICAL ANALYSIS DO NOT CONSIDER
FUNDAMENTAL TYPES OF DATA AND REQUIRE PRICE TRENDS TO BE PROFITABLE. In
general, the Trading Advisors use, and any additional advisors which the Fund
may select in the future may use, trend-following systems based on mathematical
analysis of certain technical data regarding past market performance. See "THE
TRADING ADVISORS." These trend-following systems do not generally take into
account fundamental external factors, except insofar as such factors may
influence the technical data constituting input information for the trading
system. Fundamental factors include, among others, factors that affect the
supply and demand of the underlying commodity, interest rates, government
intervention, exchange controls and political stability. Technical systems may
be unable to respond to fundamental causative events until after their impact
has ceased to influence the market. Causative factors include, among others, the
daily, weekly and monthly price fluctuations, volume variations and changes in
open interest.
The profitability of any diversified technical trading system depends upon
major price moves or trends in some commodities which can be interpreted by the
system as price trends sufficient to dictate an entry or exit decision. In the
past there have been periods when no commodity has experienced any major price
movements or when price movements have been erratic or ill-defined, and such
periods are likely to recur in the future. The best technical trading system
will not be profitable if there are no trends of the kind it seeks to follow.
Any factor which would make it more difficult to execute trades at a system's
signal prices, such as a significant lessening of liquidity in a particular
market, would also be detrimental to profitability. Trend-following technical
systems may produce profitable results for a period of time, after which further
application of such systems to the technical input data fails to detect
correctly any future price movements. For this reason, commodity trading
advisors utilizing such systems may modify and alter their systems on a periodic
basis. Such systems (including the Trading Advisors') may also be modified and
altered for application to accounts of different sizes. Furthermore, government
control of or intervention in the markets traded may lessen the prospect of
sustained price moves. A number of markets traded by the Fund may be targets for
governmental intervention.
The use of technical trading systems by professional advisors has been
increasing as a proportion of overall volume of the markets as a whole, and for
certain commodities in particular. This could result in several advisors
attempting simultaneously (because of the availability of the same current
market information) to initiate or liquidate substantial positions in any market
at or about the same time as either or both of the Trading Advisors, or
otherwise cause an alteration of historical trading patterns or affect the
execution of trades to the significant detriment of the Fund.
(14) PERIODS WITHOUT DISCERNIBLE PRICE TRENDS MAKE PROFITABLE TRADING
DIFFICULT. There can be no assurance that any trading strategies will produce
profitable results. The past performance of an advisor's trading strategies is
not necessarily indicative of future profitability, and the best trading
strategies, whether based on technical or fundamental analysis, will not be
profitable if there are no trends of the kind
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they seek to follow. The profitability of any technical or fundamental trading
strategy depends upon significant price moves or trends in at least some
commodities. In the past there have been periods without discernible trends and
presumably similar periods will occur in the future. Any factor which reduces
the occurrence of major trends may reduce the prospect that any trading strategy
will be profitable. For this reason, commodity trading advisors may modify or
alter their trading methods on a periodic basis. Subject to the trading
limitations described under "TRADING POLICIES," a Trading Advisor may alter its
trading methods, upon written notice to the General Partners of any material
change in such trading methods, if a Trading Advisor determines that such change
is in the best interests of the Fund. Changes in commodity interests traded
shall not be deemed material changes in trading methods. The trading methods to
be utilized by the Trading Advisors are generally proprietary and confidential,
and Limited Partners will not be notified of changes in commodity interests
traded or modifications, additions or deletions to the Trading Advisors' trading
methods. See "THE TRADING ADVISORS and "PAST PERFORMANCE OF JWH AND WELTON."
(15) OTHER CLIENTS OF THE TRADING ADVISORS MAY COMPETE FOR SAME TRADES AND
POSITIONS. Each Trading Advisor may manage other accounts, including other
publicly offered pools and accounts in which the Trading Advisor or its
principals may have an interest, which could increase the level of competition
for the same trades the Fund might otherwise make, including order execution and
availability of speculative position limits. Each Trading Advisor has
represented that it will not knowingly or deliberately employ a trading strategy
on behalf of the Fund which is inferior to any strategy which it employs for
other accounts, or otherwise favor on an overall basis any other account managed
by them over the Fund. Each Trading Advisor and its principals, however, may
employ trading methods, policies and strategies which differ from those employed
on behalf of the Fund in circumstances which differ from those under which the
Fund operates. Further, each Trading Advisor may be restricted in the positions
it can take on behalf of the Fund due to positions taken for such Trading
Advisor's own account or its customer. Therefore, the results of the Fund's
trading may differ from those of the other accounts concurrently managed by the
Trading Advisors. See "THE TRADING ADVISORS."
(16) MULTIPLE TRADING ADVISORS MAY NOT INCREASE PROTECTION AGAINST LOSSES
OR PRODUCE MORE PROFITABLE TRADING. The Fund has retained the Trading Advisors
to act as independent trading advisors to attempt to achieve substantial
protection against major losses without sacrificing the ability to capitalize on
profitable trends through diversification. In addition, the Fund may in the
future retain the services of one or more additional trading advisors. In fact,
the diversification of trading approaches among the Trading Advisors may have
the opposite result. There is no assurance that the use of multiple trading
approaches will not effectively result in losses by one Trading Advisor which
offset or exceed any profits achieved by another Trading Advisor. Accordingly,
there is no assurance that the use of two or more Trading Advisors will be any
more successful than the retention of one Trading Advisor. Because the Trading
Advisors will trade independently of each other, the Fund could hold opposite
positions pursuant to the directions of each Trading Advisor, and could
simultaneously buy and sell the same futures contract, thereby incurring
commission and transaction fee costs with no net change in its holdings.
Conversely, the Trading Advisors could at times enter identical orders and
therefore compete for the same positions. This competition could prevent the
orders from being executed at the desired price or prevent execution altogether.
In addition, although margin requirements applicable to trading directed by a
Trading Advisor will ordinarily be met from the Fund assets allocated to it, a
Trading Advisor could incur losses that would make it unable to meet margin
calls from those assets. In this event, the General Partners may require
contributions and liquidations from the assets allocated to another Trading
Advisor. This could adversely affect the trading strategy of that other Trading
Advisor.
Moreover, because incentive fees, if any, payable to each Trading Advisor
would be calculated separately, it is possible that one Trading Advisor could
receive incentive fees in respect of Trading Profits achieved on the assets
managed by it during a period in which another Trading Advisor experiences
losses on the assets that it manages which are greater than the profits earned
by the funds under management by
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the Trading Advisor receiving fees. Thus, it is possible that incentive fees
could be payable during a period in which the Net Asset Value per Unit actually
has declined. The effect might be to deplete the Fund assets by the amount of
incentive fees paid during periods when the loss incurred by one or more Trading
Advisors outweighs the profits recognized by other Trading Advisors.
(17) SPECULATIVE POSITION LIMITS MAY LIMIT POSITIONS TAKEN BY FUND. The
CFTC and domestic exchanges have established speculative position limits
("position limits") on the maximum net long or short futures position which any
person, or group of persons acting in concert, may hold or control in particular
futures contracts or options on futures traded on U.S. commodity exchanges. The
CFTC has adopted a rule which requires commodity exchanges to impose speculative
position limits on all commodities traded on the exchange (with the exception of
certain commodities subject to speculative position limits established by the
CFTC). All commodity accounts owned or controlled by each Trading Advisor and
its affiliates are combined for position limit purposes. With respect to futures
trading in commodities subject to such limits, a Trading Advisor may thus be
required to reduce the size of the futures positions which would otherwise be
taken for the Fund in such commodities and not trade futures in certain of such
commodities in order to avoid exceeding such limits. Such modification of trades
of the Fund, if required, could adversely affect the operations and
profitability of the Fund. See "DESCRIPTION OF COMMODITY TRADING--REGULATION."
If such limits are exceeded, a Trading Advisor will be compelled to liquidate
positions in each of its clients' trading accounts, including the Fund's, on a
PRO RATA basis in accordance with the amount of equity in each such account.
While the Trading Advisors believe that the speculative position limits will not
adversely affect the trading directed by it, it is possible that from time to
time the trading approach or instructions of an advisor may have to be modified
and that positions held by the Fund may have to be liquidated to avoid exceeding
such limits. Such modification or liquidation, if required, could adversely
affect the operations and profitability of the Fund. In addition, the
speculative position limits will apply on an aggregate basis to all positions
held by the Fund.
(18) NEW ADVISORS MAY BE RETAINED WITHOUT NOTICE TO, OR APPROVAL BY,
LIMITED PARTNERS. Upon termination of a Trading Advisor, the General Partners
may direct liquidation of all positions established by such Trading Advisor
prior to commencement of trading directed by another trading advisor with
respect to those assets. Any additional and replacement trading advisors would
be selected by the General Partners without prior notice to, or approval from,
Limited Partners who would not have the opportunity to review their performance
records and the terms of their agreements with the Fund prior to their
selection. Pursuant to the Amended and Restated Limited Partnership Agreement,
the General Partners are authorized to enter into advisory contracts with new
advisors on terms and conditions as they, in their sole discretion, deem to be
in the best interests of the Fund. If an advisor were to be designated following
a decline in the Fund's assets, that advisor might (depending upon the
compensation arrangements negotiated with the General Partners) receive an
incentive fee based on any subsequent trading profits despite the fact that
those trading profits do not exceed trading losses incurred by previous or
existing advisors or by the Fund as a whole.
(19) EXCHANGE FOR PHYSICALS MAY NOT ALWAYS BE PERMITTED. The Trading
Advisors may engage in exchange for physicals for the Fund's accounts. See
"GLOSSARY." If the Trading Advisors were to be prevented from making use of this
trading technique for the Fund, due to changes in applicable regulations, the
trading performance of the Fund could be adversely affected.
(20) INCREASING THE ASSETS TRADED BY THE TRADING ADVISORS MAY HAVE POSSIBLE
ADVERSE EFFECTS. 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 the larger amount of equity under
management and by the restrictive effect of speculative position limits.
Increased equity generally results in a larger demand for the same commodity
interest contract positions among the accounts managed by a commodity trading
advisor. Furthermore, a number of analysts believe that a trading advisor's rate
of return tends to decrease as the amount of equity under management increases.
The Trading Advisors have not agreed to limit the amount of additional equity
that they may manage, and the assets under
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management of JWH have increased substantially since the beginning of the Fund's
trading and the assets under management of all Trading Advisors may increase
further. There can be no assurance that the Trading Advisors' respective trading
systems will not be adversely affected by additional equity, including any
additional assets of the Fund.
LIMITED PARTNERS AND THE FUND
(21) FUND OPERATING HISTORY NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE. The Fund began trading on June 16, 1987. The Fund's initial
capitalization was $7,372,260. The Net Asset Value per Unit at the commencement
of trading on June 16, 1987 was $225.43 and the Net Asset Value per Unit as of
June 30, 1997 was $318.96 (which would have been equivalent to $956.88 before
the February 28, 1995 3-for-1 split). The average annual rate of return from an
investment in the Fund through June 30, 1997 is 14.4%, based on the initial Net
Asset Value. Due to the uncertainty of the commodity markets the past
performance of the Fund specifically cannot be regarded as an indicator of the
Fund's future performance. See "PAST PERFORMANCE OF THE FUND."
(22) GENERAL PARTNERS LIMITED EXPERIENCE AS POOL OPERATORS. CISI and IDS
Futures have limited prior experience in operating commodity pools. In addition
to operating the Fund since June 16, 1987, CISI currently operates another
public commodity pool jointly with IDS Futures. See "THE GENERAL PARTNERS."
(23) AUTOMATIC TERMINATION FEATURES COULD TERMINATE FUND. The Units are
designed for investors who desire longer term investments. The Fund will
terminate on December 31, 2006, and will terminate automatically if the Fund's
Net Asset Value decreases below $500,000 at the close of business on any trading
day. In addition, the Fund will suspend trading and may terminate if the Net
Asset Value per Unit (after adding back any previous distributions from the Fund
to the Limited Partners) decreases below $125. See "TRADING POLICIES" and
"AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT--TERMINATION OF FUND" and
"AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT--REDEMPTION." However, no
assurance can be given that the investor will receive $125 per Unit, or any
other specified amount since the impossibility of executing trades under certain
conditions, together with the expenses of liquidation, may deplete the Fund's
assets below this amount. See "COMMODITY FUTURES MARKETS MAY BE ILLIQUID" above.
(24) INVESTORS HAVE LIMITED MANAGEMENT RIGHTS. Purchasers of the Units
will become Limited Partners in the Fund and, as such, they will be unable to
exercise any management functions with respect to its operations. The rights and
obligations of the Limited Partners are governed by the provisions of the
Delaware Revised Uniform Limited Partnership Act and by the Amended and Restated
Limited Partnership Agreement, which provides, in part, that amendments thereto
may be proposed by the General Partners or by Limited Partners owning at least
10% of the outstanding Units and will be adopted if approved by the holders of a
majority of such Units (not including any Units held by the General Partners or
their corporate affiliates, but including any Units held by representatives and
employees of the Selling Agent and of its corporate affiliates). See "AMENDED
AND RESTATED LIMITED PARTNERSHIP AGREEMENT--MANAGEMENT OF THE FUND" and the
Amended and Restated Limited Partnership Agreement attached as Exhibit A.
(25) RISK OF SUBSTANTIAL LOSSES AFTER ADMISSION OF NEW LIMITED
PARTNERS. The Fund could incur substantial losses shortly after the admission
of new Limited Partners. The General Partners could subsequently decide to
deleverage trading, alter allocations of assets among the Trading Advisors, or
terminate a Trading Advisor, any of which may impair the potential for profit
for those Limited Partners. The fixed rate charges to the Fund, paid
irrespective of the Fund's profitability, could further exacerbate such losses.
(26) LIMITED ABILITY TO LIQUIDATE INVESTMENT IN UNITS. Although a Limited
Partner may transfer his or her Units, no market exists for the Units and none
is likely to develop. In addition, a transferee of a
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Unit can only become a substituted Limited Partner with the General Partners'
consent. See "AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT--TRANSFERS OF
UNITS." Restrictive redemption privileges are provided in the Amended and
Restated Limited Partnership Agreement. See "REDEMPTIONS." No redemptions are
permitted by a subscriber during the first six months after he or she has been
first admitted to the Fund. Thereafter, under certain conditions, a Limited
Partner may require the Fund to redeem any or all of his or her Units (with the
redemption amount designated either in terms of Units or dollars) based on the
Net Asset Value per Unit as of the last day of any month on ten (10) days
written notice to the General Partners. Accordingly, the Net Asset Value per
Unit on the date such notice is given may vary considerably from that on the
redemption date. The minimum redemption amount, whether requested in terms of
dollars or Units, is the lesser of $500 or the Net Asset Value of two Units,
unless the Limited Partner is redeeming his or her entire interest in the Fund.
The Units are generally noncallable by the General Partners, but the General
Partners have authority under the Fund's Amended and Restated Limited
Partnership Agreement to require Limited Partners that are employee benefit
plans to withdraw from the Fund under certain conditions. See "PURCHASES BY
EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS."
(27) SUBSTANTIAL REDEMPTIONS COULD AFFECT FUND'S TRADING. Substantial
redemptions of Units by the Limited Partners within a limited period of time
could require the Fund to liquidate positions more rapidly than would otherwise
be desirable, which could adversely affect the value of both the Units being
redeemed and the outstanding Units. In addition, regardless of the period of
time in which redemptions occur, the resulting reduction in the Fund's Net Asset
Value could make it more difficult for the Fund to generate Trading Profits or
recoup losses due to a reduced equity base.
(28) CLAIMS AGAINST LIMITED PARTNERS COULD BE MADE BY FUND. Under certain
circumstances, (see "AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT--NATURE
OF THE PARTNERSHIP" and Exhibit A--Amended and Restated Limited Partnership
Agreement), a Limited Partner might be required to repay to the Fund a
distribution for a period of three years after the distribution was received
with the knowledge that the distribution violated Delaware partnership law.
(29) EXPIRATION OF THE FUND'S CONTRACTS WITH THE CLEARING BROKER AND
TRADING ADVISORS COULD LEAD TO CHANGES IN FUND'S OPERATIONS. The advisory
contracts, as amended, between the Fund and JWH and Sabre, and between the Fund
and Welton, will continue until December 31, 1997 and December 31, 1998,
respectively, are subject to extension by the Fund for two additional one-year
terms with respect to JWH and Sabre and three additional one-year terms with
respect to Welton. The advisory contracts are terminable by the Fund upon the
occurrence of certain events and, as to JWH, is terminable by JWH on 60 days'
notice. Upon termination or expiration of the advisory contracts with the
Trading Advisors, the General Partners will be required to re-negotiate such
contracts or make other arrangements for providing such services if the Fund
intends to continue trading. No assurance can be given that upon termination or
expiration of the advisory contracts with the Trading Advisors, the General
Partners will be able to retain the existing trading advisors or new trading
advisors on the same terms or fee structure as the advisory contracts with the
Trading Advisors. In addition, no assurance can be given that the services of
the Introducing Broker and Clearing Broker will be available after the
expiration or termination of the Clearing Brokerage Agreement. If the Fund were
to employ new brokers, the brokerage commissions charged might be higher or
lower than those currently paid by the Fund. See "THE TRADING ADVISORS--THE
ADVISORY CONTRACTS" and "BROKERAGE ARRANGEMENTS."
(30) LIMITED NET WORTH OF GENERAL PARTNERS. The General Partners will
maintain a minimum net worth as described under the caption "THE GENERAL
PARTNERS--MINIMUM INVESTMENT AND NET WORTH" and Exhibit A--Amended and Restated
Limited Partnership Agreement for as long as they continue as general partners
of the Fund. However, investors should recognize that affiliates of the General
Partners, including Cargill Investor Services, Inc. and American Express
Financial Advisors Inc., have no similar obligations to maintain a minimum net
worth in connection with the Fund's operation and that the assets of such
affiliates will not be available to discharge obligations of the Fund.
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(31) POTENTIAL INDEMNIFICATION OBLIGATIONS OF FUND COULD REDUCE ITS NET
ASSET VALUE. Under certain circumstances, the Fund might be subject to
indemnification obligations with respect to the General Partners, the Trading
Advisors, the Clearing Broker, the Selling Agent, the Escrow Agent and related
parties. The Fund will not carry any insurance to cover any obligations and none
of the foregoing parties will be insured for losses for which the Fund has
agreed to indemnify them. Any indemnification paid by the Fund would reduce the
Fund's Net Asset Value.
(32) MONTHLY ACCOUNT STATEMENT PROVIDED AFTER SUBSCRIPTION. CFTC
Regulation 4.26(b) requires that a copy of the Fund's latest monthly account
statement be attached to this disclosure document when used to solicit
prospective investors. However, due to the unnecessary administrative burden
that exact compliance with Regulation 4.26(b) would create, the Fund has
proposed, and the CFTC has accepted, an alternative solution. Prospective
investors will be furnished the Fund's latest monthly account statement
immediately following receipt of their subscriptions by the Selling Agent. In
addition to receiving the latest monthly account statement, each prospective
investor will be provided with an address and phone number to contact within 16
days from the date of the mailing of the account statement and confirmation by
the Selling Agent if the investor wishes to rescind his/her subscription.
CONFLICTS
(33) CONFLICTS OF INTEREST EXIST FROM RELATIONSHIPS AMONG FUND'S SERVICE
PROVIDERS. There exist inherent and potential conflicts of interest in the
operation of the Fund's business. See "CONFLICTS OF INTEREST." These include (i)
the conflict between the duty of the General Partners to monitor the Trading
Advisors' trading volume and the financial advantage to the Introducing Broker,
an affiliate of IDS Futures, and to the Clearing Broker, an affiliate of CISI,
in the event of substantial trading by the Trading Advisors and (ii) the
competition with the Fund by affiliates of the General Partners and the Fund's
Introducing Broker and Clearing Broker, by the Trading Advisors, and by
customers (including other commodity pools) of the foregoing entities in
connection with the execution of similar commodity transactions.
(34) LACK OF INDEPENDENT INVESTIGATION OF FUND'S STRUCTURE BY SELLING
AGENT. American Express Financial Advisors Inc., the Selling Agent for the
Fund, is an affiliate of IDS Futures, one of the Fund's General Partners.
Accordingly, no independent investigation of the Fund's structure and operations
has been undertaken by the Selling Agent.
TAXATION
(35) TAX LAWS SUBJECT TO CHANGE. It is possible that the current federal
income tax treatment accorded an investment in the Fund will be modified by
legislative, administrative or judicial action in the future. The nature of
future changes in federal income tax law, if any, cannot be determined prior to
enactment of any new tax legislation. However, such legislation could
significantly alter the tax consequences and decrease the after-tax rate of
return of an investment in the Fund. In addition, regulations are expected to be
promulgated that will implement or clarify provisions of recent tax law changes.
Any such change may or may not be retroactive. Potential Limited Partners must
consult their own tax advisors with respect to the possible impact on their
investments of federal and state tax law and any future or proposed tax
legislation or administrative or judicial action. See "FEDERAL INCOME TAX
CONSIDERATIONS."
(36) DEDUCTIBILITY OF PARTNERSHIP EXPENSES MAY BE LIMITED. The Tax Reform
Act of 1986 imposes limitations on the deductibility of certain miscellaneous
itemized deductions. Such deductions, including, for example, investment
advisory fees, are only deductible to the extent they exceed two (2) percent of
the taxpayer's adjusted gross income. This limitation would not apply to the
Fund or to a partner's share of Fund expenses if the Fund were determined to be
engaged in the trade or business of trading commodities and its expenses were
directly related to its trade or business activities. If, however, the Fund is
not
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engaged in the trade or business of trading commodities or its expenses are not
related to its trade or business activities, then such expenses would instead
"flow through" to Fund partners and each partner would only be able to deduct
his or her share of these expenses to the extent they, together with other
miscellaneous itemized deductions of the partner, exceed the two (2) percent
floor. See "FEDERAL INCOME TAX CONSIDERATIONS."
(37) POSSIBILITY OF TAXATION AS A CORPORATION WOULD PREVENT PASS-THROUGH OF
PROFIT OR LOSS TO INVESTORS. The General Partners have been advised by their
counsel, Chapman and Cutler, that, in its opinion, under current federal income
tax law and regulations, the Fund will be classified as a partnership and not as
an association taxable as a corporation. This status has not been confirmed by a
ruling from, and such opinion is not binding upon, the Internal Revenue Service
(the "SERVICE"). No such ruling has been or will be requested. The facts and
authorities relied upon by counsel in its opinion may change in the future. If
the Fund should be taxed as a corporation for federal income tax purposes in any
taxable year, then income or loss of the Fund would not be passed through to the
partners, and the Fund would be subject to tax on its income at the tax rate
applicable to corporations. In addition, all or a portion of distributions made
to partners could be taxable to the partners as dividend income, and the amount
of such distributions would not be deductible by the Fund in computing its
taxable income. See "FEDERAL INCOME TAX CONSIDERATIONS--PARTNERSHIP TAXATION."
(38) LIMITED PARTNERS WILL BE TAXED ON INCOME AND PROFITS WHETHER OR NOT
DISTRIBUTED. If the Fund has taxable income for a fiscal year, then such income
will be taxable to the Limited Partners in accordance with their distributive
shares of the Fund's income, whether or not such income is distributed to the
Limited Partners. The Amended and Restated Limited Partnership Agreement
provides that the General Partners will determine whether and in what amount the
Fund will distribute its profits or capital. It is possible that no
distributions will be made in some years in which profits are achieved.
Accordingly, if there are profits (including unrealized profits), the Limited
Partners will incur tax liabilities but may not receive distributions of cash
adequate to pay those liabilities. Prospective investors should note that the
Fund might sustain losses after the end of the fiscal year offsetting such
realized or unrealized profits and, accordingly, the Limited Partners might
never receive the profits on which they are taxed. However, Limited Partners
may, subject to the conditions described under "REDEMPTIONS," redeem Units to
provide funds for the payment of taxes.
(39) BROKERAGE COMMISSIONS TO AMERICAN EXPRESS FINANCIAL ADVISORS INC.
MIGHT BE CHARACTERIZED AS NON-DEDUCTIBLE EXPENSE. A portion of the commodity
brokerage commissions payable by the Fund to American Express Financial Advisors
Inc. as Introducing Broker might be characterized by the Internal Revenue
Service as a syndication expense. If so the Fund (and indirectly the Limited
Partners) would be required to treat that portion of the commodity brokerage
commissions as a non-deductible syndication expense. Over a period of years this
amount could be substantial.
(40) TAX CONSEQUENCES OF COMMODITY FUTURES AND OPTIONS TRADING DIFFER FROM
THOSE FOR OTHER INVESTMENTS. The federal income tax treatment of trading in
commodity interests varies significantly from the federal income tax treatment
accorded other types of investments. Additionally, the tax consequences of
certain transactions that the Fund may enter into are not addressed in the Code
or regulations and are uncertain at this time. There is no assurance that the
Service will agree with the Fund's tax treatment of such transactions. See
"FEDERAL INCOME TAX CONSIDERATIONS."
(41) PARTNERSHIP ALLOCATIONS COULD BE CHALLENGED BY IRS. There can be no
assurance that the partnership allocations contained in the Amended and Restated
Limited Partnership Agreement will not be challenged by the Service. While it is
intended that such allocation provisions comply with applicable U.S. Treasury
regulations, the liability of the Limited Partners could be substantially
increased if the allocations were successfully challenged. See "FEDERAL INCOME
TAX CONSIDERATIONS--ALLOCATIONS OF FUND PROFITS AND LOSSES."
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REGULATION
(42) ABSENCE OF REGULATION APPLICABLE TO SECURITIES MUTUAL FUNDS AND THEIR
ADVISORS. The Fund has not registered as a securities investment company, or
"Mutual Fund," subject to the extensive regulation by the Securities and
Exchange Commission (the "SEC") imposed upon such entities under the Investment
Company Act of 1940. In addition, the Trading Advisors are not registered under
the Investment Advisers Act of 1940 (or any similar state law). Investors are,
therefore, not afforded the protections provided by those Acts. However, under
the Commodity Exchange Act, as amended, the Trading Advisors are each registered
as a commodity trading advisor, the General Partners are each registered as a
commodity pool operator, the Clearing Broker is registered as a futures
commission merchant, the Introducing Broker is registered as an introducing
broker, and the Fund is subject to regulation by the CFTC and the NFA. See
"DESCRIPTION OF COMMODITY TRADING--REGULATION."
(43) FUTURE REGULATORY CHANGES COULD OCCUR. The futures market,
particularly the stock index futures and options markets, could be subject to
significant additional regulations as a result of regulatory and Congressional
responses to market turbulence in recent years. It is unknown to what extent
statutory modifications and/or administrative regulations will be promulgated.
In addition, the various exchanges and regulatory bodies are also considering
implementing changes in self-imposed regulations.
The regulation of commodities and securities transactions in the United
States is a rapidly changing area of law and the various regulatory procedures
described herein are subject to modification by government action. The effect of
any future regulatory change on the Fund is impossible to predict, but could be
substantial and adverse. See "DESCRIPTION OF COMMODITY TRADING-- REGULATION."
Considerable regulatory attention has recently been focused on publicly
distributed partnerships, and, in particular, "commodity pools" such as the
Fund. For example, proposals have been made to consider and evaluate the
disruptive effects of pools of speculative capital trading in the currency
markets on central banks' attempts to influence exchange rates, and perhaps to
restrict such trading as a result of such evaluation. In the current
environment, perhaps more than in prior periods, prospective investors must
recognize the possibility of future regulatory change altering, perhaps to a
material extent, the nature of an investment in the Fund.
CREDIT RISKS
(44) FAILURE OF BROKERAGE FIRMS MIGHT JEOPARDIZE FUND'S ASSETS. The
Commodity Exchange Act requires a clearing broker to segregate all funds
received from such broker's customers in respect of regulated futures (but not
forward) transactions from such broker's proprietary funds. If the Clearing
Broker were not to do so to the full extent required by law, the assets of the
Fund might not be fully protected in the event of the bankruptcy of the Clearing
Broker. Furthermore, in the event of the Clearing Broker's bankruptcy, the Fund
would be limited to recovering only a PRO RATA share of all available funds
segregated on behalf of the Clearing Broker's combined customer accounts, even
though certain property specifically traceable to the Fund was held by the
Clearing Broker. Commodity brokers other than the Clearing Broker, including
commodity brokers located outside the U.S., may hold assets of the Fund. There
may be less protection to the Fund's assets if such a foreign broker were to
become insolvent. The bankruptcy or inability to perform of the parties with
which the Fund trades in the forward markets could also result in substantial
losses both due to defaulted contracts (which on United States exchanges would
effectively be guaranteed by the clearing house system) and to such parties
generally not being obligated to segregate customer funds as are CFTC regulated
futures commission merchants.
CISFS is not subjected to regulation under any U.S. regulatory framework or
to supervision by any regulatory agency. Further, there are no minimum capital
requirements that apply to its operations, and, unlike the Clearing Broker,
CISFS is not required to segregate customer funds held by it. While CISFS does
not trade directly for its own account, it does enter into forward contract
transactions as a
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counterparty on behalf of its customers with other participants in the interbank
market. Since the interbank market does not operate through a clearing house,
CISFS (like the Fund, as described above) is directly exposed to the risk of
insolvency on the part of one of its counterparties. In the event of CISFS's
insolvency or termination of the lines of credit made available to the Fund
through CISFS, the Fund might be unable to consummate its forward contract
transactions with its counterparties, and therefore incur substantial losses.
Since the Fund may enter forward contract transactions directly with
counterparty banks, the insolvency of CISFS will not excuse it from performing
any of those contracts.
THE FOREGOING LIST OF RISK FACTORS DOES NOT PURPORT TO BE A COMPLETE
EXPLANATION OF RISKS INVOLVED IN THIS OFFERING. POTENTIAL INVESTORS SHOULD READ
THE ENTIRE PROSPECTUS BEFORE DECIDING TO INVEST IN THE FUND.
POTENTIAL ADVANTAGES OF THE FUND
Investment in the Units is speculative and involves a high degree of risk.
See "RISK FACTORS." However, an investment in the Fund offers the following
potential advantages which might otherwise be unavailable to a Limited Partner
if he or she were to engage individually in commodity futures transactions:
INVESTMENT DIVERSIFICATION. An investor who is not prepared to spend
substantial time trading commodity interests may nevertheless participate in
these markets through the Fund, thereby obtaining diversification from other
investments such as stocks, bonds and real estate. The General Partners believe
that the profitability of trading in commodity interests, and, therefore, the
profit potential of the Fund, does not depend upon favorable general economic
conditions and that it may be as profitable during periods of declining stock,
bond and real estate markets as at any other time. Conversely, the Fund may be
unprofitable (as well as profitable) during periods of generally favorable
economic conditions.
The possibility of significant fluctuations in the value of the U.S. Dollar
and the cost of energy, of wide swings in domestic and foreign stock markets and
interest rates, and of fragility in world banking and credit mechanisms (among
other factors) may make a diversification into an investment vehicle such as the
Fund particularly timely. The Fund's flexibility to take either long or short
positions--whereas traditional portfolios are typically heavily weighted towards
the former--can be an important advantage in times of economic uncertainty.
COMMODITY DIVERSIFICATION. The Trading Advisors may trade over 50 commodity
interests, but the actual number of commodity interests traded will vary from
time to time. Positions in all of the commodities that the Trading Advisors
trade probably would not be held by the Fund at any given time. In order to
limit the risk involved in adverse market activity in any one commodity, the
trading policies of the Fund restrict the amount of Fund assets which may be
invested in any one commodity. The Fund will not allow any commodity trading
advisor to acquire, on behalf of the Fund, additional positions in a commodity
if such additional positions, when added to the existing open positions
initiated by the commodity trading advisor, would result in a net long or short
position for any commodity requiring as margin or premiums more than 15% of the
Fund's Net Asset Value allocated to that commodity trading advisor's management
at the time. See "TRADING POLICIES." Each Limited Partner will thus obtain
greater diversification in commodities traded than would be possible trading
individually unless substantially more than the $1,000 minimum investment in the
Fund were committed to the commodity markets.
LIMITED LIABILITY. Unlike an individual who trades directly in commodity
futures contracts, an investor in the Fund cannot be individually subjected to
margin calls and cannot lose more than the amount of his or her original
investment and any profits earned thereon (including distributions, payments
upon redemption of Units and interest thereon). See "DESCRIPTION OF COMMODITY
TRADING-- MARGINS" and "AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT--
NATURE OF THE PARTNERSHIP."
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PROFESSIONAL TRADING MANAGEMENT. Subject to certain extension and
termination rights, all commodity transaction decisions will be made by the
Trading Advisors, whose advisory and management services are not generally
available to small investors.
ADMINISTRATIVE CONVENIENCE. The Fund provides the Limited Partners with
many services designed to reduce the administrative details involved in engaging
in commodity transactions. The General Partners, the Trading Advisors and the
Fund's commodity brokers perform services for the Fund, including entering
orders for commodity transactions, segregating the Fund's assets in a separate
account or accounts, keeping books and records, distributing monthly account
statements to the Limited Partners, and responding to inquiries from Limited
Partners.
INTEREST INCOME. The Fund receives monthly interest income on 100% of the
Fund's average monthly net assets on deposit at the Clearing Broker at a rate
equal to 90% of the average yield on the 90-day U.S. Treasury bills issued
during that month. An individual trader often would not receive any interest on
the funds in his or her commodity account unless he or she committed
substantially more than the amount of the minimum investment in the Fund.
REDUCTION IN BROKERAGE COMMISSIONS. The Fund pays brokerage commissions at
rates equal to $35 per round turn trade, plus NFA, exchange and clearing fees
and give-up, electronic trading and EFP fees, if applicable. The brokerage
commission rate payable by the Fund was reduced from $50 to $35 per round turn
trade effective September 1, 1995. Thus, the proceeds from all investments made
pursuant to this offering will benefit from the lower rate from the date such
proceeds are committed to trading. The Clearing Broker and the Introducing
Broker will not receive any amounts in excess of $15 and $20, respectively, for
each round turn trade. The Fund may be required to pay a brokerage commission in
excess of $35 for each round turn trade on certain non-U.S. exchanges. Any such
excess amounts paid by the Fund will be direct costs associated with the
execution of trades on such exchanges. See "CHARGES TO THE FUND." To the extent
an investor would be charged higher commissions were he or she to trade
directly, he or she will be benefited by such lower rates. Reference is made to
"CHARGES TO THE FUND," "CONFLICTS OF INTEREST," and "BROKERAGE ARRANGEMENTS"
concerning the nature and amount of brokerage commissions and for a discussion
of the fact that the Fund is not charged the lowest available brokerage rates.
CAPITAL RESERVE. Because it is unlikely that all of the Fund's trading
capital will be committed to trading at any given time, the Fund expects to
maintain a reserve that may provide greater ability to continue trading
operations in adverse markets than that available to traders who trade with the
equivalent of the minimum investment in the Fund.
CONFLICTS OF INTEREST
The following inherent or potential conflicts of interest should be
considered by prospective investors before subscribing for Units:
1. RELATIONSHIP OF THE GENERAL PARTNERS, THE INTRODUCING BROKER, THE
CLEARING BROKER, AND THE FOREIGN CURRENCY BROKER. CISI, one of the General
Partners, is an affiliate of Cargill Investor Services, Inc., the Clearing
Broker. IDS Futures, the Fund's other General Partner, is an affiliate of
American Express Financial Advisors Inc., the Introducing Broker. The
responsibilities of the General Partners include selecting brokers to act on
behalf of the Fund, obtaining appropriate commission rates for the Fund, and
ensuring that the Trading Advisors do not engage in excessive trading.
Cargill Investor Services, Inc. is currently acting as the clearing broker
for the Fund and American Express Financial Advisors Inc. is currently
acting as the introducing broker for the Fund. In such capacities, they
receive brokerage commissions for commodity transactions effected by the
Fund. Although the Fund will trade only at the direction of independent
commodity trading advisors, CISI and IDS Futures have a conflict of interest
between their duty to the Limited Partners to limit or reduce the cost of
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brokerage commissions and their interest in the generation of brokerage
commissions which would benefit Cargill Investor Services, Inc., an
affiliate of CISI, and American Express Financial Advisors Inc., an
affiliate of IDS Futures. The General Partners do not intend to negotiate
with any other brokerage firms for brokerage services for the Fund so long
as the brokerage agreements with Cargill Investor Services, Inc. and
American Express Financial Advisors Inc. are in effect.
Because decisions determining the volume and frequency of trading by the
Fund will be made by independent commodity trading advisors, the General
Partners believe that the effects of this conflict of interest will be
mitigated. The General Partners do not have authority to influence the
trading decisions of the Trading Advisors regarding the volume or frequency
of trades, except that the General Partners are required to monitor
compliance with the Fund's trading policies, and may from time to time
direct the Trading Advisors to liquidate positions held by the Fund in order
to meet redemption requests. The Clearing Broker and Introducing Broker may
charge other customers, including other commodity pool accounts, brokerage
commissions at rates which are higher or lower than those to be paid by the
Fund. Taking into consideration the services to be provided to the Fund by
the Clearing Broker and Introducing Broker, and the reduction of the
brokerage commission rate from $50 to $35 per round turn rate, the General
Partners believe that the brokerage commission arrangements are fair to the
Fund. Accordingly, the General Partners do not intend to seek lower
commission rates for the Fund. The General Partners will seek to assure that
brokerage charges for the Fund are within the range of those generally
charged to public commodity funds of comparable size and structure in view
of the nature and quality of the brokerage services to be rendered.
The General Partners each receive an annual administrative fee based on
the Fund's Net Asset Value on the first business day of each fiscal year of
the Fund. The annual administrative fee payable to IDS Futures is 1.125% of
the Fund's beginning Net Asset Value for each fiscal year, and the annual
administrative fee payable to CISI is 0.25% of the Fund's beginning Net
Asset Value for each fiscal year. The amounts of these fees were determined
by the General Partners without any negotiation between them and the Fund.
The Clearing Broker and the Introducing Broker may receive more
brokerage commission revenue from the Fund's trading if no distributions are
made to the Limited Partners. The General Partners' annual administrative
fees will also be larger if no distributions are made to Limited Partners,
since those fees are based on the Fund's Net Asset Value. All decisions as
to distributions will be made by the General Partners; the General Partners
have not made and have no current intentions to declare distributions to
Limited Partners. The General Partners may therefore have a conflict of
interest between their interest in making decisions about distributions in
the best interests of the Fund and its Limited Partners and their interest
in maximizing the assets of the Fund which are available for trading and for
the generation of brokerage commissions, and as the basis for the annual
administrative fees payable to them.
The Fund receives interest on 100% of its average monthly net assets on
deposit at the Clearing Broker at a rate of interest equal to 90% of the
average 90-day Treasury bill rate for Treasury bills issued during that
month. The Clearing Broker receives and retains any increments of interest
earned on the assets of the Fund in excess of the interest paid to the Fund.
Since the Clearing Broker is affiliated with CISI, CISI's conflict of
interest (described immediately above) between making decisions related to
distributions in the best interests of the Fund and its Limited Partners,
while also having an interest of its own in maximizing the assets of the
Fund, extends to its interest in maintaining the Fund's assets at higher
levels and minimizing the amounts of distributions in order also to maximize
the amount of interest income generated by assets of the Fund and payable to
the Clearing Broker.
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Effective September 1, 1995, the Fund pays brokerage commissions of $35
per round turn trade to the Clearing Broker, plus NFA, exchange and clearing
fees and give-up, electronic trading and EFP fees, if applicable, of which
$15 per round turn trade is retained by the Clearing Broker. The remaining
$20 per round turn trade is paid to the Introducing Broker.
CISI is also affiliated with CIS Financial Services, Inc. ("CISFS").
CISFS acts as the agent for the Fund with respect to forward contract
transactions in foreign currencies and contracts on behalf of the Fund with
large banks (capitalization in excess of $100,000,000) in order to make or
take future delivery of specified lots of foreign currencies for the Fund.
In such capacity, CISFS will receive brokerage commissions for the foreign
currency forward contracts it effects for the Fund's account. Although the
Fund will trade only at the discretion of independent commodity trading
advisors, CISI has a conflict of interest between its duty to the Limited
Partners to limit or reduce the cost of brokerage commissions and its
interest in the generation of such commissions for CISFS. The General
Partners do not intend to negotiate with any other firms to provide forward
contract brokerage services as long as the agreement with CISFS is in
effect. The General Partners believe that the consequences of this conflict
of interest will be mitigated by the fact that all trading decisions will be
made by independent commodity trading advisors. The brokerage commissions
payable to CISFS of $15 per transaction are comparable, on a comparable
currency unit basis, to those charged to the Fund by the Clearing Broker.
The conflicts of interest described above related to distributions to the
Limited Partners and the generation of brokerage commissions, and a conflict
of interest related to the inclination of CISI to favor the retention of
CISFS as the Fund's forward contract broker even when circumstances may
indicate the desirability of replacing CISFS in that capacity, also apply to
the selection of CISFS as the Fund's forward contract broker.
2. OTHER COMMODITY POOLS AND ACCOUNTS. The Clearing Broker currently
acts as commodity broker for commodity pools other than the Fund, including
one other public commodity pool of which the General Partners are CISI and
IDS Futures, and may act as commodity broker for other commodity pools of
which CISI or IDS Futures will be the general partner. The General Partners
may in the future establish and operate additional commodity pools, which
may vary in structure and in compensation arrangements from the Fund. The
parent of the Introducing Broker/Selling Agent is registered as a commodity
trading advisor and in that capacity renders hedging advice to mutual funds
advised by it as an investment adviser. The Clearing Broker offers to its
customers a Managed Account Program ("MAP") through which customers may
select an independent commodity trading advisor to direct trading for their
individual accounts. The Clearing Broker, the Introducing Broker, and the
General Partners will not knowingly or deliberately favor any such commodity
pool or account over the Fund with respect to the execution of commodity
trades. In addition, the Trading Advisors or their affiliates may operate
commodity pools and will manage accounts other than the Fund's, including
commodity pools and proprietary accounts. The Trading Advisors have
represented to the Fund that they will treat the Fund equitably and will not
deliberately favor on an overall basis any other client over the Fund with
respect to advice relating to commodity interest transactions.
3. COMMODITY TRANSACTIONS OF AFFILIATES AND CUSTOMERS OF THE CLEARING
BROKER AND THE INTRODUCING BROKER. Corporate affiliates of the Clearing
Broker and the Introducing Broker, including Cargill, Inc., the parent
company of the Clearing Broker, and their affiliates, trade in commodity
interests from time to time for their own accounts. In addition, the
Clearing Broker is a substantial futures commission merchant handling
transactions in commodities and commodity futures contracts for a large
number of customers, including commodity pools, other than the Fund. The
Clearing Broker may effect transactions for the accounts of the Fund in
which other parties to the transaction may be affiliates of or other
commodity pools operated by affiliates of the Clearing Broker or Introducing
Broker. In addition, it is likely that the volume of trading by such other
parties will result in the Fund competing with such other parties from time
to time in bidding on similar purchases or sales of commodities and
commodity futures contracts. Transactions for such other parties might be
effected when similar trades for the Fund are not executed or are executed
at less favorable prices. The
46
<PAGE>
operating policies of the Clearing Broker require that orders be transmitted
to the trading floors of the commodity exchanges in the sequence received,
regardless of customer size or identity. Limited Partners will not be
permitted to inspect the trading records of the Clearing Broker or
Introducing Broker in light of the proprietary and confidential nature of
such trading records.
4. OTHER ACTIVITIES OF THE CLEARING BROKER, INTRODUCING BROKER, GENERAL
PARTNERS AND TRADING ADVISORS, AND THEIR OFFICERS AND EMPLOYEES. As part of
their commodity brokerage services, certain account executives of the
Clearing Broker offer and service discretionary and non-discretionary
commodity account programs for customers meeting certain investment
requirements. The selection of commodity trades for such accounts is made by
the particular account executive handling the accounts or by a commodity
trading advisor engaged for such purpose. In addition, the Clearing Broker
provides, on a daily basis, both fundamental and technical information
available to its account executives and certain customers. It should be
noted, however, that the Clearing Broker, its employees and its affiliates
will perform no advisory services for the Fund. Since the Fund will be
advised by the Trading Advisors which are not affiliated with the Clearing
Broker, the Fund may take positions similar to or opposite to those taken by
managed account programs offered by the Clearing Broker's account executives
or by the commodity research of the Clearing Broker. Certain of the officers
and employees of the Clearing Broker may be members of various exchanges and
may from time to time serve on the governing bodies and standing committees
of such exchanges and their clearing houses. In addition, certain of the
officers and employees of the Trading Advisors, the Clearing Broker, the
Introducing Broker and the General Partners may also be members of
committees of the NFA. In such capacities these individuals have a fiduciary
duty to the exchanges or organizations on which they serve and they are
required to act in the best interests of such exchanges or organizations,
even if such actions were to be adverse to the interest of the Fund. In
addition, principals of such firms may devote portions of their time to
other business activities unrelated to the business of those firms.
5. COMPENSATION TO THE GENERAL PARTNERS, THE CLEARING BROKER AND THE
INTRODUCING BROKER. Receipt by the General Partners, the Clearing Broker,
and the Introducing Broker of compensation on an ongoing basis in the form
of administrative fees and brokerage commissions paid by the Fund creates a
conflict of interest between their duty to perform certain services for the
Limited Partners in the Fund in the best interests of such Limited Partners
and their interest in continuing to receive ongoing compensation related to
administrative fees and brokerage commissions paid by the Fund, which is
dependent on continued participation by such Limited Partners in the Fund.
See "THE GENERAL PARTNERS" and "BROKERAGE ARRANGEMENTS."
47
<PAGE>
PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS
Subject to the following discussion, the purchase of the Units might be a
suitable investment for an employee benefit plan. The term "employee benefit
plans" refers to plans and accounts of various types (including their related
trusts) which provide for the accumulation of a portion of an individual's
earnings or compensation, as well as investment income earned thereon, free from
federal income tax until such time as funds are distributed from the plan. Such
plans include corporate pension and profit-sharing plans, "simplified employee
pension plans," so-called "Keogh" plans for self-employed individuals, including
partners, and Individual Retirement Accounts for persons (including employees
and self-employed persons) who receive compensation income. Before proceeding
with such a purchase, the person with investment discretion on behalf of an
employee benefit plan must determine whether the purchase of Units is (a)
permitted under the governing instruments of the employee benefit plan, and (b)
appropriate for that particular plan in view of its overall investment policy
and the composition and diversification of its portfolio. AMONG OTHER FACTORS,
SUCH A DETERMINATION IS LIKELY TO REQUIRE CONSIDERATION OF (I) WHETHER THE
INVESTMENT IS PRUDENT, CONSIDERING THE NATURE OF THE FUND, (II) WHETHER THE
INVESTMENT SATISFIES THE DIVERSIFICATION REQUIREMENTS OF SECTION 404 OF THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 ("ERISA"), (III) THE DEFINITION
OF "PLAN ASSETS" UNDER ERISA AND REGULATIONS ISSUED BY THE DEPARTMENT OF LABOR
REGARDING THE DEFINITION OF PLAN ASSETS, (IV) WHETHER SUCH INVESTMENT MAY RESULT
IN THE CREATION OF UNRELATED BUSINESS TAXABLE INCOME, WHICH IS NOT EXEMPT FROM
TAXATION UNDER THE INTERNAL REVENUE CODE, AND (V) THAT, ALTHOUGH UNITS WILL BE
PERIODICALLY REDEEMED BY THE FUND, THERE MAY BE NO MARKET IN WHICH SUCH
FIDUCIARY CAN SELL OR OTHERWISE DISPOSE OF THE UNITS. WITH RESPECT TO
SELF-DIRECTED IRAS, THE INDIVIDUAL ESTABLISHING SUCH ACCOUNT SHOULD CONSIDER,
AMONG OTHER THINGS, (IV) AND (V) ABOVE.
A minimum purchase requirement of $1,000 has been set for Individual
Retirement Accounts, Keogh Plans and Employee Benefit Plans. See "INVESTMENT
REQUIREMENTS." Greater minimum purchases may be mandated by the securities laws
and regulations of certain states, and each investor should consult the
Subscription Requirements (Exhibit B) to determine the applicable investment
requirements. The form of Subscription Agreement and Power of Attorney (Exhibit
C) for individuals and joint owners, corporations, partnerships, and trusts may
be used in conjunction with the purchase of Units on behalf of Employee Benefit
Plans.
Those considering the purchase of Units on behalf of Individual Retirement
Accounts or employee benefit plans should be aware that, if the assets of an
investing plan were to be treated for purposes of the Employee Retirement Income
Security Act of 1974 ("ERISA") and the Internal Revenue Code of 1986, (the
"CODE"), as including the underlying assets of the Fund, such treatment would
make the units an inappropriate investment for individual retirement accounts or
employee benefit plans. If Fund assets were deemed to be plan assets, the
fiduciary standards of Title I of ERISA, which generally apply to trustees and
other fiduciaries of employee benefit plans, would also extend to the General
Partners and the Trading Advisors, and such standards could limit the
transactions the Fund could enter. In addition, treatment of Fund assets as plan
assets might give rise to "prohibited" transactions under ERISA and the Code.
PLAN ASSETS. On November 13, 1986, the Department of Labor issued a final
regulation Section2510.3-101 (the "REGULATION") under ERISA, effective March 13,
1987, which provides certain conditions under which the assets of a limited
partnership will not be "plan assets" of an employee benefit plan which
purchases an equity security of such entity. One way for the assets of a limited
partnership to not be deemed "plan assets" is if less than twenty-five (25)
percent (by value) of the interests in the partnership are "benefit plan
investors." For this purpose, the term "benefit plan investors" includes both
plans covered by ERISA and other investors with similar investment objectives,
such as governmental pension plans, individual retirement accounts and welfare
benefit plans. No assurance can be offered by the General Partners as to the
value of the participation in the Fund which may be held by benefit plan
investors.
Another way for the assets of a limited partnership to not be deemed "plan
assets" is if Units are "publicly offered securities" as defined in the
Regulation. For purposes of the Regulation, a publicly
48
<PAGE>
offered security is a security that is "freely transferable," part of a class of
securities that is "widely held" and which is either (a) part of a class of
securities that is registered under Section 12(b) or 12(g) of the Securities
Exchange Act of 1934 or (b) sold to the plan investor as part of an offering
pursuant to an effective registration statement under the Securities Act of
1933, if the class of such securities is registered under the Securities
Exchange Act of 1934 within 120 days after the end of the issuer's fiscal year
during which the offering of the securities occurred. The Regulation provides
that a class of securities is "widely held" if owned by 100 or more persons who
are independent of the issuer and of each other. The determination of whether a
security is "freely transferable" depends on the facts and circumstances of the
particular case. It is expected that the Units in the Fund will continue to meet
the criteria of the publicly offered securities test contained in the
Regulation.
ERISA AND IRS RULES. The fiduciary who makes the investment decision for a
plan should carefully consider the restrictions on plan investments imposed by
Section404 and Section406 of ERISA, and by Internal Revenue Code Section4975.
In general, Section404 of ERISA imposes a duty on trustees or other
fiduciaries responsible for plan investments to exercise prudence in the
selection of investments, and to diversify such investments to minimize the risk
of losses to the plan. An investment in the Fund constitutes a highly
speculative and relatively illiquid investment and, although ERISA does not
prohibit plans from engaging in such investments per se, each plan fiduciary
must carefully consider whether, in light of the plan's overall investment
portfolio, the risks inherent in an investment in the Fund are consistent with
the standards of Section404 of ERISA. The FUND HAS NO RESPONSIBILITY FOR
DETERMINING WHETHER A PURCHASE OF UNITS IS A PRUDENT INVESTMENT FOR ANY PLAN.
EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT WITH ITS OWN LEGAL
AND TAX ADVISERS BEFORE DOING SO.
The General Partners expect that the Fund will not acquire or possess stock
in trade or other property of a kind which would properly be included in
inventory if on hand at the close of the taxable year, or property held
primarily for sale to customers in the ordinary course of a trade or business.
On this basis and assuming (i) the Fund will only engage in the activities
described herein and (ii) no money has been borrowed to invest in the Fund,
income of the Fund should not be "unrelated trade or business income" under
Section 512 of the Code to any employee benefit plan or individual retirement
account. Although the General Partners do not expect that the Fund will borrow
money, if it were to do so (see "TRADING POLICIES") a portion of the tax exempt
partner's share of Fund income may be UBTI. The person with investment
discretion on behalf of an employee benefit plan should consult his or her
attorney or other tax adviser with regard to whether the purchase of Units might
give rise to UBTI. If a tax-exempt investor's share of Fund income is UBTI, the
tax-exempt investor will generally be subject to the same provisions as taxable
investors, such as the requirements to file tax returns to report the income and
to pay tax (including estimated tax) on the income. Each tax-exempt investor is
entitled to a $1,000 exemption to offset UBTI, but if the tax-exempt investor
has UBTI from other sources, only a portion of the exemption would be available
to offset UBTI of the Fund, if any.
Units may not be purchased with the assets of an employee benefit plan if a
General Partner, the Selling Agent, a Trading Advisor or any of their affiliates
either: (a) has investment discretion with respect to the investment of such
plan assets; (b) has authority or responsibility to regularly give investment
advice with respect to such plan, 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; (c) has discretionary authority or
discretionary responsibility for administration of a plan; or (d) are employers
maintaining or contributing to such plan. Each fiduciary who authorizes a
purchase of Units by a plan must determine for himself whether such purchase
would constitute a prohibited transaction and should consult with his or her or
its advisor on tax and ERISA issues concerning these matters.
49
<PAGE>
Subscribing for Units in the Fund does not create an IRA or other employee
benefit plan. Those considering the purchase of Units on behalf of an IRA or
other Employee Benefit Plan must first assure themselves that the plan has been
properly established and funded. Then after the considerations discussed above
have been taken into account, the trustee or custodian of a Plan who decides or
who is instructed to do so may subscribe for Units in the Fund, subject to the
applicable minimum subscription.
THE FUND'S AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT PROVIDES THAT
IF AT ANY TIME THE GENERAL PARTNERS, IN THEIR SOLE DISCRETION, DETERMINE THAT
THE CONTINUED PARTICIPATION BY AN EMPLOYEE BENEFIT PLAN IN THE FUND WOULD CAUSE
ANY TRANSACTION BY THE FUND TO BE A VIOLATION OF ANY OF THE PROVISIONS OF
SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE, THE GENERAL PARTNERS MAY
REQUIRE SUCH A PLAN TO WITHDRAW IN WHOLE OR PART FROM THE FUND TO SATISFY CODE
REQUIREMENTS.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF IRAS OR OTHER EMPLOYEE BENEFIT
PLANS IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNERS OR THE
INTRODUCING BROKER THAT THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS
WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN. THE GENERAL PARTNERS RESERVE
THE RIGHT TO REJECT THE SUBSCRIPTIONS OF ANY EMPLOYEE BENEFIT PLAN, IN THEIR
DISCRETION, IF THEY BELIEVE THAT THE ACCEPTANCE OF ADDITIONAL EMPLOYEE BENEFIT
PLAN SUBSCRIPTIONS MAY JEOPARDIZE THE STANDING OF THE FUND UNDER APPLICABLE LAW
AS A PERMISSIBLE INVESTMENT BY EMPLOYEE BENEFIT PLANS. THE PERSON WITH
INVESTMENT DISCRETION SHOULD CONSULT WITH HIS ATTORNEY AND FINANCIAL ADVISERS AS
TO THE PROPRIETY OF AN INVESTMENT IN THE PARTNERSHIP IN LIGHT OF THE
CIRCUMSTANCES OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
The fiduciary provisions of ERISA are highly complex, and the foregoing is
merely a brief summary of some of its provisions. Each employee benefit plan
should consult with its own counsel as to the applicability of ERISA prior to
investing in the Fund.
USE OF PROCEEDS
One hundred percent (100%) of the net proceeds to the Fund of this offering
will be credited to the Fund's commodity accounts with the Clearing Broker. Such
proceeds will be used by the Fund to engage in speculative trading in commodity
futures contracts, options on futures contracts, foreign futures and other
futures related interests and in the cash foreign exchange market and cash
bullion market, pursuant to the Trading Advisors' instructions as described
under "THE TRADING ADVISORS." Of the net proceeds to the Fund from the Current
Offering, 65% of such proceeds will be allocated to JWH, to trade in accordance
with the Financial and Metals Portfolio trading program, 30% of such proceeds
will be allocated to Welton to trade in accordance with its Diversified
Portfolio trading program and 5% of such proceeds will be allocated to Sabre to
trade in accordance with its Pattern Recognition System for Diversified Accounts
trading program. The domestic commodity interests traded by the Fund on domestic
exchanges pursuant to the Trading Advisors' trading programs are regulated by
the CFTC and the NFA. However, transactions in spot or forward contracts or on
foreign exchanges may not be subject to regulation by the CFTC or NFA and may
not be subject to foreign regulatory bodies. See the discussion under
"Description of Commodity Trading--Regulation" and "Risk Factors."
In the past, approximately 20% to 60% of the Fund's assets have been
committed as initial margin for commodity futures contracts. The General
Partners believe that approximately 20% to 60% of the Fund's assets will
continue to normally be committed as initial margin for commodity futures
contracts, but from time to time the percentage of assets committed as margin
may be more or less than such historical range. Currently, and since the
inception of trading, the Fund has not engaged in trading of forward contracts
on foreign currencies or in trading in the cash bullion market, and therefore
has not committed assets as margin or otherwise with CISFS, its foreign currency
broker. At such time as the General Partners deem it
50
<PAGE>
is appropriate for the Fund to engage in trading forward contracts, the
requisite assets will be transferred from the Fund's commodity accounts with the
Clearing Broker to CISFS. Such assets will earn the same interest as if
deposited with the Clearing Broker. See "RISK FACTORS--Forward Contracts on
Foreign Currencies Are Not Traded on Exchanges and Lack Regulatory Protections
of Exchanges."
The Clearing Broker may increase margins applicable to the Fund at any time.
See "DESCRIPTION OF COMMODITY TRADING--MARGINS." The Fund will not acquire
additional positions in commodity interests, including commodity futures
contracts, options on commodity interests, and forward contracts, if such
additional positions would result in aggregate net long or net short positions
for all commodities requiring as margin or premium more than two-thirds of the
Fund's assets. The balance of the Fund's assets will be retained to apply, if
needed, as additional margin. See "TRADING POLICIES."
Pursuant to current regulations promulgated under the Commodity Exchange
Act, as amended, the Fund's accounts will be classified as customer accounts of
the Clearing Broker so long as the Clearing Broker, CISI, and certain related
persons of the foregoing own less than a 10% interest in the Fund. Interest
earned on the Fund's assets held by the Clearing Broker will be generated and
applied as described in the following paragraphs. Margin applicable to the
Fund's trading will be met from Fund assets held by the Clearing Broker.
The General Partners will be reimbursed by the Fund for organization and
offering expenses of the Fund initially paid by them. The General Partners have
agreed to pay all expenses of the offering regardless of total cost. The
Offering Expense Charge will be 3% of the gross per Unit price, and is intended
to reimburse the General Partners for offering costs. However, the General
Partners bear the risk that the Offering Expense Charge, when applied to the
total capital raised in connection with this offering, will not be sufficient to
fully reimburse the General Partners for the organization and offering expenses.
The General Partners will absorb any costs exceeding 3%. If, at the end of the
offering, the total Offering Expense Charge exceeds the actual offering expenses
incurred, the General Partners will retain any excess. As used in this
Prospectus, organization and offering expenses include legal, accounting,
auditing, marketing, filing, registration and recording fees, printing expenses,
and escrow charges. See "CHARGES TO THE FUND." However, such reimbursement (the
"OFFERING EXPENSE CHARGE"), when added to the Sales Charge, shall not exceed 9%
of the gross proceeds of the offering.
The Fund will receive in each month interest earned on 100% of its average
monthly net assets on deposit at the Clearing Broker at 90% of the average
90-day Treasury bill rate for Treasury bills issued during that month. The
Clearing Broker benefits from interest earned on Fund assets in excess of the
amount paid to the Fund. Assets of the Fund will be deposited as margin with the
Clearing Broker in accordance with provisions of the Commodity Exchange Act, as
amended, and the rules and regulations promulgated thereunder.
51
<PAGE>
SELECTED FINANCIAL DATA
IDS MANAGED FUTURES, L.P.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES........................... $ 258,208 $ 3,443,879 $ 278,901 $ 8,419,239 $ 10,189,635
INCOME (LOSS) FROM CONTINUING OPERATIONS..... (284,307) 2,361,949 (1,530,228) 5,755,268 $ 6,701,475
INCOME (LOSS) PER UNIT*...................... (6.04) 65.22 (16.30) 50.46 $ 54.14
TOTAL ASSETS................................. 5,980,134 15,134,816 24,184,896 33,275,874 $ 41,669,309
LONG TERM OBLIGATIONS........................ 0 0 0 0 0
CASH DIVIDEND PER UNIT....................... 0 0 0 0 0
</TABLE>
- ------------------------
* Figures adjusted for 3-for-1 split for comparative purposes.
52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Most United States commodity exchanges limit the amount of fluctuation in
commodity futures contract prices during a single trading day by regulations.
These regulations specify what are referred to as "daily price fluctuation
limits" or "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 a trading session. Once the daily limit has been
reached in a particular commodity, no trades may be made at a price beyond the
limit. Positions in the commodity 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" rule only governs price
movement for a particular trading day, it does not limit losses. In the past,
futures prices have moved the daily limit for numerous consecutive trading days
and thereby prevented prompt liquidation of futures positions on one side of the
market, subjecting commodity futures traders holding such positions to
substantial losses for those days.
It is also possible for an exchange or the CFTC to suspend trading in a
particular contract, order immediate settlement of a particular contract, or
direct that trading in a particular contract be for liquidation only.
The Fund's net assets are held in a brokerage account with the Clearing
Broker, and the Fund earns interest at a rate of 90% of the average yield on the
90-day U.S. Treasury Bills issued during that month. For the calendar year ended
December 31, 1996, the Clearing Broker had paid or accrued to pay interest of
$1,575,843 to the Fund. Similarly, for the calendar year ended December 31,
1995, the Clearing Broker had paid or accrued to pay interest of $1,389,521 to
the Fund.
RESULTS OF OPERATIONS
(1) FISCAL QUARTER ENDED JUNE 30, 1997.
The Fund recorded a loss of $2,147,031 or $16.31 per Unit for the second
quarter of 1997. This compares to a gain of $492,773 or $4.05 per Unit for the
second quarter of 1996.
During the first two months of the quarter the Fund experienced losses
primarily as a result of losses in precious metals and foreign exchange. The
third month experienced gains due to profitable positions in metals, interest
rates and stock indices. Overall, the second quarter of fiscal 1997 ended
negatively for the Fund's accounts managed by John W. Henry & Company, Inc. and
only slightly positive for Sabre Fund Management Limited. At June 30, 1997, John
W. Henry & Company, Inc. was managing 61.8% of the Fund's assets and Sabre Fund
Management Limited was managing 38.2% of the Fund's assets.
In April, yields on the U.S. Treasury 30-year bond soared to a nine-month
high, only to fall by month end resulting in losses in interest rates. The U.S.
dollar continued its rise in the weeks leading up to the meeting of the G-7
finance ministers, reaching new highs against the Japanese yen and the German
mark. Gains were realized in coffee as prices soared amid increasing concerns
about adequate supply. In precious metals, both gold and silver prices declined
as investors' concerns over U.S. inflation subsided. However, the Fund recorded
a loss of $876,680.83 or $6.70 per Unit in April.
Worldwide political events upset currency markets in May. The British pound
rallied sharply, but briefly, hitting its highest intraday level since August
1992 after a surprise decision by Britain's newly elected Labour Government to
give the Bank of England more autonomy in setting interest rates. In Japan,
official warnings of intervention to cap the U.S. dollar's rise against the
Japanese yen and a report that the Bank of Japan might raise a key interest rate
pushed the dollar to a 4 1/2 month low against the Japanese currency. Surprising
strength in the polls by French socialists and sharp disagreement in Germany
over the use of gold reserves to meet criteria for European union membership
threw the future
53
<PAGE>
of that monetary union in doubt. Trading in stock indices and agricultural
commodities generated gains, while trading in metals was mixed. The Fund
recorded a loss of $2,425,881.10 or $18.10 per Unit in May.
In June, gold prices fell to a four-year low as the U.S. dollar strengthened
and inflation indicators remained favorable. Positions in both gold and silver
were profitable. Continued uncertainty surrounding the European currency union
benefited bond markets outside the EMU circle of nations. In the currency
markets, the Swiss monetary authority's determination to keep the franc from
appreciating against major currencies succeeded in pushing the price of that
currency down. After reaching a 20-year high in May, coffee prices fell steadily
in June on news of higher world exports and concerns about the impact of high
prices on demand. The Fund recorded a gain of $1,155,530.98 or $8.49 per Unit in
June.
During the quarter there were 6,636.42 additional Units sold, including
303.82 Units sold to the General Partners. Additional Units sold during the
quarter represented a total of $2,325,600 before the reduction of selling
commissions and organizational costs of $199,064. Investors redeemed a total of
2,037.70 Units during the quarter. At the end of the quarter there were
135,351.77 Units outstanding (including 2,619.16 Units owned by the General
Partners).
During the fiscal quarter ended June 30, 1997, the Fund had no material
credit exposure to a counterparty which is a foreign commodities exchange.
The Fund currently only trades on recognized global futures exchanges. In
the event the Fund begins trading over the counter contracts, any credit
exposure to a counterparty which exceeds 10% of the Fund's total assets will be
disclosed.
(2) FISCAL QUARTER ENDED JUNE 30, 1996.
The Fund recorded a gain of $492,773 or $4.05 per Unit for the second
quarter of 1996. This compares to a profit of $1,014,167 or $9.02 per Unit for
the second quarter of 1995. During the first quarter of 1996, the Fund posted a
gain of $84,570 or $0.80 per Unit, which compares to a profit of $3,279,154 or
$29.36 per Unit for the first quarter of 1995.
Favorable positions in global currency and physical commodity markets
generated profits in the first and third months of the quarter. The second month
of the quarter saw losses in metals and global interest rates. Overall, the
second quarter ended positively for the Fund's accounts managed by John W. Henry
& Co., Inc. and Sabre Fund Management Limited. At June 30, 1996, John W. Henry &
Co., Inc. was managing 61.5% of the Fund's assets and Sabre Fund Management
Limited was managing 38.5% of the Fund's assets.
In April, crude oil prices continued to surge upwards as refiners pushed to
replenish record-low inventory levels. In the agricultural sector, prices of
wheat, corn and soybeans soared as export demand remained strong. The currency
markets saw relatively high U.S. bond yields which attracted investors to the
U.S. dollar, thus strengthening the dollar against the German mark and Swiss
franc. The Fund recorded a profit of $1,161,096 or $9.48 per Unit in April.
In May, the grain and oilseed markets were volatile as concerns over winter
crops were replaced by reports of poor planting conditions for spring crops.
Crude oil prices succumbed to political pressures and the expected impact on
world oil supplies of the long-anticipated U.N./Iraq oil agreement. In the
currency markets, the British pound declined to a two-year low against the U.S.
dollar early in the month, but rallied back by the end of the month well ahead
of the dollar as well as the German mark. The Fund recorded a loss of $840,378
or $6.83 per Unit in May.
In June, the metals markets were impacted by repercussions from the Sumitomo
copper trading losses and by an increase in the world supply of gold; the result
of selling by central banks. Crude oil prices reflected continued inventory
shortages and the renewal of tension in the Middle East. The U.S. dollar reached
a 28-month high against the Japanese yen early in the month, but ended lower at
month's end as
54
<PAGE>
investors turned to higher yielding European currencies. The Fund recorded a
profit of $172,055 or $1.40 per Unit in June.
During the quarter, additional Units sold consisted of 3,866.82 limited
partnership units; there were no general partner units sold. Additional Units
sold during the quarter represented a total of $1,170,200 before the reduction
of selling commissions and organizational costs of $104,838. Investors redeemed
a total of 2, 775 Units during the quarter. At the end of the quarter there were
123,646.08 Units outstanding (including 2,315.34 Units owned by the General
Partners).
During the fiscal quarter ended June 30, 1996, the Fund had no credit
exposure to a counterparty which is a foreign commodities exchange which was
material.
(3) FISCAL QUARTER ENDED MARCH 31, 1997.
The Fund recorded a gain of $1,442,108 or $11.59 per Unit for the first
quarter of 1997. This compares to gain of $84,570 or $0.80 per Unit for the
first quarter of 1996.
During the first two months, the Fund experienced gains primarily as a
result of profits in foreign exchange rates, while during the third month losses
were recorded due in part to the direction of U.S. interest rates. Overall, the
first quarter of fiscal 1997 ended positively for the Fund's accounts managed by
JWH and Sabre. At March 31, 1997, JWH was managing 65% of the Fund's assets and
Sabre JWH was managing 35% of the Fund's assets.
In January, the U.S. dollar continued to dominate world currencies,
reflecting both sound economic fundamentals and a policy, shared by both the
U.S. central bank and Treasury administration officials, in support of a strong
dollar. The Japanese yen suffered from problems in the Japanese banking sector.
Rising employment and weak economic numbers in Germany once again drove the
German mark down against the U.S. dollar. Trading in the British pound grew
increasingly volatile as prospects for an interest rate increase in Britain
weakened. Gold prices reached a three year low at mid-month. Therefore, the Fund
recorded a profit of $1,484,691 or $11.92 per Unit in January.
In February, the U.S. dollar reached new highs against the German mark,
Japanese yen and Swiss franc. The Federal Reserve chairman hinted of a possible
hike in U.S. interest rates which sent the dollar soaring. Volatility in global
interest rate markets continued to be fueled by speculation on the direction of
global interest rates. Early in the month, central banks in Germany, England and
the U.S. announced their decisions to keep rates stable. In commodity markets,
gold prices rose as demand was rekindled by the lowest spot prices since 1993.
In agricultural markets, a two-month bull trend in coffee prices continued as
unfavorable weather and labor strife in South America threatened supply. The
Fund recorded a gain of $33,813 or $.27 per Unit in February.
In March, speculation over the direction of U.S. interest rates unsettled
financial markets around the world. Rising U.S. interest rates, unease over
first quarter corporate earnings and lofty stock evaluations resulted in turmoil
in U.S. equity markets. In Europe, renewed speculation about a delay in the
European Union's plans for economic and monetary union pushed the German mark
higher against the U.S. dollar. Agricultural markets recorded profits resulting
from persistent supply concerns. Due to overall market turbulence, the Fund
recorded a loss of $76,396 or $.60 per Unit in March.
During the quarter, additional Units sold consisted of 9,164.28 limited
partnership Units; no general partner Units were sold. Additional Units sold
during the quarter represented a total of $3,371,200 before the reduction of
selling commissions and organizational costs of $296,158. Investors redeemed a
total of 2,902.34 Units during the quarter. At the end of the quarter there were
130,753.07 Units outstanding (including 2,315.34 Units owned by the General
Partners).
During the fiscal quarter ended March 31, 1997, the Fund had no material
credit exposure to a counterparty which is a foreign commodities exchange.
55
<PAGE>
The Fund currently only trades on recognized global futures exchanges. In
the event the Fund begins trading over the county contracts, any credit exposure
to a counterparty which exceeds 10% of the Fund's total assets will be
disclosed.
(4) FISCAL QUARTER ENDED MARCH 31, 1996.
The Fund recorded a gain of $84,570 or $0.80 per Unit for the first quarter
of 1996. During the first month of the quarter, the Fund experienced gains
primarily as a result of profits in foreign exchange rates. The Fund then
recorded a loss in the following two months due primarily to unprofitable
currency positions and losses in trading stock indices and metals. The first
quarter of fiscal 1996 ended positively for the Fund's accounts managed by JWH
and Sabre. At March 31, 1996, JWH was managing 60.8% of the Fund's assets and
Sabre was managing 39.2% of the Fund's assets.
In January, the primary influence on markets was the U.S. dollar, which rose
against most currencies and hit its highest level in two years against the
Japanese yen. Trading in foreign exchange generated the majority of profits.
Trading in stock indices was slightly profitable. The Fund recorded a profit of
$1,324,808 or $10.98 per Unit in January.
In February, the U.S. dollar lost ground against the Japanese yen, British
pound, Swiss franc and German mark, resulting in the Fund giving back some of
the profits earned in January. The largest decline occurred in Japanese yen
positions. In the metals markets, subsiding inflation fears and weakening demand
pushed gold prices beneath the $400 threshold reached only a month before.
Trading in interest rates and stock indices was also unprofitable. The Fund
recorded a loss of $1,188,721 or $9.76 per Unit in March.
In March, trading was volatile, reflecting investors' confusion over the
direction of the U.S. economy. In addition, political tensions between China and
Taiwan and "Mad Cow" disease outbreak in Britain further added to economic
uncertainties. Elections in Australia, which resulted in the end of 13 years of
Labor Party rule, strengthened the Australian dollar to levels not recorded in
at least 10 months. Trading in stock indices and metals was unprofitable. As a
result, the Fund recorded a lost of $51,517 or $.42 per Unit in March.
During the quarter, additional Units sold consisted of 4,662.19 limited
partnership Units; no general partner Units were sold. Additional Units sold
during the quarter represented a total of $1,413,400 before the reduction of
selling commissions and organizational costs of $126,466. Investors redeemed a
total of 2,733.64 Units during the quarter. At the end of the quarter there were
122,554.27 Units outstanding (including 2,315.34 Units owned by the General
Partners).
(5) FISCAL YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1996.
For the fiscal year ended December 31, 1996, the Limited Partners redeemed a
total of 13,946.78 Units for $4,000,267. For the fiscal year ended December 31,
1995, the Limited Partners redeemed a total of 9,012.50 Units for $2,332,058.
During 1996, investors purchased 17,812.20 Units for $5,568,008. The General
Partners did not purchase any Units in 1996.
On December 31, 1996, the Fund had unrealized profits of $868,069 and cash
on deposit of $39,998,782. These positions required margin deposits at the
Clearing Broker of $2,645,728. The total balance of the Fund's account at the
Clearing Broker was $41,516,951. These figures compare to unrealized profits of
$1,705,569, cash on deposit of $31,440,196, margin requirements of $3,655,729
and total balance of the Fund's account of $33,145,765 as of December 31, 1995.
On December 31, 1994, the Fund had unrealized profits of $1,340,020 and cash on
deposit at the Clearing Broker of $22,041,930. These positions required margin
deposits at the Clearing Broker of $2,923,318. The total balance of the Fund's
account was $23,381,950.
During the fiscal year ended December 31, 1996, the Fund had no credit
exposure to a counterparty which is a foreign commodities exchange which was
material.
56
<PAGE>
The Fund currently only trades on recognized global futures exchanges. In
the event the Fund begins trading over the counter contracts, any credit
exposure to a counterparty which exceeds 10% of the Fund's total assets will be
disclosed.
See Footnote 5 of the Fund's Financial Statements included in this
Prospectus for procedures established by the General Partners to monitor and
minimize market and credit risks for the Fund. In addition to the procedures set
out in such Footnote 5, the General Partners review on a daily basis reports of
the Fund's performance, including monitoring of the daily net asset value of the
Fund. The General Partners also review the financial situation of the Fund's
Clearing Broker on a monthly basis. The General Partners rely on the policies of
the Clearing Broker to monitor specific credit risks. The Clearing Broker does
not engage in proprietary trading and thus has no direct market exposure which
provides the General Partners assurance that the Fund will not suffer trading
losses through the Clearing Broker.
The Fund posted positive returns for 1996 and 1995 but suffered modest
losses for its Limited Partners in 1994.
In 1996, there were numerous opportunities in the global futures markets and
the Original Trading Advisors were well-positioned to profit from many of them.
The Fund produced a net gain of 20.01% for the calendar year. The profits for
the Fund were made in the latter part of the year in currencies, global interest
rates, energies and precious metals. The U.S. dollar reached a ten-week high
against the Japanese yen, the German mark and the Swiss franc in September as
sound economic fundamentals kept the U.S. dollar strong against most of the
major currencies. The British pound was even stronger than the U.S. dollar as
Europe debated European Monetary Union issues and viewed the pound as a safe
haven. These factors led to excellent trends in the currency markets and
profitable trading. Signs of a slowing U.S. economy drove the 30-year Treasury
bond to its highest level in six and one-half years. Foreign central banks were
heavy buyers of U.S. bonds, producing a nice profit for the Fund. In Asia,
investors flocked to the higher-yielding Australian bond as the yield on the
Japanese Government bond was at its lowest level in the nation's history. The
Fund benefited handsomely from opposite positions in both the Australian and
Japanese bonds. The Fund ended the year with a profit of $6,701,475.
In 1995, the Original Trading Advisors were well-positioned to capitalize on
many trading opportunities, especially in the financial sector, which produced a
net gain of 23.03% for the year. The first quarter of the year was the most
profitable for the Fund. The February collapse of Barings PLC created
opportunities, especially in the Far Eastern markets. The Barings demise had a
global effect, sending stock prices falling around the world and driving
investors toward the safety of German marks and U.S. Treasury bonds. The German
mark benefited substantially from the uncertain state of many world economies
and gained steadily versus the U.S. and other European currencies. Long
positions in foreign exchange generated sizable gains, with positions in the
Japanese yen, yen bond and the Nikkei 225 being the most favorable. The balance
of the year was much quieter in terms of market opportunities, trends and
profits. The Fund ended the year with a profit of $5,755,268.
The year 1994 was a challenging year for the Fund, which posted a loss of
6.9%. Economic and political instability worldwide created disruptions in the
financial markets. The U.S. Administration was under fire, there was major trade
tension between the U.S. and Japan, instability in Russia, an assassination in
Mexico and conflict in Korea, all resulting in a sharp decline in global stock
and bond prices. The Yen/U.S. Dollar relationship fluctuated sharply due to the
concerns of trade barriers or a potential trade war with Japan. The U.S. Dollar
declined relative to the European currencies and even reached the lowest post
World War II levels versus the Japanese Yen. Physical commodities offered a few
opportunities. Coffee had a major rally after a severe freeze devastated the
growing area in Brazil, sugar prices rose to a three year high in October and
there were modest gains in precious metals. The Fund ended the year with a loss
of $1,530,228.
The primary sources of growth for the Fund over the last three years have
been additional sales (net sales of $14.6 million) and trading gains (over $10.9
million). In particular, both sources caused the increase in "Cash on deposit
with the Clearing Broker" and "Total partners' capital" on the Statement of
Financial Condition. Since the total capital increased significantly, the
interest earned on those assets increased, showing over $12,000 more "Interest
receivable" at the end of 1996 over 1995.
57
<PAGE>
Trading gains were significantly greater in the last quarter of 1996
compared to the last quarter of 1995. This results in the increase of over
$800,000 in "Accrued incentive fees" recorded as of the end of the year from
1995 to 1996 in the Statement of Financial Condition. During times of increased
trading gains, investors tend to redeem fewer units of the Fund. This is evident
in the reduction of $138,000 in "Redemptions payable" from 1995 to 1996.
Although the total trading gains for 1996 were greater than for 1995, more of
the gains had been realized as of the last day of the year in 1996 than 1995,
and "Unrealized gain on open futures contracts" shows a decrease of $837,500.
From 1995 to 1996 there was an increase of over $650,000 in "Receivable for
units sold". This variance is caused by the delay of a wire transfer from the
escrow agent for the Fund to the Clearing Broker on the last day of the year for
the new Fund subscribers in December. In 1995, the wire had already been
received by the Clearing Broker on the last day of the year, so no receivable
was recorded. Since this year-end wire was not received at the Clearing Broker
until January 2, 1997, the investment from the December 1996 month-end
subscribers to the Fund are recorded as a receivable.
The Fund recognized an increase in excess of $7 million in trading gains
from 1994 to 1995, and another increase of almost $2 million from 1995 to 1996.
Although the unrealized gain balance was lower at the end of 1996 versus 1995,
more profits had been realized during the year, so the Fund realized a net
trading gain increase. These increases in trading gains showed their most direct
impact in the increase in "Incentive fees" over the periods, showing an increase
of $263,000 from 1994 to 1995 and another $528,000 in 1995 to 1996. Trading
losses from 1994 that had to be recouped prior to additional incentive fees
being earned by the traders caused the variance between the increase in trading
profits versus the increase in incentive fees.
These increases in trading income, as well as the increased sales of the
Fund resulted in increases in "Interest income" ($600,000 in 1994 to 1995 and
$186,000 in 1995 to 1996), "Management fees " ($300,000 and $60,000) and
"General partner fee to IDSFC and CISI" ($124,000 and $120,000). The increase in
total capital of the Fund allowed the traders to increase the size of their
trades over the periods. These larger number of contracts traded caused the
increase in both "Commissions paid to AXP Advisors and CIS" ($62,000 for 1994 to
1995 and $150,000 for 1995 to 1996) as well as "Exchange, clearing and NFA fees"
($3,000 and $12,000).
The trading gains for 1995 and the Illinois Personal Property Replacement
Tax accrued from them caused the increase of $79,000 in "Operating expenses"
from 1994. The actual tax due was less than the amount accrued. The reversal of
the overaccrual caused the decrease noted in 1996.
The dollar showed greater strength in 1996, when compared to the two earlier
years during which the dollar had weakened. This dollar strength caused the Fund
to record a loss of $108,000 in 1996 on currencies held by the Fund in other
than U.S. Dollars, when 1995 and 1994 had shown gains of $190,000 and $127,000
respectively.
INFLATION
Inflation does have an effect on commodity prices and the volatility of
commodity markets; however, continued inflation is not expected to have a
material adverse effect on the Fund's operations or assets.
CHARGES TO THE FUND
The charges to the Fund are summarized in tabular form beginning on page 18
of this Prospectus. Investors should review the following narrative, which
provides more information about the fees and expenses payable by the Fund, in
conjunction with that summary.
The estimate of the Fund's "Break-even" Point is shown on page 13 of this
Prospectus.
58
<PAGE>
The General Partners will furnish each Limited Partner with a monthly
account statement describing the performance of the Fund and setting forth
aggregate management and advisory fees, brokerage commissions, and other
expenses incurred or accrued by the Fund, as well as such other information as
is required by CFTC regulations to be reported to Limited Partners. See "AMENDED
AND RESTATED LIMITED PARTNERSHIP AGREEMENT--REPORTS AND ACCOUNTING."
DESCRIPTION OF CHARGES TO THE FUND
ADVISORY FEES. JWH receives a monthly management fee of 1/3 of 1%, Welton
receives a monthly management fee of 1/4 of 1% and Sabre receives a monthly
management fee of 1/4 of 1%, in each case, of the Fund's Net Asset Value subject
to its management at month-end. In addition, JWH receives a quarterly incentive
fee equal to 15% of Trading Profits, if any, attributable to trading directed by
it and Welton and Sabre receive a quarterly incentive fee equal to 18% of
Trading Profits, if any, attributable to trading directed by it. See "RISK
FACTORS--Distortions Produced by Incentive Fee Arrangement." Management fees are
paid monthly and deducted prior to the calculation of the quarterly incentive
fees. "TRADING PROFITS" (for purposes of calculating each Trading Advisor's
incentive fee only) is defined as the excess (if any) of (A) the Net Asset Value
of the Fund's assets under management of the Trading Advisor as of the last day
of any calendar quarter (before deduction of incentive fees payable for such
quarter) over (B) the highest Net Asset Value of the Fund's assets under the
management of the Trading Advisor as of the last day of the most recent calendar
quarter for which an incentive fee was due and owing. In computing Trading
Profits, the difference between (A) and (B) above shall be (i) decreased by all
interest realized on the Trading Advisor's allocable share of Fund assets
subject to the Trading Advisor's management between the dates referred to in (A)
and (B), and (ii) increased by the Trading Advisor's allocable share of any
distributions or redemptions paid or payable by the Fund as of, or subsequent
to, the date in (B) through the date in (A), and (iii) adjusted (either
increased or decreased, as the case may be) to reflect the Trading Advisor's
allocable share of any additional allocations or negative reallocations of Fund
assets from the date in (B) to the last day of the calendar quarter as of which
the current incentive fee calculation is made. See "RISK FACTORS--Distortions
Produced by Incentive Fee Arrangement." Incentive fees and management fees paid
or payable by the Fund to a Trading Advisor shall only be charged against the
assets managed by the Trading Advisor receiving or to receive such fees.
Similarly, brokerage commissions shall be allocated against the assets under the
management of the Trading Advisor whose trading decisions generated those
brokerage commissions.
Incentive fees to a Trading Advisor shall be paid within 10 business days
after the end of the quarter for which they are earned. For purposes of
determining whether an incentive fee is payable by Units which are redeemed
other than at quarter end, the dates of such redemptions shall be considered as
if they were the last day of the quarter.
If an incentive fee shall have been paid by the Fund to a Trading Advisor in
respect of any calendar quarter and the Trading Advisor shall incur subsequent
losses on the Fund's assets subject to its management, the Trading Advisor shall
nevertheless be entitled to retain amounts previously paid to it in respect of
Trading Profits. Management fees shall be payable regardless of trading
performance.
Incentive fees shall not be payable on interest earned on Fund assets. The
incentive fees payable to a Trading Advisor are based upon Trading Profits, if
any, as of the end of each quarter, including any unrealized gains or losses in
open positions in commodity interests. Unrealized gains attributable to
appreciation in open positions may never be realized by the Fund when those
positions are closed. Upon the expiration or termination of a Trading Advisor's
Advisory Contract, the Fund will be charged an incentive fee as though such
expiration or termination date were the end of a quarter.
SAMPLE ADVISORY FEE CALCULATION. Assume, for example, that JWH was
allocated one million dollars at the beginning of the quarter and that the
advisor makes profits of $500,000 during the first quarter. Using the incentive
fee percentage of 15%, as will be paid to JWH, the fees paid would be $75,000
(15% of
59
<PAGE>
$500,000). The new value of the fund would be $1,425,000, after deducting the
incentive fee paid. This would be the "new trading high" that would have to be
exceeded prior to JWH receiving another incentive fee. If in the following
quarter, the account realizes a loss of $250,000 pursuant to trading directed by
JWH, no incentive fee would be paid. The value of the account would be
$1,175,000 and the level to be exceeded before the next incentive fee payment
would be required would be $1,425,000. If in the following quarter, the advisor
earns profits of $400,000, it would be paid fees of $22,500, ($1,175,000 +
$400,000 - $1,425,000) x .15). The value and the new high value to exceed before
any further incentive fees are earned would then be $1,552,500.
<TABLE>
<CAPTION>
ACCOUNT
TO RECAP: VALUE PRIOR HIGH FEES PAID
- ------------------------------------------------------------- ------------ ------------- -----------
<S> <C> <C> <C>
Inception.................................................... $ 1,000,000 $ 1,000,000
Quarter 1 profit............................................. 500,000 500,000 $ 75,000
Incentive fees............................................... (75,000) (75,000)
------------ -------------
End Quarter 1................................................ $ 1,425,000 $ 1,425,000
Quarter 2 loss............................................... (250,000)
Incentive fees............................................... 0 0
------------ -------------
End Quarter 2................................................ $ 1,175,000 $ 1,425,000
Quarter 3 profit............................................. 400,000 150,000 22,500
Incentive fees............................................... (22,500) (22,500)
------------ -------------
End Quarter 3................................................ $ 1,552,500 $ 1,552,500 $ 97,500
</TABLE>
BROKERAGE EXPENSES. Cargill Investors Services, Inc. acts as the Fund's
Clearing Broker. Effective September 1, 1995, the Fund pays a brokerage
commission of $35 (plus NFA, exchange and clearing fees and give-up, electronic
trading and EFP fees, if applicable) per round turn trade (and any permitted
future increase in such rate). From its inception until September 1, 1995, the
Fund paid brokerage commissions at a rate of $50 per round turn trade. With
respect to any trading conducted by the Fund on a foreign exchange, the Fund
pays the equivalent in foreign funds to $35 per trade plus any differential
associated with execution costs on non-U.S. exchanges. The Fund may be required
to pay brokerage commissions in excess of $35 for each round turn trade on
certain non-U.S. exchanges, and any such additional amounts would be direct
costs associated with the execution of trades on such non-U.S. exchanges. The
Fund is required to pay, in addition to the brokerage charge described above,
the NFA per trade transaction fee (which is currently assessed at a rate of
14 CENTS per round turn futures transaction and 7 CENTS per options trade) and
exchange and clearing fees and give-up, electronic trading and EFP fees, if
applicable. Exchange fees range from $0 to $2 per trade plus any differential
for non-U.S. exchanges, if applicable, depending on the exchange where a trade
is executed; clearing fees range from $0 to $1.70 per trade plus any
differential for non-U.S. exchanges, if applicable, also depending on the
exchange where a trade is executed; give-up and electronic trading fees range
from $2 to $4 per trade, if applicable depending on the exchange where a trade
is executed.
In addition to the brokerage commission described in the preceding
paragraph, the Clearing Broker receives and retains as part of its compensation
for providing brokerage services to the Fund a portion of the interest earned on
the assets of the Fund on deposit with the Clearing Broker. As described below
under "CHARGES TO THE FUND--INTEREST ALLOCATION," the Clearing Broker will
credit the Fund with interest on 100% of the Fund's average monthly net assets
on deposit at the Clearing Broker at a rate equal to 90% of the average 90-day
Treasury bill rate for Treasury bills issued during that month. The Clearing
Broker receives and retains any increment of interest earned on the assets of
the Fund in excess of the amount it credits to the Fund under this arrangement.
Historically, since the inception of trading by the Fund, the incremental
interest retained by the Clearing Broker has annually ranged between 0.4% and
1.7% of the Fund's average Net Asset Value.
60
<PAGE>
The Fund also reimburses the Clearing Broker for all delivery, insurance,
storage, service and other charges that it incurs and pays to third parties in
connection with the Fund's trading.
The Fund pays $35 commission per round turn trade to the Clearing Broker,
which in turn pays $20 per round turn trade to American Express Financial
Advisors Inc. in its capacity as Introducing Broker for the Fund. American
Express Financial Advisors Inc. receives its portion of such commissions for its
ongoing services to the Fund and the Limited Partners. Such services include:
1. Responding to inquiries from Limited Partners from time to time as
to the Net Asset Value of the Fund's Units;
2. Providing information to the Limited Partners concerning the futures
markets and the Fund's activities;
3. Responding to inquiries of Limited Partners related to the Fund's
monthly account statements, annual reports, financial statements, and annual
tax information provided periodically to the Limited Partners;
4. Providing information to Limited Partners regarding redemptions of
Units;
5. Assisting Limited Partners in redeeming Units; and
6. Providing other services requested from time to time by Limited
Partners.
The allocation of the total per trade rate of brokerage commissions ($35) to
be paid by the Fund between the Clearing Broker ($15) and the Introducing Broker
($20) was determined by the General Partners after their evaluation of the
respective services of the Clearing Broker and the Introducing Broker to the
Fund. This allocation could change in the future if the General Partners
determine that a change in the allocation formula is warranted by a change in
the respective services provided by the Clearing Broker and the Introducing
Broker. Prospective investors should be aware that because American Express
Financial Advisors Inc. receives a portion of the commodity brokerage
commissions generated by the Fund and allocable to outstanding Units, American
Express Financial Advisors Inc. has a conflict of interest in performing certain
services for the Limited Partners as to whether or not they should redeem Units.
See "CONFLICTS OF INTEREST."
COMPETITIVENESS OF BROKERAGE EXPENSES. Because the Clearing Broker for the
Fund is affiliated with one of the Fund's General Partners, Guidelines
promulgated by the North American Securities Administration Association, Inc.
("NASAA") and various states require that the brokerage transactions executed
for the Fund by the Clearing Broker be effected at competitive rates. In
evaluating the reasonableness of the brokerage expenses of the Fund and the
competitiveness of such expenses with those paid by other public commodity
funds, the General Partners believe an investor should focus, among other
factors, on the brokerage commission charged by the Clearing Broker, the portion
of interest earned on the Fund's assets that is retained by the Clearing Broker,
the ratio of total brokerage expenses to the Fund's Net Asset Value and the
nature and quality of the brokerage services rendered by the Clearing Broker and
the Introducing Broker.
Guidelines promulgated by NASAA provide that brokerage commission charges
will be presumptively reasonable if they satisfy either of the following maximum
rates:
1. 80% of the Clearing Broker's published retail rate plus pit
brokerage fees, or
2. 14% annually of the Fund's average net assets excluding assets not
directly related to trading activity.
The NASAA guidelines also provide that any interest income earned on the
Fund's assets which is retained by the Clearing Broker must be included with the
amounts of brokerage commissions the Clearing Broker receives in determining
whether such maximum rate limitations are satisfied.
61
<PAGE>
The rate of $35 per round turn trade (plus NFA, exchange and clearing fees
and give-up, electronic trading and EFP fees, if applicable) is approximately
two-thirds of the Clearing Broker's regular retail rate per round turn trade.
The Fund's commission rate is not the lowest rate which the Clearing Broker
charges to any account, including commodity pools, nor is it as low as the rate
which might be charged by other commodity brokerage firms for similar trades.
Further since the Clearing Broker is affiliated with one of the General Partners
and the Introducing Broker is affiliated with the other General Partner, there
has been no arm's-length negotiation of brokerage commissions applicable to the
Fund's trades, and a conflict of interest exists between the General Partners'
duty to the Fund to limit or reduce the cost of brokerage commissions and the
interest of the General Partners in the generation of brokerage commissions
which would benefit the Clearing Broker and the Introducing Broker as the Fund's
commodity brokers. See "CONFLICTS OF INTEREST" and "FIDUCIARY RESPONSIBILITY OF
THE GENERAL PARTNERS." The General Partners do not intend to negotiate with any
other brokerage firms for brokerage services for the Fund so long as the
brokerage agreement with the Clearing Broker and Introducing Broker is in
effect.
Although the $35 round turn trade commission rate charged to the Fund by the
Clearing Broker is not the lowest rate charged by the Clearing Broker to any
account, including commodity pools, nor is it as low as rates which might be
charged by other commodity brokerage firms for similar trades, the General
Partners believe that the overall brokerage expenses of the Fund, (which
includes the $35 per round turn commission rate and the portion of interest
earned on Fund assets which is retained by the Clearing Broker), are very
competitive with the brokerage expenses charged to public commodity funds of
comparable size and structure in view of the nature and quality of the services
rendered by the Clearing Broker, the Introducing Broker and their affiliates and
the frequency of trades made by the Trading Advisors. Historically, since the
inception of trading by the Fund, the annual brokerage expenses (including the
previous round turn commission rate of $50 and interest income retained by the
Clearing Broker) of the Fund have ranged between 2.5% and 6.2% of the Fund's
average daily Net Asset Value, well below the 14% limit on presumptively
reasonable brokerage expenses as outlined in the NASAA Guidelines.
The General Partners will annually review the brokerage commission charges
paid by the Fund in combination with administrative fees, periodic operating
expenses, transaction fees and costs, the Trading Advisors' management fees, and
any financial benefit from interest earned on Fund assets in excess of the
interest paid to the Fund to assure that the Fund does not pay such charges in
excess of 12% of the Fund's average Net Asset Value (based on Net Asset Value on
the first day of each month) on a fiscal year basis-- a level 2% below the
limits specified in the NASAA Guidelines for brokerage commission charges and to
assure that the brokerage charges for the Fund are within the range of those
generally charged to public commodity funds of comparable size and structure in
view of the nature and quality of the brokerage services being rendered. In
determining annually whether such charges paid by the Fund are within the NASAA
Guidelines as described above, the General Partners will include within the
calculation of such charges all interest income earned on the Fund's assets
which is retained by the Clearing Broker.
Historically the Fund's annual brokerage expenses have ranged from
approximately 2.5% to 6.2% of the Fund's Net Asset Value. Based on currently
anticipated commission rates and information provided by Trading Advisors as to
the frequency of their past trades, the General Partners estimate that, at the
reduced $35 per round turn rate charged to the Fund, annual brokerage expenses
payable by the Fund will be toward the lower end of the historical range. Actual
future charges may differ substantially from this historical range since the
actual amounts paid by the Fund will depend on the volume and frequency of
trading directed by the Trading Advisors and the brokerage commission rates
applicable to the Fund's trading.
From the $35 per round turn commission for foreign exchange transactions,
the Fund pays a brokerage commission of $35 per round turn trade to CISFS. CISFS
acts as the Fund's forward contract broker for transactions effected by the
Trading Advisors for the future delivery of a specified lot of a
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particular currency. CISFS reallocates $20 to American Express Financial
Advisors in its capacity as Introducing Broker.
ADMINISTRATIVE FEES. Each of the General Partners receives an annual
administrative fee based on the Fund's Net Asset Value (as defined in "CERTAIN
DEFINITIONS," below) on the first business day of each fiscal year of the Fund.
The annual administrative fee payable to IDS Futures is 1.125% of the Fund's
beginning Net Asset Value for each fiscal year, and the annual administrative
fee payable to CISI is 0.25% of the Fund's beginning Net Asset Value for each
fiscal year.
INTEREST ALLOCATION. The Fund receives interest from the Clearing Broker on
100% of its average monthly net assets on deposit at the Clearing Broker at a
rate of interest equal to 90% of the average 90-day Treasury bill rate for
Treasury bills issued during that month. The Clearing Broker receives and
retains any increment of interest earned on the assets of the Fund in excess of
the amount paid to the Fund. The amount of interest income which will be
retained by the Clearing Broker under this arrangement will vary over time,
depending on applicable interest rates and the Net Asset Value of the Fund. From
1987 to 1996 this amount ranged from $37,083 to $175,094, or between .41% and
1.66% of the Fund's Net Asset Value. The General Partners anticipate future
percentages to remain at the lower end of this range due to an increase in the
rate of interest credited by the Clearing Broker from 80% to 90% of such average
90-day Treasury bill rate in July of 1993.
OFFERING EXPENSE. The General Partners have agreed to advance the expenses
of this offering, which include legal, auditing, accounting, marketing, filing,
registration and recording fees plus printing expenses and escrow charges. The
General Partners will receive the Offering Expense charge to defray the amounts
of offering expenses that they have advanced. If the total Offering Expense
Charge received by the General Partners exceeds the actual offering expenses
incurred by them, the excess shall be retained by the General Partners. If
actual offering expenses exceed the total Offering Expense Charge, the General
partners shall pay, without reimbursement from the Fund, such excess.
SALES CHARGE. The Selling Agent will receive the Sales Charge from the
proceeds of the offering with respect to Units sold to investors other than
Affiliated Purchasers. This Sales Charge will consist of 6% of the first $50,000
subscribed, 4% of the second $50,000, 2% of the subsequent $400,000, and 1% of
any amount of the subscription exceeding $500,000. The maximum amount of such
payments to the Selling Agent will be $2,795,856.72 if all of the Units offered
hereby are sold to non-Affiliated Purchasers and $46,597,612 in new capital is
raised in this offering and no single purchaser subscribes for more than
$50,000.
OTHER PERIODIC EXPENSES. The Fund pays periodic legal, accounting,
auditing, printing, recording and filing fees, and postage charges, all of which
are currently estimated at approximately 1% of the Fund's Net Asset Value
annually, and extraordinary expenses, which could include expenses such as the
cost of litigation to which the Fund might become a party. All periodic expenses
shall be billed directly to the Fund.
CERTAIN DEFINITIONS
(1) NET ASSET VALUE. Net Asset Value means the Fund's total assets less
total liabilities, including any liability for organization and offering
expenses to be determined on the basis of generally accepted accounting
principles, consistently applied, except as set forth below. For purposes of
this calculation:
(a) Net Asset Value shall include any unrealized profit or loss on
securities and open commodity positions and any other credit or debit
accruing to the Fund but unpaid or not received by the Fund.
(b) All securities and open commodity positions shall be valued at their
then market value which means, with respect to open commodity positions, the
settlement price as determined by the exchange on which the transaction is
effected or the most recent appropriate quotation as supplied by the
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Clearing Broker or banks through which the transaction is effected. If there
are no trades on the date of the calculation due to operation of the daily
price fluctuation limits (see "GLOSSARY") or due to a closing of the
exchange on which the transaction is executed, the contract will be valued
at fair value as determined by the General Partners. Interest, if any, shall
accrue monthly.
(c) Brokerage commissions on open positions shall be accrued in full
upon the initiation of such open positions as a liability of the Fund.
Management fees shall be paid monthly and deducted prior to the calculation
of the quarterly incentive fee.
(2) NET ASSET VALUE PER UNIT. Net Asset Value per Unit means the Net Asset
Value divided by the number of Units outstanding on the date of calculation.
(3) TRADING PROFITS. Trading Profits (for purposes of calculating a
Trading Advisor's incentive fees only) is defined as the excess (if any) of (A)
the Net Asset Value of the Fund's assets under management of the Trading Advisor
as of the last day of any calendar quarter (before deduction of incentive fees
payable for such quarter) over (B) the highest Net Asset Value of the Fund's
assets under the management of the Trading Advisor as of the last day of the
most recent calendar quarter for which an incentive fee was due and owing. In
computing Trading Profits, the difference between (A) and (B) above shall be (i)
decreased by all interest realized on the Trading Advisor's allocable share of
Fund assets subject to the Trading Advisor's management between the dates
referred to in (A) and (B), and (ii) increased by the Trading Advisor's
allocable share of any distributions or redemptions paid or payable by the Fund
as of, or subsequent to, the date in (B) through the date in (A), and (iii)
adjusted (either increased or decreased, as the case may be) to reflect the
Trading Advisor's allocable share of any additional allocations or negative
reallocations of Fund assets from the date in (B) to the last day of the
calendar quarter as of which the current incentive fee calculation is made. The
incentive fee shall not be payable on interest earned on Fund assets. For
purposes of calculating Trading Profits attributable to the assets under the
management of a Trading Advisor only, the definition of Net Asset Value shall be
modified, insofar as it takes into consideration the amount of incentive and
management fees payable by and brokerage commissions accrued by the Fund, to
provide for the allocation of such incentive and management fees and brokerage
commissions specifically to the assets under the management of the Trading
Advisor which is entitled to such fees or whose trading decisions generated
those brokerage commissions.
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<PAGE>
CAPITALIZATION
The table below shows the capitalization of the Fund as of June 30, 1997.
<TABLE>
<CAPTION>
TITLE OF CLASS OUTSTANDING(1)(2)
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Units of General Partnership Interest(3).................................... 2,619.16
Units of Limited Partnership Interest....................................... 132,732.62
Total Partners' Contributions (including General Partners' capital
contributions)............................................................ $ 36,845,292
</TABLE>
- ------------------------
(1) As of June 30, 1997, 132,732.62 Units of Limited Partnership Interest and
2,619.16 Units of General Partnership Interest have been issued and are
outstanding under the Delaware Revised Uniform Limited Partnership Act. The
Units of General Partnership Interest shown as outstanding represent capital
contributions to the Fund by the General Partners. The General Partners have
agreed to make such additional capital contributions on an equal basis as
are necessary to maintain an investment in an amount equal to the lesser of
3% of the aggregate capital contributions of all Partners or $100,000, but
in no event less than 1% of such contributions. As of June 30, 1997,
$42,867,212 remained available for sale pursuant to the Fund's registration
statement declared effective June 26, 1995.
(2) Because the price of the Units cannot be determined in advance, the table
cannot present the possible number of Units sold or the amounts of capital
contributions that may be received for Units.
(3) No Sales Charge will be charged to the General Partners for any Units they
purchase in connection with this offering; therefore, such interest will be
purchased at a price of Net Asset Value per Unit plus the Offering Expense
Charge per Unit.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS
In evaluating the conflicts of interest described under "CONFLICTS OF
INTEREST," an investor should be aware that the General Partners have a
fiduciary responsibility to the Limited Partners to exercise good faith and
fairness in all dealings affecting the Fund. Their fiduciary duties extend to
the responsibility for safekeeping and use of all funds and assets of the Fund,
although by law the Fund's assets will not be in their actual custody. Except as
provided herein, the General Partners shall not employ or permit others to
employ such funds and assets in any manner except for the exclusive benefit of
the Fund. Other duties and obligations of the General Partners are set forth in
the Amended and Restated Limited Partnership Agreement. See "AMENDED AND
RESTATED LIMITED PARTNERSHIP AGREEMENT" and Exhibit A. In this regard, it should
be noted that, although the General Partners may terminate the advisory
contracts with the Trading Advisors under certain circumstances, the General
Partners may not direct any part of the Fund's trading. After the expiration or
termination of an advisory contract with a Trading Advisor, the General Partners
either will continue to retain the same Trading Advisors or will retain new or
additional commodity trading advisor(s) to direct trading. See "CONFLICTS OF
INTEREST."
Cases have been decided under the common law or statutory law of
partnerships in certain jurisdictions to the effect that a limited partner may
institute legal action on behalf of himself/herself and all other similarly
situated limited partners (a "CLASS ACTION") to recover damages from the General
Partners for violations of fiduciary duties, or on behalf of a partnership (a
partnership "DERIVATIVE ACTION") to recover damages from a third party where the
General Partners have failed or refused to institute proceedings to recover such
damages. In addition, limited partners may have the right, subject to applicable
procedural and jurisdictional requirements, to bring partnership class actions
in federal court to enforce their rights under federal securities laws and the
rules and regulations promulgated thereunder by the SEC. Limited partners who
have suffered losses in connection with the purchase or sale of their interest
in a limited
65
<PAGE>
partnership may be able to recover such losses from the general partner where
the losses result from a violation by the general partner of the anti-fraud
provisions of the federal securities laws.
Under certain circumstances, limited partners also have the right to
institute a reparations proceeding before the CFTC against the General Partners
(registered commodity pool operators), Cargill Investor Services, Inc. (a
registered futures commission merchant), American Express Financial Advisors
Inc. (a registered introducing broker), and the Trading Advisors (registered
commodity trading advisors), as well as those of their respective employees who
are required to be registered, under the Commodity Exchange Act, as amended, and
the rules and regulations promulgated thereunder. In addition, arbitration
proceedings may be brought before the NFA against persons who are members of
that organization. The General Partners, the Clearing Broker, the Introducing
Broker, and the Trading Advisors are members of the NFA. The Futures Trading Act
of 1982 created a private right of action under the Commodity Exchange Act, as
amended. Investors in commodities and in commodity pools may, therefore, invoke
the protections provided by such legislation. See "DESCRIPTION OF COMMODITY
TRADING--REGULATION."
LIMITED PARTNERS SHOULD, HOWEVER, BE AWARE THAT IN ENDEAVORING TO RECOVER
DAMAGES IN SUCH ACTIONS, IT WOULD GENERALLY BE DIFFICULT TO ESTABLISH AS A BASIS
FOR LIABILITY THAT COMMODITY TRADING HAS BEEN EXCESSIVE. THIS IS DUE TO THE
BROAD DISCRETION GIVEN TO THE TRADING ADVISORS IN THE ADVISORY CONTRACTS, THE
EXCULPATORY PROVISIONS CONTAINED IN SUCH CONTRACTS AND THE AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT (SEE "THE TRADING ADVISORS--THE ADVISORY
CONTRACTS") AND THE VAGUENESS OF STANDARDS DEFINING EXCESSIVE TRADING.
The foregoing summary describing in general terms the remedies available to
limited partners under federal law is based on statutes, rules and decisions as
of the date of this Prospectus. This is a rapidly developing and changing area
of the law. Therefore, Limited Partners who believe that the General Partners
may have violated the law should consult their own counsel as to their
evaluation of the status of the applicable law at such time.
The Amended and Restated Limited Partnership Agreement provides that the
General Partners shall not be liable to the Fund or to the Limited Partners for
any loss suffered by the Fund that arises out of any action or inaction of the
General Partners, if such action or inaction did not constitute negligence or
misconduct of the General Partners and if the General Partners, in good faith,
determined that their action or inaction was in the best interest of the Fund.
In addition, the Fund may indemnify the General Partners against expenses,
including attorneys' fees, judgments and amounts paid in settlement, actually
and reasonably incurred by the General Partners in connection with the Fund,
PROVIDED that the expenses for which indemnification is sought were not the
result of negligence or misconduct by the General Partners. Under certain
circumstances, as described in the Fund's Amended and Restated Limited
Partnership Agreement, affiliates of the General Partners may also be granted
exculpation or indemnification.
The Fund has also agreed to indemnify the Trading Advisors and their
affiliates under certain conditions. (See "RISK FACTORS--TRADING
ADVISORS--LIMITATION OF LIABILITY AND INDEMNIFICATION FOR TRADING ADVISORS" and
"THE TRADING ADVISORS--THE ADVISORY CONTRACTS.") Under certain circumstances,
the Fund may also be subject to indemnification obligations with respect to the
Selling Agent, the Clearing Broker, the Escrow Agent and related parties.
The CFTC has issued a statement of policy relating to indemnification of
officers and directors of a futures commission merchant (such as Cargill
Investor Services, Inc.) and its controlling persons under which it has taken
the position that whether such indemnification is consistent with the policies
expressed in the Commodity Exchange Act, as amended, will be determined by the
CFTC on a case-by-case basis.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to the General Partners, their principals, or persons
controlling the Fund pursuant to the foregoing provisions, the Fund has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in that Act and is therefore unenforceable.
The Amended and Restated Limited Partnership Agreement prohibits the Fund
from making any loans to the General Partners or to anyone else.
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<PAGE>
THE GENERAL PARTNERS
The General Partners of the Fund are IDS Futures Corporation ("IDS
FUTURES"), a wholly-owned subsidiary of IDS Management Corporation, which is
itself a wholly-owned subsidiary of American Express Financial Corporation, the
corporate parent of the Fund's Selling Agent/Introducing Broker, and CIS
Investments, Inc. ("CISI"), a wholly-owned subsidiary of the Fund's Clearing
Broker. They are responsible for administering the Fund's affairs. The General
Partners are registered under the Commodity Exchange Act, as amended, as
commodity pool operators (and are currently acting as the Fund's commodity pool
operators) and are members of the NFA. The principal offices of CISI are located
at 233 South Wacker Drive, Suite 2300, Chicago, Illinois 60606. The records of
the Fund are kept at CISI's principal offices in Chicago. The principal offices
of IDS Futures are located at IDS Tower 10, Minneapolis, Minnesota 55440. The
principal offices of the Fund are located at 233 South Wacker Drive, Suite 2300,
Chicago, Illinois 60606, and its telephone number is (312) 460-4000. CISI and
IDS Futures have limited prior experience in operating commodity pools. In
addition to operating the Fund since June 16, 1987, CISI operated one private
commodity pool and currently jointly operates another public commodity pool with
IDS Futures.
None of the principals of CISI has any beneficial ownership in the Fund.
None of the principals of IDS Futures has any beneficial ownership in the Fund,
except for Lori J. Larson who as of June 30, 1997, owned 19.06056 Units in the
Fund. The performance history of the General Partners with respect to the Fund
is presented on page 70. See "PAST PERFORMANCE OF THE FUND."
CISI
CISI was incorporated in Delaware in 1983. CISI is a wholly-owned subsidiary
of Cargill Investor Services, Inc. CISI is registered under the Commodity
Exchange Act, as amended, as a commodity pool operator and is a member of NFA.
The officers and directors of CISI do not receive any compensation directly from
CISI.
The directors and officers of CISI are as follows:
Hal T. Hansen (born in November 1936), President and Director. Mr. Hansen
has been President of Cargill Investor Services, Inc. since November 1978. He
serves on the Executive Committees of the Board of Directors of NFA and the
Futures Industry Association ("FIA") and is the Chairman of the NFA. Mr. Hansen
graduated from the University of Kansas in 1958. He started work at Cargill,
Incorporated in 1958, and was employed by Cargill S.A.C.I. in Argentina from
1965 to 1969. Mr. Hansen has been employed by Cargill Investor Services, Inc.
since 1974.
L. Carlton Anderson (born in August 1937), Vice President and Director. Mr.
Anderson is a graduate of Northwestern University, Evanston, Illinois. He
started work at Cargill, Incorporated in 1959, in the Commodity Marketing
Division. He served as President of Stevens Industries Inc., Cargill's peanut
shelling subsidiary from 1979 to 1981. He has been employed by Cargill Investor
Services, Inc. since 1981, and is currently the Director in charge of the
Portfolio Diversification Group. Mr. Anderson has recently served on the Board
of Directors of the Managed Futures Association.
Richard A. Driver (born in September 1947), Vice President and Director of
CISI. Mr. Driver became a Vice President and Director of CISI on June 29, 1993.
Mr. Driver graduated from the University of North Carolina in 1969 and he
received a Masters Degree from the American Graduate School of International
Management in 1973. Mr. Driver began working for Cargill, Incorporated in 1973
and joined Cargill Investor Services, Inc. in 1977 as Vice President of
Operations.
Jan R. Waye (born June 1948), Senior Vice President. Mr. Waye assumed his
position with Cargill Investor Services, Inc. in mid-September, 1996, after
returning from London where he held various management positions for Cargill
Investor Services, Inc. including most recently Managing Director for CIS
Europe. He was appointed Senior Vice President with CISI on June 24, 1997. Mr.
Waye joined Cargill
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<PAGE>
in 1970 and served in various commodity trading and management position in
Chesapeake, VA; Winnipeg, Manitoba; and Vancouver, BC. In 1978 he moved to New
York and shortly thereafter Minneapolis as head of Foreign Exchange for
Cargill's metals trading business. This unit formed the nucleus of Cargill's
Financial Markets Group as it started operations in 1983. Mr. Waye served in
various management positions in the Financial Markets Group until 1988 when he
assisted in the management and sale of Cargill's life insurance business in
Akron, Ohio. He moved to London in late 1988. Mr. Waye has served as a member of
the Board of LIFFE, the London International Financial Futures and Options
Exchange, and as Vice Chairman of its Membership and Rules Committee. He also
served on the Board of the London Commodity Exchange up to its merger with
LIFFE. Mr. Waye graduated from Concordia College, Moorhead, MN, with a BA degree
in Communications and Economics in 1970.
Christopher Malo (born in August 1956), Vice President. Mr. Malo graduated
from Indiana University in 1976. He started work at Cargill, Incorporated in
June 1978 as an internal auditor. He transferred to Cargill Investor Services,
Inc. in August 1979, and served as Secretary/Treasurer from November 1983 until
July 1991. He was elected Vice President and Secretary in July 1991. He is a
member of the FIA Operations Division and serves as Chairman of the FIA Finance
Committee.
Barbara A. Pfendler (born in May 1953), Vice President. Ms. Pfendler is a
graduate of the University of Colorado, Boulder. She started work at Cargill,
Incorporated in 1975 as a meal merchant and regional sales manager for the Flax
and Sunflower Department in Minneapolis. In 1979, she was named senior merchant
for the Domestic Soybean Processing Division ("DSP") in Cedar Rapids, Iowa and
later was an account manager for DSP facilities in Savage, Minnesota and Sidney,
Ohio. She joined CIS in 1986 as the Sales Manager for the Portfolio
Diversification Group in Chicago.
Donald Zyck (born in October 1961), Secretary and Treasurer. Mr. Zyck
graduated from Northern Illinois University, DeKalb, Illinois in 1983. He began
working at Cargill Investor Services, Inc. in April 1985 as a Staff Accountant.
From January 1988 to October 1994 he was Manager of Treasury Operations at CIS.
He was elected Controller, Secretary and Treasurer of CIS in October 1994.
Bruce H. Barnett (born in June 1947), Assistant Secretary. Mr. Barnett
graduated in 1968 from Southern Connecticut State College. New York University
Law School awarded Mr. Barnett a J.D. in 1971 and an LL.M. in 1973. He started
work at Cargill, Incorporated in 1990 as Vice President, Taxes. From 1987 to
1990, Mr. Barnett was employed in various positions held at Unilever, a European
based multi-national corporation.
Henry W. Gjersdal, Jr. (born in May 1954), Assistant Secretary. Mr. Gjersdal
received a bachelor of arts degree from Gustavus Adolphus College in 1976 and a
J.D. degree from the University of Michigan in 1979. He is a member of the
American Bar Association and the Tax Executives Institute. He joined the Law
Department of Cargill, Incorporated in April 1981. He had previously been an
associate with Doherty, Rumble and Butler, Minneapolis, Minnesota. In June 1985,
he was named European Tax Manager for Cargill International, Geneva, and in 1987
was named Senior Tax Attorney for the Law Department. He became Assistant Tax
Director in the Tax Department in December 1990. Mr. Gjersdal was named
Assistant Vice President of Cargill, Incorporated's Administrative Division in
April 1994 with responsibility for the audit and international groups in
Cargill's Tax Department.
Patrice H. Halbach (born in August 1953), Assistant Secretary. Ms. Halbach
graduated phi beta kappa from the University of Minnesota with a bachelor of
arts degree in history. In 1980 she received a J.D. degree cum laude. She is a
member of the Tax Executives Institute, the American Bar Association and the
Minnesota Bar Association. Ms. Halbach joined the Law Department of Cargill,
Incorporated in February 1983. She had previously been an attorney with
Fredrikson & Byron, Minneapolis, Minnesota. In December 1990, she as named
Senior Tax Manager for Cargill, Incorporated's Tax Department and became
Assistant Tax Director in March 1993. She was named Assistant Vice President of
Cargill, Incorporated's Administrative Division in April 1994. In her current
position as Assistant Tax Director, Ms. Halbach oversees federal audits and
international compliance for Cargill and its affiliates.
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IDS FUTURES
IDS Futures was established in 1986 to act as a general partner and
commodity pool operator in connection with commodity pool offerings. It is
registered as a commodity pool operator under the Commodity Exchange Act, as
amended, and is a member of NFA. The directors and officers of IDS Futures do
not receive any compensation directly from IDS Futures.
The directors and officers of IDS Futures are as follows:
Lori J. Larson (born in August 1958), President and Director. Ms. Larson was
elected President and Director of IDS Futures effective November 14, 1996,
replacing Wendell L. Halvorson who retired. She has been employed by American
Express Financial Corporation since 1981 and currently holds the title of Vice
President. Since August 1988, she has been responsible for day-to-day management
of vendor relationships, due diligence review, and operational aspects for the
limited partnerships distributed by American Express Financial Advisors Inc. In
addition, she has responsibility for the product development of the publicly
offered mutual funds in the IDS Mutual Fund Group. Ms. Larson has held a variety
of management positions with American Express Financial Corporation throughout
her career. She is a graduate of, and has an M.B.A. from, the University of
Minnesota.
Michael L. Weiner (born in July 1946), Vice President, Secretary and
Treasurer. Mr. Weiner is the Vice President--Corporate Tax Operations of
American Express Financial Corp. He has been employed by American Express
Financial Corporation since 1975. His responsibilities include research,
planning and compliance for the American Express Financial Corporation corporate
tax group. Mr. Weiner graduated from the University of Minnesota Law School in
1974 and completed the Masters of Business Administration program at St. Thomas
College of Minnesota in 1979. Mr. Weiner is also an officer of American Express
Financial Advisors Inc.
John M. Knight (born in February 1952), Vice President. Mr. Knight has been
employed by American Express Financial Corporation since July 1975. He is
currently Controller-Variable Assets, thus charged with overall finance
responsibilities for Mutual Funds, Limited Partnerships, Variable Annuities and
Wealth Management Services. From 1981 to March 1984, he held a number of
positions in the IDS Certificate Company, including Controller of that
organization. Mr. Knight is a graduate of the University of Wisconsin-Eau Claire
and a FLMI.
Mr. Morris Goodwin, Jr. (born in August 1951), Director. Mr. Goodwin has
served as Vice President and Corporate Treasurer of American Express Financial
Corporation since July 1989. He is responsible for corporate cash management,
treasury operations, short term portfolio investment, capital allocation,
liquidity management and financing and corporate-wide asset acquisition and
management. Mr. Goodwin served as Chief Financial Officer of IDS Bank & Trust
from 1988 to 1990. From 1980 until 1987, Mr. Goodwin held various positions with
Morgan Stanley & Co., Inc. He is a graduate of Williams College and holds an
M.B.A. from Stanford Graduate School of Business.
Peter J. Anderson (born in March 1942), Director. Mr. Anderson is Chairman
and Chief Investment Officer of IDS Advisory Group Inc., as well as Senior Vice
President--Investments, and a member of the board of directors, American Express
Financial Advisors Inc. Mr. Anderson joined IDS Advisory Group, Inc. in April
1982 as Senior Vice President--IDS Equity Advisors, a division of IDS Advisory
Group Inc. He became President of IDS Advisory Group in January 1985. In July
1987, Mr. Anderson was named Senior Vice President of American Express Financial
Advisors Inc. and at that point assumed responsibility for common stock mutual
funds. In January 1993, Mr. Anderson assumed responsibility for the portfolio
management, research and economic functions of American Express Financial
Advisors Inc. Mr. Anderson has a B.A. from Yale University and an M.B.A. with a
major in finance from Wharton Graduate School.
MINIMUM INVESTMENT AND NET WORTH. The Amended and Restated Limited
Partnership Agreement of the Fund provides that the General Partners will
contribute to the Fund in an amount equal to the lesser of
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3% of the aggregate capital contributions to the Fund or $100,000, but in no
event less than 1% of such contributions. In return, the General Partners will
receive Units of General Partnership Interest. As of June 30, 1997, the General
Partners had contributed $460,110 in satisfaction of the foregoing capital
requirements and held 2,619.16 Units of General Partnership Interest. It is the
intention of the General Partners to contribute capital in equal amounts to
satisfy the foregoing minimum investment requirement.
The General Partners will participate in profits and losses with the Limited
Partners PRO RATA to the extent of their respective investments. The General
Partners may not redeem or transfer their minimum interest so long as they are
the Fund's general partners. Any Units purchased by the General Partners and
their affiliates will be purchased to satisfy the minimum investment requirement
described above, or for investment purposes, and not for resale. The General
Partners will receive the administrative fees described under "CHARGES TO THE
FUND."
The Amended and Restated Limited Partnership Agreement also provides that
the General Partners shall, for as long as they continue as General Partners of
the Partnership, maintain together a net worth of not less than (i) the lesser
of $250,000 or 15% of the aggregate capital contributions to each partnership
for which they act as General Partners capitalized at $2.5 million or less; and
(ii) 10% of the aggregate capital contributions to each partnership for which
they act as General Partners capitalized at greater than $2.5 million. The
General Partners have agreed that they will together satisfy the net worth
applicable to them as General Partners. For these purposes, "net worth" shall
reflect the carrying of all assets at fair market value and shall exclude
capital contributions of the General Partners to the Fund or to any other
limited partnership of which they may be general partners. Net worth will be
calculated in accordance with generally accepted accounting principles PROVIDED
that all current assets shall be based on then current market value, and may
include any notes receivable or stock subscriptions from an adequately
capitalized affiliate of the General Partners or a letter of credit. The General
Partners satisfy the net worth requirement applicable to them as the result of
their acting as the Fund's General Partners in the case of IDS Futures, by means
of a demand note payable to it from IDS Financial Corporation (now named
American Express Financial Corporation), and in the case of CISI, a subscription
agreement from Cargill Investor Services, Inc.
OTHER MATTERS. There have been no material administrative, civil or
criminal actions against the General Partners or their individual principals
pending, concluded or on appeal within the five years preceding the date of this
Prospectus. Neither the General Partners nor their individual principals trade
or intend to trade commodity interests for their own accounts.
Under the Amended and Restated Limited Partnership Agreement, the General
Partners may not (except in certain limited, and essentially emergency,
situations) direct the Fund's futures trading, but must select an advisor to
direct that trading. Various principals of the General Partners are responsible
for the selection of trading advisors for the Fund. At the inception of the
Fund, the General Partners initially selected, and caused the Fund to enter into
an advisory contract with, JWH and Sabre and, effective July 8, 1997, added
Welton as a Trading Advisor.
The General Partners are responsible for the preparation of monthly and
annual reports to the Limited Partners; the filing of reports required by the
CFTC, the SEC and any other federal or state agencies requiring reports; and the
calculation of Net Asset Value and advisory fees. The General Partners will
provide suitable facilities and procedures for handling redemptions, transfers,
distributions of profits (if any) and orderly liquidation of the Fund. The
General Partners are also responsible for engaging a futures commission merchant
to execute the Fund's futures trades. The General Partners have chosen the
Clearing Broker to act in this capacity. The General Partners have selected the
Introducing Broker to introduce trades for the Fund's account. The General
Partners will be reimbursed for the portion of offering expenses they have
incurred in connection with this offering by the Fund, through an Offering
Expense Charge of 3% of the gross per Unit price, as described under "CHARGES TO
THE FUND." If
70
<PAGE>
the total charge received by the General Partners exceeds actual offering costs
incurred, the excess will be retained by the General Partners.
DUTIES. The duties of the General Partners include retaining or replacing
any commodity trading advisor to the Fund, determining the amounts and timing of
capital contributions to the Fund by the General Partners, making all
expenditures for or on behalf of the Fund, selling or disposing of Fund
property, if any, retaining or replacing any futures commission merchant or
introducing broker (commodity broker) for the Fund, appointing persons to act
for the Fund in the distribution of Units, retaining attorneys and accountants
to assist in the organization and operation of the Fund, settling any claims
made against the Fund, determining the amounts and frequency of distributions by
the Fund and administering and maintaining records for the Fund. These actions
and decisions are not an exclusive or comprehensive statement of the powers of
the General Partners which extend to all actions which they believe to be in the
best interests of the Fund and in furtherance of the purposes for which the Fund
was formed. See "AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT" and Exhibit
A.
PAST PERFORMANCE OF THE FUND
The following table presents the performance history of the Fund for the
most recent five years and year to date. Beginning on page 72, supplemental past
performance is presented which shows the entire performance history of the Fund
since its inception. The information in the following tables has not been
audited. In the opinion of the General Partners the information therein presents
fairly the performance of the Fund.
INVESTORS SHOULD BE AWARE THAT THE PERFORMANCE HISTORY OF THE FUND DISPLAYED
REPRESENTS PERFORMANCE RESULTS OF THE FUND OBTAINED UNDER THE MANAGEMENT OF THE
ORIGINAL TRADING ADVISORS, JWH AND SABRE. EFFECTIVE JULY 8, 1997, WELTON WAS
ADDED AS A TRADING ADVISOR FOR THE FUND, AND THE ASSETS OF THE FUND WERE
REALLOCATED AMONG THE THREE TRADING ADVISORS. THERE IS NO GUARANTEE THAT THE
THREE TRADING ADVISORS WILL BE ABLE TO OBTAIN PERFORMANCE RESULTS FOR THE
PORTION OF THE FUND'S ASSETS UNDER THEIR MANAGEMENT WHICH WILL BE EQUAL TO THOSE
OBTAINED IN THE PAST. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
71
<PAGE>
IDS MANAGED FUTURES, L.P.
PAST PERFORMANCE
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
<TABLE>
<CAPTION>
RATE OF RETURN (1)
-----------------------------------------
MONTH 1997 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------- ----- ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
JANUARY......................................................................... 3.68% 4.07% (3.05%) (4.48%) 1.19% (13.95%)
FEBRUARY........................................................................ 0.08% (3.48%) 8.41% (3.29%) 10.80% (9.43%)
MARCH........................................................................... (0.18%) (0.16%) 7.90% 5.76% (0.82%) 0.69%
APRIL........................................................................... (2.00%) 3.50% 4.71% (0.67%) 6.54% (6.30%)
MAY............................................................................. (5.51%) (2.44%) 1.86% 3.98% 1.34% (1.74%)
JUNE............................................................................ 2.74% 0.51% (2.84%) 2.72% 1.44% 15.58%
JULY............................................................................ (1.09%) 0.27% (2.87%) 8.35% 18.09%
AUGUST.......................................................................... 0.47% (0.05%) (2.15%) 3.09% 7.92%
SEPTEMBER....................................................................... 3.34% (1.14%) (0.45%) (0.29%) (3.29%)
OCTOBER......................................................................... 9.26% (0.26%) 0.03% (0.04%) (3.60%)
NOVEMBER........................................................................ 6.71% 2.43% (3.51%) (0.03%) (2.02%)
DECEMBER........................................................................ (1.48%) 3.42% (1.68%) 2.03% (0.64%)
----- ----- ----- ----- ----- ------
YEAR.......................................................................... (1.46%) 20.08% 23.03% (6.93%) 38.32% (3.43%)
----- ----- ----- ----- ----- ------
----- ----- ----- ----- ----- ------
</TABLE>
- ------------------------------
Name of Pool: IDS Managed Futures, L.P.
Type of Pool: Publicly offered
Inception of Trading: June 16, 1987
Aggregate Subscriptions: $44,505,048
Current Net Asset Value: $43,172,357
Worst Monthly Percentage Draw-down: January 1992: (13.95%) (2)
Worst Peak to Valley Draw-down: January 1992 through May 1992 (27.75%) (3)
Recovery Period: June 1992 through August 1992 (4)
(1) Refer to the footnotes to the Supplemental Past Performance of IDS Managed
Futures, L.P. beginning on p. 76, for a detailed analysis of the the
calculation of past performance and particularly footnote 13 for an
explanation of how Rate of Return is calculated.
(2) Draw-down means losses experienced by the Fund over a specified period.
(3) Worst peak-to-valley draw-down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by the Fund
during any period in which the initial month-end net asset value for the
period is not equaled or exceeded by a subsequent month-end net asset value.
Worst peak-to-valley draw-down was calculated by comparing the initial
month-end net asset value to each subsequent month-end net asset value. Each
time the month-end net asset value exceeds all prior month-end net asset
values a new net trading "peak" is established. Where a subsequent month-end
net asset value does not equal or exceed the prior trading peak, the decline
is calculated as a percentage of the prior trading peak. The greatest of
such percentage declines during the period of time presented in the
performance table is the "worst peak-to-valley draw-down."
(4) Recovery Period means the period of time necessary for the Fund to recoup
all trading losses experienced by the Fund during the worst peak-to-valley
draw-down and achieve a new net trading "peak".
72
<PAGE>
IDS MANAGED FUTURES, L.P.
SUPPLEMENTAL PAST PERFORMANCE SINCE INCEPTION
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
<TABLE>
<CAPTION>
RATE OF RETURN (1)
-------------------------------------------------------------------------------
MONTH 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------- ----- ----- ----- ----- ----- ------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY................................. 3.68% 4.07% (3.05%) (4.48%) 1.19% (13.95%) (1.55%) 24.84% 3.35% (4.36%)
FEBRUARY................................ 0.08% (3.48%) 8.41% (3.29%) 10.80% (9.43%) 1.76% 12.64% (5.06%) 1.28%
MARCH................................... (0.18%) (0.16%) 7.90% 5.76% (0.82%) 0.69% 0.59% 3.61% 2.98% (7.93%)
APRIL................................... (2.00%) 3.50% 4.71% (0.67%) 6.54% (6.30%) (1.85%) 5.79% (3.83%) (3.28%)
MAY..................................... (5.51%) (2.44%) 1.86% 3.98% 1.34% (1.74%) (2.03%) (16.81%) 19.24% (0.34%)
JUNE.................................... 2.74% 0.51% (2.84%) 2.72% 1.44% 15.58% 3.60% 2.69% (5.20%) 11.61% (8.74%)
JULY.................................... (1.09%) 0.27% (2.87%) 8.35% 18.09% (11.27%) 8.95% 6.00% (9.41%) 0.84%
AUGUST.................................. 0.47% (0.05%) (2.15%) 3.09% 7.92% 4.12% 9.90% (7.67%) (1.76%) 0.09%
SEPTEMBER............................... 3.34% (1.14%) (0.45%) (0.29%) (3.29%) 13.37% 5.64% (6.55%) 3.66% (2.35%)
OCTOBER................................. 9.26% (0.26%) 0.03% (0.04%) (3.60%) (3.94%) (2.42%) (5.97%) 0.20% 15.50%
NOVEMBER................................ 6.71% 2.43% (3.51%) (0.03%) (2.02%) 3.51% 0.49% 12.57% (0.12%) 8.53%
DECEMBER................................ (1.48%) 3.42% (1.68%) 2.03% (0.64%) 20.71% (1.62%) (0.70%) (3.99%) 4.31%
----- ----- ----- ----- ----- ------ ------ ------ ----- ------ -----
YEAR.................................. (1.46%) 20.08% 23.03% (6.93%) 38.32% (3.43%) 26.22% 60.65% 5.61% (14.96%) 28.78%
----- ----- ----- ----- ----- ------ ------ ------ ----- ------ -----
----- ----- ----- ----- ----- ------ ------ ------ ----- ------ -----
</TABLE>
- ------------------------------
Name of Pool: IDS Managed Futures, L.P.
Type of Pool: Publicly offered
Inception of Trading: June 16, 1987
Aggregate Subscriptions: $44,505,048
Current Net Asset Value: $43,172,357
Worst Monthly Percentage Draw-down: May 1990 (16.81%) (2)
Worst Peak to Valley Draw-down: January 1992 through May 1992 (27.75%) (3)
Recovery Period: June 1992 through August 1992 (4)
(1) Refer to the footnotes to the Supplemental Past Performance of IDS Managed
Futures, L.P. beginning on p. 76, for a detailed analysis of the the
calculation of past performance and particularly footnote 13 for an
explanation of how Rate of Return is calculated.
(2) Draw-down means losses experienced by the Fund over a specified period.
(3) Worst peak-to-valley draw-down means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by the Fund
during any period in which the initial month-end net asset value for the
period is not equaled or exceeded by a subsequent month-end net asset value.
Worst peak-to-valley draw-down was calculated by comparing the initial
month-end net asset value to each subsequent month-end net asset value. Each
time the month-end net asset value exceeds all prior month-end net asset
values a new net trading "peak" is established. Where a subsequent month-end
net asset value does not equal or exceed the prior trading peak, the decline
is calculated as a percentage of the prior trading peak. The greatest of
such percentage declines during the period of time presented in the
performance table is the "worst peak-to-valley draw-down."
(4) Recovery Period means the period of time necessary for the Fund to recoup
all trading losses experienced by the Fund during the worst peak-to-valley
draw-down and achieve a new net trading "peak".
73
<PAGE>
IDS MANAGED FUTURES, LP
SUPPLEMENTAL PAST PERFORMANCE SINCE INCEPTION
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
<TABLE>
<CAPTION>
GROSS NET
REALIZED REALIZED
BEGINNING PROFIT BROKERAGE PROFIT
EQUITY ADDITIONS WITHDRAWALS (LOSS) COMMISSION (LOSS)
MONTH (1) (2) (3) (4) (5) (6)
- -------------------------------- ------------ ------------ --------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1987
JUNE............................ $ 0 $7,372,260 $ 0 $ 7,153 $ 18,736 $ (11,583)
JULY............................ 6,727,952 0 0 (150,999) 28,463 (179,462)
AUGUST.......................... 6,784,137 0 0 (208,132) 26,979 (235,111)
SEPTEMBER....................... 6,790,470 0 0 (99,469) 31,549 (131,017)
OCTOBER......................... 6,630,971 0 0 763,056 31,218 731,838
NOVEMBER........................ 7,658,858 0 0 221,973 21,061 200,913
DECEMBER........................ 8,312,270 0 52,554 676,065 24,480 651,585
GROSS RATE
OF
RETURN.....
RATE OF
RETURN NET
OF INTEREST
INCOME.....
VALUE OF A
UNIT
INVESTMENT
NET OF
INTEREST
INCOME.....
1988
JANUARY......................... 8,618,111 0 83,585 (254,695) 26,664 (281,358)
FEBRUARY........................ 8,158,762 0 119,444 997,014 20,149 976,865
MARCH........................... 8,143,657 0 156,346 (574,273) 36,048 (610,321)
APRIL........................... 7,341,253 0 50,328 (310,888) 16,846 (327,734)
MAY............................. 7,050,166 0 86,840 (204,734) 27,283 (232,016)
JUNE............................ 6,939,362 0 132,297 (199,143) 27,267 (226,411)
JULY............................ 7,612,813 0 149,296 331,753 16,705 315,048
AUGUST.......................... 6,747,516 0 168,311 (279,662) 22,625 (302,287)
SEPTEMBER....................... 6,460,395 0 79,394 450,564 12,310 438,254
OCTOBER......................... 6,617,181 0 188,976 (381,605) 29,037 (410,642)
NOVEMBER........................ 6,441,442 0 157,884 475,668 27,761 447,908
DECEMBER........................ 6,275,595 0 154,612 (344,080) 34,860 (378,940)
GROSS RATE
OF
RETURN.....
RATE OF
RETURN NET
OF INTEREST
INCOME.....
VALUE OF A
UNIT
INVESTMENT
NET OF
INTEREST
INCOME.....
1989
JANUARY......................... 5,870,391 0 153,600 140,199 43,805 96,394
FEBRUARY........................ 5,913,639 0 143,891 (78,517) 16,525 (95,042)
MARCH........................... 5,470,620 0 169,127 280,283 25,043 255,241
APRIL........................... 5,464,295 0 101,234 (310,171) 18,597 (328,768)
MAY............................. 5,153,663 0 231,536 (61,447) 18,916 (80,364)
JUNE............................ 5,913,914 0 221,825 1,167,026 37,132 1,129,894
JULY............................ 5,384,539 0 122,312 (639,001) 17,883 (656,885)
AUGUST.......................... 5,585,550 0 119,353 109,469 21,861 87,608
SEPTEMBER....................... 5,037,914 0 118,846 (263,300) 37,258 (300,558)
OCTOBER......................... 4,588,880 0 89,556 20,206 26,402 (6,196)
NOVEMBER........................ 4,225,289 0 72,257 361,114 25,969 335,145
DECEMBER........................ 4,684,303 0 155,383 253,520 31,133 222,386
GROSS RATE
OF
RETURN.....
RATE OF
RETURN NET
OF INTEREST
INCOME.....
VALUE OF A
UNIT
INVESTMENT
NET OF
INTEREST
INCOME.....
<CAPTION>
CHANGE IN
UNREALIZED INTEREST MANAGEMENT AND OTHER ENDING
PROFIT (LOSS) INCOME INCENTIVE FEES EXPENSES NET PERFORMANCE EQUITY
MONTH (7) (8) (9) (10) (11) (12)
- -------------------------------- -------------- ----------- --------------- ----------- ---------------- ----------
<S> <C> <C> <C>
1987
JUNE............................ $ 11,965 $ 12,667 $ 6,456 $ 650,901 $ (644,308) 6,727,952
JULY............................ 258,084 26,285 36,052 12,671 56,185 6,784,137
AUGUST.......................... 222,925 27,525 2,856 6,151 6,333 6,790,470
SEPTEMBER....................... (19,285) 28,439 25,106 12,530 (159,498) 6,630,971
OCTOBER......................... 449,234 30,848 181,918 2,116 1,027,886 7,658,858
NOVEMBER........................ 570,280 30,268 158,370 (10,321) 653,413 8,312,270
DECEMBER........................ (190,284) 33,352 94,008 42,260 358,386 8,618,111
1988
JANUARY......................... (70,372) 32,149 20,658 35,526 (375,764) 8,158,762
FEBRUARY........................ (868,290) 29,358 20,709 12,985 104,238 8,143,557
MARCH........................... (52,149) 30,136 18,791 (5,167) (645,958) 7,341,253
APRIL........................... 94,712 27,793 17,796 17,734 (240,758) 7,050,166
MAY............................. 223,965 29,844 17,610 28,147 (23,964) 6,939,362
JUNE............................ 1,082,477 30,129 22,303 58,144 805,748 7,612,813
JULY............................ (1,028,276) 32,377 19,441 15,708 (716,001) 6,747,516
AUGUST.......................... 193,940 31,811 14,462 27,813 (118,811) 6,460,395
SEPTEMBER....................... (200,312) 30,904 19,450 13,216 236,180 6,617,818
OCTOBER......................... 410,958 32,596 30,986 (11,311) 13,238 6,441,442
NOVEMBER........................ (469,262) 32,491 12,874 6,226 (7,964) 6,275,595
DECEMBER........................ 143,665 35,774 28,038 23,051 (250,591) 5,870,391
1989
JANUARY......................... 108,821 31,472 15,206 24,634 196,848 5,913,639
FEBRUARY........................ (216,077) 30,626 14,071 4,564 (299,128) 5,470,620
MARCH........................... (84,791) 35,271 14,119 28,800 162,802 5,464,295
APRIL........................... 115,565 27,895 13,170 10,920 (209,399) 5,153,663
MAY............................. 1,113,633 32,570 15,402 58,550 991,787 5,913,914
JUNE............................ (1,449,641) 33,541 14,051 7,294 (307,550) 5,384,539
JULY............................ 940,812 26,547 14,305 (27,155) 323,324 5,585,550
AUGUST.......................... (484,820) 28,151 12,925 46,297 (428,284) 5,037,914
SEPTEMBER....................... (89,357) 25,528 11,799 (45,998) (330,188) 4,588,880
OCTOBER......................... (260,457) 22,030 10,093 19,318 (274,034) 4,225,289
NOVEMBER........................ 181,198 23,198 10,703 (2,432) 531,271 4,684,303
DECEMBER........................ (320,573) 24,846 10,461 (51,126) (32,676) 4,496,244
<CAPTION>
RATE OF VALUE OF A UNIT NUMBER OF
RETURN INVESTMENT UNITS
MONTH (13) (14) (15)
- -------------------------------- ----------- --------------- ----------
1987
JUNE............................ (8.74%) 225.26 29,868.00
JULY............................ 0.84% 227.14 29,868.00
AUGUST.......................... 0.09% 227.35 29,868.00
SEPTEMBER....................... (2.35%) 222.01 29,868.00
OCTOBER......................... 15.50% 256.42 29,868.00
NOVEMBER........................ 8.53% 278.30 29,868.00
DECEMBER........................ 4.31% 290.30 29,687.00
28.78%
25.95%
283.92
1988
JANUARY......................... (4.36%) 277.64 29,385.94
FEBRUARY........................ 1.28% 281.19 28,961.16
MARCH........................... (7.93%) 258.88 28,357.23
APRIL........................... (3.28%) 250.39 28,156.23
MAY............................. (0.34%) 249.54 27,808.23
JUNE............................ 11.61% 278.52 27,333.23
JULY............................ (9.41%) 252.32 26,741.54
AUGUST.......................... (1.76%) 247.88 26,062.54
SEPTEMBER....................... 3.66% 256.94 25,753.54
OCTOBER......................... 0.20% 257.46 25,019.54
NOVEMBER........................ (0.12%) 257.14 24,405.54
DECEMBER........................ (3.99%) 246.87 23,779.24
(14.96%)
(21.41%)
223.12
1989
JANUARY......................... 3.35% 255.15 23,177.24
FEBRUARY........................ (5.06%) 242.24 22,583.24
MARCH........................... 2.98% 249.45 21,905.24
APRIL........................... (3.83%) 239.89 21,483.24
MAY............................. 19.24% 286.06 20,673.85
JUNE............................ (5.20%) 271.18 19,855.85
JULY............................ 6.00% 287.46 19,430.37
AUGUST.......................... (7.67%) 265.42 18,980.69
SEPTEMBER....................... (6.55%) 248.03 18,501.53
OCTOBER......................... (5.97%) 233.22 18,117.53
NOVEMBER........................ 12.57% 262.54 17,842.31
DECEMBER........................ (0.70%) 260.71 17,246.31
5.61%
(6.71%)
208.15
</TABLE>
74
<PAGE>
IDS MANAGED FUTURES, LP
SUPPLEMENTAL PAST PERFORMANCE SINCE INCEPTION
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
<TABLE>
<CAPTION>
GROSS NET
REALIZED REALIZED
BEGINNING PROFIT BROKERAGE PROFIT
EQUITY ADDITIONS WITHDRAWALS (LOSS) COMMISSION (LOSS)
MONTH (1) (2) (3) (4) (5) (6)
- ------------------------------ ------------ ------------ --------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1990
JANUARY....................... 4,496,244 0 129,859 (168,008) 14,557 (182,585)
FEBRUARY...................... 5,483,114 0 230,344 1,222,532 17,076 1,205,456
MARCH......................... 5,945,905 0 197,035 588,666 18,803 569,863
APRIL......................... 5,963,388 0 119,344 (85,298) 19,864 (105,162)
MAY........................... 6,189,544 0 50,389 174,898 20,567 154,330
JUNE.......................... 5,098,710 0 43,252 1,736 15,776 (14,040)
JULY.......................... 5,192,457 0 34,032 (31,542) 14,428 (45,971)
AUGUST........................ 5,623,014 0 57,950 685,605 16,928 668,677
SEPTEMBER..................... 6,121,562 0 19,972 714,535 13,560 700,975
OCTOBER....................... 6,446,804 0 167,614 (185,502) 13,983 (199,485)
NOVEMBER...................... 6,123,072 0 61,126 64,260 13,186 51,074
DECEMBER...................... 6,091,988 0 89,675 4,932 6,385 (1,452)
GROSS RATE
OF
RETURN.....
RATE OF
RETURN NET
OF INTEREST
INCOME.....
VALUE OF A
UNIT
INVESTMENT
NET OF
INTEREST
INCOME.....
1991
JANUARY....................... 5,903,376 0 86,179 (55,836) 10,291 (66,127)
FEBRUARY...................... 5,725,883 0 37,836 66,629 12,018 54,612
MARCH......................... 5,788,827 0 48,960 103,021 10,831 92,190
APRIL......................... 5,773,955 0 41,731 (75,919) 12,391 (88,309)
MAY........................... 5,625,587 0 30,163 (219,809) 18,548 (238,358)
JUNE.......................... 5,481,114 0 64,413 328,317 42,652 285,665
JULY.......................... 5,614,098 0 32,833 (462,492) 20,967 (483,459)
AUGUST........................ 4,948,695 0 42,345 (134,205) 31,857 (166,062)
SEPTEMBER..................... 5,110,441 0 24,224 39,656 16,195 23,461
OCTOBER....................... 5,769,542 0 54,156 (56,540) 10,972 (67,513)
NOVEMBER...................... 6,488,231 0 23,211 577,462 48,463 528,999
DECEMBER...................... 5,657,620 0 124,757 650,811 10,034 640,777
GROSS RATE
OF
RETURN.....
RATE OF
RETURN NET
OF INTEREST
INCOME.....
VALUE OF A
UNIT
INVESTMENT
NET OF
INTEREST
INCOME.....
1992
JANUARY....................... 6,704,441 0 59,133 (282,279) 12,616 (294,894)
FEBRUARY...................... 5,709,834 0 29,600 385,072 22,448 362,624
MARCH......................... 5,141,991 0 56,758 2,540 19,265 (16,725)
APRIL......................... 5,120,703 0 17,879 (459,518) 17,769 (477,287)
MAY........................... 4,780,055 0 76,766 (266,497) 18,312 (284,809)
JUNE.......................... 4,620,080 0 35,313 392,168 26,785 365,382
JULY.......................... 5,304,490 0 97,635 (21,412) 16,383 (37,795)
AUGUST........................ 6,166,230 0 28,126 819,593 13,419 806,174
SEPTEMBER..................... 6,626,216 0 76,532 852,784 19,686 833,098
OCTOBER....................... 6,331,987 0 17,098 (183,338) 12,600 (195,938)
<CAPTION>
CHANGE IN
UNREALIZED INTEREST MANAGEMENT AND OTHER ENDING RATE OF
PROFIT (LOSS) INCOME INCENTIVE FEES EXPENSES NET PERFORMANCE EQUITY RETURN
MONTH (7) (8) (9) (10) (11) (12) (13)
- ------------------------------ -------------- ----------- --------------- ----------- ---------------- ---------- -----------
<S> <C> <C>
1990
JANUARY....................... 1,288,029 26,048 13,809 973 1,116,729 5,483,114 24.84%
FEBRUARY...................... (384,079) 29,016 110,319 46,940 693,134 5,945,905 12.64%
MARCH......................... (292,185) 34,644 59,680 38,123 214,519 5,963,388 3.61%
APRIL......................... 494,973 29,772 62,757 11,326 345,500 6,189,544 5.79%
MAY........................... (1,248,208) 29,163 (33,091) 8,821 (1,040,445) 5,098,710 (16.81%
)
JUNE.......................... 108,417 27,294 13,122 (28,449) 136,999 5,192,457 2.69%
JULY.......................... 487,023 26,820 14,178 (10,894) 464,589 5,623,014 8.95%
AUGUST........................ (87,112) 33,701 56,144 2,625 556,498 6,121,562 9.90%
SEPTEMBER..................... (341,602) 27,912 66,364 (24,292) 345,213 6,446,804 5.64%
OCTOBER....................... 9,779 31,054 15,766 (18,302) (156,117) 6,123,072 (2.42%
)
NOVEMBER...................... (26,662) 31,003 17,056 8,316 30,043 6,091,988 0.49%
DECEMBER...................... (99,777) 27,363 13,415 11,657 (98,938) 5,903,376 (1.62%
)
60.65%
58.26%
329.42
1991
JANUARY....................... (30,747) 23,906 14,567 3,779 (91,314) 5,725,883 (1.55%
)
FEBRUARY...................... 71,943 21,367 14,603 32,539 100,779 5,788,827 1.76%
MARCH......................... (2,678) 23,280 23,796 54,908 34,088 5,773,955 0.59%
APRIL......................... (16,753) 20,929 14,204 8,299 (106,637) 5,625,587 (1.85%
)
MAY........................... 112,901 21,800 13,813 (3,160) (114,310) 5,481,114 (2.03%
)
JUNE.......................... (79,849) 19,153 14,232 13,340 197,397 5,614,098 3.60%
JULY.......................... (171,200) 19,985 12,485 (14,590) (632,570) 4,948,695 (11.27%
)
AUGUST........................ 375,859 19,567 12,914 12,358 204,091 5,110,441 4.12%
SEPTEMBER..................... 628,041 17,604 41,603 (55,821) 683,324 5,769,542 13.37%
OCTOBER....................... (168,168) 19,371 13,891 (3,045) (227,155) 5,488,231 (3.94%
)
NOVEMBER...................... (320,009) 17,964 28,634 5,718 192,601 5,657,620 3.51%
DECEMBER...................... 757,205 17,820 259,654 (15,430) 1,171,577 6,704,441 20.71%
26.22%
24.50%
410.12
1992
JANUARY....................... (585,841) 16,872 11,394 60,217 (935,474) 5,709,834 (13.95%
)
FEBRUARY...................... (875,039) 12,241 10,069 28,000 (538,243) 5,141,991 (9.43%
)
MARCH......................... 61,769 14,299 10,145 13,727 35,469 5,120,703 0.69%
APRIL......................... 162,659 11,884 9,248 10,776 (322,768) 4,780,055 (6.30%
)
MAY........................... 186,705 11,282 9,011 (12,623) (83,210) 4,620,080 (1.74%
)
JUNE.......................... 343,118 11,686 10,548 (10,084) 719,722 5,304,490 15.58%
JULY.......................... 1,011,461 13,630 16,129 11,790 959,375 6,166,230 18.09%
AUGUST........................ (283,343) 12,660 69,920 (22,540) 486,111 6,626,216 7.92%
SEPTEMBER..................... (1,039,969) 12,413 (24,435) 47,674 (217,696) 6,331,987 (3.29%
)
OCTOBER....................... 15,112 12,432 15,522 44,196 (228,113) 6,066,776 (3.60%
)
<CAPTION>
VALUE OF A UNIT NUMBER OF
INVESTMENT UNITS
MONTH (14) (15)
- ------------------------------ --------------- ----------
1990
JANUARY....................... 325.46 16,847.31
FEBRUARY...................... 366.60 16,218.99
MARCH......................... 379.83 15,700.24
APRIL......................... 401.83 15,403.24
MAY........................... 334.29 15,252.51
JUNE.......................... 343.27 15,126.51
JULY.......................... 373.98 15,035.51
AUGUST........................ 410.99 14,894.51
SEPTEMBER..................... 434.17 14,848.51
OCTOBER....................... 423.66 14,452.87
NOVEMBER...................... 425.74 14,309.29
DECEMBER...................... 418.62 14,095.18
1991
JANUARY....................... 412.34 13,886.18
FEBRUARY...................... 419.60 13,796.01
MARCH......................... 422.07 13,680.01
APRIL......................... 414.28 13,579.28
MAY........................... 405.66 13,504.96
JUNE.......................... 420.48 13,351.77
JULY.......................... 373.10 13,263.77
AUGUST........................ 388.49 13,154.77
SEPTEMBER..................... 440.43 13,099.77
OCTOBER....................... 423.09 12,971.77
NOVEMBER...................... 437.94 12,918.77
DECEMBER...................... 528.63 12,682.77
1992
JANUARY....................... 454.87 12,552.77
FEBRUARY...................... 411.99 12,480.93
MARCH......................... 414.83 12,344.11
APRIL......................... 388.68 12,298.11
MAY........................... 381.92 12,097.11
JUNE.......................... 441.41 12,017.11
JULY.......................... 521.25 11,829.80
AUGUST........................ 562.51 11,779.80
SEPTEMBER..................... 544.03 11,639.12
OCTOBER....................... 524.43 11,606.52
</TABLE>
75
<PAGE>
IDS MANAGED FUTURES, LP
SUPPLEMENTAL PAST PERFORMANCE SINCE INCEPTION
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
<TABLE>
<CAPTION>
BEGINNING
EQUITY ADDITIONS WITHDRAWALS
MONTH (1) (2) (3)
- ------------------------- ---------- ---------- -----------
<S> <C> <C> <C>
NOVEMBER................. 6,068,777 0 21,580
DECEMBER................. 5,941,995 0 10,210
1993
JANUARY.................. 5,893,506 0 7,232
FEBRUARY................. 5,956,270 0 4,579
MARCH.................... 6,594,957 0 0
APRIL.................... 6,541,136 0 43,242
MAY...................... 6,925,981 0 12,452
JUNE..................... 7,006,469 0 4,974
JULY..................... 7,102,642 598,214 41,365
AUGUST................... 8,252,806 1,430,318 0
SEPTEMBER................ 9.938,302 1,230,783 58,310
OCTOBER.................. 11,081,528 1,166,055 0
NOVEMBER................. 12,233,520 988,074 5,537
DECEMBER................. 13,212,536 1,295,090 11,298
1994
JANUARY.................. 14,765,001 1,280,394 7,327
FEBRUARY................. 15,376,565 696,782 5,871
MARCH.................... 15,560,947 0 19,317
APRIL.................... 16,438,555 1,678,846 19,122
MAY...................... 17,987,950 1,673,130 32,856
JUNE..................... 20,344,467 860,448 44,647
JULY..................... 21,713,376 1,035,371 11,490
AUGUST................... 22,113,907 578,468 27,176
SEPTEMBER................ 22,190,564 938,788 39,862
OCTOBER.................. 22,990,574 822,271 127,874
NOVEMBER................. 23,691,780 807,434 10,250
DECEMBER................. 23,657,531 615,634 99,551
1995
JANUARY.................. 23,777,198 620,648 25,852
*FEBRUARY................ 23,646,279 0 101,905
MARCH.................... 25,532,275 0 40,299
APRIL.................... 27,508,945 0 135,467
<CAPTION>
GROSS NET CHANGE IN MANAGEMENT
REALIZED REALIZED UNREALIZED AND
PROFIT BROKERAGE PROFIT PROFIT INTEREST INCENTIVE OTHER NET
(LOSS) COMMISSION (LOSS) (LOSS) INCOME FEES EXPENSES PERFORMANCE
MONTH (4) (5) (6) (7) (8) (9) (10) (11)
- ------------------------- ---------- ---------- ---------- ----------- -------- ---------- -------- -----------
<S> <C> <C> <C> <C>
NOVEMBER................. 103,287 29,920 73,367 (190,902 ) 11,956 15,263 2,360 (123,202)
DECEMBER................. (35,280) 29,388 (64,668) 47,658 14,068 15,023 20,314 (38,279)
GROSS RATE OF RETURN..................................................
RATE OF RETURN NET OF INTEREST INCOME.................................
VALUE OF A UNIT INVESTMENT OF INTEREST INCOME.........................
1993
JANUARY.................. (156,688) 30,971 (186,659) 270,731 11,039 15,348 9,767 69,996
FEBRUARY................. 702,629 32,677 669,952 13,009 11,183 69,042 (18,164 ) 643,266
MARCH.................... 205,702 29,520 176,182 (240,727 ) 13,340 13,237 (10,621 ) (53,821)
APRIL.................... (46,669) 19,894 (66,563) 553,215 13,855 81,686 (9,266 ) 428,087
MAY...................... 293,082 31,293 261,789 (137,327 ) 13,147 41,962 2,707 92,940
JUNE..................... 443,457 45,979 397,478 (240,990 ) 13,971 12,658 56,654 101,147
JULY..................... 53,619 30,098 23,521 662,433 15,736 96,027 12,348 593,315
AUGUST................... 570,558 27,655 542,903 (236,072 ) 16,146 49,715 18,084 255,178
SEPTEMBER................ 675,473 25,130 650,343 (669,795 ) 18,854 22,227 6,422 (29,247)
OCTOBER.................. (133,638) 12,807 (146,445) 173,358 29,899 40,419 20,456 (4,063)
NOVEMBER................. 53,234 40,673 12,561 25,093 27,851 44,128 24,898 (3,521)
DECEMBER................. 150,041 50,022 100,019 238,839 33,391 65,255 38,321 268,673
GROSS RATE OF RETURN..................................................
RATE OF RETURN NET OF INTEREST INCOME.................................
VALUE OF A UNIT INVESTMENT NET OF INTEREST INCOME.....................
1994
JANUARY.................. (268,193) 43,967 (312,160) (327,405 ) 29,813 42,248 9,503 (661,503)
FEBRUARY................. (407,918) 77,970 (485,888) (1,613 ) 32,368 44,665 6,731 (506,529)
MARCH.................... 234,499 41,142 193,357 764,886 42,489 114,996 (11,190 ) 896,925
APRIL.................... (177,335) 28,857 (206,192) 118,099 44,456 61,080 5,612 (110,329)
MAY...................... 828,216 42,202 786,013 (4,511 ) 54,149 74,627 44,780 716,244
JUNE..................... 464,404 45,606 418,798 202,034 61,089 154,511 (26,696 ) 553,106
JULY..................... (15,068) 21,877 (36,954) (584,599 ) 69,880 62,890 8,788 (623,351)
AUGUST................... 890 49,592 (48,602) (403,790 ) 73,967 64,331 31,878 (474,634)
SEPTEMBER................ 159,498 82,581 76,917 (197,738 ) 80,140 65,887 (7,453 ) (99,115)
OCTOBER.................. (760,513) 68,953 (829,466) 814,000 79,567 68,710 (11,417 ) 6,809
NOVEMBER................. (706,579) 111,416 (817,995) 36,284 88,654 68,129 70,248 (831,433)
DECEMBER................. (652,247) 40,732 (692,978) 275,892 103,677 69,060 13,946 (396,416)
GROSS RATE OF RETURN..................................................
RATE OF RETURN NET OF INTEREST INCOME.................................
VALUE OF A UNIT INVESTMENT NET OF INTEREST INCOME.....................
1995
JANUARY.................. (197,438) 70,420 (267,858) (460,486 ) 96,401 68,414 25,358 (725,716)
*FEBRUARY................ 1,810,348 73,078 1,737,271 247,943 94,367 76,794 14,887 1,987,801
MARCH.................... 65,020 109,391 (44,371) 2,226,282 124,537 386,870 (97,300 ) 2,016,969
APRIL.................... 2,789,714 29,525 2,770,188 (1,323,604 ) 113,091 222,380 40,920 1,296,375
<CAPTION>
RATE VALUE OF A
ENDING OF UNIT NUMBER OF
EQUITY RETURN INVESTMENT UNITS
MONTH (12) (13) (14) (15)
- ------------------------- ---------- ------ ---------- ----------
NOVEMBER................. 5,941,995 (2.02 %) 513.91 11,564.52
DECEMBER................. 5,893,506 (0.64 %) 510.50 11,544.52
(3.43 %)
(9.74 %)
370.18
1993
JANUARY.................. 5,956,270 1.19 % 516.57 11,530.52
FEBRUARY................. 6,594.957 10.80 % 572.35 11,522.52
MARCH.................... 6,541,136 (0.82 %) 567.68 11,622.52
APRIL.................... 6,925,981 6.54 % 604.83 11,451.03
MAY...................... 7,006,469 1.34 % 612.95 11,430.71
JUNE..................... 7,102,642 1.44 % 621.80 11,422.71
JULY..................... 8,252,806 8.35 % 673.74 12,249.22
AUGUST................... 9,938,302 3.09 % 694.57 14,308.50
SEPTEMBER................ 11,081,528 (0.29 %) 692.53 16,001.53
OCTOBER.................. 12,233,520 (0.04 %) 692.28 17,671.45
NOVEMBER................. 13,212,536 (0.03 %) 692.08 19,091.14
DECEMBER................. 14,765,001 2.03 % 706.15 20,909.16
38.32 %
67.01 %
618.23
1994
JANUARY.................. 15,376,565 (4.48 %) 674.51 22,796.56
FEBRUARY................. 15,560,947 (3.29 %) 652.29 23,855.77
MARCH.................... 16,438,555 5.76 % 689.89 23,827.77
APRIL.................... 17,987,950 (0.67 %) 685.26 26,249.80
MAY...................... 20,344,468 3.98 % 712.55 28,551.78
JUNE..................... 21,713,374 2.72 % 731.92 29,666.38
JULY..................... 22,113,906 (2.87 %) 710.91 31,106.63
AUGUST................... 22,190,565 (2.15 %) 695.65 31,899.11
SEPTEMBER................ 22,990,575 (0.45 %) 692.54 33,197.41
OCTOBER.................. 23,691,780 0.03 % 692.75 34,199.79
NOVEMBER................. 23,657,531 (3.51 %) 668.44 35,392.36
DECEMBER................. 23,777,198 (1.68 %) 657.24 36,177.59
(6.93 %)
(5.31 %)
585.41
1995
JANUARY.................. 23,646,279 (3.05 %) 637.18 37,111.07
*FEBRUARY................ 25,532,275 8.41 % 230.25 110,890.64
MARCH.................... 27,508,945 7.90 % 248.44 110,728.43
APRIL.................... 28,669,853 4.71 % 260.14 110,207.69
</TABLE>
76
<PAGE>
IDS MANAGED FUTURES, LP
SUPPLEMENTAL PAST PERFORMANCE SINCE INCEPTION
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
<TABLE>
<CAPTION>
GROSS
REALIZED
BEGINNING PROFIT BROKERAGE
EQUITY ADDITIONS WITHDRAWALS (LOSS) COMMISSION
MONTH (1) (2) (3) (4) (5)
- ------------------------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
MAY...................... 28,669,853 0 487,128 1,450,172 45,042
JUNE..................... 28,715,673 0 181,463 494,982 51,497
JULY..................... 27,719,054 0 69,531 (280,227) 46,115
AUGUST................... 27,723,992 1,282,909 113,582 (832,677) 72,668
SEPTEMBER................ 28,880.699 1,336,699 330,711 770,986 42,970
OCTOBER.................. 29,558,043 922,833 179,178 (776,322) 38,900
NOVEMBER................. 30,226,752 602,276 296,524 394,773 83,806
DECEMBER................. 31,267,489 548,179 370,419 775,332 56,626
1996
JANUARY.................. 32,513,952 722,279 391,797 741,794 58,766
FEBRUARY................. 34,169,242 201,747 194,396 674,826 66,855
MARCH.................... 32,987,871 362,908 167,359 (790,189) 71,361
APRIL.................... 33,131,903 292,292 149,813 145,646 68,573
MAY...................... 34,435,478 258,984 355,949 486,627 81,545
JUNE..................... 33,498,135 514,086 256,756 1,186,987 97,060
JULY..................... 33,927,520 743,931 252,857 (2,334,023) 92,553
AUGUST................... 34,049,090 315,815 386,451 (29,203) 47,875
SEPTEMBER................ 34,139,642 445,837 757,056 1,238,677 114,475
OCTOBER.................. 34,967,560 271,471 418,466 (462,731) 59,575
NOVEMBER................. 38,058,631 357,639 537,006 2,283,119 63,629
DECEMBER................. 40,431,466 592,799 132,361 6,417,809 59,814
1997
JANUARY.................. 40,294,948 825,552 155,419 277,875 88,613
FEBRUARY................. 42,449,772 964,022 618,387 219,377 57,350
MARCH.................... 42,829,219 1,285,468 200,520 1,520,953 72,902
APRIL.................... 43,837,771 1,200,330 116,829 (506,372) 105,763
MAY...................... 44,044,592 926,206 308,922 (2,647,588) 113,784
JUNE..................... 42,235,995 0 219,169 (6,404) 128,354
<CAPTION>
NET CHANGE IN MANAGEMENT
REALIZED UNREALIZED AND RATE VALUE OF A
PROFIT PROFIT INTEREST INCENTIVE OTHER NET ENDING OF UNIT
(LOSS) (LOSS) INCOME FEES EXPENSES PERFORMANCE EQUITY RETURN INVESTMENT
MONTH (6) (7) (8) (9) (10) (11) (12) (13) (14)
- ------------------------- ---------- ----------- -------- ---------- -------- ----------- ---------- ------ ----------
<S> <C>
MAY...................... 1,405,131 (824,022) 127,257 121,353 54,065 532,948 28,715,673 1.86% 264.98
JUNE..................... 443,484 (1,345,291) 124,032 32,548 4,834 (815,156) 27,719,054 (2.84%) 257.46
JULY..................... (326,342) 375,934 107,402 84,177 (1,162) 74,469 27,723,992 0.27% 258.15
AUGUST................... (905,345) 960,475 116,573 84,199 100,124 (12,620) 28,880,699 (0.05%) 258.03
SEPTEMBER................ 728,016 (1,095,327) 119,108 86,537 (6,095) (328,644) 29,558,043 (1.14%) 225.10
OCTOBER.................. (815,222) 736,752 116,797 89,345 23,928 (75,946) 30,225,752 (0.26%) 254.44
NOVEMBER................. 310,967 473,957 120,771 93,737 75,973 735,965 31,267,489 2.43% 260.54
DECEMBER................. 718,706 392,936 130,183 130,848 42,274 1,068,703 32,813,952 3.42% 269.54
GROSS RATE OF RETURN.............................................................. 23.03%
RATE OF RETURN NET OF INTEREST INCOME............................................. 21.19%
VALUE OF A UNIT INVESTMENT NET OF INTEREST INCOME................................. 236.48
1996
JANUARY.................. 683,028 917,354 122,757 266,619 131,712 1,324,808 34,169,242 4.07% 280.53
FEBRUARY................. 607,970 (2,068,943) 113,888 (94,633) (63,730) (1,188,721) 32,987,871 (3.48%) 270.77
MARCH.................... (861,650) 819,346 122,950 83,171 49,092 (51,617) 33,131,903 (0.16%) 270.34
APRIL.................... 77,073 1,159,669 124,516 120,136 80,027 1,161,096 34,435,478 3.50% 279.82
MAY...................... 405,083 (1,307,233) 137,897 50,307 25,818 (840,378) 33,498,135 (2.44%) 272.99
JUNE..................... 1,089,928 (864,484) 119,103 115,538 56,954 172,055 33,927,520 0.51% 274.39
JULY..................... (2,426,576) 2,000,165 130,753 84,863 (11,027) (369,504) 34,049,090 (1.09%) 271.40
AUGUST................... (77,078) 249,557 136,679 86,726 61,143 161,189 34,139,642 0.47% 272.69
SEPTEMBER................ 1,124,202 163,964 124,093 167,034 106,089 1,139,137 34,967,560 3.34% 281.79
OCTOBER.................. (522,306) 4,299,639 138,557 592,220 85,605 3,238,065 38,058,631 9.26% 307.88
NOVEMBER................. 2,219,490 795,619 152,349 538,353 76,903 2,552,202 40,431,466 6.71% 328.53
DECEMBER................. 6,357,995 (7,002,144) 152,401 56,223 48,986 (596,956) 40,294,948 (1.48%) 323.68
GROSS RATE OF RETURN.............................................................. 20.08%
RATE OF RETURN NET OF INTEREST INCOME............................................. 17.97%
VALUE OF A UNIT INVESTMENT NET OF INTEREST INCOME................................. 278.98
1997
JANUARY.................. 189,262 1,726,481 166,145 297,104 300,093 1,484,691 42,449,772 3.68% 335.60
FEBRUARY................. 162,026 (185,888) 147,129 33,596 55,858 33,813 42,829,219 0.08% 335.87
MARCH.................... 1,448,051 (1,536,932) 157,963 103,439 42,039 (76,396) 43,837,771 -0.18% 335.27
APRIL.................... (612,135) (186,232) 164,849 130,698 112,465 (876,681) 44,044,592 -2.00% 328.57
MAY...................... (2,761,371) 190,161 166,749 125,740 (104,321) (2,425,881) 42,235,995 -5.51% 310.47
JUNE..................... (134,758) 1,316,785 150,398 131,221 45,673 1,155,531 43,172,357 2.74% 318.96
GROSS RATE OF RETURN.............................................................. -1.46%
RATE OF RETURN NET OF INTEREST INCOME............................................. -2.93%
VALUE OF A UNIT INVESTMENT NET OF INTEREST INCOME................................. 270.81
<CAPTION>
NUMBER OF
UNITS
MONTH (15)
- ------------------------- ----------
MAY...................... 108,369.33
JUNE..................... 107,664.51
JULY..................... 107,395.17
AUGUST................... 111,926.92
SEPTEMBER................ 115,870.42
OCTOBER.................. 118,793.13
NOVEMBER................. 119,966.22
DECEMBER................. 120,625.71
1996
JANUARY.................. 121,803.77
FEBRUARY................. 121,830.92
MARCH.................... 122,554.27
APRIL.................... 123,063.45
MAY...................... 122,708.25
JUNE..................... 123,646.08
JULY..................... 125,455.48
AUGUST................... 125,196.45
SEPTEMBER................ 124,092.01
OCTOBER.................. 123,614.57
NOVEMBER................. 123,068.50
DECEMBER................. 124,491.12
1997
JANUARY.................. 126,487.94
FEBRUARY................. 127,517.01
MARCH.................... 130,753.06
APRIL.................... 134,050.68
MAY...................... 136,038.90
JUNE..................... 135,351.77
</TABLE>
77
<PAGE>
- ------------------------
(1) Beginning Equity is the capital committed to trading as of the beginning of
the period.
(2) Additions represents all capital additions made after the close of business
on the day of the month. Commencing July 1993, additions are net of selling
commissions and organization and offering expenses.
(3) Withdrawals represents all partial or complete withdrawals and redemptions
made after the close of business on the last day of the month. As of June
30, 1997 IDS Managed Futures, LP has not made any distributions of capital
to its limited partners.
(4) Gross Realized Profit (Loss) represents gross realized profit or loss on
all trades closed out during the period.
(5) Brokerage Commissions represents the total amount of all brokerage
commissions and clearing fees paid on all trades liquidated during the
period or accrued on open positions at the end of the period.
(6) Net Realized Profit (Loss) equals the sum of Gross Realized Profit (Loss)
minus Brokerage Commissions.
(7) Changes in Unrealized Profit (Loss) represents the change in unrealized
profits or losses on the quoted market value of unliquidated positions at
the end of each period. A negative number signifies either a decrease in
unrealized profits or an increase in unrealized losses; a positive number
signifies either an increase in unrealized profits or a decrease in
unrealized losses.
(8) Interest income represents interest received and accrued during the month.
(9) Management Fees represents a charge of 1/4 of 1% of the net asset value per
month for management services. The Management Fees are paid regardless of
performance. Incentive Fees represents a charge of 18% of the trading
profits as of the end of each quarter. If trading profits for a quarter are
negative it constitutes a carryforward loss for the beginning of the next
fiscal quarter. No Incentive Fees are payable until future trading profits
for the ensuing quarter exceed carryforward loss. Effective January 1, 1992,
the management fee paid to Sabre was reduced to 1/8 of 1% per month. It
stayed at this level until such time as cumulative trading performance
reached a level as specified in the advisory contract in effect between the
Fund and Sabre at that time. Effective July 1, 1993, the management fee paid
to Sabre was increased back to the original 1/4 of 1%. Once again, the Sabre
management fee was reduced to 1/8 of 1% on January 1, 1996 until such time
as cumulative trading performance reached a predetermined performance level.
This level was reached on February 1, 1997. Effective July 1, 1992, the
management fee due to JWH was changed to 1/3 of 1% of the assets allocated
to it, and the incentive fee was changed to 15%. The General Partners,
acting on the recommendation of Sabre, increased the leverage on the assets
managed by Sabre by 50%. This change was effective September 14, 1992 and
was done in an effort to enhance their performance. This increase in
leverage, however, did not cause a comparable increase in their management
fees.
(10) Other Expenses represents Operating Expenses other than Management Fees and
Incentive Fees. Included in the Other Expenses for March 1988 are selling
commissions and organization and offering expenses of $639,102.
(11) Net Performance equals Net Realized Profit (Loss) plus change in Unrealized
Profit (Loss) plus Interest Income, minus Management Fees, Incentive Fees
and Other Expenses.
(12) Ending Equity represents Beginning Equity plus Additions minus Withdrawals
plus or minus Net Performance.
(13) Rate of Return is calculated by dividing Net Performance by Beginning
Equity, except for the first period where Net Performance is divided by
Additions.
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(14) The Value of a Unit Investment is calculated by dividing the Ending Equity
by the number of Units outstanding at the end of the month. At the end of
each month the amount shown in this column is equal to the net asset value
per unit at month end. The first amount shown in this column includes
reductions for selling commissions and organization and offering expenses as
well as an adjustment for trading results in that month.
(15) This represents the number of units outstanding at the end of each month.
On February 28, 1995, the Fund had a 3-for-1 unit split.
(16) Gross Rate of Return is calculated by taking the difference in Net Asset
Value per unit for the year and dividing by the beginning of the year Net
Asset Value per unit.
(17) Rate of Return Net of Interest Income is calculated in the same manner as
Gross Rate of Return, except the calculation is based on the Net Asset Value
per Unit Net of Interest Income in a carry forward calculation, assuming the
fund earns no interest income.
(18) Net Asset Value per Unit Net of Interest Income is calculated in the same
manner as this table, except it is assumed that the fund has no interest
income for the entire life of the fund in a carry forward calculation.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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BROKERAGE ARRANGEMENTS
THE CLEARING BROKER
The Clearing Broker, Cargill Investor Services, Inc., executes and clears
the Fund's futures transactions and provides other brokerage-related services.
The Clearing Broker is a Delaware corporation. Its principal office is located
at 233 South Wacker Drive, Suite 2300, Chicago, Illinois 60606. It has offices
and affiliated offices at numerous other locations in the United States as well
as in England, France, Switzerland, Australia and the Far East. The clients of
the Clearing Broker include commercial and financial institutions that use the
futures markets for risk management purposes as well as private investors. The
Clearing Broker has more than 550 employees. The Clearing Broker is a
wholly-owned, but separately managed, subsidiary of Cargill, Incorporated, a
privately-owned international merchant, warehouser, processor and transporter of
agricultural and other bulk commodities that was founded in 1865.
The Clearing Broker is a clearing member of all of the principal futures
exchanges in the United States and is a clearing broker or has clearing
relationships on all major world futures exchanges. It is registered with the
CFTC as a futures commission merchant and is a member of NFA. Certain employees
of the Clearing Broker are members of U.S. futures exchanges and may serve on
the governing bodies and standing committees of those exchanges and their
clearing houses. In that capacity, these employees have a fiduciary duty to the
exchanges and would be required to act in the best interests of such exchanges,
even if that action might be adverse to the interests of the Fund.
Cargill, Incorporated owns and operates grain elevators and soybean
processing plants that are designated as regular warehouses for delivery of
certain physical commodities in satisfaction of futures contracts under the
rules of the Chicago Board of Trade and similar rules of other U.S. futures
exchanges. If the Fund makes or accepts delivery of grain or soybean products
pursuant to a futures contract, it is possible that, under exchange rules
governing settlement of the contract, the Fund may tender or receive negotiable
warehouse receipts issued by Cargill, Incorporated.
Cargill, Incorporated and its affiliates are substantial users of virtually
all futures contracts for hedging purposes. Such hedging transactions are
generally implemented by employees of Cargill, Incorporated and the Clearing
Broker generally executes or clears those transactions. The volume of trading by
Cargill, Incorporated and its affiliates is likely to result in their competing
with the Fund for futures market positions. Thus, in certain instances, the
Clearing Broker may have orders for trades from the Fund and from Cargill,
Incorporated or its affiliates, and the Clearing Broker might be deemed to have
a conflict of interest between the sequence in which such orders will be
transmitted to the trading floors of futures exchanges. In order to assure
impartial treatment for such orders, the Clearing Broker has an operating policy
of transmitting orders to the trading floors in the sequence received regardless
of which entity has placed the order. The Fund might enter into trades in which
the other party is Cargill, Incorporated or one of its affiliates. It is
possible that the hedging and cash operations of Cargill, Incorporated or
trading by its affiliates may adversely affect the Fund. Records of such trading
will not be made available to Limited Partners. It is possible that these
entities may take positions either similar or opposite to positions taken by the
Fund and that the Fund and these entities may compete for similar positions in
the futures markets. No officers, directors or employees of the Clearing Broker
or its affiliates will trade futures speculatively for their own accounts.
In the ordinary course of its business, the Clearing Broker is engaged in
civil litigation and subject to administrative proceedings which, in the
aggregate, are not expected to have a material effect upon its condition,
financial or otherwise, or the services it will render to the Fund. Neither the
Clearing Broker nor any of its principals have been the subject of any material
administrative, civil or criminal action within the five years preceding the
date of this Prospectus.
The Fund and the Clearing Broker have entered into a Commodity Brokerage
Agreement that provides that, for as long as the Fund maintains an account with
the Clearing Broker, the Clearing Broker
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will execute trades for the Fund upon instructions of the Trading Advisors and,
will receive a brokerage commission rate equal to $35 (plus NFA, exchange and
clearing fees and give-up, electronic trading and EFP fees, if applicable, and
any differential for non-U.S. exchanges, if applicable) per round turn trade.
The Clearing Broker will reallocate $20 of each round turn trade commission to
American Express Financial Advisors Inc. in its capacity as Introducing Broker
for the Fund, as described below under the heading "THE INTRODUCING BROKER." If
in the future the Fund pays less than $35 for each round trade, the Clearing
Broker and the Introducing Broker may receive amounts in proportions that differ
from the current allocation. The Commodity Brokerage Agreement is terminable on
60 days notice by either party. Should the Fund choose not to renew this
agreement with the Clearing Broker, no assurance may be given that the Fund will
be able to retain the brokerage services of another clearing broker at the same
commission rate. Further, no assurance is given that the Clearing Broker or the
Fund will continue the agreement at the same commission rate. In addition, under
the Amended and Restated Limited Partnership Agreement, Limited Partners owning
more than 50% of the outstanding Units may cause the Fund to terminate the
Commodity Brokerage Agreement. The Clearing Broker is responsible for
transaction execution and clearance of futures contracts (and options, if
traded) as well as for certain administrative duties such as recordkeeping,
transmittal of confirmation statements and calculating equity balance and margin
requirements for the Fund's account. That agreement provides that the Clearing
Broker will not be liable to the Fund except for bad faith or negligence.
The Fund's assets are and will continue to be deposited with Cargill
Investor Services, Inc. in its capacity as the Fund's Clearing Broker. The
Clearing Broker pays monthly to the Fund interest on 100% of its average monthly
net assets on deposit at the Clearing Broker at a rate equal to 90% of the
average 90 day Treasury bill rate for Treasury bills issued during that month.
The Clearing Broker receives and retains any increment of interest earned on the
assets of the Fund in excess of the amount paid to the Fund.
THE INTRODUCING BROKER
A summary of the operations of American Express Financial Advisors Inc. is
set forth under the caption "PLAN OF DISTRIBUTION." American Express Financial
Advisors Inc. is compensated, in its capacity as Introducing Broker, at a rate
of $20 per round turn, which amount it receives from the Clearing Broker as a
reallowance of a portion of brokerage commissions which are paid by the Fund to
the Clearing Broker for executing trades for the Fund. See "THE CLEARING
BROKER." American Express Financial Advisors Inc. receives such commissions for
its ongoing services to the Fund and to the Limited Partners. Such services
include (1) responding to inquiries from Limited Partners from time to time as
to the Net Asset Value of the Fund's Units; (2) providing information to the
Limited Partners concerning the futures markets and the Fund's activities; (3)
responding to inquiries of Limited Partners related to the Fund's monthly
account statements, annual reports, financial statements, and annual tax
information provided periodically to the Limited Partners; (4) providing
information to Limited Partners regarding redemptions of Units; (5) assisting
Limited Partners in redeeming Units; and (6) providing other services requested
from time to time by Limited Partners. Prospective investors should be aware
that, in receiving a portion of the commodity brokerage commissions generated by
the Fund and allocable to outstanding Units, American Express Financial Advisors
Inc. has a conflict in performing certain services to the Limited Partners,
particularly as to whether or not they should redeem Units. See "CONFLICTS OF
INTEREST." A description of proceedings involving the Introducing Broker and its
principals appears under "PLAN OF DISTRIBUTION."
THE FOREIGN CURRENCY BROKER
CIS Financial Services, Inc. ("CISFS") will act as the Fund's forward
contract broker and in that capacity will arrange for the Fund to contract
directly for forward transactions in foreign currencies. CISFS is a Delaware
corporation that is a wholly-owned subsidiary of CIS Holdings, Inc. CISFS is a
direct participant in the interbank market for foreign currencies. In that
capacity it buys and sells foreign
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currencies for its customers through direct counterparty transactions with other
participants in the interbank market. CISFS has established substantial lines of
credit with banks participating in the interbank market, and CISFS will make
those lines of credit available to the Fund for its own currency transactions.
In these transactions, the Fund will act as a principal in each transaction
entered into with a bank, and CISFS will act only as the Fund's agent in
brokering these transactions. To date, the Fund has not yet engaged in forward
currency transactions. In the event that the Fund begins to trade forward
contracts, sufficient cash will be transferred from the Fund's commodity account
with the Clearing Broker to CISFS. As of the date of this Prospectus, the Fund
had no assets on deposit with CISFS.
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GLOSSARY
The following glossary may assist the prospective investor in understanding
the terms used in this Prospectus. It should be noted preliminarily that
commodity futures contracts are made on or through a commodity exchange, and
provide for future delivery of agricultural and industrial commodities, foreign
currencies and financial instruments as well as for cash settlement for certain
contracts. Such contracts are uniform for each commodity and vary only with
respect to price and delivery time. A commodity futures contract to accept
delivery (buy) is referred to as a "long" contract; conversely, a contract to
make delivery (sell) is referred to as a "short" contract. A long contract may
generally be satisfied either by taking delivery of the commodity and paying the
entire purchase price therefor or by offsetting the contractual obligation prior
to delivery through the acquisition of a corresponding short contract on the
same exchange. Likewise, a short contract may generally be satisfied either by
making delivery of the commodity (usually by tendering warehouse receipts,
shipping certificates or similar documents of title) or by acquiring a
corresponding long contract on the same exchange. However, certain contracts
must be settled in cash by holders of both long and short contracts if they are
not closed out by acquisition of an offsetting contract prior to expiration of
the contract. Contracts based on stock indexes, for example, are settled in cash
rather than by delivery. Commodity exchanges provide a clearing mechanism to
facilitate the matching of offsetting trades. Until a commodity futures contract
is satisfied by delivery or offset it is said to be an "open" position.
Commodity futures contracts are but one category of commodity trading as it
currently exists in the United States. Two other categories of commodity
transactions are "spot" contracts and "forward" contracts. Both of these are
varieties of cash commodity transactions, as opposed to futures transactions, in
that they relate to the purchase and sale of specified actual physical
commodities. Whereas futures contracts are generally uniform except for price
and delivery time, cash commodity contracts may differ from each other with
respect to such terms as quantity, grade, mode of shipment, terms of payment,
penalties, risk of loss and the like. Spot contracts are generally cash
commodity contracts for the purchase and sale of a specific physical commodity
for immediate delivery. Forward contracts are cash commodity contracts for the
purchase and sale of a specific physical commodity for delivery at some future
time under terms and conditions specifically negotiated by the parties. Cash
commodity transactions may arise in conjunction with commodity futures
transactions. For example, if the holder of a long contract satisfies it by
taking delivery of the commodity, such holder is said to have a cash commodity
position. This cash position, if it is not to be used or processed by the
holder, may be sold through spot or forward contracts, or delivered in
satisfaction of a commodity futures contract. Other terms used herein include
the following:
AFFILIATED PURCHASER. A representative or employee of the Selling Agent or
certain of its corporate affiliates who purchase Units.
AFFILIATE. A person that directly or indirectly controls, or is controlled
by, or is under common control with another person; a person that directly or
indirectly owns, controls or holds power to vote 10% or more of the outstanding
voting securities of another person; a person 10% or more of whose outstanding
voting securities are directly or indirectly owned, controlled or held by
another person; any officer, director or partner of another person; or if a
person is an officer, director or partner, any second person for which the first
person acts in such capacity. The affiliates of the General Partners include
American Express Financial Advisors Inc., the Fund's Selling Agent and
Introducing Broker, and Cargill Investor Services, Inc., the Fund's Clearing
Broker, as well as their respective directors and officers.
CAPITAL CONTRIBUTION. The payment by a Limited Partner of the purchase
price for Units of Limited Partnership Interest or the payment by the General
Partners for Units of General Partnership Interest.
CLEARING BROKER. A member of various organized commodity exchanges and of
related clearing houses of such exchanges. Services performed by a clearing
broker include the clearance and settlement of transactions, ordering executions
on the floor and various back-office type functions. Cargill Investor
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Services, Inc. will act as the clearing broker for the Fund on exchanges of
which it is a member and, on exchanges of which it is not a member, will cause
the Fund's commodity transactions to be executed and cleared by clearing brokers
of such exchanges.
COMMISSION. The fee charged by a broker for executing and clearing a trade
for a customer. Effective the first business day of the month beginning after
the initial closing of this offering, the Fund pays a $35 commission (plus NFA,
exchange and clearing fees and give-up, electronic trading and EFP fees, if
applicable) for each transaction executed for the Fund. Commissions are charged
to the Fund on a "round turn" basis, I.E., only upon the closing of an open
position. The Clearing Broker receives $15 (44%), and the Introducing Broker $20
(56%), of each $35 round turn commission paid by the Fund. For purposes of
calculating the Fund's Net Asset Value, the full "round turn" commission will be
recognized at the time an open position is established.
COMMODITY. The term commodity refers to goods, wares, merchandise, produce
and in general everything that is bought and sold in commerce. Out of this large
class, certain commodities, because of their wide distribution, universal
acceptance and marketability in commercial channels, have become the subjects of
trading on various national and international exchanges located in principal
marketing and commercial areas. Traded commodities include grains such as wheat
and corn; soybeans and soybean products (meal and oil); foods such as livestock
and meat, frozen concentrated orange juice, sugar, cocoa and coffee; fibers such
as cotton and lumber; metals such as copper, silver, gold, and platinum;
financial instruments such as Eurodollars, United States Treasury bills and
corporate commercial paper; stock index contracts; foreign currencies such as
British pounds, Canadian dollars, Deutsche marks, Japanese yen, and Swiss
francs; and energy supplies such as petroleum and petroleum products (heating
oil).
COMMODITY FUTURES TRADING COMMISSION ("CFTC"). An independent regulatory
agency of the United States Government empowered to regulate accounts,
agreements and transactions relating to commodity futures contracts and other
commodity interests under the Commodity Exchange Act, as amended.
COMMODITY POOL OPERATOR. The sponsor or promoter of a commodity pool such
as the Fund. The General Partners are commodity pool operators registered under
the Commodity Exchange Act, as amended.
COMMODITY TRADING ADVISOR. One who for compensation analyzes or makes
recommendations with respect to commodities and commodity trading, or manages
commodity trading for others. The Trading Advisors are commodity trading
advisors registered under the Commodity Exchange Act, as amended.
DAILY PRICE FLUCTUATION LIMIT. The maximum permitted fluctuation (imposed
by an exchange and approved by the CFTC) in the price of a commodity futures
contract for a given commodity that can occur on a commodity exchange on a given
day in relation to the previous day's settlement price, which maximum permitted
fluctuation is subject to change from time to time by the exchange.
DELIVERY. The process of satisfying a commodity futures contract by
transferring ownership of a specified quantity and grade of a cash commodity to
the purchaser thereof or, in the case of futures contracts on stock indices, by
cash payment.
ELECTRONIC TRADING. Computer trading of registered futures contracts off
the floor of the exchange.
EXCHANGE FOR PHYSICAL. An exchange for physical ("EFP") is a transaction
permitted under the rules of many futures exchanges in which two parties holding
futures positions may close out their positions without making an open,
competitive trade on the exchange. Generally, the holder of a short futures
position buys the physical commodity, while the holder of a long futures
position sells the physical commodity. The prices at which such transactions are
executed are negotiated between the parties.
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FORWARD CONTRACT. See "DESCRIPTION OF COMMODITY TRADING--COMMODITY
MARKETS."
FUTURES CONTRACT. See "DESCRIPTION OF COMMODITY TRADING--COMMODITY
MARKETS."
GIVE-UP TRADES. Trades executed on an exchange by a firm other than the
Clearing Broker as selected by the Trading Advisors, with the trades being
"given-up" to the Clearing Broker for clearing with the exchange.
HEDGING. See "DESCRIPTION OF COMMODITY TRADING--HEDGERS AND SPECULATORS."
LIMIT ORDER. A trading order which sets a limit on either price or time of
execution or both. Limit orders (as contrasted with stop orders) do not become
market orders.
MARKET ORDER. A trading order to execute a trade at the most favorable
available price as soon as possible.
MARGIN. Good faith deposits with a broker to assure fulfillment of a
purchase or sale of a commodity futures contract. See "DESCRIPTION OF COMMODITY
TRADING--MARGINS."
MARGIN CALL. A demand for additional funds after the initial good faith
deposit required to maintain a customer's account in compliance with the
requirements of a particular commodity exchange or of a commodity broker.
NATIONAL FUTURES ASSOCIATION ("NFA"). The self-regulatory body of the
futures industry, established pursuant to the Commodity Exchange Act, as
amended. The NFA's functions include registration of futures industry
professionals, rule making, arbitration of certain types of disputes and
membership audits. The Clearing Broker, the Introducing Broker, the Trading
Advisors and the General Partners are members of the NFA. See "DESCRIPTION OF
COMMODITY TRADING--REGULATION."
NET ASSET VALUE. See "CHARGES TO THE FUND--CERTAIN DEFINITIONS."
OPEN POSITION. A contractual commitment arising under a long contract or
short contract that has not been extinguished by an offsetting trade or
delivery.
OFFERING EXPENSE CHARGE. Reimbursement for offering expenses (not including
selling commissions) paid to the General Partners out of the proceeds of the
offering.
POSITION LIMIT. The maximum number of commodity futures contracts in one
commodity (or one contract month of a commodity) that can be held or controlled
on a contract market at one time by one person or a group of persons acting
together. Position limits are imposed by the CFTC or the various commodity
exchanges.
PYRAMIDING. As commonly used in the commodity futures industry, the use of
unrealized profits in an existing position to provide margin for the acquisition
of additional commodity futures contracts in the same or a related commodity.
The Fund will not employ pyramiding as a trading technique. See "TRADING
POLICIES."
ROUND TURN OR ROUND TURN TRADE. A term used in expressing brokerage
commission rates and indicating that a particular quoted rate applies to the
sale and offsetting purchase of a futures contract, or to the purchase and
offsetting sale of a futures contract.
SALES CHARGE. Selling fee paid to American Express Financial Advisors Inc.,
the Selling Agent, for the sale of Units out of the proceeds of the offering.
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SETTLEMENT PRICE. The price for commodity futures contracts in a particular
commodity established by a clearing house or exchange after the close of each
day's trading.
SPREAD. See Paragraph 9 under "TRADING POLICIES."
STOP ORDER. An order given to a broker to execute a trade in a commodity
futures contract when the market price for the contract reaches the specified
stop order price. Stop orders are utilized in an attempt to protect gains or
limit losses on open positions. Stop orders become market orders when the stop
order price is reached.
UNITS OF GENERAL PARTNERSHIP INTEREST. Units representing the capital
contribution, or a portion thereof, of the General Partners to the Fund.
UNITS OF LIMITED PARTNERSHIP INTEREST. Units representing the interest of a
Limited Partner in the Fund. The General Partners, the Trading Advisors, the
Clearing Broker, the Selling Agent and Introducing Broker and their directors,
officers, shareholders and employees may purchase such Units.
UNREALIZED PROFIT OR LOSS. The profit or loss which would be realized on an
open position if it were closed out at the current settlement price.
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DESCRIPTION OF COMMODITY TRADING
(TO BE READ IN CONJUNCTION WITH "GLOSSARY," ABOVE)
The following general description of commodity trading does not purport to
be a complete explanation of the commodity markets or commodity regulation.
Because commodity trading is a rapidly developing economic activity, a potential
investor should consult with independent qualified sources of investment advice
before determining to invest in the Units.
COMMODITY MARKETS
Commodity futures contracts are but one category of commodity trading as it
currently exists in the United States. It is important to note that trading in
commodity futures contracts involves trading in standardized contracts for
future delivery of commodities and not the buying and selling of particular lots
of commodities. Futures contracts should be distinguished from two other
categories of commodity transactions: "spot" contracts and "forward" contracts.
Both of these are varieties of cash commodity transactions, as opposed to
futures transactions, in that they relate to the purchase and sale of specific
actual physical commodities. Whereas futures contracts are generally uniform
except for price and delivery time, cash commodity contracts may differ from
each other with respect to such terms as quantity, grade, mode of shipment,
terms of payment, penalties, risk of loss and the like. Spot contracts are
generally cash commodity contracts for the purchase and sale of a specific
physical commodity for immediately delivery. Forward contracts are cash
commodity contracts for the purchase and sale of a specific physical commodity
for delivery at some future time under the terms and conditions specifically
negotiated by the parties. For example, forward contracts on foreign currencies
may be purchased or sold for future delivery through banks. In such instances,
the bank generally acts as a principal in the transaction and includes its
anticipated profit and costs of the transaction in the price it quotes for such
forward contracts on foreign currencies.
Cash commodity transactions may arise in conjunction with commodity futures
transactions. For example, if the holder of a long contract satisfies it by
taking delivery of the commodity, such holder is said to have a cash commodity
position. This cash position, if it is not to be used or processed by the
holder, may be sold through spot or forward contracts, or delivered in
satisfaction of a commodity futures contract.
In addition, options on futures contracts are traded on commodity exchanges.
An option on a futures contract gives the purchaser of the option the right (but
not the obligation) to take a position at a specified price (the "striking,"
"strike" or "exercise" price) in the underlying futures contract. A "call"
option gives the purchaser the right to take a long position in the underlying
futures contract, and the purchaser of a "put" option acquires the right to take
a short position in the underlying contract. 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 if the option is exercised. In
the case of a call option, the seller must stand ready to take a short position
in the underlying futures contract at the striking price if the option is
exercised. A seller of a put option, on the other hand, stands ready to take a
long position in the underlying futures contract at the striking price if the
option is exercised.
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 such
price is above current market levels. Similarly, a put option on a futures
contract is said to be "in-the-money" if the striking price is above current
market levels and to be "out-of-the-money" if the striking price is below
current market levels.
Options have limited life spans, usually tied to the delivery or settlement
date of the underlying futures contract. Some options, however, expire
significantly in advance of such date. 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 (the
difference between the market price for the underlying futures contract and the
striking
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price). As an option nears its expiration date, the market and intrinsic value
typically move into parity. The difference between an option's intrinsic and its
market value is referred to as the "time value" of the option.
The use of interrelated 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 additional appreciation in that position, while at the
same time allowing the trader to limit the possible adverse effects of a decline
in the position's value through purchasing an option permitting the offsetting
of such position at a pre-established price.
HEDGERS AND SPECULATORS
Two broad classifications of persons who trade in commodity futures
contracts are "hedgers" and "speculators." Hedgers use the futures markets for
protection against certain risks of price variation and include commercial
interests who market or process commodities as well as entities who manage other
risks, such as risks relating to interest rate fluctuation. For example, a
seller or processor is subject to the risk of market price fluctuations between
the time it contracts to sell or process a commodity and the time it must
perform on the contract. In such cases, at the time of the contract, it may
simultaneously buy futures contracts for the necessary equivalent quantity of
the commodity it needs or sell a futures contract for the equivalent commodity
it intends to market at some later date. For example, a cattle feeder may buy a
corn contract for delivery as much as several months ahead and simultaneously
sell a cattle contract that could be satisfied by the delivery of its herd, with
the objective of relieving itself of exposure to price variations in either its
raw material or ultimate market product. Similarly, a farmer may hedge against
price fluctuations between the day he plants his crop and the day it is ready
for delivery. If the futures price quoted for its anticipated date of delivery
is sufficient to cover its costs and leave it a profit it deems adequate, he can
sell the futures contract, and deliver the crop in the local market and close
out the futures position by purchasing a futures contract. In these examples,
the hedger may either make or take delivery in satisfaction of its futures
contract, or else close the position prior to delivery and buy or sell the
necessary equivalent amount of the physical commodity. (Certain futures
contracts, such as stock index futures contracts, are settled in cash rather
than by actual physical delivery of any underlying commodity). In either case,
the price of the commodity is established at the time the hedger initiates his
futures position. Thus, the commodity futures markets enable the hedger to shift
certain risks of price fluctuations to the speculator. The usual objective of
the hedger is to protect the profit which it expects to earn from its farming,
merchandising or processing operations, rather than to profit from its futures
trading.
The speculator, unlike the hedger, generally expects neither to deliver nor
receive the physical commodity. Instead the speculator risks its capital with
the hope of making profits from price fluctuations in commodity futures
contracts. The speculator is, in effect, the risk bearer and assumes the risks
which the hedger seeks to avoid. Speculators rarely take delivery of the
physical commodity but close out their futures positions by entering into
offsetting purchases or sales of futures contracts. Because the speculator may
take either a long or short position in the commodity futures market, it is
possible for it to make profits or incur losses regardless of the direction of
price trends. Futures trades made by the Fund will be speculative, rather than
for hedging purposes. Prospective investors should note that there are always
two parties to a commodity 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 of open futures
contracts can experience gain at any one time, without reference to the
commissions and other costs of trading which may reduce or eliminate such a
gain.
COMMODITY PRICES
The prices of commodities fluctuate rapidly and over wide ranges, and are
listed in major daily newspapers and financial journals. Except for the effect
of government policies and programs, commodity prices are generally determined
by the interaction of supply and demand. The market is subject to the
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many psychological factors working on each buyer and seller, as well as to crop
conditions, deflation or inflation, strikes (especially in the transportation
and commodity storage industries), world conditions, war or threats of war,
interest rates and other factors. Any prediction of commodity prices is
necessarily subject to all of these and other factors, any one of which can
change at any time. Notwithstanding that current and correct information as to
substantially all factors is known, prices still may not react as predicted.
Some of the other factors which affect commodity prices include a country's
balance of payments (surplus or deficit), political stability, treaties,
government policies, international monetary agreements and exchange controls.
Under past federal economic stabilization programs, maximum prices at which
commodities could be traded were imposed. Although no such regulations are
currently in effect, no assurance can be given that price restrictions will not
be imposed again.
COMPETITION
Both the rules of the various exchanges and those of the CFTC are designed
to promote free competition and to restrict manipulative and distortive pricing
practices in the purchase and sale of commodities for future delivery. Countless
hedgers and speculators, many of whom have assets greatly in excess of the
assets of the Fund should the maximum amount of this offering be subscribed,
offer and bid for the available supply of traded commodities. Since the Trading
Advisors manage accounts other than the Fund's, those accounts will compete with
the Fund for the same contracts. See "RISK FACTORS-- RELIANCE ON TRADING
ADVISORS." Thus, were market volume or liquidity to remain static or be reduced,
the Fund may experience greater difficulty in executing trades at a favorable
price or in executing all the contracts called for in an order. See "CONFLICTS
OF INTEREST."
REGULATION
Commodity exchanges provide centralized market facilities for trading in
futures contracts relating to specified commodities. Among the principal
exchanges in the United States are the Chicago Board of Trade and the Chicago
Mercantile Exchange (including the International Monetary Market Division).
Among the principal foreign commodity exchanges are the London Metal Exchange
and the London International Financial Futures Exchange. In the trading of
forward contracts on foreign currencies with banks, the banks act as principals
and may cover their net long or short positions by trading with other banks in
the interbank market.
Congress has enacted legislation regulating commodity trading, commodity
exchanges, individual brokers who are members of such exchanges, and market
professionals and commodity brokerage houses engaged in commodity trading. The
controlling legislation, known as the Commodity Exchange Act, as amended
("ACT"), is generally designed to promote the orderly and systematic marketing
of commodities and commodity futures contracts and to prevent fraud, speculative
excess and price manipulation. The Commodity Futures Trading Commission Act of
1974 amended the Act by making numerous changes in the law relating to commodity
futures contract trading and increasing the scope of governmental regulation
thereof. Under the 1974 amendments to the Act, the CFTC is the governmental
agency having responsibility for implementing the objectives of the Act and for
regulating commodity exchanges and commodity futures trading thereon.
The NFA is a non-governmental, self-regulatory body for the futures
industry. The objective of the NFA is to implement a comprehensive regulatory
program for the commodities industry, with special attention devoted to the
uniform regulation of the retail activities of its members. The NFA is generally
responsible for the registration of futures commission merchants, floor brokers,
introducing brokers, associated persons, commodity trading advisors and
commodity pool operators. Pursuant to a provision of the Commodity Exchange Act
permitting a registered futures association to require membership of CFTC
registrants in one such association, the by-laws of the NFA prohibit certain
members of the NFA from accepting futures orders from another person required to
be registered with the CFTC (except a direct customer) unless such other person
belongs to either the NFA or another registered futures association.
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The Clearing Broker, the Introducing Broker, the General Partners and the
Trading Advisors are members of the NFA.
Under the Act, futures trading in all commodities traded on United States
exchanges is regulated. The Act provides that domestic commodity futures
exchanges must be designated as "contract markets" by the CFTC. Transactions in
spot or forward contracts or on foreign exchanges may not be within the
jurisdiction of the CFTC and to the extent the Fund engages in such transactions
it may be dealing in "unregulated" commodities. Forward contracts on foreign
currencies are traded through banks, which are regulated in various ways by
federal banking agencies, such as the Federal Reserve Board and the Comptroller
of the Currency, and state banking authorities.
The Act is implemented by rules and regulations promulgated by the CFTC and
NFA providing for, among other things: (i) the designation of contract markets;
(ii) the monitoring of commodity exchange rules; (iii) speculative position
limits (see "GLOSSARY"); (iv) segregation of customers' funds; (v) minimum
financial requirements; (vi) recordkeeping and reporting requirements; and (vii)
registration and periodic audits of commodity market professionals, including
floor brokers, brokerage houses ("FUTURES COMMISSION MERCHANTS"), introducing
brokers, commodity trading advisors, commodity pool operators and their
associated persons. In addition, the CFTC has administrative authority to: (i)
hear and adjudicate customer complaints against all individuals and firms
registered or subject to registration under the Act in "reparations
proceedings;" (ii) seek injunctions and restraining orders; (iii) issue orders
to cease and desist; (iv) initiate disciplinary proceedings; (v) revoke or
suspend registrations; (vi) levy fines; and (vii) require exchange action in the
event of market emergencies.
The Act makes unlawful any device, scheme or artifice to defraud any current
or prospective client or participant in a commodity pool and prohibits any
transaction, practice or course of business which operates as a fraud or deceit
upon any current or prospective client or pool participant. The CFTC and NFA
have extensive jurisdiction to regulate commodity trading advisors and commodity
pool operators, and have adopted a comprehensive scheme for the regulation of
their activities. In accordance with the Act, the Trading Advisors are
registered as commodity trading advisors and the General Partners are registered
as commodity pool operators. SUCH REGISTRATIONS IN NO WAY IMPLY THAT THE CFTC OR
NFA HAS APPROVED THE QUALIFICATIONS OF SUCH ENTITIES TO ACT AS DESCRIBED IN THIS
PROSPECTUS OR THE BUSINESS ACTIVITIES ENGAGED IN BY SUCH ENTITIES. The CFTC
requires registered commodity trading advisors and commodity pool operators to
make filings with the CFTC setting forth their form of organization and the
identity of their management and controlling persons. The Act authorizes the
CFTC and NFA to require and review books, records and documents prepared by
commodity trading advisors and commodity pool operators. The CFTC requires a
commodity pool operator to keep accurate, current and orderly records with
respect to each pool it operates. The Act authorizes the NFA to deny, suspend or
revoke the registration of a commodity trading advisor or a commodity pool
operator if it finds that such person's trading practices tend to disrupt
orderly market conditions, that such person or any controlling person thereof
has been subject to certain sanctions or is subject to an order denying such
person trading privileges on any exchange and in certain other circumstances. If
the registration of both General Partners were to be suspended or terminated,
the Fund would no longer be able to trade until a substitute general partner or
partners could be duly elected and registered as a commodity pool operator(s).
If the registration of a Trading Advisor were similarly suspended or terminated,
that Trading Advisor would no longer be permitted by the General Partners to
advise the Fund.
Under currently effective CFTC rules, the General Partners are obligated to
make specific disclosures to prospective investors, including disclosures
concerning the risks involved in investing in the Fund and concerning the past
trading performance of the Fund; to segregate the Fund's monies and assets in a
separate account or accounts; to maintain certain books and records; and to
render monthly account statements and an annual report to the Limited Partners.
Upon request by the CFTC, the names and addresses of the Limited Partners in the
Fund would be required to be furnished to the CFTC, along with copies of all
transactions with, and reports and other communications to, the Limited
Partners.
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Cargill Investor Services, Inc., the Fund's commodity broker, is subject to
regulation by and registration with the CFTC as a "futures commission merchant."
The CFTC requires all futures commission merchants to meet and maintain
specified fitness and financial requirements, comply with certain trading
requirements, account separately for all customers' funds and positions and
maintain specified books and records on customer transactions open to inspection
by the representatives of the CFTC. Should the registration of Cargill Investor
Services, Inc. as a futures commission merchant be suspended or terminated, the
Fund would no longer be able to maintain its account with Cargill Investor
Services, Inc. and a new clearing broker would be retained by the General
Partners.
Limited Partners are afforded certain rights to institute reparations
proceedings under the Act. The CFTC has adopted rules implementing the
reparation provisions of the Act which provide that any person may file a
reparation claim with the CFTC for violation of the Act, or rules, regulations
and orders promulgated thereunder, against a floor broker, a futures commission
merchant and its associated persons, a commodity trading advisor or a commodity
pool operator. Limited Partners are also afforded certain rights under the rules
of the NFA concerning arbitration of complaints or grievances against NFA
members.
Commodity exchanges have promulgated rules and regulations to control and
regulate their members and clearing houses as well as the trading conducted on
their floors. Examples of exchange regulations include establishment of initial
and maintenance margins, speculative position limits, limits on daily price
fluctuations and contract specifications. Such rules and regulations relating to
terms and conditions of contracts of sale or to other trading requirements,
other than the setting of margins, must be approved by the CFTC and, under
certain circumstances, may be required by the CFTC to be amended or modified.
Most United States commodity exchanges (but currently not certain non-U.S.
exchanges, or banks in the case of forward contracts on foreign currencies)
limit the amount of fluctuation in commodity futures contract prices during a
single trading day by regulations. These regulations specify what are referred
to as "daily price fluctuation limits" or "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 the trading
session. Once the daily limit has been reached in a particular commodity, no
trades may be made at a price beyond the limit. Positions in the commodity 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" rule only governs price movement for a particular trading day, it does
not limit losses. In the past, futures prices have moved the daily limit for
numerous consecutive trading days and thereby prevented prompt liquidation of
futures positions on one side of the market, subjecting commodity futures
traders holding such positions to substantial losses for those days. See "RISK
FACTORS--COMMODITY FUTURES MARKETS MAY BE ILLIQUID."
The CFTC and domestic exchanges have established speculative position
limits, often referred to as "position limits," on the maximum net long or net
short position which any person, or group of persons acting in concert, may hold
or control in commodity futures contracts. See "GLOSSARY." Speculative position
limits are designed to prevent excessive speculation and attempted manipulation
of a market. If the CFTC determines that a market emergency exists, it is
authorized, among other things, to set retroactively speculation position limits
that apply to a position acquired prior to the date of that action. These limits
are subject to certain exemptions, such as bona fide hedging transactions. The
position limits currently established by the CFTC include those applicable to
grains, soybeans, and cotton. In addition, domestic exchanges have established
position limits with respect to other commodities traded on those exchanges.
Certain New York exchanges set limits on the total net position that may be held
by a clearing broker. Under the Act, the CFTC has jurisdiction to establish
position limits with respect to all commodities traded on commodity futures
exchanges located in the United States. The CFTC adopted a rule which requires
commodity exchanges to impose position limits on all commodities traded on the
exchange (other than commodities subject to federally established speculative
limits). All commodity accounts, including that of the Fund, controlled by a
Trading Advisor and its affiliates are combined for speculative position
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limit purposes. It is possible that the Fund's account might be aggregated with
other accounts that might hereafter be managed by the General Partners or their
officers, directors, affiliates or shareholders for purposes of determining
speculative position limits. If required or effected, such aggregation of
commodity futures positions could adversely affect the operations and
profitability of the Fund. See "RISK FACTORS--EFFECTS OF SPECULATIVE POSITION
LIMITS."
Although the CFTC is prohibited by statute from regulating trading on
foreign commodity markets, the CFTC has adopted rules with respect to the
regulation of persons outside the U.S. engaging in foreign futures and options
transactions (I.E., transactions in futures and options on non-U.S. exchanges)
with persons in the United States and has also published a statement concerning
its jurisdiction in the foreign currency forward market. Previously, the
marketing of foreign futures in the United States was substantially unregulated
while the sale of foreign options was prohibited. These relatively new rules
permit, for the first time since 1978, foreign options to be offered and sold in
the United States, subject to prior CFTC approval. Notwithstanding the
foregoing, the CFTC does not regulate the activities of foreign exchanges or the
cash forward market. See "RISK FACTORS" for the risks associated with the
foregoing transactions.
The regulation of commodities transactions in the United States is a rapidly
changing area of law and the various regulatory procedures described herein are
subject to modification by United States Congressional action, changes in CFTC
rules and amendments to exchange regulations and NFA regulations. For example,
given the growing proliferation of stock index products, there is a tendency for
stock index trading to affect the stock market itself. As a result, it has been
suggested that various commodities and securities exchanges amend their
contracts to try and cut down on stock index-related price movements,
particularly when various stock index contracts expire simultaneously. Exchanges
also may be required to lower their speculative positions limits during the
trading days immediately prior to contract expirations, and also may be required
to alter their price settlement procedures. It is also possible that additional
regulatory controls will be imposed in the future by the CFTC and/or the SEC.
The Act also gives the various states powers to enforce its provisions and the
regulations of the CFTC.
The CFTC by law must be reauthorized periodically by Congress or lapse. On
April 21, 1995, a new appropriations bills was enacted which authorized the CFTC
through fiscal year 2000.
The CFTC does not regulate futures trading on exchanges outside of the
United States (see "COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE
STATEMENT"), forward contracts with banks or transactions in physical
commodities generally. No regulatory scheme currently exists in relation to the
foreign currency forward market, except for regulation of general banking
activities and exchange controls in the various jurisdictions where trading
occurs or in which the currency originates. Moreover, neither foreign commodity
exchanges nor foreign banks currently are subject to regulation by the CFTC or
any other United States governmental agency, and may not be subject to any
regulation. Foreign commodity exchanges differ in certain respects from their
United States counterparts. In contrast to the United States exchanges on which
the exchange or an affiliated clearing corporation assumes the opposite side of
each transaction, certain foreign exchanges are "principal" markets where trades
remain the liability only of the traders involved.
Some foreign exchanges also have no position limits, with each dealer
establishing the size of the positions it will permit traders to hold. To the
extent that the Fund will engage in transactions on foreign exchanges, it will
be subject to the risk of fluctuations in the exchange rate between the native
currencies of any foreign exchange on which it trades and the United States
dollar (which risks may be hedged by the Fund) and the possibility that exchange
controls could be imposed in the future. For example, trading in stock index
contracts on the Hong Kong Exchange was suspended for a considerable period as a
result of the market turbulence of October 1987 (considerably longer than the
suspensions experienced in the United States stock index trading). There is no
limitation on daily price moves on forward contracts in foreign currencies
traded through banks, brokers or dealers. While margin calls are not required by
foreign
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exchanges, the Fund may be subject to daily margin calls in foreign markets. The
Fund may in the future engage in option transactions on foreign exchanges.
The Fund, under current law, is not subject to registration as an investment
company with the SEC under the Investment Company Act of 1940. See "RISK
FACTORS--ABSENCE OF REGULATION APPLICABLE TO SECURITIES MUTUAL FUNDS AND THEIR
ADVISORS." Generally, that law and the regulations promulgated pursuant to it
apply to "mutual funds" and comparable investment vehicles which trade and
invest in securities, E.G., stocks and bonds. Because the trading activities of
the Fund will be restricted, pursuant to its trading policies, to commodity
interests, it is not subject to regulation as an investment company. See
"TRADING POLICIES." However, the Fund is subject to regulation under the
Securities Exchange Act of 1934, and regulations promulgated thereunder, which
are administered by the SEC. The Fund is subject to certain continuing
disclosure and periodic reporting requirements that provide for the preparation
of quarterly and annual reports, as well as reports dealing with any material
modifications in or development related to the Fund's organization or
activities. All of these reports required to be filed with the SEC are publicly
available and may be inspected without charge at the public reference facilities
maintained by the SEC in Washington, D.C., and copies thereof may be obtained
from the SEC at its office in Washington, D.C. upon payment of the prescribed
fees.
MARGINS
Margins are good faith deposits which must be deposited with a broker in
order to initiate or maintain an open position in a commodity futures contract.
When commodity futures contracts are traded, both buyer and seller are required
to post margins with the brokers handling their trades as security for the
performance of their buying and selling undertakings and to offset losses in
their trades due to daily fluctuations in the markets. Minimum margins are set
by commodity exchanges and generally range from less than 1% to 20% of the value
of the commodity underlying the contract. Because of these low margins, price
fluctuations occurring in commodity futures markets may create profits and
losses which are greater than are customary in other forms of investment or
speculation.
Margins with respect to transactions on certain foreign exchanges generally
are established by member firms rather than by the exchanges themselves.
However, in the case of International Commodity Clearing House Limited ("ICCH")
cleared transactions, ICCH (as the independent clearing house) requires margins
and deposits from its members and such members generally require their clients
to put up amounts at least equal to the ICCH charges.
Brokerage firms, including the Clearing Broker, carrying accounts for
traders in commodity futures contracts may increase the amount of margin
required as a matter of policy in order to accord further protection for
themselves. Margin requirements may be altered from time to time by the Clearing
Broker and can be made to apply retroactively at the discretion of the Clearing
Broker. In addition, applicable margin requirements are modified from time to
time by commodity exchanges.
If the Fund trades forward contracts on foreign currencies through banks,
the Foreign Currency Broker will require margin from the Fund with respect to
such trading. The margin (or collateral) levels established by CISFS are higher
than those required for foreign currency futures contracts on the International
Monetary Market of the Chicago Mercantile Exchange. This is because the risk is
different for forward contracts.
Unlike futures trading, there are no clearing houses which guarantee the
performance of each trade. There is a one to one counterparty risk between the
contracting parties. Further, the market risk in an unregulated market is
different from that in a regulated, standard contract market.
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TRADING POLICIES
The objective of the Fund is to achieve substantial appreciation of its
assets through speculative trading in commodity interests, including futures
contracts, forward contracts, physical commodities and related options thereon
on major United States and certain foreign commodity exchanges and in the
interbank forward markets. Commodity interests may include any instruments and
items which are now, or may hereafter be, the subject of futures trading, such
as physical commodities, Treasury bills, mortgage-backed securities, foreign
currencies, options and indexes on securities. The Fund will attempt to
accomplish its objective by following the Trading Policies set forth below:
(i) Fund assets will be invested only in futures contracts which are
traded in sufficient volume to permit, in the independent opinions of each
Trading Advisor, ease of taking and liquidating positions. Each Trading
Advisor may at any time independently determine to expand or reduce the
number of commodity interests traded by that portion of the Fund's assets
under its control.
(ii) No Trading Advisor will acquire on behalf of the Fund additional
positions in any commodity if such additional positions, when added to the
existing open positions initiated by the Trading Advisor, would result in a
net long or short position for that commodity requiring as margin or
premiums more than 15% of the Fund's assets allocated to that Trading
Advisor's management. For purposes of implementing this policy, soybeans
will be treated as one commodity and soybean oil and soybean meal will be
treated together as one commodity.
(iii) The Fund will not normally be as highly leveraged as permitted in
the case of an investment by an individual. On the basis of information
supplied by the Trading Advisors, the General Partners estimate that between
20% and 60% of the Fund's assets will normally be committed as initial
margin (although the percentage may be more or less than such range from
time to time). This requirement may be changed and, to reduce the Clearing
Broker's risk, additional restrictions on the leverage of the Fund may be
imposed by the Clearing Broker without notice at any time.
(iv) No Trading Advisor will acquire on behalf of the Fund additional
positions in any commodity interest if such additional positions, when added
to the existing open positions initiated by the Trading Advisor, would
result in aggregate net long or short positions (including any forward
contracts) for all commodities requiring as margin or premiums more than
66 2/3% of the Fund's assets allocated to that Trading Advisor's management.
(v) The Fund will not generally enter into an open position for a
particular commodity during a delivery month for that commodity. However,
the Fund may occasionally make or accept delivery of a commodity. This may
occur because a Trading Advisor's trading strategies may, from time to time,
identify certain trends which occur in delivery months which can be taken
advantage of by the Fund. The Fund may take delivery of a commodity and take
a corresponding short position in the commodity by selling futures contracts
for the commodity. The Fund will not engage in cash commodity transactions,
except as indicated above, unless the cash position is hedged.
(vi) The Fund will not employ the trading technique, commonly known as
"pyramiding," in which the speculator uses unrealized profits on existing
positions as margin for the purchase or sale of additional positions in the
same or a related commodity. However, a Trading Advisor may take into
account the Fund's open trade equity in assets of the Fund in determining
whether to acquire additional commodity futures contracts on behalf of the
Fund.
(vii) The Fund will not purchase, sell or trade in securities or write,
purchase, sell or trade in options to purchase or sell securities, commodity
futures contracts or physical commodities unless such options have been
approved for trading on a designated contract market by the CFTC. The Fund
may trade in foreign options if permitted under the Commodity Exchange Act,
as amended, and CFTC regulations, but only when and to the extent authorized
in writing by the General Partners to the Trading Advisors. The Fund may
trade in futures contracts on securities.
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(viii) The Fund will not generally utilize borrowings, except for
short-term borrowings where the Fund takes delivery of any cash commodity or
to the extent that the Fund's Clearing Broker obtains lines of credit for
the trading of forward contracts with banks. The Fund will not make any
loans.
(ix) A Trading Advisor may, from time to time, employ trading techniques
such as spreads or straddles on behalf of the Fund. The term "spread" or
"straddle" describes a transaction involving the simultaneous buying and
selling of commodity interests dealing with the same or a different
commodity interest but involving different delivery dates or markets, and in
which the trader expects to earn profits from a widening or narrowing
movement of the two prices of the commodity interests. See "FEDERAL INCOME
TAX CONSIDERATIONS--PARTNERSHIP TAXATION: ALLOCATION OF FUND PROFITS AND
LOSSES" for a discussion of the tax effects of such trading.
(x) The Fund may trade in futures contracts on foreign currencies
through foreign and domestic commodity exchanges, including the
International Monetary Market Division of the Chicago Mercantile Exchange.
The Fund may also establish positions in foreign currencies through banks or
in the interbank market. Forward contracts on foreign currencies will be
transacted only with banks having in excess of $100,000,000 in combined
capital and surplus. No specific limitation on the percentage or amount of
forward contracts, if any, engaged in by the Fund has been imposed.
(xi) The Fund's assets will not be commingled with the assets of any
other person; funds used to satisfy margin requirements will not be
considered commingled for this purpose.
(xii) No Trading Advisor to the Fund will be permitted to engage in
churning the Fund's assets (I.E., direct excessive trading for the purpose
of generating brokerage commissions without regard for the best interests of
the Fund).
(xiii) No rebates or give ups may be paid to or received by the General
Partners, nor may the General Partners participate in any reciprocal
business arrangements which could circumvent this prohibition, but retention
of Cargill Investor Services, Inc. to act as the Fund's clearing broker and
the retention of American Express Financial Advisors Inc. to act as the
Fund's introducing broker shall not be deemed to violate this prohibition.
If Net Asset Value per Unit (as defined under "CHARGES TO THE FUND--CERTAIN
DEFINITIONS") declines to less than $125 (after adding back any distributions
made previously by the Fund to the Limited Partners), at the close of business
on any trading day, the Fund will attempt to close out all open positions as
expeditiously as possible and suspend trading. No assurance can be or is given
that the Fund would be able to close out all open positions without incurring
substantial additional losses.
Within ten business days after the date of suspension of trading due to a
decrease in Net Asset Value per Unit below $125 (after adding back any
distributions), the General Partners must either give notice to the Limited
Partners of their intention to withdraw from the Fund, or declare a business day
within 30 business days from the date of suspension of trading to be a special
redemption date. Notice of a special redemption date must be sent to each
Limited Partner at least ten business days before such date. Any Limited Partner
who elects to have his or her Units redeemed on a special redemption date will
receive from the Fund for each Unit redeemed an amount equal to the Net Asset
Value per Unit determined as of the close of business on the special redemption
date. See "REDEMPTIONS." If after the special redemption date the Fund's Net
Asset Value is at least $500,000, it will resume trading, unless the General
Partners elect to withdraw from the Fund. Notwithstanding the foregoing, the
Fund will terminate in the event of a decline of the Fund's Net Asset Value to
less than $500,000 as of the close of business on any trading day. In addition,
each Limited Partner will be notified within seven business days from the date
of any decline in the Net Asset Value per Unit to less than 50% of the Net Asset
Value per Unit as of the last preceding business day on which the Fund's Net
Asset Value was calculated, and shall at that time be provided with a
description of Limited Partners' voting rights.
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Material changes in the Trading Policies described above must be approved by
a vote of a majority of the outstanding Units (including Units held by
representatives and employees of the Selling Agent and of its corporate
affiliates but not including Units held by the General Partners or their
corporate affiliates). A change in commodities traded, however, will not be
deemed to be a material change in the Trading Policies. In the event the General
Partners shall, in their sole discretion, using their prudent business judgment,
determine that any trading instructions issued by a Trading Advisor violate the
Trading Policies of the Fund, then the General Partners may negate such trading
instructions.
The Fund will conform in all respects to the rules, regulations and
guidelines of the commodity exchanges on which its trades are executed. Neither
the Chicago Board of Trade nor any other commodity exchange will endorse or
approve any program, practice or offering of the Fund, or of any other commodity
pool. Trading may take place on any United States commodity exchange which has
received designation as a contract market by the CFTC. It is currently
anticipated that a substantial portion of the Fund's trading will take place on
the Chicago Board of Trade, the Chicago Mercantile Exchange, Commodity Exchange,
Inc., the New York Mercantile Exchange, the New York Coffee, Sugar & Cocoa
Exchange, Inc., New York Futures Exchange and the New York Cotton Exchange. In
addition, trading may take place on foreign commodity exchanges which have not
received designation as contract markets by the CFTC.
THE TRADING ADVISORS
Two firms acted as the Fund's only commodity trading advisors since the Fund
began trading until July 8, 1997: John W. Henry & Company, Inc. and Sabre Fund
Management Limited (JWH-Registered Trademark- and Sabre are hereinafter
sometimes referred to as the "ORIGINAL TRADING ADVISORS"). On July 8, 1997,
Welton became a Trading Advisor. The Trading Advisors were selected by the
General Partners on the basis of their review of the past performance of each of
the Trading Advisors and their respective trading methods. Each Original Trading
Advisor was initially allocated one half of the Fund's assets to manage. On
February 7, 1991, the Fund's assets were reallocated in order to adjust the
then-current allocation so that each Original Trading Advisor had an equal
portion of the Fund's assets to manage. As of the date of this Prospectus JWH
managed approximately 65% of the Fund's assets, Welton managed approximately 30%
of the Fund's assets and Sabre managed approximately 5% of the Fund's assets.
The General Partners currently intend that 65%, 30% and 5% of the Fund's assets
raised in connection with this offering will be allocated to JWH, Welton and
Sabre respectively.
Each Trading Advisor is an independent commodity trading advisor and is not
affiliated with, either General Partner, the Clearing Broker, the Introducing
Broker or the Fund. Each Trading Advisor will direct trading for the Fund
completely independently of the other Trading Advisors, and will have no
knowledge of trading decisions being made by the other Trading Advisors. Each
Trading Advisor is registered under the Commodity Exchange Act, as amended, as a
commodity trading advisor, and is a member in good standing of the NFA. Although
a Trading Advisor or its principals may purchase Units in the Fund, there are no
arrangements or commitments for any of them to purchase Units.
The Trading Advisors are described in the following sections of the
Prospectus. Following the description of JWH and Welton is a summary of the
trading methods employed by them. These summaries have been developed by JWH and
Welton, respectively, and accordingly represent only those aspects of the JWH
and Welton trading methodology deemed by JWH and Welton to be worthy of
emphasis. The trading methods of the Trading Advisors are proprietary and
confidential, and therefore the summaries presented hereafter are general and do
not include specific details about them. In addition, the Trading Advisors
engage in ongoing research concerning the commodity interests markets and may
modify and refine their trading methods from time to time. As a result of such
modifications, the trading methods that might be used by the Trading Advisors in
the future in directing trading for the Fund might differ from those presently
used by them. Investors in the Fund will not be advised of such changes in
trading methods.
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Trading methods require the exercise of judgment by each Trading Advisor.
Judgment is required in the evaluation of the trading methods used by each
Trading Advisor, in the evaluation and consideration of modifications of the
trading methods from time to time, and in the implementation of the trading
methods. The decision not to trade certain commodity interests or not to make
certain trades may at times result in missing price moves and, therefore,
profits of great magnitude, which other trading managers who are willing to
trade those commodity interests may be able to capture. There can be no
assurance that the trading methods employed by the Trading Advisors will result
in profitable trading for the Fund.
THE ADVISORY CONTRACTS
The Fund has entered into advisory contracts with the Trading Advisors (the
"Advisory Contracts"). The contracts provide that the Trading Advisors will have
responsibility for determining transactions in commodity interests with respect
to Fund assets. The General Partners currently intend that JWH, Welton and Sabre
will be allocated 65%, 30% and 5% respectively of the Fund's assets raised in
connection with this offering, but at any time thereafter the General Partners,
in their sole discretion, may reallocate assets among the Trading Advisors or
among other trading advisors which may be appointed by them. The Fund's advisory
contract with JWH and Sabre was entered into on March 27, 1987 and has been
renewed each year since then (the "JWH/SABRE CONTRACT"). On January 23, 1992,
and again on April 30, 1996, the JWH/ Sabre Advisory Contract was amended to
provide for the continuation of JWH's and Sabre's services to the Fund. The
JWH/Sabre advisory contract extends to December 31, 1997, and may be renewed by
the Fund for two additional one-year terms. The Fund's advisory contract with
Welton was entered into on July 2, 1997 and extends to December 31, 1998, and
may be renewed by the Fund for three additional one-year terms. The Advisory
Contracts may also be terminated by the General Partners upon notice for cause
in certain circumstances or if specified events occur. Each Trading Advisor may
terminate the advisory contract with respect to itself if certain specified
events occur. In addition, JWH may terminate its advisory contract at any time
upon 60 days' written notice to the General Partners. Both Advisory Contracts
will terminate automatically if the Fund is terminated.
No assurance is given that, after the expiration or termination of the
Advisory Contracts, the Fund will be able to retain the advisory services of
JWH, Welton or Sabre, or that if such services are available they will be on the
same terms as those of the initial Advisory Contracts. The General Partners may,
in their sole discretion, employ additional trading advisors or replace existing
trading advisors. Upon termination or expiration of the Advisory Contracts, the
Fund may retain other advisors whose compensation may be determined without
regard to the previous performance of the Fund, or it may renew the contract
with the Trading Advisors on the same or different terms. The compensation
payable by the Fund to the Trading Advisors for their services under the
Advisory Contracts is described under the caption "CHARGES TO THE FUND."
A Trading Advisor, its principals and employees will not be liable to the
Fund, its partners, any of its successors or assigns or the General Partners
except by reason of acts or omissions due to bad faith, misconduct, negligence
or for not having acted in good faith in the reasonable belief that its actions
were taken in, or not opposed to, the best interests of the Fund. The Fund will
indemnify a Trading Advisor, its principals and employees to the full extent
permitted by law for any liability incurred in connection with any acts or
omissions related to such Trading Advisor's management of its allocable share of
Fund assets, PROVIDED that there has been no judicial determination that such
liability was the result of negligence, misconduct or bad faith nor any judicial
determination that the conduct which was the basis for such liability was not
done in a good faith belief that it was in, or not opposed to, the best
interests of the Fund. Any such indemnification involving a material amount,
unless ordered or expressly permitted by a court, will be made by the Fund only
upon the opinion of independent legal counsel that the Trading Advisor has met
the applicable standard of conduct described above. A Trading Advisor could be
liable to the Fund for any excessive trading directed by it for the Fund if one
of the above standards for liability were violated. However, it may be difficult
to establish as a basis for liability that trading has been excessive due to the
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vagueness of the standards defining excessive trading; most cases that have
addressed the issue of excessive trading have dealt with cases in which the
party with discretionary trading authority over an account also was compensated
(at least in part) for such service by receipt of a portion of commodity
brokerage commissions payable by that account, so that the trader had a direct
financial incentive to engage in heavy trading. In contrast, the Trading
Advisors are not affiliated with the Clearing Broker and will not receive any
compensation based on or related to the brokerage commissions payable by the
Fund. In addition, it may also be difficult to establish that trading directed
for the Fund has been excessive due to the broad trading discretion granted to
the Trading Advisors by the Fund.
The Advisory Contracts prohibit the Trading Advisors from receiving any
commission, compensation, remuneration or payment whatever from any broker with
whom the Fund carries any account by reason of the Fund's transactions. The Fund
will pay the Trading Advisors a quarterly incentive fee and a monthly management
fee as described under "CHARGES TO THE FUND."
Each Trading Advisor and its principals, affiliates and employees shall be
free to trade for their own accounts and to manage other commodity accounts and
to use the same information and trading strategy which the Trading Advisor
obtains, produces or utilizes in the performance of services for the Fund. See
"RISK FACTORS--RELIANCE ON TRADING ADVISORS" and "CONFLICTS OF INTEREST--OTHER
COMMODITY POOLS AND ACCOUNTS." Limited Partners will not be allowed to inspect
the records of such accounts in light of the confidential nature of such
records. However, the Advisory Contracts currently provide that the General
Partners may inspect all the records of the Trading Advisors related to
commodity trading to determine whether the Fund has been treated equitably with
other accounts of the Trading Advisors. The General Partners shall have the
right to receive from the Trading Advisors pertinent information on the overall
performance of all of the Trading Advisors' accounts for the purpose of
confirming that the Fund has been treated equitably in light of the Trading
Advisors' trading for other accounts during the term of the Advisory Contracts,
including information as to priorities of order entry assigned by the Trading
Advisors to all their accounts and any modifications which might have to be made
to the Trading Advisors' respective trading decisions as a result of the
application of speculative position limits to its accounts. See "RISK
FACTORS--RELIANCE ON TRADING ADVISORS" and "DESCRIPTION OF COMMODITY
TRADING--REGULATION."
COMMODITY TRADING METHODS IN GENERAL
This section contains a general description of commodity trading methods to
assist the reader in understanding the subsequent discussions of the trading
methods used by JWH and Welton as the principal trading advisors for the Fund.
Because of the general nature of this section, it should not be inferred that
any element of a trading system described here will necessarily be followed
either by JWH or Welton or any trading advisor selected by the General Partners.
Commodity futures traders basically rely on one of two types of
analysis--"technical" or "fundamental"--for their trading decisions. Technical
analysis is based on the theory that a study of the markets themselves will
provide a means of anticipating the external factors that affect the supply and
demand of a particular commodity in order to predict future prices. On the other
hand, fundamental analysis relies on a study of those external factors. As an
example with respect to an agricultural commodity, some of the fundamental
factors that affect the supply of soybeans include the acreage planted, crop
conditions (drought, flood, disease, etc.), labor disputes affecting planting,
harvesting, and distribution, and the previous year's crop carryover. The demand
for soybeans consists of domestic usage and exports, which are affected by
general world economic conditions and the cost of soybeans in relation to the
cost of competing food products. As an example with respect to currency, some of
the fundamental factors that affect the demand for a currency, E.G., British
pounds, include the inflation and interest rates of the currency's domestic
market, exchange controls, and that country's balance of trade, business, and
political stability. The supply of a currency can be determined by, among other
things, government spending, credit controls, domestic money supply and prior
years' trade balances.
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Technical analysis of the markets generally includes a study of, among other
things, the actual daily, weekly and monthly price fluctuations, volume
variations, or changes in open interest, utilizing charts, computers, or a
combination of the two for analysis of these items. Such approaches to the
commodity futures markets may use a series of mathematical measurements and
calculations designed to monitor market activity for the particular strategies
used. Trading recommendations are based on signals generated by charts, manual
calculations or computers. As an example with respect to a financial commodity,
one set of procedures might evaluate the following factors, among others, on a
daily basis: (1) the price trends of a financial commodity and the levels at
which to initiate new positions and terminate old positions; (2) the volatility
that the particular financial commodity has displayed in the past; (3) the
condition of the market of the financial commodity being traded in terms of
whether it is a trending market or an erratic and non-trending market; and (4)
the state of the financial commodity markets in terms of determining the proper
points for initiating new positions and allowing increases in existing
commitments.
At the end of each trading day, a trader using a technical trading system
generally obtains settlement and other price information for each commodity
which its system follows. This price information is used to generate a series of
trading signals. If a trading system is maintained on a computer, the prices
will be entered into the computer and a program, which consists of a series of
mathematical calculations. If the trading system does not operate on a computer,
the trader will manually apply such information to a series of rules or
equations which constitute its trading system. Certain trading systems signal
the trend in each commodity followed and indicate any changes in such trend,
thus permitting the trader to adjust his or her positions accordingly. In other
types of trading systems, the trading system will indicate an exact price at
which to open and close positions for each commodity followed and the trader
will attempt to enter or exit positions in accordance with such prices.
JOHN W. HENRY & COMPANY, INC.
John W. Henry & Company, Inc. ("JWH-REGISTERED TRADEMARK-"), is a United
States based global investment management firm. JWH is an established leader in
the managed futures industry and as of May 31, 1997 managed approximately $1.9
billion in client assets. JWH's asset management services utilize global foreign
exchange, financial futures and commodities markets. Assets are managed by JWH
for leading money center banks, brokerage firms, retirement plans, insurance
companies, multinational corporations, private banks, and family offices
spanning the Americas, Europe and Asia. Funds for which JWH acts as manager or
co-manager regularly have appeared on industry lists of top-performing futures
funds.
John W. Henry & Company began managing assets in 1981 as a sole
proprietorship and was later incorporated in the state of California as John W.
Henry & Co., Inc. to conduct business as a commodity trading advisor. JWH
reincorporated in the state of Florida in 1997. The sole shareholder of JWH is
the John W. Henry Trust dated July 27, 1990. The trustee and sole beneficiary of
the Trust is John W. Henry. The firm is registered as a commodity trading
advisor ("CTA") and a commodity pool operator ("CPO") with the Commodity Futures
Trading Commission ("CFTC"), is a member of the National Futures Association
("NFA") and the Futures Industry Association ("FIA"), and is a sustaining member
of the Managed Futures Association ("MFA"). In addition, JWH's affiliates
Westport Capital Management Corporation and Global Capital Management Limited
are CPOs, JWH Risk Management, Inc. is a CTA and CPO, JWH Asset Management, Inc.
is a CTA, and JWH Financial Products, Inc. is a CTA and CPO. "JWH" is the
registered trademark of John W. Henry & Company, Inc.
THE JWH INVESTMENT PHILOSOPHY
The basis of the JWH investment philosophy is that prices for all financial
instruments reflect human reactions to external events. Accordingly, it can be
expected that a series of political, economic, social or environmental events
will create patterns of price movements, or trends. When a sequence of similar
events is repeated at a later time, the price trends often reoccur. JWH programs
attempt to capture the profit opportunities created by sustained market
movements.
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By conducting analysis on historic price data for commodity markets, the
firm's founder, John W. Henry, developed proprietary systems designed to
identify important price trends and determine optimal entry and exit points.
JWH's comprehensive research has also led to the development of quantitative
models which suggest the appropriate content and weighting for each position in
a global portfolio.
The investment philosophy of JWH is supported by intensive risk management
and continuing research to enhance the application of the underlying
methodologies. Risk is measured and managed in a variety of ways. Within client
portfolios, individual positions are monitored on a stand-alone and portfolio-
weighted basis. Positions are matched with stop-loss provisions which are
altered regularly to reflect changing market conditions.
For more than a decade, JWH has recognized the importance of global trading.
Financial markets around the world are increasingly interrelated, with actions
in one country's markets often influencing markets in other parts of the world.
Many of the JWH investment programs maintain positions in a variety of worldwide
markets in seeking to achieve material benefits from the opportunities
presented.
Although price trends are the ultimate product of markets, there are
procedures built into JWH's programs that have been designed to affect trading
efficiency and preserve client capital. JWH's research on these and other issues
has materially improved risk-adjusted performance for clients over the past few
years.
PRINCIPALS OF JWH
Mr. John W. Henry is Chairman of the JWH Board of Directors and is trustee
and sole beneficiary of the John W. Henry Trust dated July 27, 1990. Mr. Henry
is also a member of the Investment Policy Committee of JWH. He currently
concentrates his activities at JWH on portfolio management, business issues and
frequent dialogue with trading supervisors. Mr. Henry is the exclusive owner of
certain trading systems licensed to Elysian Licensing Corporation, a corporation
wholly owned by Mr. Henry and sublicensed by Elysian Licensing Corporation to
JWH and utilized by JWH in managing client accounts. Over the last fifteen
years, Mr. Henry has developed many innovative investment programs which have
enabled JWH to become one of the most successful money managers in the foreign
exchange, futures and fixed income markets.
Mr. Henry has served on the Board of Directors of the National Association
of Futures Trading Advisors (NAFTA), and the Managed Futures Trade Association,
and has served on the Nominating Committee of the NFA. He currently serves on
the Board of Directors of the Futures Industry Association and is Chairman of
the FIA Task Force on Derivatives for Investment. Mr. Henry also currently
serves on a panel created by the Chicago Mercantile Exchange and the Chicago
Board of Trade to study cooperative efforts related to electronic trading,
common clearing and the issues regarding a potential merger. In 1989, Mr. Henry
established residency in Florida, and since that time has performed services
from that location as well as from the offices of JWH in Westport, Connecticut.
Mr. Henry is a principal of Westport Capital Management Corporation, Global
Capital Management Limited, JWH Risk Management, Inc., JWH Asset Management,
Inc., and JWH Financial Products, Inc., all of which are affiliates of JWH.
Since the beginning of 1987, Mr. Henry has devoted, and will continue to devote,
considerable time to activities in businesses unrelated to JWH and its
affiliates.
Mr. Mark H. Mitchell is Vice Chairman, General Counsel and a member of the
JWH Board of Directors. He is also Vice Chairman and a Director of JWH Risk
Management, Inc., JWH Asset Management, Inc., and JWH Financial Products, Inc.
Prior to joining JWH in January 1994, Mr. Mitchell was a partner of Chapman and
Cutler, a Chicago law firm, where he headed its futures law practice since
August 1983. From August 1980 to March 1991, he served as General Counsel of
NAFTA and, from March 1991 to December 1993, he served as General Counsel of the
Managed Futures Association. Mr. Mitchell is currently a member of the Commodity
Pool Operator/Commodity Trading Advisor Advisory Committee and the Special
Committee for the Review of a Multi-tiered Regulatory Approach to
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NFA Rules, both of the National Futures Association. In addition, he has served
as a member of the Government Relations Committee of the MFA and the Executive
Committee of the Law and Compliance Division of the Futures Industry
Association. In 1985, he received the Richard P. Donchian Award for Outstanding
Contributions to the Field of Commodity Money Management. He has been an editor
of FUTURES INTERNATIONAL LAW LETTER and its predecessor publication, COMMODITIES
LAW LETTER. He received an A.B. with honors from Dartmouth College and a J.D.
from the University of California at Los Angeles, where he was named to the
Order of the Coif, the national legal honorary society.
Mr. David R. Bailin is Executive Vice President and is chairman of the
Operating Committee of JWH. Mr. Bailin is also President of JWH Risk Management,
Inc., President and Director of Westport Capital Management Corporation, and
President and Chairman of the Board of Directors of Global Capital Management
Limited. He is responsible for the development, implementation and management of
JWH's sales and marketing infrastructure. Prior to joining JWH in December 1995,
Mr. Bailin was Managing Director--Development since April 1994 for Global Asset
Management ("GAM"), a Bermuda-based management firm with over $7 billion in
managed assets. He was responsible for overseeing the international distribution
of GAM's funds as well as for establishing new distribution relationships and
channels. Prior to his employment with GAM, Mr. Bailin headed the real estate
asset management division of Geometry Asset Management beginning in July 1992.
Prior to that time, beginning in 1988, he was President of Warner Financial, an
investment advisory business in Boston, Massachusetts. Mr. Bailin currently
serves on the Board of Directors of the Futures Industry Institute. Mr. Bailin
received a B.A. from Amherst College and an M.B.A. from Harvard Business School.
Ms. Elizabeth A.M. Kenton is a Senior Vice President, Director of Compliance
and a vice chairman of the Operating Committee of JWH. Since joining JWH in
March 1989, Ms. Kenton has held positions of increasing responsibility in
Research and Development, Administration and Regulatory Compliance. Ms. Kenton
is also a Director of Westport Capital Management Corporation, Vice President of
JWH Asset Management, Inc., and JWH Financial Products, Inc., a Senior Vice
President of JWH Risk Management, Inc., and a Director of Global Capital
Management Limited. Prior to her employment at JWH, Ms. Kenton was Associate
Manager of Financial and Trading Operations at Krieger Investments, a currency
and commodity trading firm. From July 1987 to September 1988, Ms. Kenton worked
for Bankers Trust Company as a Product Specialist for foreign exchange and
treasury options trading. Ms. Kenton is a member of the MFA Trading and Markets
Committee. She received a B.S. in Finance from Ithaca College.
Mr. David M. Kozak is Counsel to the Firm, Secretary, and a Vice President
of JWH. He is also Secretary of JWH Risk Management, Inc., JWH Asset Management,
Inc., JWH Financial Products, Inc., and Assistant Secretary of Westport Capital
Management Corporation. Prior to joining JWH in September 1995, Mr. Kozak was
employed at Chapman and Cutler, where he was an associate from September 1983
and a partner from 1989. Mr. Kozak has concentrated in commodity futures law
since 1981, with emphasis in the area of commodity money management. During the
time he was employed by Chapman and Cutler, he served as outside counsel to the
NAFTA and the MFA. Mr. Kozak is currently a member of the Government Relations
Committee of the MFA, the NFA Special Committee on CPO/CTA Disclosure Issues and
the Visiting Committee of The University of Chicago Library. He received a B.A.
from Lake Forest College, an M.A. from The University of Chicago, and a J.D.
from Loyola University of Chicago.
Mr. Kevin S. Koshi is a Senior Vice President, Chief Trader and a member of
the Operating and Investment Policy Committees of JWH. He is responsible for the
supervision and administration of all aspects of order execution strategies and
implementation of trading policies and procedures. Mr. Koshi joined JWH in
August 1988 as a professional in the Finance Department, and since 1990 he has
held positions of increasing responsibility in the Trading Department. He
received a B.S. in Finance from California State University at Long Beach in
1988.
Mr. Barry S. Fox is the Director of Research and is a member of the
Operating and Investment Policy Committees of JWH. Mr. Fox is responsible for
the design and testing of existing and new programs. He
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also supports and maintains the proprietary systems used to generate JWH trades.
Mr. Fox joined JWH in 1991 and since that time has held positions of increasing
responsibility in the Research and Product Development Departments. Prior to his
employment at JWH, Mr. Fox provided sales and financial analysis support for
Spreadsheet Solutions, a financial software development company. Prior to
joining Spreadsheet Solutions in October 1990, Mr. Fox operated a trading
company where he traded his own proprietary capital. Before that, he was
employed with Bankers Trust Company as a product specialist for foreign exchange
and treasury options trading. He received a B.S. in Business Administration from
the University of Buffalo.
Ms. Glenda G. Twist is a Director of JWH and has held that position since
August 1993. Ms. Twist is resigning from JWH as of August 1, 1997. Ms. Twist
joined JWH in September 1991 with responsibilities for corporate liaison and she
continues her duties in that area. Her responsibilities have included assistance
in the day-to-day administration of the Florida office, and review and
compilation of financial information for JWH. Ms. Twist was President of J.W.
Henry Enterprises Corp., for which she performed financial, consulting and
administrative services from January 1991 to August 1991. From 1988 to 1990, Ms.
Twist was Executive Director of Cities in Schools, a program in Arkansas
designed to prevent students from leaving school before completing their high
school education. She received her B.S. in Education from Arkansas State
University.
Mr. Michael J. Scoyni is a Managing Director of JWH and a principal of
Westport Capital Management Corporation. Mr. Scoyni has been associated with Mr.
Henry since 1974 and with JWH since 1982. He was engaged in research and
development for John W. Henry & Company (the predecessor of JWH) from November
1981 to December 1982 and has been employed in positions of increasing
responsibility. He received a B.A. in Anthropology from California State
University.
Mr. Edwin B. Twist is a Director of JWH and has held that position since
August 1993. He is also a Director of JWH Risk Management, Inc., JWH Asset
Management, Inc., and JWH Financial Products, Inc. Mr. Twist joined JWH as
Internal Projects Manager in September 1991. Mr. Twist's responsibilities
include assisting with the day-to-day administration of JWH's Florida office and
internal projects. Mr. Twist was Secretary and Treasurer of J.W. Henry
Enterprises Corp., a Florida corporation engaged in administrative and financial
consulting services, for which he performed financial, consulting and
administrative services from January 1991 to August 1991.
Mr. Julius A. Staniewicz is Senior Strategist in JWH's Research and Product
Development Department. He is also President of JWH Asset Management, Inc. and
JWH Financial Products, Inc. Prior to joining JWH in March of 1992, Mr.
Staniewicz was employed with Shearson Lehman Brothers as a financial consultant
starting in April 1991. Prior to that, beginning in 1990, Mr. Staniewicz was a
vice president of Phoenix Asset Management, a commodity pool operator and
introducing broker, where he helped develop futures funds for syndication and
institutional investors. From 1986 to 1989, Mr. Staniewicz worked in the managed
futures department at Prudential-Bache Securities, Inc., lastly as an assistant
vice president and co-director of managed futures. In this capacity, Mr.
Staniewicz oversaw all aspects of forming and offering futures funds, including
the selection and monitoring of CTAs. Mr. Staniewicz received a B.A. in
Economics from Cornell University.
The additional principals of JWH are:
Mr. John A.F. Ford--Director of Marketing.
Mr. Michael D. Gould--Director of Investor Services.
Mr. Jack M. Ryng, C.P.A.--Controller.
Mr. Christopher E. Deakins--Vice President.
Mr. Chris J. Lautenslager--Vice President.
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Ms. Nancy O. Fox, C.P.A.--Vice President and Director of Investment Support.
Ms. Wendy B. Goodyear--Director of the Office of the Chairman of JWH.
Ms. Melanie A. Caldwell--Human Resources and Administrative Director.
Mr. Andrew D. Willard--Director of Technology.
Mr. Mark W. Sprankel--Assistant Vice President.
Mr. Matthew J. Driscoll--Assistant Vice President.
LEGAL AND ETHICAL CONCERNS
There neither now exists nor has there ever previously been any
administrative, civil, or criminal action against JWH or its principals which is
material, except that in September, 1996, JWH was named as a co-defendant in
class action lawsuits brought in the California Superior Court, Los Angeles
County and in the New York Supreme Court, New York County. In November, JWH was
named as a co-defendant in a class action complaint filed in Superior Court of
the State of Delaware for Newcastle County that contained the same allegations
as the New York and California complaints. Additional complaints containing the
same allegations as the earlier California complaints were filed in California
in March 1997. The actions, which seek unspecified damages, purport to be
brought on behalf of investors in certain Dean Witter, Discover & Co. commodity
pools, some of which are advised by JWH, and are primarily directed at Dean
Witter's alleged fraudulent selling practices in connection with the marketing
of those pools. JWH is essentially alleged to have aided and abetted or directly
participated with Dean Witter in those practices. JWH believes the allegations
against it are without merit; it intends to contest these allegations
vigorously.
JWH and Mr. Henry may engage in discretionary trading for their own
accounts, and may trade for the purpose of testing new investment programs and
concepts, as long as such trading does not amount to a breach of fiduciary duty.
In the course of such trading, JWH and Mr. Henry may take positions in their own
accounts which are the same or opposite from client positions, due to testing a
new quantitative model or program, a neutral allocation system, and/or trading
pursuant to individual discretionary methods, and on occasion orders may receive
better fills than client accounts. Records for these accounts will not be made
available to clients. Employees and principals of JWH (other than Mr. Henry) are
not permitted to trade on a discretionary basis in futures, options on futures
or forward contracts. However, such principals and employees may invest in
investment vehicles that trade futures, options on futures, or forward
contracts, when an independent trader manages trading in that vehicle, and in
The JWH Employee Fund, L.P., for which JWH is the trading advisor. The records
of these accounts also will not be made available to clients.
THE OPERATING COMMITTEE
The Operating Committee is the senior management group at JWH and is
responsible for the development and implementation of the firm's long-term
strategies and objectives. The Operating Committee, which is composed of key
managers from each department of JWH, also coordinates and oversees the firm's
daily operations.
THE INVESTMENT POLICY COMMITTEE
The JWH Investment Policy Committee ("IPC") is one vehicle for
decision-making at JWH about the content and application of JWH trading
programs. Composition of the Investment Policy Committee, and participation in
its discussions and decisions by non-members may vary from time to time. The IPC
is an interdepartmental advisor body which meets periodically to discuss issues
relating to the JWH trading programs and their application to markets, including
research on markets and strategies in relation to the proprietary trading models
employed by JWH. JWH's proprietary research group may determine new
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markets which should be traded in given portfolios, or determine markets which
should be removed from given portfolios. Non-proprietary recommendations from
research are then presented to and discussed by the IPC, which may recommend
them to the chairman for approval. Proprietary research findings are reviewed
directly by the chairman before implementation. All recommendations of the IPC
are subject to final approval by the chairman. The IPC does not make particular
trading decisions. The trading department initiates and liquidates positions and
manages JWH portfolios in accordance with the firm's proprietary trading
methodology, which is not overruled unless the chief trader determines that
doing so is in the best interest of clients. No trade indications are overruled
without the express approval of the chairman. The chairman may also notify the
trading department at any time of special situations which he deems may require
a modification in applying the methodology.
THE JWH TRADING METHOD
JWH employs several trading methods in directing trading for clients'
accounts. All of these methods are technical in nature, and generally operate in
the manner described for technical trading methods under "COMMODITY TRADING
METHODS IN GENERAL," above.
All of the trading methods employed by JWH are operated as completely
separate and independent trading systems. In directing trading for the Fund, JWH
will employ, and has employed, the Financial and Metals Portfolio. See "PAST
PERFORMANCE OF JWH AND WELTON."
JWH TRADING POLICIES
A DISCIPLINED INVESTMENT PROCESS
Regardless of recent performance in any one market, or widely held opinions
on future market direction, JWH maintains a disciplined investment process. The
consistent application of JWH's investment techniques facilitates the ability to
participate in rising or falling markets without bias.
The first step in the JWH investment process is the identification of
sustained price movements--or trends--in a given market. While there are many
ways to identify trends, JWH uses mathematical models that attempt to
distinguish real trends from interim volatility. It also presumes that trends
often exceed in duration the expectation of the general marketplace.
JWH's historical performance demonstrates that, because trends often last
longer than most market participants expect, significant returns can be
generated from positions held over a long period of time. As such, JWH attempts
to pare losing positions relatively quickly while allowing profitable positions
to mature. Most losing positions are closed within a few days or weeks, while
others--those where a profitable trend continues--are retained. Positions held
for two to four months are not unusual, and positions have been held for more
than one year. Historically, only thirty to forty percent of all trades made
pursuant to the investment methods have been profitable. Large profits on a few
trades in positions that typically exist for several months have produced
favorable results overall. Generally, most losing positions are liquidated
within weeks. The maximum equity retracement JWH has experienced in any single
program was nearly sixty percent. Clients should understand that similar or
greater drawdowns are possible in the future.
To reduce exposure to volatility in any particular market, most JWH programs
participate in several markets at one time. In total, JWH participates in up to
60 markets, encompassing interest rates, foreign exchange, and commodities such
as agricultural products, energy and precious metals. Most investment programs
maintain a consistent portfolio composition to allow opportunities in as many
major market trends as possible.
Throughout the investment process, risk controls are maintained to reduce
the possibility of an extraordinary loss in any one market. Proprietary research
is conducted on an ongoing basis to refine the
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JWH investment strategies and attempt to reduce volatility while maintaining the
potential for excellent performance.
JWH at its sole discretion may override computer-generated signals and may
at times use discretion in the application of its quantitative models which may
affect performance positively or negatively. Subjective aspects of JWH's
quantitative models also include the determination of leverage, commencement of
trading an account, contracts and contract months, and effective trade
execution.
PROGRAM MODIFICATIONS
In an effort to maintain and improve performance, JWH has engaged, and
continues to engage in extensive research. While the basic philosophy underlying
the firm's investment methodology have remained intact throughout its history,
the potential benefits of employing more than one investment methodology
alternatively, or in varying combinations, is a subject of continual testing,
review and evaluation. Extensive research and analysis may suggest substitution
of alternative investment methodologies with respect to particular contracts in
light of relative differences in historical performance achieved through testing
different methodologies. In addition, risk management research and analysis may
suggest modifications regarding the relative weighting among various contracts,
the addition or deletion of particular contracts for a program or a change in
the degree of leverage employed.
As capital in each JWH trading program increases, additional emphasis and
weighting may be placed on certain markets which have historically demonstrated
the greatest liquidity and profitability. Furthermore, the weighting of capital
committed to various markets in the investment programs is dynamic, and JWH may
vary the weighting at its discretion as market conditions, liquidity, position
limit considerations and other factors warrant. Limited Partners will not be
informed of such changes.
PHYSICAL AND CASH COMMODITIES
JWH may from time to time trade in physical or cash commodities for
immediate or deferred delivery, including specifically gold bullion, as well as
futures, options, and forward contracts when it believes that cash markets offer
comparable or superior market liquidity or ability to execute transactions at a
single price. Cash transactions, as opposed to futures transactions, relate to
the purchase and sale of specific physical commodities. Whereas futures
contracts are generally uniform except for price and delivery time, cash
contracts may differ from each other with respect to such terms as quantity,
grade, mode of shipment, terms of payment, penalties, risk of loss and the like.
There is no limitation on daily price movements of cash or forward contracts
transacted through banks, brokerage firms, or government dealers, and those
entities are not required to continue to make markets in any commodity. In
addition, the CFTC does not comprehensively regulate cash transactions, which
are subject to the risk of these entities' failure or inability or refusal to
perform with respect to such contracts.
LEVERAGE
Leverage adjustments have been and continue to be an integral part of JWH's
investment strategy. At its discretion, JWH may adjust leverage in certain
markets or entire trading programs. Leverage adjustments may be made at certain
times for some trading programs but not for others. Factors which may affect the
decision to adjust leverage include: ongoing research, program volatility,
current market volatility, risk exposure, and subjective judgment and evaluation
of these and other general market conditions. Such decisions to change leverage
may positively or negatively affect performance, and will alter risk exposure
for an account. Leverage adjustments may lead to greater profits or losses, more
frequent or larger margin calls, and greater brokerage expense. No assurance is
given that such actions will be to the financial advantage of JWH clients. JWH
reserves the right, in its sole discretion, to adjust its leverage policy
without notification to investors.
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As a result of the factors mentioned above, on several occasions, JWH has
decreased leverage over the last five years, in certain markets and entire
trading programs. These actions have reduced the volatility of certain trading
programs when compared to the volatility prior to the decreases in leverage.
While historical returns represent actual performance achieved, investors should
be aware that the degree of leverage currently utilized may be significantly
different from that used during previous time periods.
ADDITIONS, REDEMPTIONS AND REALLOCATION OF CAPITAL FOR COMMODITY POOL ACCOUNTS
JWH has developed the following procedures for trading pool accounts, such
as the Fund, that provide for the addition, redemption and/or reallocation of
capital. Investors who purchase or redeem units in a fund are most frequently
permitted to do so at a price equal to the net asset value per unit ("NAV") on
the close of business on the last business day of the month or quarter. Further,
funds may reallocate capital among advisors at the close of business on the last
business day of the month. In order to provide market exposure commensurate with
equity in the JWH account on the date of these transactions, JWH's general
practice is to adjust positions as near as possible to the close of business on
the last trading date of the month. The intention is to provide for additions,
redemptions and reallocations at an NAV per unit that will be the same for each
of these transactions and to eliminate possible variation in NAVs that could
occur as a result of inter-day price changes if, for example, additions were
calculated on the first day of the subsequent month. Therefore, JWH may, in its
sole discretion, adjust its investment of the assets associated with the
addition, redemption and reallocation of capital as near as possible to the
close of business on the last business day of the month to reflect the amount
then available for trading. Based on JWH's determination of liquidity or other
market conditions, JWH may decide to commence trading earlier in the day on, or
before, the last business day of the month, or, at its sole discretion, delay
adjustments to trading for an account to a date or time after the close of
business on the last day of the month. No assurance is given that JWH will be
able to achieve the objectives described above in connection with funding level
changes. The use of discretion by JWH in the application of this procedure may
affect performance positively or negatively.
OTHER JWH PROGRAMS
In addition to the Financial and Metals Portfolio, JWH currently operates
ten other trading programs for U.S. and foreign investors, none of which will be
utilized by the Fund.
WELTON INVESTMENT CORPORATION
Welton Investment Corporation ("WELTON") is a Delaware corporation merged
from a California corporation originally formed in November 1988. Its business
is providing professional investment management services specializing in futures
and foreign exchange markets worldwide. Welton was formed to offer proprietary
investment and portfolio management techniques to qualified individual,
institutional, and corporate investors. Welton is registered beginning January
4, 1989, as a commodity trading advisor and commodity pool operator with the
Commodity Futures Trading Commission, is a trading advisor and commodity pool
operator member of the National Futures Association, the futures industry
self-regulatory organization, and is also a member of the Managed Futures
Association.
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WELTON INVESTMENT PHILOSOPHY AND TECHNOLOGY
Welton is committed to achieving attractive rates of return while
successfully managing risk. This is accomplished through the consistent
application of the firm's primary trading principles:
- Market diversification
- Methodological diversification
- Portfolio allocation and management
- Transaction cost management and market participant structure analysis
- Monitoring and review systems to the above points
These principles are the basis to pursue strong rates of return with controlled
volatility and with low correlation to other managed futures programs as well as
to traditional fixed income and equity investment classes.
Welton considers its portfolios and programs to be in a constant cycle of
review and improvement centered on a stable process for improving their long
term success. This paradigm for performance improvement involves all divisions
of the firm. The continuous process involves regular review and analysis of all
actual trading activity; of all new and existing global markets with the goal of
increasing market diversification; of all potential strategic approaches to
various market conditions with the goal of increasing strategic diversification,
and hence, effective diversification; of trading costs and execution methods;
and of portfolio management models and techniques to best integrate all of the
above. This process implicitly recognizes that adaptation is essential in
approaching the global markets and that adaptation is best implemented at even
the most primary model levels.
To implement models, Welton has developed an advanced decision support
platform capable of real-time analyzation of markets and combinations of markets
around the world. This tool allows the implementation of Welton trading
strategies independently or in complementary combinations across a tremendous
diversity of global markets. Ongoing research and development continues to be
Welton's largest single commitment of resources and is conducted within its
performance improvement paradigm to improve the level, consistency, and quality
of performance in its offered portfolios and programs.
Although the trading of Welton portfolios is guided by the consistent
application of proprietary mathematical systems, there will always remain
investment decisions requiring the discretion and judgment of Welton. These
include but are not limited to contract month selection, analysis of portfolio
balance, and capital requirements. In addition, Welton may at its sole
discretion choose not to implement certain trades if they are judged to carry
unusual risk to an account. Welton will reinvest trading profits unless
withdrawn by the client. Welton may also stop trading certain markets should
they become, in Welton's judgment, too illiquid or volatile to trade or their
movement too correlated with other portfolio elements. Assets committed to meet
minimum exchange margin for all positions usually remain between 5-35% of total
account equity. These levels may from time to time be greater or less than this
range. All investments including Welton managed portfolios and programs involve
the risk of loss.
WELTON INVESTMENT PORTFOLIOS AND PROGRAMS
Welton offers two distinct categories of investment products to
institutional, corporate, and qualified individual clients. The first category
is a select group of diversified investment portfolios each utilizing a managed
futures structure trading in the global futures, options, and currency markets
and designed to achieve attractive absolute rates of return. The second category
includes two inherently customized investment programs designed to improve
returns relative to accepted global investment performance benchmarks such as a
client's portfolio return, an equity index or a fixed income index or note. In
directing trading for the Fund, Welton will employ the Diversified Portfolio.
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DIVERSIFIED PORTFOLIO
The Diversified Portfolio manages investors assets through exposure to the
widest spectrum of futures markets spanning all major market sectors including
interest rates, currencies stock indices, precious and industrial metals,
energy, meats, grains and soft commodities. Multiple trading strategies are
employed in an attempt to profitably participate in a variety of market
conditions. This emphasis on market and methodological diversification
epitomizes Welton's core principles in advising on investor assets in the global
marketplace.
PRINCIPALS OF WELTON
Patrick L. Welton is the Chief Executive Officer, and Chairman of Welton
Investment Corporation. Dr. Welton developed the mathematical analysis
techniques and software employed by Welton in its trading and portfolio
management. From 1978 to 1982, Dr. Welton earned Bachelor's Degrees from the
University of Wisconsin, completing a portion of his undergraduate studies at
Harvard University. From 1982 to 1986, he attended the UCLA School of Medicine
where he completed graduate biophysics and medical studies and earned an MD
degree. From 1986 to 1990, he was a postgraduate physician at the Stanford
University Medical Center. In addition to his full-time management of Welton,
Dr. Welton is a Principal to Welton Global Funds Management Corporation, a
Director of Axios Data Analysis Corporation, a non-practicing shareholder in
Peninsula Radiation Oncology Specialists, Inc. and a volunteer Clinical
Professor of Medicine at Stanford University School of Medicine. He has engaged
in futures and equities market research since 1981 and has traded futures for
his own account since 1983. During the past five years, Dr. Welton has spoken at
domestic and international conferences, authored articles, participated in panel
presentations on numerous trading and risk management issues, and served on
committees for the Managed Funds Association and National Futures Association.
He is currently serving on the Board of Directors of the National Futures
Association.
Annette L. Welton is a Cofounder of Welton Investment Corporation, a
Director, Chief Operational and Chief Financial Officer. Ms Welton participated
in the early development of the software employed by Welton in its trading and
portfolio management methods and since 1988, Ms. Welton has continued to
participate in the research committee in the review process and the monitoring
of trading for the company's clients. She also serves as a Principal to Welton
Global Funds Management Corporation, a Commodity Pool Operation (CPO) affiliate.
Ms. Welton earned a Bachelor of Science Degree in 1984 from the University of
California at Los Angeles (UCLA). From 1984 to 1988, she practiced a health
career in the areas of neonatal and pediatric intensive care at UCLA, San Diego
Children's and Stanford University Medical Centers. Over a four-year period from
1992 to 1996, Ms. Welton has participated in the Managed Funds Association's
(MFA) Public Relations and Trading and Markets Committees. She has served on the
National Futures Association's Nominating Committee in the Commodity Trading
Advisory category and has authored and co-authored several articles published in
various alternative investment trade publications.
Jerry M. Harris is the Senior Vice President of Welton. He received a
Bachelor of Science Degree in 1973 in Aerospace Engineering at the University of
Virginia. In May of 1983, he earned a Masters Degree in Information from the
University of Southern California. From 1984 through 1988, he was Vice President
and Chief Operating Officer of Cresta Commodity Management, Inc. in San Diego,
California. Beginning 1989 through 1990, he was Vice President of Marketing at
Commodities Corporation in Princeton, New Jersey. Since November 1988, he has
been a pilot with Delta Airlines. Mr. Harris is responsible for business
development efforts and industry representation, as well as participating in
strategic planning for WIC. Mr. Harris is a member of the Alternative
Investments Management Association and serves on its International Development
Committee. He frequently is a featured speaker to institutional and private
investor groups on the topic of integrating skill-based alternative investment
strategies to diversify investment portfolios. He has been associated with
Welton since 1993.
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LEGAL CONCERNS AND CONFLICTS OF INTEREST
There have never been any administrative, civil, or criminal proceedings
against Welton or its principals.
Welton and its principals trade futures for their own accounts and provide
management services to other clients. Investments made on behalf of Welton, its
principals, and its clients as well as any policies related thereto will remain
confidential. In the course of such trading, Welton or its principals may take
positions in their own accounts which are in the same market and in the same
direction as positions advocated for clients. In the case that Welton or its
principals place the same trade orders for their accounts as they do for their
clients in a single block order with the brokerage firm, the brokerage firm
shall allocate the trade fill prices assigned to each account in a manner
consistent with that firm's policy. This equalizes the likelihood of Welton or
its principals receiving a superior or inferior price compared to any of their
clients or in the case of a partial fill of a block order, equalizes the
likelihood of Welton or its principals receiving a trade that some customers
will not receive or vice versa.
OTHER WELTON PROGRAMS
In addition to the Diversified Program, Welton currently operates six other
trading programs, none of which will be utilized by the Fund.
SABRE FUND MANAGEMENT LTD.
Sabre Fund Management Limited ("SABRE"), a company established under the
laws of England in 1982, has been registered with the CFTC as a commodity
trading advisor and as a commodity pool operator and a member of the NFA since
September, 1984. Sabre has also been a member of the Association of Futures
Brokers and Dealers (the "AFBD") and was regulated by the AFBD until the merger
of that organization in April, 1991 with another self-regulatory organization to
form the Securities and Futures Authority which now regulates Sabre's UK
business.
THE SABRE TRADING METHOD
The Sabre Pattern Recognition System ("PRS System") is a technical,
trend-following system, trading since January, 1981 in a wide range of
derivative instruments including agricultural commodities, equity, bond,
interest-rate and currency-related futures and options contracts primarily in
the United States, Europe and Japan.
The PRS System is designed to capture medium term trends and relies on
technical analysis (based primarily on chart analysis) and statistical
evaluation of a proprietary database. The PRS System seeks to take positions in
markets in which a major change in prices is perceived to be imminent.
The PRS System involves ongoing analysis of periodic price movements in
approximately 60 different futures and forward contracts which are continuously
updated by Sabre using a chart graphics system which it developed for such
purposes. In addition, overall risks across sectors are limited to a
predetermined level. As a result, overall leverage is variable and may vary
between 100% and 600% of the funds in question.
PAST PERFORMANCE OF JWH AND WELTON
The results set forth in the following tables for accounts managed by JWH
and Welton are not indicative of the results which may be achieved by JWH,
Welton or the Fund in the future. Past results are not indicative of future
results. No representation is made that the Fund will or is likely to achieve
profits or incur losses comparable to those shown. The following performance
results are presented on a composite basis rather than for each account managed
by JWH and Welton. The experience of individual accounts, including Fund
accounts, have differed and will differ from the composite results shown. Since
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JWH and Welton have modified and will continue to modify their respective
trading methods from time to time, the results shown in the tables do not
necessarily reflect the precise trading methods to be used by JWH or Welton on
behalf of the Fund. In addition, the markets in which performance records were
achieved have been and are changing. A trading method that was successful in a
particular set of market conditions might not be successful in other market
conditions. The performance of particular accounts managed by JWH or Welton may
vary also from the performance of other accounts managed by JWH or Welton due to
such factors, among others, as account size, brokerage commissions and advisory
fees payable by an account, degree of diversification, the particular commodity
interests traded, and the times when accounts began trading, as well as the
period during which accounts are active, leverage employed, the amount of
interest income earned by an account (which will depend on the portion of an
account invested in interest-bearing obligations such as U.S. Treasury bills),
the timing of orders to open or close positions and trading
instructions/restrictions of the client.
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE AND NO
REPRESENTATION IS, OR COULD BE, MADE THAT AN ACCOUNT IS LIKELY TO ACHIEVE
RESULTS SIMILAR TO THOSE SHOWN IN THE FOLLOWING PERFORMANCE TABLES.
INVESTORS SHOULD NOTE THAT THE PERFORMANCE TABLES PRESENTED FOR JWH OR
WELTON ARE COMPOSITE OF INDIVIDUAL ACCOUNTS WHICH VARY AS TO SIZE, TRADING
LEVERAGE, FEES AND TRADING OBJECTIVES. THESE ACCOUNTS ARE NEGOTIATED ON A CLIENT
BY CLIENT BASIS AND THE TRADING FEES AND LEVERAGE AS WELL AS ACCOUNT SIZE FOR
EACH INDIVIDUAL ACCOUNT MAY BE MORE OR LESS THAN THAT OF THE FUND. CONSEQUENTLY,
THE FOLLOWING PERFORMANCE TABLES MAY NOT PRESENT AS MEANINGFUL INFORMATION TO
INVESTORS AS THE ACTUAL PERFORMANCE RECORD FOR THE FUND AND INVESTORS ARE URGED
TO REVIEW CAREFULLY THE PERFORMANCE HISTORY OF THE FUND BEGINNING ON PAGE 70 OF
THE PROSPECTUS. PAST RESULTS ARE NOT INDICATIVE OF FUTURE PERFORMANCE.
JWH
FINANCIAL AND METALS PORTFOLIO
FINANCIAL PROGRAM
<TABLE>
<S> <C> <C>
GLOBAL INTEREST
COMPOSITION: RATES FOREIGN EXCHANGE
GLOBAL STOCK
INDICES PRECIOUS METALS
</TABLE>
JWH'S most widely recognized program, the Financial and Metal Portfolio,
attempts to deliver attractive risk-adjusted returns in global financial and
precious metals markets. Currency positions are held both as outrights--trading
positions taken in foreign currencies versus the U.S. dollar--and cross-rates--
trading foreign currencies against each other--in the interbank market and
occasionally futures exchanges. This program is designed to identify and
capitalize on intermediate and long-term price movements in these markets using
a systematic approach to ensure disciplined investment decisions. If a trend is
identified, the program attempts to take a position; in nontrending market
environments, the program may remain neutral or liquidated open positions. This
program began trading client capital in October 1984.
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JOHN W. HENRY & COMPANY, INC.
RATES OF RETURN: ANNUAL AND MONTHLY
<TABLE>
<CAPTION>
ANNUAL JAN FEB MAR APR MAY JUNE JULY AUG SEPT
----------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997............. -9.7% 4.4% 2.2% -0.7% -2.9% -8.3%
1996............. 29.7% 6.0% -5.5% 0.7% 2.3% -1.7% -2.2% -1.1% -0.8% 3.2%
1995............. 38.5% -3.8% 15.7% 15.3% 6.1% 1.2% -1.7% -2.3% 2.1% -2.1%
1994............. -5.3% -2.9% -0.6% 7.2% 0.9% 1.3% 4.5% -6.1% -4.1% 1.5%
1993............. 46.8% 3.3% 13.9% -0.3% 9.3% 3.3% 0.1% 9.7% -0.8% 0.2%
1992............. -10.9% -18.0% -13.5% 3.0% -12.2% -5.7% 21.9% 25.5% 10.2% -5.2%
<CAPTION>
OCT NOV DEC
--------- --------- ---------
<S> <C> <C> <C>
1997.............
1996............. 14.3% 10.9% -2.6%
1995............. 0.3% 2.6% 1.7%
1994............. 1.7% -4.4% -3.5%
1993............. -1.1% -0.3% 2.9%
1992............. -4.5% -0.8% -2.6%
</TABLE>
FINANCIAL AND METALS PORTFOLIO
CAPSULE PERFORMANCE RECORD
JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
<TABLE>
<CAPTION>
FINANCIAL AND METALS PORTFOLIO
---------------------------------
<S> <C>
JWH began trading client capital in program................................... October 1984
Open Accounts................................................................. 33 profitable
3 unprofitable
Closed Accounts............................................................... 288 profitable
37 unprofitable
Assets Excluding Notional Funds Under Management.............................. $1.9 billion
Assets Excluding Notional Funds Under Management in the Program............... $1.0 billion
Largest Monthly Drawdown for an Individual Account............................ -27.7%
(1/92)
Largest Peak-to-Valley Draw-down for an Individual Account.................... -58.8%
(1/92 - 5/92)
1997 Rate of Return (5 mos)................................................... 9.7%
Annual Rates of Return:1996................................................... 29.7%
1995.................................................... 38.5%
1994.................................................... -5.3%
1993.................................................... 46.8%
1992.................................................... -10.9%
</TABLE>
NOTES ON PERFORMANCE RECORDS OF JWH
An investor should note that the composite capsule performance presentation
includes individual accounts which, even though traded according to the same
investment program, have materially different rates of return. The reasons for
this are numerous material differences among accounts: a) procedures governing
timing for the commencement of trading and means of moving toward full portfolio
commitment of new accounts; b) the period during which accounts are active; c)
client trading restrictions, including futures vs. forward contracts and
contract months; d) trading size to equity ratio resulting from procedures for
the commencement of trading and appropriate means of moving toward full
portfolio commitment of new accounts and new capital; e) the size of the
account, which can influence the size of positions taken and restrict the
account from participating in all markets available to an investment program; f)
the amount of interest income earned by an account, which will depend on the
rates paid by an FCM on equity deposits and/or on the portion of an account
invested in interest-bearing obligations such as U.S. Treasury bills; g) the
amount of management and incentive fees paid to JWH and the amount of brokerage
commissions paid which will vary and will depend on the fees negotiated by the
client with the broker; h) the timing of orders to open or close positions; i)
the market conditions, which in part determine the quality of trade executions;
j) variations in fill prices; and k) the timing of additions and
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withdrawals. Notwithstanding these material differences among accounts, the
composite remains a valid representation of the accounts included therein.
For the purpose of determining whether there exist material differences
among accounts traded pursuant to the same trading program, JWH utilizes the
method described herein. The gross trading performance of each JWH investment
program and each individual JWH account within the relevant program is reviewed
and the following parameters established by interpretations of the Division of
Trading and Markets of the CFTC are calculated: (i) if the arithmetic average of
two percentages is greater than 10 percentage points and the difference between
the two is less than 10% of their average; (ii) if the arithmetic average of the
two percentages is greater than 5 points but less than 10 points and the
difference between the two is 1.5 percentage points of less; and (iii) if the
arithmetic average of the two percentages is less than 5 points and the
difference between the two is 1.0 percentage point or less. If one of the
parameters (i)-(iii) is satisfied in the review, then the results within the
designated range are deemed "materially the same" or "not materially different."
The parameters (i)-(iii) determine if differences between accounts are
materially different. JWH further evaluates performance on a gross trading basis
for materiality in an overall context each JWH investment program and each
individual JWH account within the relevant program not satisfying the above
parameters to determine whether any material differences that are detected could
produce misleading composite performance results after review of the reasons for
the differences. With the exception of accounts that were established at levels
below JWH's current minimum account size, JWH's policy is to provide separate
performance capsules when an account is consistently performing differently on a
gross trading basis that the other JWH accounts traded pursuant to the same
trading program and the continued inclusion of that account in the composite
would create a distortion in the composite rate of return.
During the periods covered by the preceding capsule performance records, and
particularly since 1989, JWH has increased and decreased leverage in certain
markets and entire programs, and also altered the composition of the markets and
contracts for certain programs. In general, before 1993, JWH programs used
greater leverage than they currently do. In addition, the subjective aspects
listed in the "A Disciplined Investment Process" section on page 103 have been
utilized more often in recent years and therefore may have had a more pronounced
effect on performance results during recent periods. Additionally, the
investment program used (although all accounts may be traded in accordance with
the same approach, such approach may be modified periodically as a result of
ongoing research and development by JWH), may have an effect on performance
results. In reviewing the JWH capsule performance records, prospective investors
should bear in mind the possible effects of these variations on rates of return
and in the application of JWH's investment methods.
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any single account
represented in the records. Investors are further cautioned that the data set
forth in the performance capsule records are not indicative of any results which
may be attained by JWH in the future since past performance is not necessarily
indicative of future results. JWH has decreased leverage in certain markets and
entire programs on several occasions over the last five years. These actions
have reduced the volatility of certain programs when compared to the volatility
prior to the decreases in leverage. While historical returns represent actual
performance achieved, investors should be aware that the degree of leverage
currently utilized may be significantly different from that used during previous
time periods.
Prior to December 1991, JWH's capsule performance records are presented on a
cash basis except as otherwise stated in the footnotes to the records. The
recording of items on a cash basis should not, for most months, be materially
different to presenting such rates of return on an accrual basis. Any
differences in the monthly rates of return between the two methods would be
immaterial to the overall performance presented. Beginning with the change to
the accrual basis of accounting for incentive fees in December 1991, the net
effect to monthly net performance and the rate of return in the capsule
performance records of continuing to record interest income, management fees,
commissions and other expenses on a cash basis
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is materially equivalent to the full accrual basis. In July 1992, JWH began
reflecting all items of net performance on an accrual basis for the G-7 Currency
Portfolio Composite Capsule Performance Record, in January 1993 for the
International Currency and Bond Portfolio Composite Capsule Performance Record
and in July 1996 for the Worldwide Bond Program and Dollar Program.
Due to the commencement of trading in July 1996 by a new multi-program fund
managed by JWH, JWH developed a new method for treating the accrual of incentive
fees for multi-advisor funds and multi-program accounts it manages. For these
accounts, JWH agreed that it would earn incentive fees only when overall fund
performance for multi-advisor funds, or overall JWH performance for
multi-program accounts, as the case may be, is profitable. As applied, this new
method presents incentive fees due for each program on a stand-alone basis in
essence, to reflect the performance results that would have been experienced by
an investor in that program, regardless of external business arrangements (such
as a multi-advisor structure or the use of multiple JWH programs) that might
have had an impact on actual incentive fees paid. The new method was applied
initially in August 1996 performance. In that month, a one-time adjustment to
performance rate of return was made to each affected program to show the impact
of this adjustment from program inception through August 1996. In the case of
certain programs, the adjustment had a material, i.e., greater that 10%, impact
on the rate of return that would otherwise have been shown. In the case of
accounts that closed before JWH received an incentive fee due to the operation
of such netting arrangements, a balancing entry was made to offset the effect of
incentive fee accrual on ending equity.
The following notes are an integral part of the capsule performance records.
NOTES TO THE JWH FINANCIAL AND METALS PORTFOLIO
CAPSULE PERFORMANCE RECORDS
Number of open accounts is the number of accounts directed by JWH pursuant
to the investment program shown as of May 31, 1997.
Assets under management in a program is the aggregate amount of total
equity, excluding "notional" equity under management, unless otherwise noted, of
JWH in the investment program shown as of May 31, 1997.
Largest monthly drawdown within the past five years is the largest monthly
loss experienced by any single account in the investment program in any calendar
month covered by the capsule. "Loss" for these purposes is calculated on the
basis of the loss experienced by the individual account, expressed as a
percentage of total equity (including "notional" equity) in the account. Largest
monthly drawdown information includes the month and year of such drawdown.
Largest peak-to-valley drawdown is the largest percentage decline by any
single account in the investment program (after eliminating the effect of
additions and withdrawals) during the period covered by the capsule from any
month-end net asset value, without such month end net asset value being equaled
or exceeded as of a subsequent month end by the individual account, expressed as
a percentage of the total equity (including "notional" equity) in the account.
Annual Rate of Return is calculated by compounding the monthly rates of
return over the number of periods in a given year. For example, each month's
monthly rate of return in hundredths is added to one (1) and the result is
multiplied by the previous month's compounded monthly rate of return similarly
expressed. One (1) is then subtracted from the product. For periods less than
one year, the results are year to date.
Monthly Rates of Return are calculated by dividing net performance by the
sum of the beginning equity, plus additions minus withdrawals. For such purposes
all additions and withdrawals are effectively treated as if they had been made
on the first day of the month, even if, in fact, they occurred later. Beginning
in December 1991, if additions and withdrawals are material to the program's
performance, they
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are time weighted. If time weighting is materially misleading, then the only
accounts traded method is utilized.
In May 1991, one proprietary account and in March 1992 a second proprietary
account began trading in the Financial and Metals Portfolio. Both accounts are
included in the performance information from their inception until August, 1995.
The maximum percentage of proprietary funds during this time frame was less than
0.5% and had no material impact on the rate of return.
In May 1992, 35 percent of the assets in the Financial and Metals Portfolio
was deleveraged 50 percent at the request of a client. The deleveraging
materially affected the rates of the return in JWH's performance records. The
1992 annual rate of return for these deleveraged accounts was negative 24.3
percent. The 1992 annual rate of return for the Financial and Metals Portfolio
Composite Capsule Performance Record was negative 10.9 percent. If these
accounts had been excluded from the Financial and Metals Portfolio Composite
Performance Record, the 1992 annual rate of return would have been negative 3.9
percent. The effect of this deleveraging was eliminated in September 1992.
Additionally, the Financial and Metals Portfolio Capsule Composite
Performance Record includes the performance of several accounts that do not
participate in global markets due to their smaller account equities which do not
meet the minimums established for this program. Accounts not meeting such
minimums can experience performance materially different than the performance of
an account which meets the minimum account size. The performance of such
accounts has no material effect on the overall Financial and Metals Portfolio
Composite Capsule Performance Record.
WELTON INVESTMENT CORPORATION
DIVERSIFIED PORTFOLIO
AS OF JUNE 30, 1997
<TABLE>
<C> <S>
February, Date advisor began trading client accounts
1989
April, 1992 Date advisor began trading client funds pursuant to the trading program
$59,866,289 Total assets under management by the advisor representing actual funds
$78,325,114 Total assets under management by the advisor representing nominal funds
$45,522,688 Total assets under management pursuant to the trading program representing
actual funds
$63,771,803 Total assets under management pursuant to the trading program representing
nominal funds
(-15.94)% Largest single monthly "draw-down" for the trading program(1)
February 1996 Date of largest single monthly "draw-down" for the trading program
(-25.96)% Largest "peak-to-valley draw-down" for the trading program(2)
January 1996 Duration of largest "peak-to-valley draw-down" for the trading program
August 1996
20 Number of accounts directed by the advisor pursuant to the trading program
17 Number of accounts closed at a profit for the trading program
16 Number of accounts closed at a loss for the trading program
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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RATES OF RETURN(3) FOR THE
DIVERSIFIED PORTFOLIO
THROUGH JUNE 30, 1997
<TABLE>
<CAPTION>
MONTH 1997 TO DATE 1996 1995 1994 1993 1992
- ------------------------------- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
January........................ 2.42% 5.94% (3.94)% (4.74)% (0.12)%
February....................... 6.21% (15.94)% 8.90% (6.67)% 15.85%
March.......................... (1.57)% (1.86)% 10.11% 0.69% (0.09)%
April.......................... 0.28% 4.66% 3.57% (5.32)% 7.04% (0.48)%
May............................ 3.78% (7.71)% 11.71% 5.77% (6.61)% (7.47)%
June........................... 6.10% (1.72)% (1.38)% 5.72% (1.89)% 9.32%
July........................... (2.83)% (2.57)% (4.04)% 11.40% 12.72%
August......................... (2.70)% (1.25)% (6.40)% (4.45)% (1.77)%
September...................... 7.48% 1.55% 3.18% 0.66% (6.89)%
October........................ 13.16% (7.39)% 0.48% 4.90% (0.86)%
November....................... 9.97% 4.77% 14.60% 5.05% (2.10)%
December....................... 2.15% 9.44% 1.23% 10.48% (4.98)%
Year-to-Date................... 18.23% 7.17% 36.35% 2.38% 47.90% (4.28)%
</TABLE>
THE NOTES BELOW ARE AN INTEGRAL PART OF THIS PERFORMANCE CAPSULE.
(1) "Draw-down" means losses experienced by the trading program over a specified
period. "Largest Single Monthly Draw-down" means greatest percentage decline
in net asset value due to losses sustained by the trading program from the
beginning to the end of a calendar month exclusive of additions and
withdrawals.
(2) "Largest Peak-to-Valley Draw-down" means greatest cumulative percentage
decline in month-end net asset value of the trading program due to losses
sustained during a period in which the initial month-end net asset value of
the trading program is not equaled or exceeded by a subsequent month-end net
asset value of the trading program exclusive of additions and withdrawals.
(3) "Rates of Return" presented in the composite performance capsules are
calculated based on the "Fully-Funded Subset" method as prescribed by the
CFTC. These rates of return are derived by dividing the sum of the net
performance, i.e. the aggregate of net performance for each of the accounts
qualifying for inclusion in the Fully-Funded Subset, by the sum of the
Actual Funds-based BNAVs for the Fully-Funded Subset. Monthly returns are
then compounded to arrive at the year-to-date rate of return.
DESCRIPTION OF UNITS
A purchaser of Units of the Fund will be a Limited Partner of the Fund.
Units will be fully paid and nonassessable when purchased and paid for pursuant
to this offering. Capital contributions of Limited Partners are subject to the
risks of the Fund's business. See "RISK FACTORS." However, a Limited Partner
will not be personally liable for any debts, losses or obligations of the Fund
beyond the amount of his or her capital contribution and profits attributable to
it, if any. Under applicable law, the Fund may not make a distribution to the
Limited Partners to the extent that at the time of distribution, after giving
effect to the distribution, all liabilities of the Fund exceed the fair value of
the assets of the Fund. A Limited Partner who receives a distribution in
violation of this law and who knew at the time of the distribution that the
distribution violated the law will be liable to the Fund for three years for the
amount of the distribution. A Limited Partner who receives a distribution and
who did not know at the time of the distribution that the distribution violated
applicable law will not be liable for the amount of the distribution. Limited
Partners will not participate in the management of the Fund as a consequence of
its
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<PAGE>
organization in the form of a limited partnership and the desirability of
maintaining limited liability for the Limited Partners. Limited Partners may
have the opportunity to vote on certain significant matters affecting the
organization, operation or continuation of the Fund (see Exhibit A--Amended and
Restated Limited Partnership Agreement). Limited Partners will be provided with
periodic reports and statements by the Fund, as required by applicable CFTC
regulations.
The General Partners determined that it was in the best interests of the
Fund that outstanding Units be split on a 3-for-1 basis as of the close of
business on February 28, 1995, and that the Net Asset Value per Unit be adjusted
accordingly. The Fund's records, and subsequent communications with Limited
Partners, reflect the fact that Limited Partners holding Units before that date
thereafter hold three Units for each previously outstanding Unit continuing to
be held by Limited Partners. Such Limited Partners' allocations and voting
participation were not altered on a PRO RATA basis.
Because of the significant appreciation that has occurred in the Net Asset
Value of Units since their initial issuance, the General Partners believe that
the 3:1 split of Units will also enable Limited Partners to adjust the amounts
of any redemptions they wish to make more accurately in relation to the level of
Net Asset Value per Unit.
PLAN OF DISTRIBUTION
The offering of Units will be made by the Fund through American Express
Financial Advisors Inc. on a best efforts basis without any firm underwriting
commitment. The offering of Units will be made pursuant to a Selling Agreement
(the "SELLING AGREEMENT") among the Fund, the Selling Agent and the General
Partners. The Fund will pay the Selling Agent the Sales Charge for each Unit
sold to an investor other than an Affiliated Purchaser. Purchasers of Units who
are Affiliated Purchasers will pay no Sales Charge in connection with their
purchase. The General Partners will receive from the proceeds of the offering
the Offering Expense Charge for each Unit sold to an investor.
American Express Financial Advisors Inc., a Delaware corporation organized
in 1894, is a wholly-owned subsidiary of American Express Financial Corporation.
American Express Financial Corporation is a wholly-owned subsidiary of American
Express Company. American Express Financial Advisors Inc. is registered as a
broker-dealer and investment adviser with the SEC, and is a member of the
National Association of Securities Dealers, Inc. American Express Financial
Advisors Inc. does business as a broker-dealer in 51 jurisdictions. As of March
31, 1997, American Express Financial Advisors Inc. had 8,559 employees and in
addition maintained a nationwide financial planning force of 8,426 persons.
American Express Financial Advisors Inc. was named and did business as IDS
Financial Services Inc. until January 1, 1995. IDS Futures Corporation, a
Minnesota corporation organized in December of 1986, is a wholly-owned
subsidiary of IDS Management Corporation, a Minnesota corporation organized in
December 1986. IDS Management Corporation is a wholly-owned subsidiary of
American Express Financial Corporation, which was named IDS Financial
Corporation until January 1, 1995. Other subsidiaries of IDS Management
Corporation are engaged in the organization and management of limited
partnerships investing in assets other than commodity interests. American
Express Financial Advisors Inc. and its affiliates are engaged in providing a
variety of financial products and services to individuals, businesses and
institutions. These products and services include life insurance and annuities,
face amount certificates, mutual funds, client paid financial planning services,
investment advisory services, limited partnership interests and brokerage
services. During the ordinary course of its business, American Express Financial
Advisors Inc. is engaged in civil litigation and subject to administrative
proceedings, which, in the aggregate, are not expected to have a material effect
upon its condition, financial or otherwise, or the services it will render to
the Fund. Neither American Express Financial Advisors Inc. nor any of its
principals have been the subject of any material administrative, civil or
criminal action pending, completed or on appeal within the five years preceding
the date of this Prospectus.
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<PAGE>
During the Offering Period, the minimum subscription (including
subscriptions for certain retirement plans) is $1,000; any greater subscription
amount must be in increments of $100. Purchasers must subscribe for at least the
minimum purchase amount. Subscription checks must be made out to First Trust
National Association, St. Paul, Minnesota, as Escrow Agent for IDS Managed
Futures, L.P. All subscription checks will be forwarded by the Selling Agent to
the Escrow Agent by noon of the next business day after receipt of such
subscriptions.
The Units are being sold by the Fund when, as and if subscriptions therefor
are accepted by the General Partners, subject to the satisfaction of certain
conditions set forth in the Selling Agreement. In the Selling Agreement, the
Fund and the General Partners have agreed to indemnify the Selling Agent against
certain liabilities incurred in connection with the issuance and sale of the
Units. Under the Securities Act of 1933, as amended, such indemnification may be
contrary to public policy and, therefore, unenforceable.
THE OFFERING PERIOD
The Units will be offered until July 31, 1999, unless all of the Units are
sold prior to that date or the General Partners decide to extend the Current
Offering beyond such date. Any such determination will be based upon the number
of Units unsold at that time. Units will continue to be offered to Affiliated
Purchasers at a price per Unit equal to Net Asset Value per Unit as of the close
of business on the last business day of the month in which the General Partners
accept such subscriptions and admit subscribers as Limited Partners, plus the
amount of the Offering Expense Charge on a per Unit basis. Units will be offered
to non-Affiliated Purchasers at a price per Unit equal to the Net Asset Value
per Unit as of the close of business on the last business day of the month in
which the General Partners accept such subscriptions and admit subscribers as
Limited Partners, plus the amounts of the Sales Charge and the Offering Expense
Charge on a per Unit basis. Purchasers are likely to receive fractional Units.
Subscriptions for Units which are received after the tenth calendar day of a
calendar month will be held in the escrow account, due to the length of time
required to process subscriptions, and, if not rejected, the subscribers will be
admitted to the Fund at the subsequent admission of subscribers to the Fund
after the end of such month. See "FREE LOOK ALTERNATIVE." Additional Limited
Partners will be admitted to the Fund on the last business day of each full
calendar month during the Offering Period, if such proceeds were received by the
tenth calendar day of that month. All subscription funds will be held in escrow
in interest-bearing instruments by First Trust National Association, St. Paul,
Minnesota, as Escrow Agent, until such subscriptions have been accepted by the
General Partners. All Funds held in the escrow account will earn interest during
that time. Subscribers will receive interest on funds deposited with the Escrow
Agent within 30 days after the date on which they are admitted to the Fund,
except that if any subscriber's accrued interest is less than $10, such interest
shall be paid to the Fund and not the subscriber. The Selling Agent shall
receive from the proceeds of the offering the Sales Charge for each Unit sold to
investors other than Affiliated Purchasers. The General Partners shall receive
from the proceeds of the offering the Offering Expense Charge for each Unit sold
to investors.
FREE LOOK ALTERNATIVE
CFTC Rule 4.26(b) requires that, in connection with soliciting investors for
the Fund, the General Partners must attach to this Disclosure Document copies of
the Fund's most recent Account Statement. However, the General Partners
requested, and were granted, an exemption from this rule by the CFTC in return
for providing investors with a "Free-Look Alternative."
Under the Free-Look Alternative, prospective investors will sign the
appropriate subscription documents and will forward these documents along with
their subscription check to the home office of the Selling Agent. The Selling
Agent will then send by mail a confirmation of the subscription and a copy of
the Fund's most recent Account Statement to the prospective investor on the next
business day. The mailing of the confirmation and the Account Statement by the
Selling Agent marks the beginning of the "Free-Look" period.
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<PAGE>
The Free-Look period is 16 days. During this time, prospective investors
will have the opportunity to review the Fund's most recent Account Statement and
to determine whether they wish their subscription to be retained by the Fund.
Prospective investors may rescind their subscriptions during the Free-Look
period for any reason.
Prospective investors may notify the Selling Agent of their decision to
withdraw their subscriptions from the Fund either by mail or by telephone
pursuant to instructions received from the Selling Agent in the confirmation.
The Selling Agent must receive the subscription by the tenth calendar day of
the month in order for the General Partner to accept the subscription as of the
close of business on the last day of the month. Subscriptions received after the
tenth calendar day of the month will be eligible for acceptance by the General
Partner on the last business day of the following month.
THE REPRESENTATION AGREEMENTS
The Fund, the Selling Agent, the General Partners, the Clearing Broker and
the Original Trading Advisors have entered into a Representation Agreement dated
June 26, 1995 concerning the Registration Statement and Prospectus. The Fund,
the Selling Agent, the General Partners, the Clearing Broker and Welton have
entered into a Representation Agreement dated July , 1997 concerning the
Registration Statement and Prospectus. In these agreements, the various parties
set forth their various duties and obligations to one another with respect to
the Fund's Registration Statement filed with the SEC and the Prospectus. The
Representation Agreement consists generally of representations between and among
the parties related to the accuracy and completeness of statements contained in
the Registration Statement and Prospectus concerning them, the parties'
respective authority to enter into the Representation Agreements and to perform
their obligations under that agreement and any other agreements concerning the
Fund to which they are parties, their legal organization, and their possession
of necessary licenses or registrations. The Representation Agreements also
establish the ongoing obligations of the parties with respect to any necessary
modification of the Registration Statement and the Prospectus during the course
of the offering of Units. In addition, the Representation Agreements specify the
obligations of the parties to deliver and exchange certain certificates at the
monthly closings of the offering. In the Representation Agreements, there are
also certain indemnification provisions. The Trading Advisors agree to indemnify
and hold harmless the other parties and their controlling persons and employees
against losses or damages incurred by any of them due to (i) a
misrepresentation, alleged misrepresentation, breach of warranty, covenant or
agreement (or alleged breach thereof) of the Trading Advisors in the
Representation Agreements, or (ii) an untrue statement or alleged untrue
statement of a material fact in the Registration Statement or Prospectus or an
omission or alleged omission of a material fact required to be included in the
Registration Statement or the Prospectus or necessary to make the statements
therein not misleading, to the extent that such an untrue statement, alleged
untrue statement, omission or alleged omission was made in reliance upon and in
conformity with information furnished by a Trading Advisor related to that
Trading Advisor. In a similar manner, each General Partner agrees to indemnify
and hold harmless the Trading Advisors and the Clearing Broker and their
controlling persons and employees against losses or damages incurred by any of
them due to (i) a misrepresentation, alleged misrepresentation, breach of
warranty, covenant or agreement (or alleged breach thereof) of the Fund or that
General Partner in the Representation Agreements, or (ii) an untrue statement or
alleged untrue statement of a material fact in the Registration Statement or
Prospectus or an omission or alleged omission of a material fact required to be
included in the Registration Statement or the Prospectus or necessary to make
the statements therein not misleading except to the extent that such statement
or omission was made in reliance upon and in conformity with information
furnished by the Clearing Broker or the Trading Advisors. Unlike other
agreements to which the Fund is a party and which provide the specific terms
upon which the Fund will receive brokerage, advisory or selling agent services,
the Representation Agreements do not establish the terms upon which a service is
to be rendered. Instead, in it all of the parties to the offering exchange
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<PAGE>
representations and/or covenants concerning the Registration Statement and the
Prospectus to the extent that such representations and/or covenants are not
otherwise provided for in the specific service-related agreements concerning the
Fund or the offering.
OFFERING EXPENSE CHARGE
The General Partners have agreed to advance the expenses of the offering
which include legal, auditing, accounting, marketing, filing, registration and
recording fees plus printing expenses and escrow charges. All Limited Partners
investing in the Fund will be charged the Offering Expense Charge of 3% of the
gross per Unit price, and the General Partners shall be responsible for any
expenses in excess of the Offering Expense Charge. However, if this charge
exceeds the actual expenses incurred, the excess shall be retained by the
General Partners.
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<PAGE>
SUBSCRIPTION PROCEDURE
In order to purchase Units, an investor must (a) receive the Fund's current
monthly and annual reports, (b) complete and execute a copy of the Subscription
Agreement and Power of Attorney attached hereto as Exhibit C and (c) deliver or
mail the Subscription Agreement and Power of Attorney and a check for the full
purchase price of the Units subscribed for to American Express Financial
Advisors Inc. Additional copies of the Subscription Agreement and Power of
Attorney will be furnished upon request to the Selling Agent.
Checks should be made out to First Trust National Association, as escrow
agent for IDS Managed Futures, L.P. The documents and checks will be promptly
forwarded through American Express Financial Advisors Inc. to the Escrow Agent
by noon of the next business day after receipt of such subscriptions, with
copies to the General Partners for determination of whether to accept the
subscription. If the subscription is rejected, in whole or in part for any
reason (which is in the sole discretion of the General Partners), the
subscription funds or the rejected portion thereof will be promptly returned to
the subscriber without interest. The minimum subscription (including
subscriptions for Keogh, self-directed IRA plans and Employee Benefit Plans) is
$1,000; any greater subscription amount to be in increments of $100. Purchasers
must subscribe for at least the minimum purchase amount. Each subscriber must
represent and warrant in the Subscription Agreement that, among other things, he
or she can afford the risks of an investment in the Fund, including the risk of
losing his or her entire investment, and that he has (a) a net worth of at least
$150,000 (exclusive of home, furnishings and automobiles) or (b) a net worth of
at least $45,000 (exclusive of home, furnishings and automobiles) and a minimum
annual gross income in the most recent tax year of at least $45,000 (see
Subscription Requirements, attached as Exhibit B; certain states have higher
suitability requirements). Subscriptions will be held in escrow by First Trust
National Association, St. Paul, Minnesota until the funds so deposited are
returned to prospective subscribers or are deposited with the Fund's Clearing
Broker. Assets attributable to such accepted subscriptions will be deposited
with the Clearing Broker on the first trading day of the month after the
subscribers are admitted to the Fund. See "PLAN OF DISTRIBUTION." Any interest
earned by a subscriber on subscriptions from the time of deposit with the Escrow
Agent to the time the funds are released by the Escrow Agent will be distributed
to the subscriber within 30 days after the date on which the subscriber is
admitted to the Fund as a Limited Partner, except that if any subscriber's
accrued interest is less than $10, such interest shall be paid to the Fund and
not the subscriber.
A Limited Partner of the Fund may contribute additional capital to the Fund.
The minimum subscription requirement for such investment is $100. In order to
subscribe for additional Units an investor must complete the Subscription
Agreement and Power of Attorney (Exhibit C) and deliver or mail it with a check
for the full purchase price of additional Units to the Selling Agent. Checks
should be made payable to First Trust National Association, as escrow agent for
IDS Managed Futures, L.P.
UNITS MAY NOT BE PURCHASED BY ERISA-COVERED PLANS IF THE GENERAL PARTNERS,
SELLING AGENT OR THEIR AFFILIATES (A) HAVE INVESTMENT DISCRETION WITH RESPECT TO
THAT PORTION OF THE ASSETS OF THE PLAN TO BE INVESTED IN UNITS OR (B) REGULARLY
GIVE INDIVIDUALIZED INVESTMENT ADVICE WHICH SERVES AS A PRIMARY BASIS FOR THE
INVESTMENT DECISIONS MADE WITH RESPECT TO SUCH ASSETS. THIS PROHIBITION IS
DESIGNED TO PREVENT POTENTIAL VIOLATIONS OF CERTAIN PROVISIONS OF ERISA.
All subscription documents from a potential investor must be received by
American Express Financial Advisors Inc. by the tenth calendar day of the month
if they are to be considered for acceptance by the Fund in that month. American
Express Financial Advisors Inc. will promptly send a confirmation of the
investment and a copy of the Fund's most recent monthly account statement to the
potential investor. The investor will then have sixteen days from the date of
the confirmation from American Express Financial Advisors Inc. to determine and
confirm to American Express Financial Advisors Inc. whether he or she
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<PAGE>
wishes his or her subscription to be retained by the Fund. The potential
investor must notify American Express Financial Advisors Inc. by mail or
telephone (pursuant to instructions in the notice from American Express
Financial Advisors Inc.) of his or her decision not to invest. No further action
is required in response to the notification from American Express Financial
Advisors Inc. if the investor elects to subscribe. The investor's negative
response must be received by American Express Financial Advisors Inc. not later
than sixteen days from the date of the confirmation from American Express
Financial Advisors Inc. Investors electing to withdraw their subscription
pursuant to the above alternative will receive a return of their subscription
funds from the escrow agent. The investor may withdraw his or her subscription
for any reason during this review period. All subscriptions are subject to
acceptance by the General Partner. See "PLAN OF DISTRIBUTION--FREE LOOK
ALTERNATIVE."
REDEMPTIONS
No redemptions are permitted by a subscriber during the first six months
after he or she has been admitted to the Fund. Thereafter, a Limited Partner may
cause any or all of his or her Units to be redeemed by the Fund effective as of
the last trading day of any month of the Fund based on the Net Asset Value per
Unit (as defined under "CHARGES TO THE FUND--CERTAIN DEFINITIONS") on ten days
written notice to the General Partners. Requests for redemption (Exhibit D)
should be sent to American Express Financial Advisors Inc., c/o Unit 580, P.O.
Box 534, Minneapolis, Minnesota 55440 at least 10 business days prior to the
last trading day of the month in order for the effective date of redemption to
be the last trading day of the month in which a Request for Redemption is made.
In the event that a Request for Redemption is received later than 10 business
days prior to the last trading day of a month, the General Partners will hold
such Redemption Request until the next month. Such Redemption Requests will have
an effective date of redemption of the last trading day of the subsequent month.
The General Partners may declare additional redemption dates upon notice to the
Limited Partners.
All requests for redemption in proper form will be honored and payment will
be made within 10 business days of the effective date of redemption, except as
described below. The profits and losses of the Fund shall be allocated to the
partners in proportion to their respective Units and to their respective dates
of redemption. The Fund's commodity positions will be liquidated to the extent
necessary to effect redemptions. The right to obtain redemption is contingent on
receipt by the General Partners of a Request for Redemption in the form attached
hereto as Exhibit D (or any other form approved by the General Partners) ten
days prior to the last trading day of the month in which redemption is
requested. It is also contingent upon the Fund having property sufficient to
discharge its liabilities (contingent or otherwise) on the effective date of
redemption. The request for redemption must specify either the number of Units
to be redeemed or the dollar amount of the requested redemption. The minimum
redemption amount, whether requested in terms of dollars or Units, is the lesser
of $500 or the Net Asset Value of two Units, unless the Limited Partner is
redeeming his or her entire interest in the Fund. Under special circumstances,
including but not limited to inability to liquidate commodity positions or
default or delay in payments due to the Fund from banks or other persons, the
Fund may in turn delay payment to partners requesting redemption of Units of the
proportionate part of net assets represented by the sums which are the subject
of such default or delay. See "RISK FACTORS--LIMITED ABILITY TO LIQUIDATE
INVESTMENT IN UNITS."
Under applicable law, the Fund may not make a distribution to the Limited
Partners to the extent that at the time of the distribution, after giving effect
to the distribution, all liabilities of the Fund exceed the fair value of the
assets of the Fund. A Limited Partner who receives a distribution in violation
of this law and who knew at the time of the distribution that the distribution
violated the law will be liable to the Fund for three years for the amount of
the distribution. A Limited Partner who receives such a distribution and who did
not know at the time of the distribution that the distribution violated
applicable law will not be liable for the amount of the distribution.
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<PAGE>
If the Net Asset Value per Unit decreases, after the 3-for-1 split, below
$150 at the close of business on any trading day (after adding back any
distributions from the Fund to the Limited Partners), the Fund will attempt to
close out all open positions as expeditiously as possible and suspend trading.
No assurance can be or is given that the Fund will be able to close out all open
positions without incurring substantial additional losses. Unless the General
Partners then elect to withdraw, a special redemption date will be declared. The
rights of a Limited Partner to redeem Units held by him on a special redemption
date are described in detail under "TRADING POLICIES" and in the Fund's Amended
and Restated Limited Partnership Agreement. In general, Limited Partners who
elect to redeem Units on such a special redemption date will receive from the
Fund for each Unit redeemed an amount equal to the Net Asset Value per Unit
determined as of the close of business on such special redemption date. If after
a special redemption date the Fund's Net Asset Value is at least $500,000 the
Fund will resume trading unless the General Partners then elect to withdraw.
The federal income tax aspects of redemptions are described under "FEDERAL
INCOME TAX CONSIDERATIONS--RECOGNITION OF GAIN ON REDEMPTIONS, DISTRIBUTIONS AND
SALE OF UNITS."
AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT
The rights and duties of the General Partners and the Limited Partners are
governed by the provisions of the Delaware Revised Uniform Limited Partnership
Act and by the Amended and Restated Limited Partnership Agreement (the
"AGREEMENT") which is attached hereto as Exhibit A. Certain features of this
Agreement are explained below, but reference should be made to the Agreement for
complete details of its terms and conditions.
NATURE OF THE FUND
The Fund was organized on December 16, 1986, pursuant to the Revised Uniform
Limited Partnership Act of the State of Delaware. Interests in the Fund, other
than the general partnership interests of the General Partners, are Units of
Limited Partnership Interest, which when purchased and paid for pursuant to this
offering will be fully paid and nonassessable. A Limited Partner's capital
contribution is subject to the risks of the Fund's business. However, a Limited
Partner will not be personally liable for any debts or losses of the Fund beyond
the amount of his or her capital contribution and profits attributable thereto
(if any). Under applicable law, the Fund may not make a distribution to the
Limited Partners to the extent that at the time of the distribution, after
giving effect to the distribution, all liabilities of the Fund exceed the fair
value of the assets of the Fund. The General Partners will be liable for all
obligations of the Fund to the extent that assets of the Fund and amounts which
may be claimed against Limited Partners, as described above, are insufficient to
discharge such obligations. After the commencement of commodity trading, no
interest will be paid by the Fund on any capital contribution. The Agreement
provides that the death of a Limited Partner will not terminate or dissolve the
Fund and that the legal representatives of such Limited Partner have no right to
withdraw or demand an accounting of the value of his or her interest except by
redemption of Units. In addition, each Limited Partner waives on behalf of
himself and his or her estate the filing of any inventory, audit, accounting or
appraisal of the Fund's assets.
MANAGEMENT OF THE FUND
Under the Agreement, the General Partners shall have the exclusive
management and control of all aspects of the business of the Fund. Management
responsibility must be vested solely in the General Partners in order to limit
the liability of the Limited Partners. If by the exercise of the voting rights
under the Agreement (see "AMENDMENTS AND MEETINGS" below) Limited Partners
participate in the management of the Fund's affairs, such Limited Partners may
lose their limited liability for the obligations of the Fund. In the course of
their management the General Partners may, in their discretion, retain such
persons, including affiliates of the General Partners, as they deem necessary
for the efficient operation of
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the Fund, except that no affiliate of the General Partners may act as a
commodity trading advisor to the Fund. The Fund shall not enter into any
contract with the General Partners, any of their affiliates or any commodity
trading advisor which has a term of more than one year and which does not
provide that it may be cancelled by the Fund without penalty upon 60 days
notice. Limited Partners holding more than 50% of the then outstanding Units
(including Units held by representatives and employees of the Selling Agent and
of its corporate affiliates, but not including Units held by the General
Partners or their corporate affiliates), however, (i) may terminate any
agreement with an affiliate of either General Partner on 60 days notice without
penalty, (ii) may remove the General Partners and elect successors and (iii) may
terminate the Fund. For a description of the obligations imposed upon the
General Partners with respect to maintaining a minimum net worth and a minimum
investment in the Fund, see "THE GENERAL PARTNERS."
The Agreement requires the General Partners to retain commodity trading
advisors not affiliated with the General Partners and delegate the management of
the Fund's commodity accounts to such advisors. Pursuant to the Agreement, only
JWH and Sabre have had responsibility to manage the Fund's commodity accounts
since the Fund's inception until July 8, 1997, the effective date of the
addition of Welton as a Trading Advisor. The Agreement prohibits any person who
shares or participates in commodity brokerage commissions paid by the Fund from
receiving, directly or indirectly, any management or incentive fees for trading
advice or trading management. The Agreement also prohibits any broker retained
by the Fund from paying, directly or indirectly, rebates or give-ups to any
commodity trading advisor of the Fund or the General Partners. In the event the
General Partners shall, in their sole discretion, determine that any trading
instructions issued by a Trading Advisor violate the Fund's established trading
policies (see "TRADING POLICIES"), then the General Partners may negate such
trading instructions. The General Partners have the right to terminate the
contract with a Trading Advisor for cause or upon a determination that such
termination is necessary for the protection of the Fund upon written notice to
the Trading Advisor. See "THE TRADING ADVISORS--THE ADVISORY CONTRACTS."
The responsibilities of the General Partners include, but are not limited
to, the following: determining whether the Fund will make distributions of
profits to partners; administering transfers and redemptions of Units; preparing
monthly and annual reports to the Limited Partners; filing reports required by
the CFTC, the SEC and any other federal or state agencies; calculating the Net
Asset Value and applicable management and incentive fees; executing various
documents on behalf of the Fund and the Limited Partners pursuant to powers of
attorney; and supervising the liquidation of the Fund if an event causing
termination of the Fund occurs. The General Partners will also keep all records
of the Fund's activities; the General Partners will keep copies of all
subscription agreements (including suitability records) signed by Limited
Partners in connection with public offerings of Units for a period of six years.
To facilitate the execution of various documents by the General Partners on
behalf of the Fund and the Limited Partners, the Limited Partners will appoint
the General Partners their attorneys-in-fact with power of substitution by
executing a copy of the Subscription Agreement and Power of Attorney which is
attached hereto as Exhibit C. Such documents include, without limitation,
amendments to the Agreement, the Certificate of Limited Partnership of the Fund
and customer agreements with commodity brokers. All operating and administrative
expenses attributable to the Fund will be paid by the Fund, and include
brokerage commissions, the General Partners' administrative fees, the Trading
Advisors' management and incentive fees, and other charges incidental to
trading, advisory fees, legal, accounting, auditing, printing, recording and
filing fees, and extraordinary expenses. See "CHARGES TO THE FUND." For a
discussion of the General Partners' legal duties and obligations as fiduciaries
of the Fund, see "FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS."
DISTRIBUTIONS BY THE FUND
The Agreement does not provide for regular or periodic cash distributions,
but gives the General Partners sole discretion in determining what
distributions, if any, the Fund will make to its partners. The
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General Partners do not currently intend to declare such distributions, and it
is possible that no distributions will be made in some years in which profits
are achieved. However, a Limited Partner has the right to redeem a portion or
all of his or her Units in accordance with the redemption procedures set forth
under "REDEMPTIONS." Any distribution shall become a liability of the Fund for
purposes of calculating Net Asset Value as of the date of its declaration. The
allocation of the Fund's net profit or loss for federal income tax purposes is
discussed under "FEDERAL INCOME TAX CONSIDERATIONS-- Taxation of Limited
Partners." Upon liquidation of the Fund, the assets of the Fund will be
distributed to each partner in the ratio that his or her capital account bears
to the accounts of all partners. To date, the Fund has not made any
distributions.
REDEMPTIONS
The Agreement sets forth certain restrictive redemption provisions. No
redemptions are permitted by a subscriber during the first six months after such
subscriber has been admitted to the Fund. A special redemption date shall be
declared by the General Partners in the event of a decline in the Net Asset
Value per Unit below $125 (after adding back any distributions) at the close of
business on any trading day. See "REDEMPTIONS."
ADDITIONAL PARTNERS
The General Partners have the sole discretion to admit additional limited
partners. Subsequent to this offering the Fund may offer and sell additional
Units, and there is no limitation on the total number of Units which may be
outstanding. Net proceeds per Unit to the Fund from any Units subsequently
offered must equal at least the Fund's then current Net Asset Value per Unit.
TRANSFERS OF UNITS
Subject to compliance with suitability requirements of the Fund, federal and
state securities laws and rules of other governmental authorities, a Limited
Partner may assign his or her Units upon notice to the General Partners as
described in the Agreement. No assignment of Units will be effective against the
Fund or the General Partners until the General Partners receive such notice. No
assignee, except with the consent of the General Partners (which consent may be
withheld at their sole and absolute discretion), may become a substituted
limited partner. An assignee who becomes a substituted limited partner will be
subject to all of the rights and liabilities of the assigning limited partner.
An assignee who does not become a substituted limited partner will have none of
the rights of a limited partner except the right to receive distributions and to
redeem Units to the extent to which the assigning limited partner would have
otherwise been entitled. Under the Delaware Revised Uniform Limited Partnership
Act, an assigning limited partner remains liable to the Fund for any amounts for
which he or she may be liable under such Act regardless of whether any assignee
to whom he or she has assigned Units becomes a substituted limited partner.
There is not now a public market for the Units and it is unlikely that one will
develop in the future. The General Partners may not permit a transfer of Units
if, in their judgment, such assignment may cause the Fund to be taxable as a
corporation or as an association, rather than as a partnership under the
Internal Revenue Code.
INDEMNIFICATION
The Agreement provides that the General Partners and their affiliates shall
not be liable to the Fund or to the Limited Partners for any loss suffered by
the Fund that arises out of any action or inaction of the General Partners, if
such action or inaction did not constitute negligence or misconduct of the
General Partners or their affiliates and if the General Partners or their
affiliates, in good faith, determined that their action or inaction was in the
best interest of the Fund and within the scope of their authority. In addition,
the Fund may indemnify a General Partner against expenses, including attorneys'
fees, judgments and amounts paid in settlement, actually and reasonably incurred
by a General Partner in connection with
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the Fund, PROVIDED that the expense for which indemnification is sought was not
the result of negligence or misconduct by the General Partner. Notwithstanding
the above, the General Partner shall not be indemnified for any losses,
liabilities or expenses arising from or out of an alleged violation of federal
or state securities laws unless (1) there has been a successful adjudication on
the merits of each count involving alleged securities violations as to the
particular indemnitee, or (2) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee,
or (3) a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee. Under certain circumstances, as described in
the Fund's Amended and Restated Limited Partnership Agreement, affiliates of the
General Partners may also be granted indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to the General Partners, their principals or persons
controlling the Fund pursuant to the foregoing provisions, the Fund has been
informed that in the opinion of the SEC such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
The Fund has also agreed to indemnify the Trading Advisors and their
affiliates under certain conditions. See "THE TRADING ADVISORS--THE ADVISORY
CONTRACTS."
ELECTION, REMOVAL AND WITHDRAWAL OF GENERAL PARTNERS
The General Partners may be removed, and additional or successor general
partners may be elected, by a vote of a majority of the outstanding Units (not
including Units held by the General Partners or their corporate affiliates). The
General Partners may not transfer or withdraw their required minimum investment
in the Fund for so long as they act as General Partners of the Fund; however, a
General Partner may withdraw as General Partner of the Fund upon 120 days'
notice to the Limited Partners. If the Limited Partners or the remaining General
Partner elect to continue the Partnership, the withdrawing General Partner shall
pay all expenses incurred as a result of its withdrawal.
TERMINATION OF THE FUND
The affairs of the Fund will be wound up, its liabilities discharged, its
remaining assets distributed PRO RATA to the Unit holders and the Fund
liquidated as soon as practicable upon the first to occur of the following: (i)
December 31, 2006; (ii) receipt by the General Partners of a notice to dissolve
the Fund at a specified time by Limited Partners owning more than 50% of the
Units (including Units held by representatives and employees of the Selling
Agent and of its corporate affiliates, but not including any Units held by the
General Partners or their corporate affiliates), which notice is sent by
registered mail to the General Partners not less than 90 days prior to the
effective date of such dissolution; (iii) withdrawal, removal, insolvency,
bankruptcy, dissolution or legal disability of the General Partners unless a new
General Partner has been substituted; (iv) the insolvency or bankruptcy of the
Fund; (v) a decrease in the Fund's Net Asset Value below $500,000 as of the
close of business on any trading day; or (vi) the occurrence of any event which
shall make it unlawful for the existence of the Fund to be continued or
requiring termination of the Fund. To the extent the Fund has open commodity
positions at such time, it will use its best efforts to close such positions,
although no assurance can be given that market conditions might not delay
liquidation and that further substantial losses might not be incurred. See "RISK
FACTORS--COMMODITY FUTURES MARKETS MAY BE ILLIQUID." Further, if the Net Asset
Value per Unit decreases below $125 at the close of business on any trading day
(after adding back any distributions), after the 3-for-1 split, the Fund will
close out all open positions, suspend trading and declare a special redemption
date.
AMENDMENTS AND MEETINGS
The Agreement may be amended in any respect, except to change the Fund to a
general partnership, to change the liability or reduce the capital account of
the General Partners or the Limited Partners, to
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extend the duration of the Fund or to modify the percentage of profits, losses
or distributions to which the General Partners or the Limited Partners are
entitled. Any amendment must be approved by a vote of the holders of a majority
of the outstanding Units (including Units held by representatives and employees
of the Selling Agent and of its corporate affiliates, but not including Units
held by the General Partners or their corporate affiliates), either pursuant to
a written vote or at a duly called meeting of the Limited Partners. Any Limited
Partner upon written request addressed to the General Partners may obtain, upon
payment of the costs of reproduction and mailing, a list of the names and
addresses of record of all Limited Partners and the number of Units held by
each; PROVIDED, HOWEVER, that any Limited Partner requesting such list shall
give written assurances that the list will not in any event be used for
commercial purposes. In addition, such list will be made available at the Fund's
principal office for the review of any Limited Partner or his representative at
reasonable times. An amendment may be proposed or a meeting may be called by the
General Partners or by the holders of at least 10% of the outstanding Units. It
is not expected that the General Partners will call any annual meetings of the
Limited Partners.
FISCAL YEAR
The fiscal year of the Fund generally shall begin on January 1 of each year
and end on December 31 of that year. The first fiscal year of the Fund commenced
on the date the Fund's Certificate of Limited Partnership was filed, and ended
on December 31, 1986.
REPORTS AND ACCOUNTING
Books and records of the Fund required by the CFTC will be maintained at the
principal offices of the Fund. Limited Partners have the right at all times
during normal business hours to inspect and copy (upon payment of reasonable
reproduction costs) such books and records, in person or by their authorized
representative. Upon request, copies of such books and records shall be sent to
any Limited Partner by mail after reasonable reproduction and distribution costs
are paid by such Limited Partner. The Net Asset Value per Unit is available
daily from the General Partners upon request of any Limited Partner.
The Fund will keep its books on an accrual basis. The books of the Fund
shall be audited at least annually at Fund expense by an independent public
accountant to be designated by the General Partners. Each Limited Partner shall
be furnished with an annual report containing audited financial statements
examined by an independent public accountant and such other information as the
CFTC requires. The CFTC currently requires that an annual report be provided to
the Limited Partners within 90 days after the close of each fiscal year, setting
forth, among other matters:
(a) the Net Asset Value of the Fund and the Net Asset Value per Unit at
the end of the fiscal year or the total value of a partner's interest in the
Fund;
(b) the total amount of (i) management, administrative and advisory
fees, (ii) brokerage commissions and fees for commodity and other investment
transactions during the fiscal year and (iii) all other expenses incurred or
accrued by the Fund during the fiscal year;
(c) any change in the Fund's commodity trading advisors or any material
change in the management of the Fund's commodity trading advisors;
(d) any other material business dealings between the Fund, the General
Partners, its commodity trading advisors, its commodity brokers or any
principal of any of the foregoing;
(e) the actual performance of the Fund during prescribed time periods;
(f) a statement of financial condition as of the close of the fiscal
year and preceding fiscal year;
(g) cash flow statements for the fiscal year and the previous fiscal
year; and
(h) appropriate footnote disclosures and such further material
information as may be necessary to make the financial statements not
misleading.
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In addition to the annual report, CFTC rules currently require that the
General Partners furnish each Limited Partner within 30 days of the end of the
month with an account statement (unaudited) covering such month, which statement
shall contain generally the same type of information set forth in items (a) -
(e) above.
Limited Partners will also be furnished with such additional information as
the General Partners, in their discretion, deem appropriate, as well as any
information required to be provided by any governmental authority having
jurisdiction over the Fund.
The General Partners will also furnish each Limited Partner with tax
information not later than March 15 of each year in a form which may be utilized
in the preparation of income tax returns.
FEDERAL INCOME TAX CONSIDERATIONS
The discussion below is necessarily general and is intended to describe the
federal income tax consequences of an investment in the Fund by individuals who
are citizens or residents of the U.S. The applicability or effect of matters
discussed below may vary depending upon a Limited Partner's individual
circumstances. Therefore, each prospective Limited Partner and any foreign,
tax-exempt or corporate prospective investor must consult his own tax advisor to
satisfy himself as to the federal, state, local and foreign tax consequences of
an investment in the Fund.
The following discussion of the federal income tax consequences of an
investment in the Fund is based upon the existing provisions of the Internal
Revenue Code of 1986, as amended (the "CODE"), the rules and regulations
promulgated thereunder, and existing court decisions. Any future legislative or
regulatory changes could be retroactive with respect to transactions prior to
the date of such changes and could significantly modify the statements herein.
PARTNERSHIP STATUS
The federal income tax consequences to the Fund and its Limited Partners
will depend upon whether the Fund is classified as a partnership or as an
association taxable as a corporation for federal income tax purposes.
Federal tax regulations addressing whether an entity will be taxed as a
partnership or an association taxable as a corporation changed effective January
1, 1997. Prior to 1997, Chapman and Cutler had rendered its opinion to the Fund
that under then existing law, assuming the Fund would be organized and operated
in accordance with the provisions of the Agreement and of state law, and
assuming certain representations made by the General Partners and certain
factual assumptions remained true and correct, the Fund would be classified as a
partnership for federal income tax purposes. Under the new regulations, the
Service will not challenge this status if there was a reasonable basis for the
Fund to claim it was a partnership under prior law, and the General Partners
believe the Fund had such a basis for its reporting position. Commencing in
1997, the Fund will be taxed as a partnership for federal income tax purposes
for 1997 and thereafter unless the Fund is required to be characterized as an
association under the publicly traded partnership rules in Code Section7704 or
unless the General Partners elect for the Fund to be taxed as an association
taxable as a corporation. The General Partners will not make such an election.
Code Section7704 provides that except for certain partnerships with
passive-type income, publicly traded partnerships will be treated as
corporations. Code Section7704 generally provides that a publicly traded
partnership will not be treated as a corporation if 90% or more of the gross
income of the partnership consists of certain types of income, including
interest and income and gains from commodities or futures and options with
respect to commodities. The General Partners expect that more than 90% of the
Funds gross income will be derived from these sources so that the Fund should
not be treated as a corporation even if it is a publicly traded partnership
within the meaning of these provisions.
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If the Fund were to be classified in any given taxable year as an
association taxable as a corporation, the Limited Partners would be treated for
Federal income tax purposes as shareholders of a corporation. The Fund would
recognize and be taxed upon its income, gain, losses, deductions, and credits at
corporate tax rates, and such items would not flow through to the Limited
Partners. If the Fund is classified as an association taxable as a corporation,
Fund distributions would be taxable to the Limited Partners (at ordinary income
tax rates to the extent of the Fund's current or accumulated earnings and
profits) in the same manner that corporate dividends are generally taxed to
shareholders. Accordingly, treatment of the Fund as an association taxable as a
corporation would probably result in a material reduction on a Limited Partner's
cash flow and after tax return.
For purposes of the remainder of this discussion of federal income tax
consequences, it has been assumed that the Fund will be classified as a
partnership for federal income tax purposes.
PARTNERSHIP TAXATION
PARTNERS, RATHER THAN FUND, SUBJECT TO FEDERAL INCOME TAX. The Fund itself
will not pay any federal income tax. Instead, the Fund will report to each
partner his or her distributive share of the Fund's income, gains, losses,
deductions and credits. Each Limited Partner then reports on his federal income
tax return such Limited Partner's share of the items of partnership income or
loss for the Fund's taxable year that ends with or within the Limited Partner's
taxable year. The characterization of an item of profit or loss will usually be
determined at the Fund level. With certain exceptions, income tax is not imposed
on or measured by cash distributions (or constructive distributions) by the
Fund, but on the Fund's "taxable income." In addition, the absence of cash or
constructive distributions does not, of itself, necessarily limit or affect the
recognition of taxable income by the Limited Partners. See "RECOGNITION OF GAIN
ON REDEMPTIONS, DISTRIBUTIONS AND SALE OF UNITS: CASH DISTRIBUTIONS" below.
FEES AND EXPENSES. Under prior law, individual taxpayers could deduct
expenses of producing income. Now, non-trade or business expenses of producing
income, including investment advisory fees and other investment expenses, are to
be aggregated with employee business expenses (collectively, the "INVESTMENT
EXPENSES"), and the aggregate amounts of such expenses are deductible only to
the extent such amounts exceed two percent of a taxpayer's adjusted gross income
and satisfy any general limitations on deductibility.
The General Partners intend to treat incentive fees, management fees and
other expenses of the Fund as fully deductible expenses not subject to the two
percent limitation. Such expenses would not be subject to the two percent
limitation if the Fund is engaged in the trade or business of trading
commodities and its expenses are directly related to its trade or business
activities. Determining whether the Fund is in the trade or business of trading
commodities involves legal and factual questions upon which counsel is unable to
opine. Generally, relevant authorities provide that such a determination
involves an analysis of trading strategies and the frequency and volume of the
taxpayer's trading activity. However, these authorities do not provide any clear
guidelines for determining when activities rise to the level of a trade or
business. Further, this determination may depend to some extent on factors, such
as future trading activity and experience, which are not known at this time. See
"RISK FACTORS--(36) DEDUCTIBILITY OF PARTNERSHIP EXPENSES MAY BE LIMITED." The
Service may assert that expenses of the Fund, such as incentive fees and
management fees, are subject to the two percent floor.
There can be no assurance that the Service will not attempt to reallocate
Fund expenses in a manner that adversely affects the interests of the Limited
Partners or recharacterize a portion or all of expenses as Investment Expenses
that are subject to the two percent floor discussed above. If the Service is
successful in such an attempt, Limited Partners may not be able to deduct a
substantial amount of the expenses of the Fund.
ALLOCATIONS OF FUND PROFITS AND LOSSES. For federal income tax purposes,
the Fund's allocation of profits and losses to a Limited Partner will be
determined by the terms of the Fund's Amended and
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Restated Limited Partnership Agreement (see Exhibit A) unless that allocation
does not have "substantial economic effect" and is not in accordance with the
Limited Partner's interest in the Fund. If such an allocation does not have
"substantial economic effect," then the Limited Partner's share of the Fund's
profits and losses will be determined according to his or her interest in the
Fund taking into consideration all relevant facts and circumstances.
The Fund maintains an account to keep track of tax allocations to each
partner as well as a capital account to keep track of each partner's interest in
the Net Asset Value of the Fund. Generally, increases and decreases in the Net
Asset Value of the Fund are allocated monthly to Units based on beginning of the
month capital account balances, such that at the end of each month each
Partner's capital account balance equals the Partner's interest in the entire
Net Asset Value of the Fund. Taxable income or loss is allocated to the Partners
to eliminate tax capital and book capital account differences. Special
allocations are made to redeemed Units so that tax capital account balances
equal both book capital account balances and amounts paid on redemption. Thus,
the allocation provisions in the Fund's Amended and Restated Limited Partnership
Agreement are designed to reconcile tax allocations with economic allocations.
The General Partners expect that such allocations will be recognized for tax
purposes. However, if the allocations provided by the Amended and Restated
Limited Partnership Agreement are not recognized for federal income tax
purposes, the amount of gain or loss allocated to Limited Partners for such tax
purposes might be increased or decreased.
RECOGNITION OF GAIN ON REDEMPTIONS AND DISTRIBUTIONS
In general, the Code provides that a partner's tax basis in his or her
partnership interest is equal to his or her contribution, increased by the
amount of taxable income and gain allocated to the partner and reduced by
allocations of taxable loss and distributions to the partner. Tax basis is
significant because it is the measure by which gain, income and loss are
determined on distributions to partners and redemptions of interests.
CASH DISTRIBUTIONS AND PARTIAL REDEMPTIONS. Cash received as a distribution
or in redemption of less than all of the partner's interest is applied first to
reduce the tax basis of a Limited Partner's Units, and any cash received in
excess of such tax basis will generally be taxable as a gain from the sale of
Units; e.g., capital gain. To the extent cash distributions do not exceed a
Limited Partner's basis in his or her Units as adjusted for the Fund's
operations for the year, the cash distributed will be treated as a return of
capital resulting in no tax liability.
COMPLETE REDEMPTIONS. A Limited Partner may realize gain or loss upon
redemption for cash of all of the partner's interest in the Fund. Gain or loss
will be recognized to the extent the proceeds of a complete redemption differ
from such Units' basis (after allocation of income, loss and special
allocations, if any, of the Fund through the month of redemption and the
corresponding adjustment to basis of the redeeming partner's Units).
GAINS, LOSSES AND DEDUCTIONS
AT-RISK RULES. A Limited Partner in the Fund can only deduct losses to the
extent of the lesser of the Limited Partner's tax basis or the amount "at risk"
with respect to his or her Units as of the end of the Fund's taxable year in
which such loss occurs. See also "CAPITAL GAIN AND LOSS" below.
In general, a Limited Partner will be considered to be "at risk" only with
respect to the amount of the purchase price of his or her Units. A taxpayer's
amount at risk is increased by any income derived from the activity, and
decreased by any losses derived from the activity and any distributions from the
activity. "Loss" from an activity is defined as being the excess of allowable
deductions for a taxable year from that activity over the amount of income
actually received or accrued by the taxpayer during such year from that
activity. The amount of such loss that is disallowed in any taxable year may be
carried over to the first
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succeeding taxable year, but may only be deducted in that year (or in years
following) to the extent that the taxpayer's amount "at risk" increases in the
subsequent year(s).
FUND INCOME AND LOSSES AND THE PASSIVE LOSS RULES. The passive loss rules
generally provide that certain taxpayers, including individuals, may only deduct
losses from interests in passive activities to the extent of passive gains and
income. In effect, passive losses may not be deducted against active income,
which includes salaries, or portfolio income, which generally includes interest,
dividends, and capital gains or losses on the sale of property that generates
portfolio income.
An activity of trading personal property, such as commodities and related
securities, or other property of the type that is actively traded for the
account of owners of interests in the activity is not a passive activity. Thus,
a Limited Partner's share of income or loss of the Fund will not constitute
passive income or loss.
SYNDICATION EXPENSES. The Code provides that no deduction is allowed to a
partnership or to a partner for expenses incurred to promote the sale of an
interest in a partnership ("SYNDICATION EXPENSES"). Thus, to the extent the Fund
pays the Sales Charge and pays the General Partners Offering Expense Charges,
these expenses will not be deductible or amortizable, even though the payments
of these expenses will reduce Net Asset Value of the Fund. Further, the Internal
Revenue Service could take the position that brokerage commissions paid by the
Fund should be characterized as non-deductible syndication expenses. If it
successfully takes this position, the amount of non-deductible syndication
expense could increase substantially.
GAINS AND LOSSES ON SECTION 1256 CONTRACTS. The Code provides tax treatment
for Section 1256 Contracts that differs from the tax treatment accorded other
interests in property ("NON-SECTION 1256 CONTRACTS"). Section 1256 Contracts
include regulated futures contracts, foreign currency contracts, nonequity
options, and dealer equity options. However, not all of the forward contracts in
foreign currencies traded by the Fund will necessarily be Section 1256
Contracts. See "OTHER OPTIONS AND FOREIGN CURRENCY CONTRACTS," below.
Section 1256 Contracts held by the Fund at its fiscal year-end will be
treated as sold for their fair market value on the last business day of such
taxable year, I.E., marked to market. Generally, this will result in all
realized and unrealized gains and losses on Section 1256 Contracts being
recognized for federal income tax purposes. As a consequence, the Limited
Partners may have tax liability for unrealized Fund profits in open positions at
year-end. All gains and losses from Section 1256 Contracts will be treated as
60% long-term and 40% short-term capital gains or losses, regardless of the
actual holding period of the individual contract and regardless of whether the
trade constituted a "long" or "short" position. See "Taxation of Limited
Partners: CAPITAL GAIN AND LOSS," below. Each Limited Partner's distributive
share of such gain or loss for a taxable year will be combined with his or her
other items of capital gain or loss for such year in computing his or her
federal income tax liability. Appropriate adjustment will be made to the gain or
loss realized upon the Fund's ultimate disposition of Section 1256 Contracts
which were previously marked to market in order to reflect the fact that
unrealized gain or loss was previously reported.
GAINS AND LOSSES ON NON-SECTION 1256 CONTRACTS. Generally, gains or losses
with respect to Non-Section 1256 Contracts will be taken into account for tax
purposes only when realized. Generally, such gains or losses will be short-term
capital gains or losses if such contracts are held for one year or less and
long-term capital gains or losses if held for more than one year.
STRADDLES
GENERALLY. The Code contains special provisions regarding taxation of
straddles. Two or more positions are treated as offsetting and therefore as a
straddle if there is a substantial diminution in risk of loss from holding any
position in personal property by reason of holding one or more other positions
in personal property. Code Section1092(c)(3) provides a rebuttable presumption
that two or more positions are
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offsetting in certain situations such as where the positions are marketed as
offsetting positions or are in the same personal property. Any position held by
the Fund could result in a Limited Partner's individually-held position (if he
or she engages in trading individually) being classified as an offsetting
position. In certain situations, such a classification will result in adverse
tax consequences (such as the capitalization of interest under Section 263(g) of
the Code) to the Limited Partner. Generally, losses with respect to straddles
including Non-Section 1256 Contracts will be allowed only to the extent such
losses exceed the unrecognized gains on the offsetting position at the close of
the tax year. The disallowed losses are deferred until the subsequent tax year
when such gains are recognized or there is no unrecognized gain. The rules
governing gains and losses on straddles are technical and highly complex.
Limited Partners should consult their tax advisors to determine how these rules
affect them.
MIXED STRADDLES. Temporary regulations apply the wash sale and short sale
rules of the Code to straddles which cause substantially all gains and losses
from Non-Section 1256 Contracts that are part of a straddle to be treated as
short-term capital gains and losses (except as described below). Where the
positions of a straddle are comprised of both Section 1256 Contracts and
Non-Section 1256 Contracts, the Fund will be subject to the "mixed straddle"
rules. The appropriate tax treatment of any gains or losses from trading in
mixed straddles will depend on elections which may be made from time to time by
the General Partners.
First, the Fund may elect to treat the Section 1256 Contract as a
Non-Section 1256 Contract, and the mixed straddle would be subject to the rules
governing straddles comprised solely of Non-Section 1256 Contracts. Second, the
Fund may identify the positions of a particular straddle as an "identified mixed
straddle" under Section 1092(b)(2) of the Code and, thereby, net the gain or
loss attributable to the offsetting positions. Third, the Fund may place the
positions in a "mixed straddle account" which is marked to market daily. Under
this alternative, gain or loss for positions in the "mixed straddle account"
will be recognized daily. Fourth, if the Fund does not make any of the
aforementioned elections, the loss on all such positions will be treated as 60%
long-term and 40% short-term, while any gain would be treated as 60% long-term
and 40% short-term or all short-term depending upon whether the net gain was
attributable to Section 1256 Contracts or Non-Section 1256 Contracts,
respectively.
IDENTIFIED STRADDLES. Any loss incurred by the Fund with respect to an
"identified straddle" involving Non-Section 1256 Contracts is treated as
sustained not earlier than the day on which the Fund disposes of all positions
comprising the identified straddle. Such loss is not deferred even though the
Fund continues to hold other positions that offset the loss portion of the
identified straddle. An "identified straddle" (for these purposes, as opposed to
those described in the subparagraph concerning mixed straddles, immediately
above) is one which was clearly identified as such on the Fund's records on the
day on which the straddle was acquired, which is not part of a larger straddle
and in which all of the original positions were acquired on the same day and
were either disposed of on the same day during the taxable year or remained
intact as of the close of the taxable year.
OTHER OPTIONS AND FOREIGN CURRENCY CONTRACTS. Generally, foreign currency
gain or loss realized on certain transactions denominated in foreign currencies,
including transactions involving debt instruments and forwards, futures, options
and similar instruments ("SECTION 988 TRANSACTIONS") is treated as ordinary
income or loss for federal income tax purposes. Special rules apply to a
"qualified fund," which is a partnership that has properly elected to be treated
as a qualified fund and that satisfies certain ownership, activity and income
requirements. The General Partners filed an election for the Fund to be treated
as a qualified fund for 1992 and thereafter, and they believe the Fund will
satisfy the other requirements for being a qualified fund. All gain or loss on
positions held by a qualified fund that would be marked to market under Section
1256 if held at year end is capital gain or loss. See "CAPITAL GAIN OR LOSS"
below. Bank forward contracts, foreign currency futures contracts traded on a
foreign exchange, or to the extent provided in regulations any similar
instruments, which are not otherwise Section 1256 Contracts must be treated by
qualified funds and their partners as Section 1256 Contracts. Also, a qualified
fund must mark
131
<PAGE>
to market such currency contracts and treat gain or loss on such currency
contracts as short-term capital gain or loss.
In addition, foreign currency gain or loss realized with respect to certain
foreign currency "hedging" transactions will be treated as ordinary income or
loss, regardless of whether they would otherwise be marked to market, to the
extent provided in the Treasury Regulations.
Each partner should discuss Code Section988 with his or her tax advisor and
decide what elections, if any, should be made by the partner based on his or her
individual facts and circumstances.
CAPITAL GAIN AND LOSS. Under current law, gain or loss recognized in
connection with a cash distribution or sale or redemption of Units generally
will be treated as capital gain or loss if the holder of such Units is not a
dealer in Units. If such Units are held for more than one year, gain or loss
recognized will generally be long-term capital gain or loss. Otherwise, such
gain or loss will generally be short-term gain or loss. Long-term capital gains
are currently taxed at a maximum rate of 28% for individuals and 35% for
corporations.
The excess of capital losses over capital gains is deductible by an
individual against ordinary income on a 1-for-1 basis, subject to an annual
limitation of $3,000. Excess capital losses which are not used to reduce
ordinary income in a particular taxable year may be carried forward and treated
as capital losses incurred in future years. Because of the limitations imposed
upon the deductibility of capital losses, a Limited Partner's share of the
Fund's net capital losses, including short-term capital losses, if any, will not
materially reduce the federal income tax on his or her ordinary income.
The net loss from Section 1256 Contracts will be treated as 60% long-term
capital loss and 40% short-term capital loss. Any net losses from Section 1256
Contracts can be carried back by an individual taxpayer for three years, if he
or she so elects, and applied against gains from Section 1256 Contracts in those
years, but not against other income. To the extent that such losses are not
depleted by a carryback, they can be carried forward under existing capital loss
carryforward rules, but they will retain their character as 60% long-term
capital loss and 40% short-term capital loss. See "OTHER OPTIONS AND FOREIGN
CURRENCY CONTRACTS," above.
CONVERSION TRANSACTIONS. The Code includes provisions that are intended to
prevent the conversion into capital gain of income from a transaction in which
substantially all of the taxpayer's expected return is attributable to the time
value of the taxpayer's net investment in the transaction (a "CONVERSION
TRANSACTION"). Gain on a conversion transaction is recharacterized as ordinary
income to the extent the gain is equal to the amount of interest that would have
accrued on the taxpayer's net investment in the conversion transaction,
calculated at a rate equal to 120% of the applicable federal rate. The classes
of transactions subject to these provisions include certain straddles, certain
hedging type transactions and any other transactions specified in regulations
prescribed by the Treasury. Legislative history to the conversion provisions
indicates that Congress intended to cover transactions where "the taxpayer is in
the economic position of a lender--he has an expectation of a return from the
transaction which in substance is in the nature of interest and he undertakes no
significant risks other than those typical of a lender." The General Partners do
not expect that the risks assumed by the Fund will be of the kind targeted by
the conversion transaction provisions, but because of the broad authority of the
Treasury to issue regulations, certain transactions entered into by the Fund may
be conversion transactions, in which event a portion of any gain realized in
such transactions may be recharacterized as ordinary income.
INTEREST INCOME. The Fund will realize interest income that is taxable as
ordinary income. As noted above, capital losses may only be used to offset a
limited amount of ordinary income. Thus, if the Fund realizes net trading
losses, a Limited Partner may still be liable for tax with respect to the
partner's share of the Fund's interest income and other ordinary income because
he or she may only be able to reduce his or her ordinary income by a limited
amount of such capital losses.
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INTEREST DEDUCTION LIMITATION. Restrictions on the deductibility of
"investment interest" may result in the disallowance in whole or in part of a
Limited Partner's share of the Fund's deduction for interest on its obligations,
or deductions for interest on any obligations incurred by the Limited Partner to
finance the purchase price of his or her Unit. These restrictions are applied on
a partner-by-partner basis, and each investor is advised to consult with his or
her tax advisor to determine whether or not his or her becoming a Limited
Partner will cause the disallowance of any portion of his or her investment
interest deduction. If a partner borrows money to acquire units, interest
payable on such borrowing will be investment interest subject to the investment
interest limitation to the extent that it is attributable to the Fund's
portfolio income (within the meaning of the passive loss rules). Income of a
Limited Partner from the Fund should constitute investment income for this
purpose.
OTHER INFORMATION
ALTERNATIVE MINIMUM TAX. The alternative minimum tax is the excess of the
tentative minimum tax for the year over the taxpayer's regular tax for the year.
The tentative minimum tax equals the product of (i) taxpayer's "alternative
minimum taxable income" reduced by an exemption amount that is phased-out for
higher income taxpayers, and (ii) a progressive tax rate ranging from 26% to 28%
in the case of noncorporate taxpayers. Alternative minimum taxable income is
generally computed by adding the amount of tax preference items to adjusted
gross income and then subtracting allowable deductions. Potential investors are
urged to consult their personal tax advisors regarding the effect of the
alternative minimum tax on their investment in the Fund.
TAX RETURNS AND INFORMATION. The Fund will file its information return
using the accrual method of accounting. By March 15 of each year, the Fund will
furnish each Limited Partner (and any assignee of a Unit of any Limited Partner)
copies of (i) the Fund's Schedule K-1 indicating the Limited Partner's
distributive share of tax items, and (ii) such additional information as is
reasonably necessary to permit the Limited Partners to prepare their own federal
and state tax returns. The Fund's tax returns will be prepared by independent
certified public accountants selected by the General Partners.
FUND TAX ACCOUNTING. The Fund's taxable year will be the calendar year.
FUND TAX AUDITS
Any tax audit of the Fund likely will take place under the unified audit
("TEFRA") rules. With limited exceptions, all partnerships are subject to the
TEFRA rules. The TEFRA rules generally require that the IRS make adjustments to
any partnership item by means of an audit of the partnership. If adjustments are
made to partnership items as a result of an audit at the partnership level, the
partners usually must take the adjustments into account on their individual
returns.
The period within which the IRS can assess taxes with respect to partnership
items (or affected items) for any partnership taxable year generally expires
three years from the date of filing the partnership federal income tax return.
This period may be extended by agreement with any partner with respect to such
partner or, for all partners, by agreement with the Fund's "tax matters
partner." CISI will be the Fund's tax matters partner. CISI has the authority,
as tax matters partner, to enter into a settlement with the Service on behalf
of, and binding upon, Limited Partners; PROVIDED that such Limited Partners do
not file a statement with the Service declaring that the tax matters partner
does not have authority to settle a tax controversy on the Limited Partner's
behalf.
There can be no assurance that the Fund's tax returns will not be audited by
the Service, or that no adjustments to such will be required as a result of such
an audit. If the Fund's tax return were audited by the Service and any items of
income or loss were adjusted as a result of such audit, such adjustments might
require that each Limited Partner file an amended federal (and possibly state
and/or local) income tax return. In the course of such audit, all items on such
Limited Partner's returns, and not merely items of Fund income or loss, could be
subject to adjustment.
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<PAGE>
If any of the Fund's tax returns is audited, then the Fund will probably
incur legal and accounting expenses in seeking to sustain the Fund's position.
In addition, the Limited Partners might incur personal legal and accounting
expenses in connection with any amendment or audit of their returns.
FOREIGN INVESTORS
The federal income tax consequences to a nonresident alien individual
investor will depend upon whether the Fund is engaged in a U.S. trade or
business for federal income tax purposes. The Fund intends to qualify for an
exemption from trade or business characterization which applies to partnerships
trading only commodities of a kind customarily dealt in on an organized
commodity exchange in transactions of a kind customarily consummated at such
places. Certain reporting requirements apply to foreign investors, and there can
be no assurance that the Treasury will not impose additional reporting
requirements on such Limited Partners in the future. Each prospective Limited
Partner who is a nonresident alien is advised to consult with his or her
personal tax advisor regarding the impact for federal income tax purposes of an
investment in the Fund.
STATE AND LOCAL TAXES
In addition to the federal income tax consequences described herein, the
Fund and Limited Partners may be subject to state and local taxes. The Fund will
be subject to the Illinois Personal Property Replacement Tax to the extent net
income of the Fund is attributable to Illinois. Fund income which is subject to
this tax will be taxed at a rate of 1.5%. To the extent income of the Fund is
derived from trade or business activities (this income may include interest
received by the Fund from the Clearing Broker) and is attributable to Illinois,
each Limited Partner, whether or not a resident of Illinois, is required
annually to file an Illinois income tax return and pay Illinois income tax at
the rate of 3.0% of his or her share of such income. To date the General
Partners have treated all income of the Fund as being attributable to, and
taxable by, Illinois. However, the General Partners can not determine at this
time what portion, if any, of future Fund income will be attributable to
Illinois because this determination is dependent upon factual issues which
cannot be predicted with any level of certainty. A Limited Partner who is not an
Illinois resident may be required to include his or her share of Fund income in
determining his or her taxable income in the jurisdiction in which he or she is
a resident. Additionally, other states or jurisdictions in which the Fund
conducts business may require a Limited Partner to file tax returns and may
impose a tax on his or her share of Fund income derived from activities in such
other states or localities. Taxable income for state and local purposes may
differ from federal taxable income, and a Limited Partner may be liable for
state or local tax even though he or she has no federal income tax liability
attributable to his or her investment in the Fund. To the extent a nonresident
Limited Partner pays tax to Illinois or another jurisdiction due to the Fund's
conduct of business there, he or she may be entitled to a deduction or credit
against taxes owed to his state of residence with respect to the same income.
Since Limited Partners may be affected in different ways by state and local
law, each prospective Limited Partner is advised to consult his or her personal
tax advisor regarding the state and local taxes payable in connection with an
investment in the Fund
THIS ANALYSIS IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING,
PARTICULARLY SINCE CERTAIN OF THE INCOME TAX CONSEQUENCES OF INVESTMENT IN THE
FUND MAY NOT BE IDENTICAL FOR ALL PURCHASERS. THIS ANALYSIS PRIMARILY REVIEWS
THE FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE FUND FOR INDIVIDUALS
WHO ARE U.S. CITIZENS AND WHO HOLD UNITS AS A CAPITAL ASSET. EACH PROSPECTIVE
PURCHASER OF UNITS IS ENCOURAGED TO CONSULT WITH HIS OR HER PERSONAL TAX ADVISOR
WITH SPECIFIC REFERENCE TO HIS OR HER OWN TAX SITUATION UNDER FEDERAL, STATE AND
LOCAL LAWS.
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<PAGE>
It is emphasized that no assurance can be given that legislative,
administrative or judicial changes will not occur which would modify the
foregoing statements, which are based upon the existing provisions of the Code
and the existing administrative and judicial interpretations thereof and the
current information available.
LEGAL MATTERS
Legal matters in connection with the securities being offered hereby have
been passed upon for the Fund and the General Partners by Chapman and Cutler,
Chicago, Illinois. Chapman and Cutler has also acted as counsel for John W.
Henry & Company, Inc. in prior offerings of Units but not in connection with
this offering. Chapman and Cutler represents John W. Henry & Company Inc. in
other matters unrelated to this offering. Chapman and Cutler may continue to
represent such entities after completion of this offering, and such
representation may include advice with respect to the responsibilities of such
entities to the Fund. Chapman and Cutler has rendered its opinion to the General
Partners to the effect that the Fund should be classified as a partnership for
federal income tax purposes and not as an association taxable as a corporation.
In addition, Chapman and Cutler may represent affiliates of the General
Partners, including American Express Financial Advisors Inc. and Cargill
Investor Services, Inc., on matters unconnected with the Fund.
EXPERTS
The financial statements of IDS Managed Futures, L.P. as of December 31,
1996 and December 31, 1995 and for each of the years in the three-year period
ended December 31, 1996 included in this Prospectus have been audited by KPMG
Peat Marwick LLP, certified public accountants, as set forth in their report
appearing elsewhere herein. Such financial statements are included herein in
reliance upon such report and upon the authority of such firm as experts in
auditing and accounting.
The balance sheet of IDS Futures Corporation as of May 31, 1997, appearing
in this Prospectus and Registration Statement has been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein. Such balance sheet is included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of CISI as of May 31, 1997 and May 31, 1996 and for
the years then ended have been audited by KPMG Peat Marwick LLP. Such financial
statements are set forth in their respective reports appearing elsewhere herein.
Such financial statements are included herein in reliance upon such reports and
of such firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement on Form S-1
filed by the Fund with the Securities and Exchange Commission in Washington,
D.C. Copies of the Registration Statement have also been provided to the
Commodity Futures Trading Commission. This Prospectus does not contain all the
information set forth in such Registration Statement and the exhibits thereto,
certain portions of which have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. Such Registration
Statement and exhibits may be inspected without charge at the public reference
facilities maintained by the Securities and Exchange Commission in Washington,
D.C., and copies of all or part thereof may be obtained from the Commission at
its office in Washington, D.C. upon payment of the prescribed fees.
135
<PAGE>
ADDITIONAL DEFINITIONS
The following definitions have been added to this Prospectus at the request
of various state securities administrators.
ADVISOR. Any person who for any consideration engages in the business of
advising others, either directly or indirectly, as to the value, purchase, or
sale of Commodity Contracts or commodity options.
COMMODITY CONTRACT. A contract or option thereon providing for the delivery
or receipt at a future date of a specified amount and grade of a traded
commodity at a specified price and delivery point.
NET ASSETS. The total assets, less total liabilities, of the Fund
determined on the basis of generally accepted accounting principles. Net Assets
shall include any unrealized profits or losses on open positions, and any fee or
expense including Net Asset fees accruing to the Fund.
NET WORTH. The excess of total assets over total liabilities as determined
by generally accepted accounting principles. Net Worth shall be determined
exclusive of home, home furnishings and automobiles.
NEW TRADING PROFITS. The excess, if any, of Net Assets at the end of the
period over Net Assets at the end of the highest previous period or Net Assets
at the date trading commences, whichever is higher, and as further adjusted to
eliminate the effect on Net Assets resulting from new Capital Contributions,
redemptions, or capital distributions, if any, made during the period decreased
by interest or other income, not directly related to trading activity, earned on
Fund assets during the period, whether the assets are held separately or in a
margin account.
ORGANIZATIONAL AND OFFERING EXPENSES. All expenses incurred by the Fund in
connection with and in preparing a Fund for registration and subsequently
offering and distributing it to the public, including, but not limited to, total
underwriting and brokerage discounts and commissions (including fees of the
underwriter's attorneys), expenses for printing, engraving, mailing, salaries of
employees while engaged in sales activity, charges of transfer agents,
registrars, trustees, escrow holders, depositories, experts, expenses of
qualification of the sale of its limited partnership interests under federal and
state law, including taxes and fees, accountants' and attorneys' fees.
PIT BROKERAGE FEE. This includes the floor brokerage, clearing fees,
National Futures Association fees, and exchange fees.
SPONSOR. Any person directly or indirectly instrumental in organizing a
fund or any person who will manage or participate in the management of a fund,
including a fund who pays any portion of the organizational expenses of the
fund, and the general partner(s) and any other person who regularly performs or
selects the persons who perform services for the fund. "Sponsor" does not
include wholly independent third parties such as attorneys, accountants, and
underwriters whose only compensation is for professional services rendered in
connection with the offering of the units. The term "Sponsor" shall be deemed to
include its affiliates.
VALUATION DATE. The date as of which the Net Assets of the Fund are
determined.
VALUATION PERIOD. A regular period time between valuation dates.
FINANCIAL STATEMENTS
The following financial statements are presented for the Fund and both
General Partners. Investors should note that they are purchasing an interest in
the Fund and not the General Partners.
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<PAGE>
[LOGO]
INDEPENDENT AUDITORS' REPORT
The Partners
IDS Managed Futures, L.P.:
We have audited the accompanying statements of financial condition of IDS
Managed Futures, L.P. as of December 31, 1996 and 1995, and the related
statements of operations, partners' capital, and cash flows for each of the
years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of IDS Managed Futures, L.P. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
January 24, 1997
Chicago, Illinois
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<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Assets:
Receivable for units sold........................................................ $ 650,100 --
Equity in commodity futures trading accounts:
Cash on deposit with Clearing Broker........................................... 39,998,782 31,440,196
Unrealized gain on open futures contracts...................................... 868,069 1,705,569
------------- -------------
41,516,951 33,145,765
Interest receivable................................................................ 152,358 130,109
------------- -------------
$ 41,669,309 33,275,874
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued commissions on open futures contracts due to AXP Advisors and CIS........ 67,464 64,903
Accrued exchange, clearing, and NFA fees......................................... 2,539 1,785
Accrued management fees.......................................................... 108,053 97,719
Accrued incentive fees........................................................... 851,045 33,129
Accrued operating expenses....................................................... 155,590 141,246
Accrued selling commissions and organization and offering expenses............... 57,309 52,721
Redemptions payable.............................................................. 132,361 370,419
------------- -------------
Total liabilities.................................................................. 1,374,361 761,922
------------- -------------
Partners capital:
Limited partners (122,175.79 and 118,310.37 units outstanding at December 31,
1996 and 1995, respectively) (see Note 1)...................................... 39,545,527 31,889,868
General partners (2,315.34 units outstanding at December 31, 1996 and 1995) (see
Note 1)........................................................................ 749,421 624,084
------------- -------------
Total partners capital............................................................. 40,294,948 32,513,952
------------- -------------
$ 41,669,309 33,275,874
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ -------------
<S> <C> <C> <C>
Revenues:
Gain on trading of commodity futures contracts:
Realized gain (loss) on closed positions.......................... $ 9,559,339 6,474,664 (1,300,245)
Increase (decrease) in unrealized gain on open futures
contracts....................................................... (837,500) 365,549 691,537
Interest income................................................... 1,575,843 1,389,521 760,250
Foreign currency transaction gain (loss).......................... (108,047) 189,505 127,359
------------- ------------ -------------
Total revenues........................................................ 10,189,635 8,419,239 278,901
------------- ------------ -------------
Expenses:
Commission paid to AXP Advisors and CIS............................. 851,858 701,468 639,227
Exchange, clearing, and NFA fees.................................... 30,222 18,571 15,677
Management fees..................................................... 1,088,343 1,027,360 704,158
Incentive fees...................................................... 978,214 449,841 186,976
General partner fee to IDSFC and CISI............................... 447,067 326,936 203,019
Operating expenses.................................................. 92,456 139,796 60,072
------------- ------------ -------------
Total expenses........................................................ 3,488,160 2,663,972 1,809,129
------------- ------------ -------------
Net profit (loss)..................................................... $ 6,701,475 5,755,267 (1,530,228)
------------- ------------ -------------
Profit (loss) per unit of limited partnership interest (see Note 1)... $ 54.14 50.46 (16.30)
Profit (loss) per unit of general partnership interest (see Note 1)... 54.14 50.46 (16.30)
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See accompanying notes to financial statements.
139
<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
TOTAL
LIMITED GENERAL PARTNERS'
UNITS* PARTNERS PARTNERS CAPITAL
----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993............................... 61,241.82 $ 14,415,300 349,700 14,765,000
Sale of partnership interests.............................. 47,310.54 12,353,922 108,000 12,461,922
Selling commissions and organization and offering costs.... -- (1,464,994) (9,360) (1,474,354)
----------- ------------ --------- ------------
Net sales of partnership interests......................... 47,310.54 10,888,928 98,640 10,987,568
Net loss................................................... -- (1,502,638) (27,590) (1,530,228)
Redemptions................................................ (1,940.13) (445,141) -- (445,141)
----------- ------------ --------- ------------
Balance at December 31, 1994............................... 106,612.23 23,356,449 420,750 23,777,199
Sale of partnership interests.............................. 20,710.64 5,731,623 102,880 5,834,503
Selling commissions and organization offering costs........ -- (517,959) (3,000) (520,959)
----------- ------------ --------- ------------
Net sales of partnership interests......................... 20,710.64 5,213,664 99,880 5,313,544
Net profit................................................. -- 5,651,813 103,454 5,755,267
Redemptions................................................ (9,012.50) (2,332,058) -- (2,332,058)
----------- ------------ --------- ------------
Balance at December 31, 1995............................... 118,310.37 31,889,868 624,084 32,513,952
Sale of partnership interests.............................. 17,812.20 5,568,008 -- 5,568,008
Selling commissions and organization offering costs........ -- (488,220) -- (488,220)
----------- ------------ --------- ------------
Net sales of partnership interests......................... 17,812.20 5,079,788 -- 5,079,788
Net profit................................................. -- 6,576,138 125,337 6,701,475
Redemptions................................................ (13,946.78) (4,000,267) -- (4,000,267)
----------- ------------ --------- ------------
Balance at December 31, 1996............................... 122,175.79 $ 39,545,527 749,421 40,294,948
----------- ------------ --------- ------------
Net asset value per unit at December 31, 1996 (see Note
1)....................................................... $ 323.68 323.68
----------- ------------ --------- ------------
Net asset value per unit at December 31, 1995 (see Note
1)....................................................... $ 269.54 269.54
----------- ------------ --------- ------------
Net asset value per unit at December 31, 1994 (see Note 1) $ 219.08 219.08
----------- ------------ --------- ------------
</TABLE>
- ------------------------
*Units of limited partnership interest; all unit amounts reflect the 3-for-1
split as described in Note 1.
See accompanying notes to financial statements.
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<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net profit (loss)................................................. $ 6,701,475 5,755,267 (1,530,228)
Adjustments to reconcile net profit (loss) to net cash provided by
(used in) operating activities:
Change in assets and liabilities:
Decrease (increase) in unrealized gain on open futures
contracts................................................... 837,500 (365,549) (691,537)
Decrease (increase) in interest receivable.................... (22,249) (26,543) (70,759)
Increase (decrease) in accrued liabilities.................... 793,189 83,358 (50,372)
------------- ------------- -------------
Net cash provided by (used in) operating activities................. 8,309,915 5,446,533 (2,342,896)
------------- ------------- -------------
Cash flows from financing activities:
Net proceeds from sale of units................................... 4,486,997 5,313,544 10,987,568
Partner redemptions............................................... (4,238,326) (2,061,191) (356,888)
------------- ------------- -------------
Net cash provided by financing activities........................... 248,671 3,252,353 10,630,680
------------- ------------- -------------
Net increase in cash................................................ 8,558,586 8,698,886 8,287,784
Cash at beginning of year........................................... 31,440,196 22,741,310 14,453,526
------------- ------------- -------------
Cash at end of year................................................. $ 39,998,782 31,440,196 22,741,310
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
141
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(1) GENERAL INFORMATION AND SUMMARY
IDS Managed Futures, L.P. (the Partnership), a limited partnership organized
on December 16, 1986 under the Delaware Revised Uniform Limited Partnership Act,
was formed to engage in the speculative trading of commodity interests including
futures contracts, forward contracts, physical commodities, and related options
thereon pursuant to the trading instructions of independent trading advisors.
The Partnership began trading on June 16, 1987. The general partners are IDS
Futures Corporation (IDSFC) and CIS Investments, Inc. (CISI). The clearing
broker is Cargill Investor Services, Inc. (Clearing Broker or CIS), the parent
company of CISI.
Each unit of limited partnership interest was divided into three units
("3-for-1 split") at the close of business on February 28, 1995, each unit
having a net asset value per unit equal to the previous net asset value per unit
divided by three. Accordingly, the total number of units outstanding tripled as
of that date. For comparative purposes, the respective prior years' unit amounts
and net asset value per unit amounts have been restated for the 3-for-1 split.
Units of the limited partnership representing an additional investment of
$10,000,000 were offered by IDS commencing March 29, 1993. An additional
investment of $20,000,000 was offered by IDS commencing January 31, 1994.
Commencing June 26, 1995, American Express Financial Advisors Inc. (AXP
Advisors) (effective January 1, 1995 IDS Financial Services Inc. changed its
name to American Express Financial Advisors Inc.) offered an additional
investment of $50,000,000. By December 31, 1996, a total of 114,594 units
representing a total investment of $31,173,288 of limited partnership interest
had been sold in the combined offerings. During the offerings, the general
partners purchased a total of 1,037 additional units representing a total
investment of $262,880. Selling commissions of $1,791,614 were paid to APX
Advisors by the new limited partners. All new investors paid organization and
offering expenses totaling $1,565,120. See the IDS Managed Futures, L.P.
prospectus dated July 31, 1996 for further details concerning the offerings.
The Partnership shall be terminated on December 31, 2006 if none of the
following occur prior to that date: (1) investors holding more than 50% of the
outstanding units notify the general partners to dissolve the Partnership as of
a specific date; (2) disassociation of the general partners with the
Partnership; (3) bankruptcy of the Partnership; (4) decrease in the net asset
value to less than $500,000; (5) the Partnership is declared unlawful; or (6)
the net asset value per unit declines to less than $125 per unit and the
Partners elect to terminate the Partnership.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Partnership conform to
generally accepted accounting principles and to general practices within the
commodities industry. The following is a description of the more significant of
those policies which the Partnership follows in preparing its financial
statements.
RECOGNITION
Commodity futures contracts, forward contracts, physical commodities, and
related options are recorded on the trade date. All such transactions are
reported on an identified cost basis. Realized gains and losses are determined
by comparing the purchase price to the sales price when the trades are offset.
Unrealized gains and losses reflected in the statements of financial condition
represent the difference between original contract amount and market value (as
determined by exchange settlement prices for
142
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
futures contracts and related options and cash dealer prices at a pre-determined
time for forward contracts, physical commodities, and their related options) as
of the last business day of the year or as of the last date of the financial
statements.
The Partnership earns interest on 100% of the Partnership's average monthly
cash balance on deposit with the clearing broker at a rate equal to 90% of the
average 90-day treasury bill rate for treasury bills issued during that month.
REDEMPTIONS
No redemptions are permitted by a subscriber during the first six months
after he or she has been admitted to the Partnership. Thereafter, a Limited
Partner may cause any or all of his or her units to be redeemed by the
Partnership effective as of the last trading day of any month of the Partnership
based on the Net Asset Value per unit on ten days written notice to the General
Partners. Payment will be made within ten business days of the effective date of
the redemption. The Partnership's Limited Partnership Agreement contains a full
description of redemption and distribution procedures.
COMMISSIONS
Brokerage commissions and National Futures Association (NFA), clearing and
exchange fees are accrued on a round-turn basis on open commodity futures
contracts. Prior to June 26, 1995 the Partnership paid CIS commissions on trades
executed on its behalf at a rate of $50.00 per round-turn contract. With the
June 26, 1995 offering, the rate was changed to $35.00 per round-turn contract.
The first subscribers to the offering came into the fund at the end of August.
Therefore, the new rate became applicable in September 1995. The Partnership
pays this commission directly to CIS and CIS then reallocates the appropriate
portion to AXP Advisors.
FOREIGN CURRENCY TRANSACTIONS
Trading accounts in foreign currency denominations are susceptible to both
movements in the underlying contract markets as well as fluctuation in currency
rates. Translation of foreign currencies into U.S. dollars for closed positions
are translated at an average exchange rate for the year, while year-end balances
are translated at the year-end currency rates. The impact of the translation is
reflected in the statements of operations.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, cash includes cash on deposit
with Clearing Broker in commodity futures trading accounts.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
143
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(3) FEES
Management fees are accrued and paid monthly, incentive fees are accrued
monthly and paid quarterly, and general partners' administrative fees are paid
annually and amortized monthly. Trading decisions for the period of these
financial statements were made by the following Commodity Trading Advisors
(CTAs): John W. Henry & Company, Inc. (Henry) and Sabre Fund Management Limited
(Sabre).
Under signed agreement for the periods presented prior to January 1, 1996,
Sabre received a monthly management fee of 1/4 of 1% of the month-end net asset
value of the Partnership under their management and 18% of the Partnership's net
trading profits, if any, in each quarter attributable to their trading.
Effective January 1, 1996, the agreement with Sabre was changed to reduce the
management fees paid to them to 1/8th of 1% of the month-end net assets.
Under signed agreement, Henry will receive a monthly management fee of 1/3
of 1% of the month-end net asset value of the Partnership under their management
and 15% of the Partnership's net trading profits, if any, attributable to their
management.
The Partnership pays an annual administrative fee of 1.125% and .25% of the
beginning of the year net asset value of the Partnership to IDSFC and CISI,
respectively.
(4) INCOME TAXES
No provision for Federal income taxes has been made in the accompanying
financial statements as each partner is responsible for reporting income (loss)
based on the pro rata share of the profits or losses of the Partnership. The
Partnership is responsible for the Illinois State Partnership Information and
Replacement Tax based on the operating results of the Partnership. Such tax
amounted to $100,027 and $86,546 for the years ended December 31, 1996 and 1995,
respectively, and is included in operating expenses in the statement of
operations. No such tax was incurred for the year ended December 31, 1994 as the
Partnership sustained net losses.
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Partnership was formed to speculatively trade commodity interests. The
Partnership's commodity interest transactions and its related cash balance are
on deposit with the Clearing Broker at all times. In the event that volatility
of trading of other customers of the Clearing Broker impaired the ability of the
Clearing Broker to satisfy its obligations to the Partnership, the Partnership
would be exposed to off-balance sheet risk. Such risk is defined in Statement of
Financial Accounting Standards No. 105 (SFAS 105) as a credit risk. To mitigate
this risk, the Clearing Broker, pursuant to the mandates of the Commodity
Exchange Act, is required to maintain funds deposited by customers relating to
futures contracts in regulated commodities in separate bank accounts which are
designated as segregated customers' accounts. In addition, the Clearing Broker
has set aside funds deposited by customers relating to foreign futures and
options in separate bank accounts which are designated as customer secured
accounts. Lastly, the Clearing Broker is subject to the Securities and Exchange
Commission's Uniform Net Capital Rule which requires the maintenance of minimum
net capital at least equal to 4% of the funds required to be segregated pursuant
to the Commodity Exchange Act. The Clearing Broker has controls in place to make
certain that all customers maintain adequate margin deposits for the positions
which they maintain at the Clearing Broker. Such procedures should protect the
Partnership from the off-balance sheet risk as
144
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
mentioned earlier. The Clearing Broker does not engage in proprietary trading
and thus has no direct market exposure.
The contractual amounts of commitments to purchase and sell exchange traded
futures contracts was $154,754,517 and $243,080,588, respectively, on December
31, 1996, and $284,240,048 and $225,727,635, respectively, on December 31, 1995.
The contractual amounts of these instruments reflect the extent of the
Partnership's involvement in the related futures contracts and do not reflect
the risk of loss due to counterparty performance. Such risk is defined by SFAS
105 as credit risk. The counterparty of the Partnership for futures contracts
traded in the United States and most non-U.S. exchanges on which the fund trades
is the Clearing House associated with the exchange. In general, Clearing Houses
are backed by the membership and will act in the event of non-performance by one
of its members or one of the members' customers and as such should significantly
reduce this credit risk. In the cases where the Partnership trades on exchanges
on which the Clearing House is not backed by the membership, the sole recourse
of the Partnership for nonperformance will be the Clearing House.
The average fair value of commodity interests was $2,610,468 and $1,168,519
during 1996 and 1995, respectively. Fair value as of December 31, 1996 and 1995
was $868,069 and $1,705,569, respectively. The net gains or losses arising from
the trading of commodity interests are presented in the statement of operations.
The Partnership holds futures and futures options positions on the various
exchanges throughout the world. The Partnership does not trade over the counter
contracts. As defined by SFAS 105, futures positions are classified as financial
instruments. SFAS 105 requires that the Partnership disclose the market risk of
loss from all of its financial instruments. Market risk is defined as the
possibility that future changes in market prices may make a financial instrument
less valuable or more onerous. If the markets should move against all of the
futures positions held by the Partnership at the same time, and if the markets
moved such that the CTAs were unable to offset the futures positions of the
Partnership, the Partnership could lose all of its assets and the partners would
realize a 100% loss. The Partnership has contracts with two CTAs who make the
trading decisions. One of the CTAs trades a program diversified among all
commodity groups, while the other is diversified among the various futures
contracts in the financial and metals group. Both CTAs trade on U.S. and
non-U.S. exchanges. Such diversification should greatly reduce this market risk.
At December 31, 1996, the cash requirement of the commodity interests of the
Partnership was $2,645,728. This cash requirement is met by $36,476,241 held in
segregated funds and $4,390,609 held in secured funds. At December 31, 1995, the
cash requirement of the commodity interests of the Partnership of $3,655,729 was
met by $30,204,044 being held in segregated funds and $2,941,721 being held in
secured funds. At December 31, 1996 and 1995, cash was on deposit with the
Clearing Broker which exceeded the cash requirement amount.
145
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995 AND 1994
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
The following chart discloses the dollar amount of the unrealized gain or
loss on open contracts related to exchange traded contracts for the Partnership
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
COMMODITY GROUP 1996 1995
- ------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Agricultural....................................................... $ 51,555 $ 212,081
Currency........................................................... 654,101 51,557
Stock Indices...................................................... 119,401 220,579
Energies........................................................... 30,565 425,780
Metals............................................................. 210,043 (49,905)
Interest........................................................... (197,596) 845,477
----------- ------------
Total.............................................................. $ 868,069 $ 1,705,569
----------- ------------
----------- ------------
</TABLE>
The range of maturity dates of these exchange traded open contracts is
January 1997 to December 1997.
ACKNOWLEDGMENT
To the best of my knowledge and belief, the information contained herein is
accurate and complete.
<TABLE>
<S> <C>
/s/ DONALD J. ZYCK
- --------------------------------------------
Donald J. Zyck
Treasurer, CIS Investments, Inc.,
one of the General Partners and Commodity
Pool
Operators of IDS Managed Futures, L.P.
</TABLE>
146
<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
<TABLE>
<CAPTION>
JUN 30, DEC 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Cash at Escrow Agent............................................................... $ 0 $ 650,100
Equity in commodity futures trading accounts:
Account balance.................................................................. 41,079,067 39,998,782
Unrealized gain on open futures contracts........................................ 2,192,445 868,069
------------- -------------
43,271,512 41,516,951
Interest receivable................................................................ 150,326 152,358
Prepaid G.P. fee................................................................... 277,052 0
------------- -------------
Total assets................................................................... $ 43,698,890 $ 41,669,309
------------- -------------
------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued commissions on open futures contracts due to AXP Advisors and CIS........ $ 150,430 $ 70,003
Accrued management fee........................................................... 131,221 108,053
Accrued incentive fee............................................................ 0 851,045
Accrued operating expenses....................................................... 25,713 155,590
Redemptions payable.............................................................. 219,170 132,361
Selling and Offering Expenses Payable............................................ 0 57,309
------------- -------------
Total liabilities.............................................................. 526,534 1,374,361
Partners' Capital:
Limited partners (132,732.61 units outstanding at 6/30/97, 122,175.79 units
outstanding at 12/31/96) (see Note 1).......................................... 42,336,938 39,545,527
General partners (2,619.16 units outstanding at 6/30/97 and 2,315.34 at 12/31/96)
(see Note 1)................................................................... 835,418 749,421
------------- -------------
Total partners' capital........................................................ 43,172,356 40,294,948
------------- -------------
Total liabilities and partners' capital........................................ $ 43,698,890 $ 41,669,309
------------- -------------
------------- -------------
</TABLE>
In the opinion of management, these statements reflect all adjustments necessary
to fairly state the financial condition of IDS Managed Futures, L.P. (See Note
6)
147
<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
APR 1, 1997 JAN 1, 1997 APR 1, 1996 JAN 1, 1996
THROUGH JUN THROUGH JUN THROUGH JUN THROUGH JUN
30, 1997 30, 1997 30, 1996 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Gains on trading of commodity futures and forwards
contracts, physical commodities and related options:
Realized gain (loss) on closed positions............ $ (3,160,364) $ (1,142,159) $ 1,819,261 $ 2,445,690
Change in unrealized gain (loss) on open
positions......................................... 1,320,714 1,324,376 (1,012,048) (1,344,290)
Interest income....................................... 481,996 953,233 381,516 741,111
Foreign currency transaction gain (loss).............. 78,094 (203,518) (39,555) (85,958)
------------- ------------- ------------- -------------
Total revenues.................................... (1,279,560) 931,932 1,149,174 1,756,553
EXPENSES
Commissions paid to AXP Advisors and CIS............ 338,645 549,435 240,327 431,462
Exchange fees....................................... 9,256 17,332 6,850 12,697
Management fees..................................... 387,659 759,408 255,768 508,843
Incentive fees...................................... 0 62,390 30,212 32,294
General Partner fee to IDS Futures Corp. and CIS.... 138,502 277,004 111,767 223,533
Operating expenses.................................. (6,591) (28,714) 11,478 (29,619)
------------- ------------- ------------- -------------
Total expenses.................................... 867,471 1,636,855 656,401 1,179,210
------------- ------------- ------------- -------------
Net profit (loss)................................. $ (2,147,031) $ (704,923) $ 492,773 $ 577,343
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
PROFIT (LOSS) PER UNIT OF PARTNERSHIP INTEREST........ $ (16.31) $ (4.72) $ 4.05 $ 4.85
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
(see Note (see Note (see Note (see Note
1) 1) 1) 1)
</TABLE>
This Statement of Operations, in the opinion of management, reflects all
adjustments necessary to fairly state the financial condition of IDS Managed
Futures, L. P. (See Note 6)
148
<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD JANUARY 1, 1997 THROUGH JUNE 30, 1997
UNAUDITED
<TABLE>
<CAPTION>
LIMITED GENERAL
UNITS PARTNERS PARTNERS TOTAL
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Partners' capital at January 1, 1997................ 122,175.79 $ 39,545,527 $ 749,421 $ 40,294,948
Net profit (loss)................................... (693,921) (11,003) (704,924)
Additional Units Sold (see Note 1).................. 15,496.89 5,596,800 100,000 5,696,800
Less Selling and Organizational Costs............... (492,222) (3,000) (495,222)
Redemptions (see Note 1)............................ (4,940.06) (1,619,246) (1,619,246)
Partners' capital at June 30, 1997.................. 132,732.62 $ 42,336,938 $ 835,418 $ 43,172,356
------------- ------------- ------------- --------------
Net asset value per unit January 1, 1997 (see Note
1)................................................ 323.68 323.68
Net profit (loss) per unit (see Note 1)............. (4.72) (4.72)
------------- -------------
Net asset value per unit June 30, 1997.............. $ 318.96 $ 318.96
</TABLE>
* Units of Limited Partnership interest.
This Statement of Changes in Partners' Capital, in the opinion of management,
reflects all adjustments necessary to fairly state the financial condition of
IDS Managed Futures, L. P. (See Note 6)
149
<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
JAN 1, 1997 JAN 1, 1996
THROUGH JUNE THROUGH JUNE
30, 1997 30,1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net profit (loss)................................................................ $ (704,923) $ 577,343
Adjustments to reconcile net profit (loss) to net cash provided by (used in)
operating activities:
Change in assets and liabilities:
Unrealized gain (loss) on open futures contracts............................... (1,324,376) 1,344,291
Interest receivable............................................................ 2,032 11,050
Prepaid general partner fee.................................................... (277,052) (223,534)
Accrued liabilities............................................................ (877,327) (95,443)
Redemptions payable............................................................ 86,809 (113,663)
Selling and Offering Expenses Payable.......................................... (57,309) (2,207)
------------- -------------
Net cash provided by (used in) operating activities............................ (3,152,147) 1,497,837
Cash flows from financing activities:
Additional Units Sold............................................................ 5,696,800 2,583,600
Selling and Offering Expenses.................................................... (495,222) (231,304)
Partner redemptions.............................................................. (1,619,246) (1,516,071)
------------- -------------
Net cash provided by (used in) financing activities.............................. 3,582,332 836,225
------------- -------------
Net increase (decrease) in cash.................................................... 430,185 2,334,062
Cash at beginning of period........................................................ 40,648,882 31,440,196
Cash at end of period.............................................................. $ 41,079,067 $ 33,774,258
------------- -------------
------------- -------------
</TABLE>
This Statement of Cash Flows, in the opinion of management, reflects all
adjustments necessary to fairly state the financial condition of IDS Managed
Futures, L. P. (See Note 6)
150
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
(1) GENERAL INFORMATION AND SUMMARY
IDS Managed Futures, L.P. (the "Partnership") is a limited partnership
organized on December 16, 1986 under the Delaware Revised Uniform Limited
Partnership Act. The Partnership was formed to speculatively trade commodity
interests, including futures contracts, forward contracts, physical commodities,
and related options thereon pursuant to the trading instructions of independent
trading advisors. The General Partners of the Partnership are CIS Investments,
Inc. ("CISI") and IDS Futures Corporation ("IDS Futures") (collectively, the
"General Partners"). The General Partners are registered commodity pool
operators under the Commodity Exchange Act, as amended (the "CE Act") and are
responsible for administering the business and affairs of the Partnership
exclusive of trading decisions. CISI is an affiliate of Cargill Investor
Services, Inc. ("CIS"), the clearing broker for the Partnership. IDS Futures is
an affiliate of American Express Financial Advisors Inc. ("AXP Advisors"),
formerly IDS Financial Services Inc., which acts as the Partnership's
introducing broker and selling agent. Trading decisions for the Partnership were
made by two independent commodity trading advisors, John W. Henry & Company,
Inc. and Sabre Fund Management Limited, until July 7, 1997. Effective July 8,
1997 the General Partners added Welton Investment Corporation as an additional
independent commodity trading advisor for the Partnership.
Units of limited partnership interest ("Units") were offered initially by
AXP Advisors commencing March 27, 1987 and concluding June 16, 1987. Subsequent
offerings commenced March 29, 1993, January 31, 1994, June 26, 1995 and July 31,
1996. The total amount of the initial offering was $7,500,000 and the total
amount of the combined reopenings was $80,000,000. Investors purchase Units at
the then current net asset value per Unit; investors affiliated with the selling
agent of the Partnership are not required to pay selling commissions, and the
current offering has varied selling commission rates depending on the total
dollar amount of the investment. Therefore, the total number of Units authorized
for the Partnership is not determinable and therefore is not disclosed in the
financial statements.
On June 26, 1995, a registration statement on Form S-1 was declared
effective with the SEC to register $50,000,000 of Units in addition to the
unsold portion of the $20,000,000 offered pursuant to the Prospectus dated
January 31, 1994. On July 12, 1996 a post-effective amendment was declared
effective with the SEC to update the information in the Prospectus dated June
26, 1995. The Units were offered pursuant to a Prospectus dated July 31, 1996
until April 30, 1997, when the offering was temporarily suspended due to the
expiration of the current Prospectus. A post-effective amendment was filed on
July 31, 1997 to update the information in the Prospectus dated July 31, 1996
and to add disclosure regarding the Partnership's new trading advisor, Welton
Investment Corporation. The minimum subscription size for the offering is $1,000
for investors not affiliated with AXP Advisors. By June 30, 1997, a total of
51,796.14 Units representing a total investment of $16,397,909 of limited
partnership interest had been sold in the offering period commencing June 26,
1995. During the quarter ended June 30, 1997, selling commissions of $129,296
were paid to AXP Advisors by the new limited partners and all new investors paid
organization and offering expenses totaling $69,678.
The Offering Expense charged pursuant to the registration statement
effective June 26, 1995 was reduced to 3% from the 6% which had been charged in
the previous two offerings.
No redemptions are permitted by a subscriber during the first six months
after he or she has been admitted to the Partnership. Thereafter, a Limited
Partner may cause any or all of his or her Units to be redeemed by the
Partnership effective as of the last trading day of any month of the Partnership
based on
151
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
(1) GENERAL INFORMATION AND SUMMARY (CONTINUED)
the Net Asset Value per Unit on ten days written notice to the General Partners.
There are no additional charges to the investors at redemption. The General
Partners may declare additional redemption dates upon notice to the Limited
Partners. Payment will be made within ten business days of the effective date of
the redemption. The Partnership's Restated and Amended Limited Partnership
Agreement contains a full description of redemption and distribution procedures.
The Partnership shall be terminated on Dec. 31, 2006 if none of the
following occur prior to that date: (1) investors holding more than 50 percent
of the outstanding Units notify the General Partners to dissolve the Partnership
as of a specific date; (2) withdrawal, removal, insolvency, bankruptcy, legal
disability or dissolution of the General Partners of the Partnership; (3)
bankruptcy or insolvency of the Partnership; (4) decrease in the net asset value
to less than $500,000; (5) the Partnership is declared unlawful; or (6) the net
asset value per Unit declines to less than $125 per Unit and the General
Partners elect to withdraw from the Partnership.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Partnership conform to
generally accepted accounting principles and to general practices within the
commodities industry. The following is a description of the more significant of
those policies which the Partnership follows in preparing its financial
statements.
FINANCIAL ACCOUNTING STANDARDS BOARD ("FASB") INTERPRETATION NO. 39
REPORTING
Reporting in accordance with FASB Interpretation No. 39 ("FIN 39") is not
applicable to the Partnership and the provisions of FIN 39 do not have any
effect on the Partnership's financial statements.
REVENUE RECOGNITION
Commodity futures contracts, forward contracts, physical commodities and
related options are recorded on the trade date. All such transactions are
reported on an identified cost basis. Realized gains and losses are determined
by comparing the purchase price to the sales price when the trades are offset.
Unrealized gains and losses reflected in the statements of financial condition
represent the difference between original contract amount and market value (as
determined by exchange settlement prices for futures contracts and related
options and cash dealer prices at a predetermined time for forward contracts,
physical commodities and their related options) as of the last business day of
the quarter end.
The Partnership earns interest on 100 percent of the Partnership's average
monthly cash balance on deposit with the Clearing Broker at a rate equal to 90
percent of the average 90-day Treasury bill rate for U.S. Treasury bills issued
during that month.
COMMISSIONS
Brokerage commissions, National Futures Association fees, and clearing and
exchange fees are accrued on a round-turn basis on open commodity futures
contracts. The Partnership pays commissions on trades executed on its behalf at
a rate of $35 per round turn contract to CIS which in turn reallocates $20 per
round turn contract to AXP Advisors, an affiliate of IDS Futures.
152
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSACTIONS
Trading accounts on foreign currency denominations are susceptible to both
movements on underlying contract markets as well as fluctuation in currency
rates. Foreign currencies are translated into U.S. dollars for closed positions
at an average exchange rate for the quarter while quarter-end balances are
translated at the quarter-end currency rates. The impact of the translation is
reflected in the statement of operations.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, cash represents cash on
deposit with the Clearing Broker in commodity futures trading accounts.
(3) FEES
Management fees are accrued and paid monthly, incentive fees are accrued
monthly and paid quarterly and General Partners' administrative fees are paid
annually and amortized monthly. Trading decisions for the period of these
financial statements were made by John W. Henry & Company, Inc. ("JWH") and
Sabre Fund Management Limited ("Sabre"), the Partnership's Commodity Trading
Advisors ("CTAs"). Pursuant to an agreement between the Partnership and JWH, JWH
receives 1/3 of 1% of the month-end net asset value of the Partnership under its
management. Pursuant to an agreement between the Partnership and Sabre dated
December 26, 1995 and effective January 1, 1996, Sabre's monthly management fee
was reduced from 1/4 of 1% to 1/8 of 1% of the Partnership's Net Asset Value
subject to Sabre's trading performance. This reduction in management fees will
continue until such time that the cumulative trading performance of Sabre
reaches 40%, which was reached at the end of January 1997. Therefore, the
management fee was adjusted back to 1/4 of 1% effective February 1, 1997. The
Partnership pays JWH a quarterly incentive fee of 15% and pays Sabre a quarterly
incentive fee of 18% of trading profits achieved on the NAV of the Partnership
allocated by the General Partners to such Advisor's management.
The Partnership pays an annual administrative fee of 1.125% and 0.25% of the
beginning of the year net asset value of the Partnership to IDS Futures and
CISI, respectively.
(4) INCOME TAXES
No provision for Federal Income Taxes has been made in the accompanying
financial statements as each partner is responsible for reporting income (loss)
based on the pro rata share of the profits or losses of the Partnership. The
Partnership is responsible for the Illinois Personal Property and Income Tax
based on the operating results of the Partnership. Such tax amounted to $0 and
$8,684 for the periods ended June 30, 1997 and June 30, 1996, respectively, and
is included in operating expenses in the Statement of Operations.
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Partnership was formed to speculatively trade Commodity Interests. It
has commodity transactions and all of its cash on deposit at its Clearing Broker
at all times. In the event that volatility of trading of other customers of the
Clearing Broker impaired the ability of the Clearing Broker to satisfy its
153
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
obligations to the Partnership, the Partnership would be exposed to off-balance
sheet risk. Such risk is defined in Statement of Financial Accounting Standards
No. 105 ("SFAS 105") as a credit risk. To mitigate this risk, the Clearing
Broker, pursuant to the mandates of the Commodity Exchange Act, is required to
maintain funds deposited by customers relating to futures contracts in regulated
commodities in separate bank accounts which are designated as segregated
customers' accounts. In addition, the Clearing Broker has set aside funds
deposited by customers relating to foreign futures and options in separate bank
accounts which are designated as customer secured accounts. Lastly, the Clearing
Broker is subject to the Securities and Exchange Commission's Uniform Net
Capital Rule which requires the maintenance of minimum net capital of at least
4% of the funds required to be segregated pursuant to the Commodity Exchange
Act. The Clearing Broker has controls in place to make certain that all
customers maintain adequate margin deposits for the positions which they
maintain at the Clearing Broker. Such procedures should protect the Partnership
from the off-balance sheet risk as mentioned earlier. The Clearing Broker does
not engage in proprietary trading and thus has no direct market exposure.
The counterparty of the Partnership for futures contracts traded in the
United States and most non-U.S. exchanges on which the Partnership trades is the
Clearing House associated with the exchange. In general, Clearing Houses are
backed by the membership and will act in the event of non-performance by one of
its members or one of the members' customers and as such should significantly
reduce this credit risk. In the cases where the Partnership trades on exchanges
on which the Clearing House is not backed by the membership, the sole recourse
of the Partnership for nonperformance will be the Clearing House.
The Partnership holds futures and futures options positions on the various
exchanges throughout the world. The Partnership does not trade over the counter
contracts. As defined by SFAS 105, futures positions are classified as financial
instruments. SFAS 105 requires that the Partnership disclose the market risk of
loss from all of its financial instruments. Market risk is defined as the
possibility that future changes in market prices may make a financial instrument
less valuable or more onerous. If the markets should move against all of the
futures positions held by the Partnership at the same time, and if the markets
moved such that the Trading Advisors were unable to offset the futures positions
of the Partnership, the Partnership could lose all of its assets and the
partners would realize a 100% loss. As of June 30, 1997, the Partnership had
contracts with two CTAs who make the trading decisions. One of the CTAs trades a
program diversified among all commodity groups, while the other is diversified
among the various futures contracts in the financials and metals group. Both
CTAs trade on U.S. and non-U.S. exchanges. Such diversification should greatly
reduce this market risk. Cash was on deposit with the Clearing Broker in each
time period of the financial statements which exceeded the cash requirements of
the Commodity Interests of the Partnership.
The following chart discloses the dollar amount of the unrealized gain or
loss on open contracts related to exchange traded contracts for the Partnership
as of June 30, 1997:
<TABLE>
<CAPTION>
UNREALIZED GAIN/
COMMODITY GROUP (LOSS)
- ------------------------------------------------------------------------------------------- ---------------------
<S> <C>
AGRICULTURAL COMMODITIES................................................................... 305,728
FOREIGN CURRENCIES......................................................................... 489,152
STOCK INDICES.............................................................................. 87,037
ENERGIES................................................................................... (6,480)
METALS..................................................................................... 488,406
INTEREST RATE INSTRUMENTS.................................................................. 828,602
----------
TOTAL...................................................................................... 2,192,445
</TABLE>
154
<PAGE>
IDS MANAGED FUTURES, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
The range of maturity dates of these exchange traded open contracts is July
of 1997 to June of 1998. The average open trade equity for the period of January
1, 1997 to June 30, 1997 was $1,499,516.
The margin requirement at June 30, 1997 was $5,373,464. To meet this
requirement, the Partnership had on deposit with the Clearing Broker $37,655,279
in segregated funds and $5,616,233 in secured funds.
(6) FINANCIAL STATEMENT PREPARATION
The interim financial statements are unaudited but reflect all adjustments
that are, in the opinion of management, necessary to a fair statement of the
results for the interim periods presented. These adjustments consist primarily
of normal recurring accruals.
The results of operations for interim periods are not necessarily indicative
of the operating results to be expected for the fiscal year.
155
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
CIS Investments, Inc.:
We have audited the accompanying statements of financial condition of CIS
Investments, Inc. (a wholly owned subsidiary of Cargill Investor Services, Inc.)
(the Company) as of May 31, 1997 and 1996, and the related statements of income,
changes in stockholder's equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CIS Investments, Inc. as of May
31, 1997 and 1996, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Chicago, IL
July 17, 1997
156
<PAGE>
CIS INVESTMENTS, INC.
STATEMENTS OF FINANCIAL CONDITION
MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Assets:
Receivable from JWH Global Trust (note 6)........................................... $ 515,506 --
Accrued taxes receivable (note 1)................................................... 78,630 --
Investments......................................................................... 981,038 572,721
------------ ------------
Total assets...................................................................... $ 1,575,174 572,721
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable (note 6)........................................................... 400,033 --
Accrued taxes payable (note 1)...................................................... -- 3,347
Deferred management fees............................................................ 58,763 47,665
Due to Parent....................................................................... 618,012 161,955
------------ ------------
Total liabilities................................................................. 1,076,808 212,967
------------ ------------
Stockholder's equity:
Common stock, $100 par value. Authorized 30,000 shares; issued 10 shares............ 1,000 1,000
Common stock subscribed, 29,990 and 27,437 shares at the years ended 1997 and 1996,
respectively...................................................................... 2,999,000 2,743,700
Less subscriptions receivable (note 4).............................................. (2,999,000) (2,743,700)
Paid-in capital..................................................................... 250,000 250,000
Retained earnings................................................................... 247,366 108,754
------------ ------------
Total stockholder's equity........................................................ 498,366 359,754
------------ ------------
$ 1,575,174 572,721
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
157
<PAGE>
CIS INVESTMENTS, INC.
STATEMENTS OF INCOME
YEARS ENDED MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues:
Management fees..................................................................... $ 156,501 74,472
Unrealized gain on investments...................................................... 59,675 14,345
------------ ------------
Total revenues........................................................................ 216,176 88,817
------------ ------------
------------ ------------
Expenses - operating.................................................................. 5,780 5,674
------------ ------------
Income before income taxes............................................................ 210,396 83,143
Income tax expense (note 1)........................................................... 71,784 29,747
------------ ------------
Net income............................................................................ $ 138,612 53,396
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to financial statements.
158
<PAGE>
CIS INVESTMENTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
YEARS ENDED MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON
COMMON PAID-IN STOCK RETAINED SUBSCRIPTIONS
STOCK CAPITAL SUBSCRIBED EARNINGS RECEIVABLE TOTAL
----------- --------- ---------- ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1995................. $ 1,000 250,000 1,743,700 55,358 (1,743,700) 306,358
Common stock subscription............... -- -- 1,000,000 -- (1,000,000) --
Net income.............................. -- -- -- 53,396 -- 53,396
----------- --------- ---------- ----------- --------------- ---------
Balance at May 31, 1996................. 1,000 250,000 2,743,700 108,754 (2,743,700) 359,754
Common stock subscription............... -- -- 255,300 -- (255,300) --
Net income -- -- -- 138,612 -- 138,612
----------- --------- ---------- ----------- --------------- ---------
Balance at May 31, 1997................. $ 1,000 250,000 2,999,000 247,366 (2,999,000) 498,366
</TABLE>
See accompanying notes to financial statements.
159
<PAGE>
CIS INVESTMENTS, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 138,612 53,396
Adjustments to reconcile net income to net cash provided by operating activities:....
Unrealized gain on investments..................................................... (59,675) (14,345)
Increase in assets:................................................................
Accrued taxes receivable......................................................... (78,630) --
Increase (decrease) in liabilities:................................................
Deferred management fees......................................................... 11,098 12,741
Accounts payable................................................................. 400,033
Due to Parent.................................................................... 456,057
Accrued taxes payable............................................................ (3,347) (7,456)
------------ -----------
Net cash provided by operating activities.............................................. 864,148 44,336
------------ -----------
Cash flows from investing activities:
Organizational and offering costs of JWH Global Trust................................ (515,506) --
Purchase of investments.............................................................. (348,642) (148,500)
------------ -----------
Net cash used in investing activities:................................................. (864,148) (148,500)
------------ -----------
Net cash provided by financing activities--capital provided by Parent.................. -- 104,164
------------ -----------
Net change in cash..................................................................... -- --
Cash at beginning of year.............................................................. -- --
------------ -----------
Cash at end of year.................................................................... $ -- --
------------ -----------
------------ -----------
Supplemental disclosures of cash flow information--cash paid during the year for income
taxes................................................................................ $ 153,761 37,202
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to financial statements.
160
<PAGE>
CIS INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies which have been followed in
preparing the accompanying financial statements is set forth below.
NATURE OF BUSINESS
CIS Investments, Inc. (the Company), a wholly owned subsidiary of Cargill
Investor Services, Inc. (the Parent), is a registered commodity pool operator
with the Commodity Futures Trading Commission. The Company is the general
partner or managing owner in various limited partnerships or trusts (Funds)
organized for the purpose of engaging in the speculative trading of commodity
interests, including futures contracts, physical commodities, and related
options.
MANAGEMENT FEES
Unearned management fees are amortized over one year using the straight-line
method.
INVESTMENTS
Investments in Funds are recorded at a value which approximates the
Company's proportionate share of each Fund's net asset value.
INCOME TAXES
The Company is included in the consolidated Federal income tax return of the
Parent. Income tax expense is calculated as if the Company would file a separate
return. Accrued taxes represents the remaining balance due to/from the Parent
for the current year taxes including the impact of deferred taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
EXPENSES
General and administrative overhead costs of the Company are expensed and
paid by the Parent.
USE OF ESTIMATES
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities as of the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual amounts could differ from such estimates.
161
<PAGE>
CIS INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997 AND 1996
(2) INVESTMENTS IN FUNDS
Investment in IDS Managed Futures, L.P. and IDS Managed Futures II, L.P. is
approximately 0.5% of the total interest. Investment in Everest Futures Fund II,
L.P. and JWH Global Trust is approximately 1.0% of the total interest.
Investments in the Funds at May 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
UNITS AMOUNT UNITS AMOUNT
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
IDS Managed Futures, L.P................................................ 1,299 $ 403,149 1,151 $ 314,053
IDS Managed Futures II, L.P............................................. 322 182,228 322 157,974
Everest Futures Fund II, L.P............................................ 217 245,661 100 100,694
JWH Global Trust........................................................ 1,500 150,000 -- --
--------- ---------- --------- ----------
$ 981,038 $ 572,721
---------- ----------
---------- ----------
</TABLE>
The following represents condensed combined financial information of the
Funds as of May 31, 1997 and 1996 (in thousands).
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Assets...................................................................................... $ 89,327 $ 51,347
--------- ---------
--------- ---------
Liabilities................................................................................. 550 372
Capital..................................................................................... 88,777 50,975
--------- ---------
Total....................................................................................... $ 89,327 $ 51,347
--------- ---------
--------- ---------
</TABLE>
The Funds trade in various futures, futures options and forward contracts.
The risks to the Funds arise from the possible adverse changes in the market
value of such contracts and the potential inability of the counterparties to
perform under the terms of the contracts.
(3) NET WORTH REQUIREMENTS
The Company is required to maintain a net worth as defined in each Fund's
agreement. At May 31, 1997, the Company is in compliance with its net worth
requirements.
(4) COMMON STOCK SUBSCRIPTIONS
The Company and its Parent entered into stock subscription agreements
whereby the Parent subscribed to purchase up to 29,990 shares of the Company's
stock at $100 per share in order to ensure the Company's continued compliance
with its net worth requirements. No subscribed stock was issued, nor is it known
when and if any will be issued in the future. As such, the subscribed stock
receivable amount is shown as a deduction from stockholder's equity.
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Funds hold futures contracts and options. A futures contract is defined
as an agreement to buy or sell a specific amount of a commodity or financial
instrument at a particular price on a stipulated future date. If the markets
should move against all of the futures positions held by the Funds at the same
time, and if the Funds are unable to offset the futures positions of the Funds,
the Funds could lose all of their assets and the investors, including the
Company, would realize a 100% loss of their investment.
162
<PAGE>
CIS INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 31, 1997 AND 1996
(6) RECEIVABLE FROM JWH GLOBAL TRUST
The Company has assumed the liability for the initial organizational and
offering costs of JWH Global Trust (the Trust). These costs are to be reimbursed
currently by the Trust.
The Trust is amortizing organizational and offering costs over five years
based upon the monthly net assets of the Trust. The monthly amortization cannot
exceed 1/60th of 2% of the net assets of the Trust. If at the end of the
amortization period there is any remaining cost, the Company is obligated to
reimburse the Trust for that amount. At May 31, 1997 it does not appear that any
amount will remain at the end of the amortization period; however, any
liability, if any, that might exist at that future date is indeterminable.
163
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
IDS Futures Corporation
We have audited the accompanying balance sheet of IDS Futures Corporation
(wholly owned indirectly by American Express Company) as of May 31, 1997. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet 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 IDS Futures Corporation at May 31,
1997, in conformity with generally accepted accounting principles.
[SIG]
June 24, 1997
164
<PAGE>
IDS FUTURES CORPORATION
BALANCE SHEET
MAY 31, 1997
<TABLE>
<CAPTION>
ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Cash............................................................................ $ 993
Interest-bearing deposits with affiliate........................................ 912,295
Accounts receivable............................................................. 1,315
Due from affiliate (NOTE 5)..................................................... 35,320
Investment in Limited Partnerships (fair value -- $589,540)..................... 304,500
Deferred income taxes (NOTE 4) 206,123
---------
Total assets.................................................................... $1,460,546
---------
---------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Unearned income............................................................... $ 264,436
Other liabilities............................................................. 77,843
---------
Total liabilities............................................................... 342,279
Stockholder's equity:
Common Stock, $1 par value:...................................................
Authorized and issued shares -- 100 100
Additional paid-in capital.................................................. 1,974,900
Retained earnings............................................................. 768,267
---------
2,743,267
Less notes receivable from affiliate (NOTE 3) (1,625,000)
---------
Net stockholder's equity 1,118,267
---------
Total liabilities and stockholder's equity...................................... $1,460,546
---------
---------
Commitments (NOTE 2)
</TABLE>
SEE ACCOMPANYING NOTES.
(PLEASE NOTE THAT THE PURCHASER OF UNITS IS NOT PURCHASING AN INTEREST IN THE
COMPANY WHOSE BALANCE SHEET APPEARS ABOVE.)
165
<PAGE>
IDS FUTURES CORPORATION
NOTES TO BALANCE SHEET
MAY 31, 1997
1. ORGANIZATION, PURPOSE AND ACCOUNTING POLICIES
IDS Futures Corporation (the Company) is a wholly-owned subsidiary of IDS
Management Corporation, which is a wholly-owned subsidiary of American Express
Financial Corporation (AEFC), which is a wholly-owned subsidiary of American
Express Company. The Company was organized on December 12, 1986 and is
registered under the Commodity Exchange Act. The Company acts as a general
partner in limited partnerships.
The preparation of the balance sheet requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies. Actual results could differ from those estimates.
INTEREST-BEARING DEPOSITS WITH AFFILIATES
The Company's interest-bearing deposit with affiliate represents short-term
funds deposited with AEFC. These funds earn interest based upon short-term
published indices. Fair value of this deposit approximates the carrying value.
INVESTMENTS IN LIMITED PARTNERSHIPS
The investments in Limited Partnerships, which consist of interests in IDS
Managed Futures, L.P. and IDS Managed Futures II, L.P., are accounted for at the
lower of cost or fair value. Fair value has been estimated by management as the
Company's proportionate share of the limited partnerships' net asset value as
set forth in the audited financial statements of the Limited Partnerships.
UNEARNED INCOME
Unearned income consists of management fees received at the beginning of
1997 which are recognized over the course of the year as services are provided.
INCOME TAXES
The Company's taxable income is included in the consolidated federal tax
return of the Company's parent. Each eligible subsidiary of the Company's parent
provides for income taxes on a separate return basis. Under an agreement with
the parent, the Company receives income tax benefits for net operating losses
and future tax deductions that are recognizable on the parent's consolidated
federal tax return.
2. PARTNERSHIP PARTICIPATION
The Company, as a General Partner, has entered into Amended and Restated
Limited Partnership Agreements whereby the general partners have agreed that
they will contribute to the capital of each Managed Futures Partnership
(Partnership) an amount which will make its total contributions to each
Partnership equal to the greater of (i) 3% of the aggregate capital
contributions of the Partnerships or $100,000, whichever is less, or (ii) 1% of
the aggregate capital contributions of the Partnership. Each partner of the
Partnership will share in profits and losses of the Partnership in proportion to
the amount of the interest in the partnership owned by each. The Agreements of
Limited Partnership also require that, at all times after the admission of
limited partners to the Partnership, the general partners together maintain
(PLEASE NOTE THAT THE PURCHASER OF UNITS IS NOT PURCHASING AN INTEREST IN THE
COMPANY WHOSE BALANCE SHEET APPEARS ABOVE.)
166
<PAGE>
IDS FUTURES CORPORATION
NOTES TO BALANCE SHEET
MAY 31, 1997
2. PARTNERSHIP PARTICIPATION (CONTINUED)
net worth at least equal to (i) the lesser of $250,000 or 15% of the aggregate
capital contributions of any limited partnerships for which they shall act as
general partners and which are capitalized at less than or equal to $2,500,000,
and (ii) 10% of the aggregate capital contributions of any limited partnerships
for which they shall act as general partners and which are capitalized at
greater than $2,500,000. For this purpose, net worth shall reflect the carrying
of all assets at fair market value and shall exclude capital contributions by it
to any limited partnership of which it may be a general partner. The Company
meets its net worth requirement through promissory notes from AEFC.
3. NOTES RECEIVABLE FROM AFFILIATE
On April 7, 1987, AEFC issued a $375,000 demand note, with interest accruing
on funds outstanding at the prime rate of Norwest Bank, Minneapolis, as a
capital contribution to IDS Futures Corporation.
On February 22, 1988, AEFC issued an additional $750,000 demand note, with
interest accruing on funds outstanding at the prime rate of Norwest Bank,
Minneapolis, as a capital contribution to IDS Futures Corporation.
On June 23, 1988, AEFC issued an additional $500,000 demand note, with
interest accruing on funds outstanding at the prime rate of Norwest Bank,
Minneapolis, as a capital contribution to IDS Futures Corporation.
These notes have been reported as a reduction in capital. All accrued
interest on the above notes has been waived by the parties to the notes.
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The temporary differences
are comprised of annual management fees received which are deferred and accreted
for financial reporting purposes but recognized upon receipt for tax purposes,
and the difference in the tax basis and financial reporting basis of the
investments in limited partnerships.
5. AFFILIATE TRANSACTIONS
The Company is allocated various expenses from AEFC, such as programming,
data processing, legal, taxes and other administrative costs. The receivable
balance at May 31, 1997 represents adjustments to those allocations that are due
from AEFC.
6. CONTINGENCIES
According to the Prospectus of IDS Managed Futures, L.P., "The General
Partners will receive from the proceeds of the offering, the Offering Expense
Charge (OEC) for each unit sold to an investor. The OEC includes fees for legal,
accounting, auditing, marketing, filing, registration and recording fees,
printing expenses and escrow charges." The General Partners will pay all
offering expenses and are liable for any expenses in excess of the Offering
Expense Charge.
(PLEASE NOTE THAT THE PURCHASER OF UNITS IS NOT PURCHASING AN INTEREST IN THE
COMPANY WHOSE BALANCE SHEET APPEARS ABOVE.)
167
<PAGE>
EXHIBIT A
IDS MANAGED FUTURES, L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
CIS Investments, Inc. and IDS Futures Corporation (hereinafter referred to
collectively as the "GENERAL PARTNERS" and individually referred to as a
"GENERAL PARTNER") in their capacities as general partners and as
attorneys-in-fact for those who hereafter execute this agreement, as amended or
by separate instrument, and for the limited partners of IDS Managed Futures,
L.P. (the "PARTNERSHIP") hereby agree to and adopt this Amended and Restated
Limited Partnership Agreement (the "AGREEMENT") as of this day, September 30,
1994, and hereby amend and revise that certain Limited Partnership Agreement of
the Partnership dated June 16, 1987 and amended on January 28, 1992, March 29,
1993, January 25, 1994, and September 30, 1994.
STRUCTURE OF THE PARTNERSHIP
1. FORMATION AND NAME.
The parties hereto do hereby form a limited partnership under the Delaware
Revised Uniform Limited Partnership Act, as amended and in effect on June 16,
1987 (the "ACT"). The name of the limited partnership is IDS Managed Futures,
L.P. (the "PARTNERSHIP"). The General Partners shall execute and file a
Certificate of Limited Partnership in accordance with the provisions of the Act
and execute, file, record and publish as appropriate such amendments, assumed
name certificates and other documents as are or become necessary or advisable as
determined by the General Partners. Each Limited Partner hereby undertakes to
furnish to the General Partners a power of attorney which may be filed with the
Certificate of Limited Partnership and any amendments thereto and such
additional information as is required from him to complete such documents and to
execute and cooperate in the filing, recording or publishing of such documents
at the request of the General Partners.
2. PRINCIPAL OFFICES.
The principal offices of the Partnership shall be at the offices of CIS
Investments, Inc. or such other places as the General Partners may designate
from time to time.
3. BUSINESS.
The Partnership business and purpose is to trade, buy, sell, spread or
otherwise acquire, hold or dispose of commodity interests including futures
contracts, forward contracts, physical commodities, and related options thereon.
The objective of the Partnership business is appreciation of its assets through
speculative trading in such commodity interests.
4. TERM, DISSOLUTION AND FISCAL YEAR.
(a) TERM. The term of the Partnership shall commence on the day on which
the Certificate of Limited Partnership is filed in the Office of the Secretary
of State of Delaware pursuant to the provisions of the Act and shall end upon
the first to occur of the following: (1) December 31, 2006; (2) receipt by the
General Partners of a notice to dissolve the Partnership at a specified time by
Limited Partners owning more than 50% of the outstanding Units of Limited
Partnership Interest ("UNITS"), including Units held by representatives and
employees of the Partnership's Selling Agent and of its corporate affiliates,
but not including any Units held by the General Partners or their corporate
affiliates, which notice is sent by registered mail to the General Partners not
less than ninety days prior to the effective date of such dissolution; (3)
withdrawal, removal, insolvency, bankruptcy, legal disability or dissolution of
the General Partners unless the Partnership is continued pursuant to paragraph
22 below; (4) the insolvency or bankruptcy of the Partnership; (5) a decrease in
the Net Asset Value of the Partnership to less than
<PAGE>
$500,000 as of the close of business on any trading day; or (6) the occurrence
of any event which shall make it unlawful for the existence of the Partnership
to be continued or requiring termination of the Partnership.
(b) DISSOLUTION. Upon the occurrence of an event causing the termination
of the Partnership, the Partnership shall terminate and be dissolved.
Dissolution, payment of creditors and distribution of the Partnership assets
shall be effected as soon as practicable in accordance with the Act, and the
General Partners and Limited Partners (and any assignees) shall share in the
assets of the Partnership, if any, PRO RATA in accordance with their respective
capital accounts, less any amount owing by such Partners (or assignees) to the
Partnership.
(c) FISCAL YEAR. The fiscal year of the Partnership shall begin on January
1 of each year and end on December 31; PROVIDED, HOWEVER, that the first fiscal
year of the Partnership shall commence on the date its Certificate of Limited
Partnership is filed.
(d) CERTAIN DEFINITIONS.
"ADVISOR" means any person who for any consideration engages in the business
of advising others, either directly or indirectly, as to the value, purchase, or
sale of Commodity Contracts or commodity options.
"COMMODITY CONTRACT" means a contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade of a traded
commodity at a specified price and delivery point.
"NET ASSET VALUE" of the Partnership means the total assets less total
liabilities, including any liability for organization and offering expenses of
the Partnership, to be determined on the basis of generally accepted accounting
principles, consistently applied, unless otherwise specified below. As of the
close of business on February 28, 1995, regardless of whether Units are then
being offered, each Unit shall be divided into three Units, each of which shall
have Net Asset Value per Unit equal to one-third the Net Asset Value per Unit on
that date prior to such division. The resulting Net Asset Value per Unit will
constitute the Net Asset Value per Unit thereafter.
"NET ASSET VALUE PER UNIT" means the Net Asset Value divided by the number
of Units outstanding on the date of calculation. For purposes of these
calculations:
(a) Net Asset Value shall include any unrealized profit or loss on
securities and open commodity positions and any other credit or debit
accruing to the Partnership but unpaid or not received by the Partnership.
(b) All securities and open commodity positions shall be valued at their
then market value which means, with respect to open commodity positions, the
settlement price as determined by the exchange on which the transaction is
effected or the most recent appropriate quotation as supplied by the
clearing broker or banks through which the transaction is effected. If there
are no trades on the date of the calculation due to the operation of the
daily price fluctuation limits or due to a closing of the exchange on which
the transaction is executed, the contract will be valued at fair market
value as determined by the General Partners. Interest, if any, shall accrue
monthly.
(c) Brokerage commissions on open commodity positions shall be accrued
in full upon the initiation of such open positions as a liability of the
Partnership. Management fees shall be paid monthly and deducted prior to the
calculation of the quarterly incentive fee.
"NET WORTH" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles.
"TRADING PROFITS" means Trading Profits (for purposes of calculating each
Advisor's incentive fees only) is defined as the excess (if any) of (A) the Net
Asset Value of the Partnership's assets under management of an Advisor as of the
last day of any calendar quarter (before deduction of incentive fees payable for
such
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quarter) over (B) the highest Net Asset Value of the Partnership's assets under
the management of such Advisor as of the last day of the most recent calendar
quarter for which an incentive fee was due and owing. In computing Trading
Profits, the difference between (A) and (B) above shall be (i) decreased by all
interest realized on the Advisor's allocable share of Partnership assets subject
to such Advisor's management between the dates referred to in (A) and (B), and
(ii) increased by the Advisor's allocable share of any distributions or
redemptions paid or payable by the Partnership as of, or subsequent to, the date
in (B) through the date in (A), and (iii) adjusted (either increased or
decreased, as the case may be) to reflect the Advisor's allocable share of any
additional allocations or negative reallocations of Partnership assets from the
date in (B) to the last day of the calendar quarter as of which the current
incentive fee calculation is made. The incentive fee shall not be payable on
interest earned on Partnership assets. For purposes of calculating Trading
Profits attributable to the assets under the management of each Advisor only,
the definition of Net Asset Value shall be modified, insofar as it takes into
consideration the amount of incentive and management fees payable by and
brokerage commissions accrued by the Partnership, to provide for the allocation
of such incentive and management fees and brokerage commissions specifically to
the assets under the management of the Advisor which is entitled to such fees or
whose trading decisions generated those brokerage commissions.
"ORGANIZATIONAL AND OFFERING EXPENSES" means all expenses incurred by the
Partnership in connection with and in preparing for registration and
subsequently offering and distributing units to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its limited partnership
interests under federal and state law, including taxes and fees, accountants'
and attorneys' fees.
"PIT BROKERAGE FEE" means the floor brokerage, clearing fees, National
Futures Association fees, and exchange fees.
"SPONSOR" means any person directly or indirectly instrumental in organizing
the Partnership or any person who will manage or participate in the management
of the Partnership, including a person who pays any portion of the
organizational expenses of the Partnership, and the general partner(s) and any
other person who regularly performs or selects the persons who perform services
for the Partnership. "Sponsor" does not include wholly independent third parties
such as attorneys, accountants, and underwriters whose only compensation is for
professional services rendered in connection with the offering of the units. The
term "Sponsor" shall be deemed to include its affiliates.
"VALUATION DATE" means the date as of which the Net Asset Value of the
Partnership is determined.
"VALUATION PERIOD" means a regular period time between valuation dates.
5. MANAGEMENT OF THE PARTNERSHIP.
Subject to the limitations of this Agreement, the General Partners shall
have exclusive management and complete control of the management of all aspects
of the Partnership's business for the purposes herein stated. The General
Partners shall make all decisions affecting Partnership affairs (except that the
General Partners shall not select the purchases and sales of any commodity
interests for the Partnership, but shall employ non-affiliated commodity trading
advisors to provide such services), and shall have the exclusive right to act
for the Partnership including, inter alia, the power to enter into contracts
with third parties for trading advisory services and brokerage services, which
brokerage services may be performed by entities affiliated with the General
Partners at rates that may exceed the lowest rates which might otherwise be
available to the Partnership, with respect to the following matters:
(a) Retaining or replacing any commodity trading advisor to the
Partnership;
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(b) Retaining any futures commission merchant or introducing broker to
act as the Partnership's broker, or materially revising the terms or
conditions upon which any futures commission merchant, or introducing
broker, shall be retained;
(c) Appointing any person, including any person affiliated with the
General Partners, to act as a selling agent, clearing broker, introducing
broker, underwriter, or otherwise to act on behalf of the Partnership to
sell or solicit the purchase of Units in the Partnership;
(d) Determining to offer additional Units in the Partnership pursuant to
its prospectus;
(e) Settling claims against the Partnership; and
(f) Retaining attorneys and accountants to assist in the organization
and operation of the Partnership.
The General Partners shall exercise good faith in carrying out their duties
and exercising their powers in regard to, or on behalf of, the Partnership, and
shall devote sufficient efforts to the furtherance of the business of the
Partnership as reasonably necessary and appropriate. The General Partners shall
retain commodity trading advisors not affiliated with either General Partner and
will delegate the management of the Partnership's commodity accounts to such
advisors.
No Limited Partner shall take part in the management of the business or
transact any business for the Partnership, and no Limited Partner shall have
power to sign for or bind the Partnership. No Limited Partner shall be entitled
to any salary, draw or other compensation from the Partnership on account of his
investment in the Partnership. The General Partners shall have sole discretion
in determining what distributions of profits and income, if any, shall be made
to the Partners. Any distributions shall become a liability of the Partnership
for purposes of calculating Net Asset Value as of the dates of their
declaration.
The General Partners may engage and compensate on behalf of the Partnership
from funds of the Partnership, such persons, firms or corporations, including
(except as described in this Agreement) the General Partners and any affiliated
person or entity, as the General Partners in their sole judgment shall deem
advisable for the conduct and operation of the business of the Partnership.
The General Partners are hereby authorized on behalf of the Partnership to
enter into the advisory contract between the Partnership and John W. Henry &
Company, Inc. and Sabre Fund Management Limited described in the Prospectus,
pursuant to which such entities will have responsibility with respect to the
determination of the Partnership's commodity trading decisions. In the event the
General Partners shall, in their sole discretion, using their prudent business
judgment, determine that any trading instructions issued by such entities or any
other commodity trading advisor to the Partnership, violate established trading
policies of the Partnership (as described in paragraph 12 below), then the
General Partners may negate such trading instructions. The General Partners may,
in their sole discretion, select additional commodity trading advisors to direct
trading for the Partnership. The General Partners are further authorized, on
behalf of the Partnership, (i) to enter into the brokerage agreement and related
customer agreements with their affiliates, Cargill Investor Services, Inc. and
American Express Financial Advisors Inc., described in the Prospectus, pursuant
to which those firms will render brokerage services to the Partnership, (ii) to
cause the Partnership to pay brokerage commissions at the rates provided for in
the brokerage agreement, and National Futures Association, exchange, clearing,
delivery, insurance, storage, service and other fees and charges incidental to
the Partnership's trading and (iii) to receive an annual administrative fee
equal, in the case of IDS Futures Corporation, to 1.125% of the Partnership's
Net Asset Value on the first business day of each fiscal year and, in the case
of CIS Investments, Inc., to 0.25% of the Partnership's Net Asset Value on the
first business day of each fiscal year. The Partnership shall not pay brokerage
commissions to Cargill Investor Services, Inc. and American Express Financial
Advisors Inc. (exclusive of National Futures Association, exchange, clearing,
delivery, insurance, storage, service and other fees and charges incidental to
the Partnership's trading and outside the control of Cargill Investor Services,
Inc. and American Express Financial Advisors Inc.) or annual administrative fees
to the General
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Partners at rates higher than those established in the Partnership's initial
Prospectus for a period of 60 months from the date the Partnership commences
trading.
The Partnership shall not enter into any contract with the General Partners,
any of their affiliates, or any commodity trading advisor which has a term of
more than one year and which does not provide that it may be canceled by the
Partnership without penalty upon 60 days notice. No such contract between the
Partnership and the General Partners or any of their affiliates shall be
canceled by the General Partners or such affiliates without 60 days prior
written notice to the Limited Partners. The Partnership shall make no loans. No
person who shares or participates in commodity brokerage commissions may
receive, directly or indirectly, any management or incentive fees for trading
advice or trading management (PROVIDED, HOWEVER, that this prohibition shall not
apply to the administrative fees payable to the General Partners); no broker of
the Partnership may pay, directly or indirectly, rebates or give-ups to any
commodity trading advisor of the Partnership or the General Partners.
The General Partners may take such actions on behalf of the Partnership as
they deem necessary or desirable to manage the business of the Partnership
including, but not limited to, the following: opening bank accounts; determining
the amounts and frequency of distributions to the Partners; calculating and
paying, or authorizing the payment of, distributions to the Partners and
expenses of the Partnership such as organization and offering expenses
(including selling commissions), management, administrative and incentive fees,
brokerage commissions, legal, auditing and accounting fees, printing fees,
filing and recording fees, and extraordinary expenses (which expenses shall be
billed directly to the Partnership); administering transfers and redemptions of
Units; filing reports required by any federal or state agency; executing various
documents on behalf of the Partnership and the Limited Partners pursuant to
powers of attorney; supervising the liquidation of the Partnership if an event
causing termination of the Partnership occurs; and investing or directing the
investment of the Partnership's funds not involving the purchase or sale of
commodity futures contracts or other commodity interests. The General Partners
may keep the Partnership's assets on deposit with Cargill Investor Services,
Inc. The Partnership will be credited by Cargill Investor Services, Inc., with
interest earned on 100% of the Partnership's average monthly Net Asset Value at
a rate equal to 90% of the average yield on 90-day U.S. Treasury bills issued
during that month. Cargill Investor Services, Inc. may retain for its own
account any incremental interest earned on the Partnership's assets in excess of
the amounts so credited to the Partnership. The General Partners shall have
fiduciary responsibility to the Partnership with respect to the safekeeping and
use of all funds and assets of the Partnership, whether or not in their
immediate possession or control, and they shall not employ or permit others to
employ such funds and assets except as specifically provided herein in any
manner other than for the exclusive benefit of the Partnership. The General
Partners shall keep and retain, at the principal office of the Partnership, such
books and records relating to the business of the Partnership as are required by
state securities administrators and by the Commodity Exchange Act, as amended,
and the rules and regulations promulgated thereunder.
The General Partners may engage in other business activities and, subject to
this paragraph 5, shall not be required to refrain from any other activity nor
forego any profits from any such activity, including any activity as a commodity
broker, a commodity pool operator, or a commodity trading advisor of additional
commodity pools organized to trade in commodity interests.
The General Partners shall give notice to each Limited Partner within seven
business days from the effective date of: (i) any material change in contracts
with commodity trading advisors, including any change in advisors or any
modification in connection with the method of calculating the incentive fee;
(ii) any other material change affecting the compensation of any party.
Additionally, no decision shall be made by the General Partners to materially
adversely change the brokerage commission to Net Asset Value ratio until notice
is given to the Limited Partners and the Limited Partners are provided the
opportunity to redeem their Units in the Partnership. The General Partners shall
include with each such notification a description of the Limited Partners
redemption rights and voting rights, and a description of any material effect
such changes may have on the interests of the Limited Partners.
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In reviewing the Partnership's brokerage arrangements, the General Partners
shall insure that the brokerage commissions represent the best price and
services available, taking into consideration, in particular, when the commodity
broker is an "affiliate" of a General Partner: (i) the size of the Partnership;
(ii) the commodity interest trading activity; (iii) the services provided by the
commodity broker, the General Partner or any affiliate thereof to the
Partnership; (iv) the cost incurred by the commodity broker, the General Partner
or any affiliate thereof in organizing and operating the Partnership and
offering Units; and (v) the overall costs to the Partnership.
No person dealing with the General Partners shall be required to determine
their authority to make any undertaking on behalf of the Partnership, nor to
determine any fact or circumstance bearing upon the existence of their
authority.
CAPITAL STRUCTURE AND PARTNERSHIP FINANCES
6. NET WORTH OF GENERAL PARTNERS.
The General Partners agree that at all times after the admission of Limited
Partners to the Partnership pursuant to the public offering of the Partnership's
Units of Limited Partnership Interest described in paragraph 17 hereof, so long
as they remain General Partners of the Partnership, they will maintain together
Net Worth (as defined below) at least equal to (i) the lesser of $250,000 or 15%
of the aggregate capital contributions of any limited partnerships (including
the Partnership, if applicable) for which they shall act as general partners and
which are capitalized at less than $2,500,000, and (ii) 10% of the aggregate
capital contributions of any limited partnerships (including the Partnership, if
applicable) for which they shall act as general partners and which are
capitalized at greater than $2,500,000. For the purposes of this paragraph 6,
Net Worth shall be calculated in accordance with generally accepted accounting
principles, consistently applied, with all current assets valued at then current
fair market values, and may include promissory notes or stock subscriptions
issued to the General Partners by their respective parent corporations and shall
exclude any interest held by the General Partners in the Partnership or any
other limited partnership.
The requirements of the preceding paragraph may be modified in accordance
with the voting procedures set forth in paragraph 22, PROVIDED the General
Partners obtain an opinion of counsel for the Partnership that a proposed
modification will not adversely affect the classification of the Partnership as
a partnership for federal income tax purposes or result in a violation of the
securities laws of any states in which Units of Limited Partnership Interest are
sold.
7. CAPITAL CONTRIBUTIONS AND PARTNERSHIP UNITS.
The General Partners shall purchase for their own account Units of General
Partnership Interest amounting to the greater of (i) 3% of the aggregate capital
contributions of the Partnership or $100,000, whichever is less, or (ii) 1% of
the aggregate capital contributions of the Partnership. Capital contributions by
the General Partners shall be credited to their capital accounts, when and as
paid. The General Partners and their affiliates may purchase Units of Limited
Partnership Interest and shall share in all Partnership income, gains, losses,
deductions and credits to the extent of their interest in the Partnership. The
Units of General Partnership Interest representing the minimum capital
contribution of the General Partners may not be transferred or redeemed so long
as they act as General Partners.
Interests in the Partnership other than the general partnership interests of
the General Partners shall be Units of Limited Partnership Interest ("UNITS" or,
individually, a "UNIT"). The initial Limited Partner, Wendell Halvorson, has
contributed $235 in cash to the capital of the Partnership in consideration for
one Unit. In accordance with the latest Prospectus of the Partnership from time
to time filed with the Securities and Exchange Commission pursuant to Rule 424
(the "PROSPECTUS"), the Partnership may issue and sell Units to other persons.
The General Partners and their affiliates, including their directors, officers,
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shareholders and employees (including representatives of American Express
Financial Advisors Inc., the Partnership's selling agent), and the Trading
Advisors, may purchase Units and such Units shall be included in determining
whether the initial $1,000,000 subscription requirement, as set forth in
paragraph 17 below, is met. The initial purchase price of each Units shall be
$250 to members of the public, and $235 for representatives and employees of
American Express Financial Advisors Inc. and certain of its corporate affiliates
during the offering of Units as specified in the initial Prospectus. Net
proceeds per Unit to the Partnership from any Units subsequently offered must
equal at least the Partnership's then current Net Asset Value per Unit (as
defined in paragraph 4(d) above). The Units need not be evidenced by
certificates.
8. MAINTENANCE OF CAPITAL ACCOUNTS; ALLOCATION OF PROFITS AND LOSSES.
(a) CAPITAL ACCOUNTS. A capital account shall be established for each
Partner and shall be maintained and adjusted in accordance with Treasury
Regulation Section 1.704(b)(2)(iv). The initial balance of each Partner's
capital account shall be the Partner's initial capital contribution to the
Partnership.
(b) MONTHLY ALLOCATIONS. The following determinations and allocations
shall be made:
(1) The Net Asset Value shall be determined.
(2) Any increase or decrease in Net Asset Value as of the end of the
month shall then be credited or charged to the Partners' capital accounts in
the ratio that the balance of each capital account bears to the balance of
all capital accounts.
(3) The amount of any distribution to a Partner, the amount of any
accrued but unpaid incentive fees attributable to redeemed Units and the
amount paid to a Partner on redemption of Units shall be charged to that
Partner's capital account.
(c) ALLOCATION OF PROFIT AND LOSS FOR FEDERAL INCOME TAX PURPOSES. As of
the end of each fiscal year, Partnership profit or loss ("PROFIT" and/or "LOSS")
shall be allocated for federal income tax purposes among the Partners pursuant
to the following paragraphs. Allocations of Profit and Loss shall be PRO RATA
from net capital gain or loss and net ordinary income or loss realized by the
Partnership unless allocations of items of gain or income or loss or expense are
necessary to satisfy the requirements in paragraphs (bb) and (dd) that
sufficient Profit and Loss be allocated to allocation accounts such that
allocation accounts attributable to redeemed Units equal distributions in
redemption of such Units. Notwithstanding the foregoing requirement that annual
allocations of Profit and Loss be PRO RATA from capital and ordinary income,
gain, loss and expense, adjustments to such allocations shall be made to reflect
the extent to which income or expense is otherwise determined and periodically
allocated to the Partners, and such periodic allocations and adjustments shall
be determined in a manner that in the judgment of the General Partners is
consistent with the intent of this Paragraph 8(c).
(1) Partnership Profit and Loss shall be allocated as follows:
(aa) For the purpose of allocating Profit or Loss among the Partners,
there shall be established an allocation account with respect to each
Partner. The initial balance of each allocation account shall be the
amount paid to the Partnership for such Partner's Units. Allocation
accounts shall be adjusted as of the end of each fiscal year and as of
the date a Partner redeems any Units as follows:
(i) Each allocation account shall be increased by the amount of
Profit allocated to the Partner pursuant to paragraph (cc) below.
(ii) Each allocation account shall be decreased by the amount of
Loss allocated to the Partner pursuant to paragraph (ee) below and by
the amount of any distributions the Partner has received with respect
to his Units.
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(bb) Profit shall be allocated first to each Partner who has redeemed
any Units during the fiscal year up to the excess, if any, of the amount
received upon redemption of the basis over the allocation account
attributable on a PRO RATA basis to the redeemed Units.
(cc) Profit remaining after the allocation thereof pursuant to
paragraph (bb) shall be allocated next among all Partners whose capital
accounts are in excess of their allocation accounts (after the
adjustments in paragraph (bb)) in the ratio that each such Partner's
excess bears to all such Partners' excesses. In the event that gain to be
allocated pursuant to this paragraph (cc) is greater than the excess of
all such Partners' capital accounts over all such allocation accounts,
the excess will be allocated among all Partners in the ratio that each
Partner's capital account bears to all Partners' capital accounts.
(dd) Loss shall be allocated first to each Partner who has redeemed
any Units during the fiscal year up to the excess, if any, of the
allocation account attributable on a PRO RATA basis to the redeemed Units
over the amount received upon redemption of the Units.
(ee) Loss remaining after the allocation thereof pursuant to
paragraph (dd) shall be allocated next among all Partners whose
allocation accounts are in excess of their capital accounts (after the
adjustments in paragraph (dd)) in the ratio that each such Partner's
excess bears to all such Partners' excesses. In the event that loss to be
allocated pursuant to this paragraph (ee) is greater than the excess of
all such allocation accounts over all such Partners' capital accounts,
the excess loss will be allocated among all Partners in the ratio that
each Partner's capital accounts bears to all Partners' capital accounts.
(2) In the event that a Unit has been assigned, the allocations
prescribed by this Paragraph (c) shall be made with respect to such Unit
without regard to the assignment, except that in the year of assignment the
allocations prescribed by this Paragraph (e) shall, to the extent permitted
for federal income tax purposes, be allocated between the assignor and
assignee using the interim closing of the books method.
(3) The allocation for federal income tax purposes of Profit and Loss,
as set forth herein, is intended to allocate taxable profit and loss among
Partners generally in the ratio and to the extent that net profit and net
loss are allocated to such Partners under paragraph (b) hereof so as to
eliminate, to the extent possible, any disparity between a Partner's capital
account and his allocation account with respect to each Unit then
outstanding, consistent with the principles set forth in Section 704(c) of
the Internal Revenue Code of 1986, as amended (the "CODE").
(d) DEFICIT BALANCES. Notwithstanding anything herein to the contrary, in
the event that at the end of any Partnership taxable year any Partner's capital
account is adjusted for, or such Partner is allocated, or there is distributed
to such Partner any item described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) in an amount not reasonably expected at the
end of such year, and such treatment creates a deficit balance in such Partner's
capital account, then such Partner shall be allocated all items of income and
gain of the Partnership for such year and for all subsequent taxable years of
the Partnership until such deficit balance has been eliminated. In the event
that any such unexpected adjustments, allocations or distributions create a
deficit balance in the capital accounts of more than one Partner in any
Partnership taxable year, all items of income and gain of the Partnership for
such taxable year and all subsequent taxable years shall be allocated among all
such Partners in proportion to their respective deficit balances until such
deficit balances have been eliminated. Upon the dissolution and termination of
the Partnership, each General Partner must contribute an amount equal to any
deficit balance in his capital account.
(e) REDEMPTIONS AND DISTRIBUTIONS. No Limited Partner shall have priority
over any other Limited Partner either as to return of cash contributions or as
to profits, losses or distributions.
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(f) JUDGMENT OF GENERAL PARTNERS. Except with respect to matters as to
which the General Partners are granted discretion hereunder, the opinion of the
independent public accountants retained by the Partnership from time to time
shall be final and binding with respect to all computations and determinations
required to be made hereunder, PROVIDED, HOWEVER, that if, in the event that any
computation or determination involves a choice of different alternatives, the
accountants making such computations and determinations shall be permitted to
rely upon the judgment of the General Partners. Notwithstanding any provision
herein to the contrary, if in the judgment of the General Partners, the
allocations for federal income tax purposes (i) shall not satisfy the
requirements of Section 704(b) of the Code or Regulations promulgated
thereunder, (ii) shall violate any other provision of the Code or Regulations or
(iii) shall not properly take into account any expenditure by, or receipt of,
the Partnership, the General Partners shall adjust the allocations accordingly.
No adjustment made by the General Partners pursuant to this paragraph 8(f) shall
materially and adversely affect the amount of cash which would otherwise be
credited to a Limited Partner, without his consent.
9. EXPENSES AND LIMITATION THEREOF.
IDS Financial Services Inc. (the "SELLING AGENT") was paid $15 for each Unit
sold by it to members of the public in the initial offering of Units, but no
selling commission shall be charged in connection with any sales of Units to
representatives and employees of IDS Financial Services Inc. and certain of its
corporate affiliates. The General Partners initially advanced all other
organization and offering expenses of the Partnership, including legal,
accounting, auditing, filing, registration and recording fees, printing expenses
and escrow charges. The General Partners were subsequently reimbursed by the
Partnership for advancing the Partnership's organization and offering expenses
prior to the commencement of trading by the Partnership. However, the General
Partners were entitled to any of the payments called for by this paragraph 9
only if subscriptions for at least $1,000,000 were received and accepted by the
General Partners, subject to a maximum reimbursement of such expenses, when
added to the selling commissions, equal to 15% of the value of the Units sold
prior to any reduction for selling commissions. The terms and provisions of this
Section 9 that pertain to the Partnership's original offering to the public
shall be superseded by the terms and provisions of the prospectus given to
investors in connection with any subsequent offering.
The Partnership's assets will be deposited in the Partnership's account with
Cargill Investor Services, Inc., the Partnership's clearing broker. Cargill
Investor Services, Inc. will credit the Partnership at month-end with interest
income on 100% of the Partnership's average monthly Net Asset Value at a rate
equal to 90% of the average yield on the 90 day U.S. Treasury Bills issued
during that month.
The General Partners shall each receive as compensation for acting as
General Partners an annual administrative fee equal, in the case of IDS Futures
Corporation, to 1.45% of the Partnership's Net Asset Value on the first business
day of each Partnership fiscal year and, in the case of CIS Investments, Inc.,
to 0.3% of the Partnership's Net Asset Value on the first business day of each
Partnership fiscal year.
After December 31, 1992, the annual administrative fee payable to IDS
Futures Corporation will be 1.125% of the Partnership's beginning Net Asset
Value on the first business day of each Partnership fiscal year, and the annual
administrative fee payable to CIS Investments, Inc. will be 0.25% of the
Partnership's Net Asset Value on the first business day of each Partnership
fiscal year.
Each General Partner shall share in all Partnership income, gain, losses,
deductions and credits to the extent of its interest in the Partnership. The
Partnership will pay its periodic operating expenses relating to legal,
accounting, auditing, printing, filing and recording fees; management and
incentive fees; brokerage commissions and any incidental trading charges
(including all delivery, insurance, storage, service or other charges paid to
third parties in connection with the Partnership's trading); extraordinary
expenses, and any items for which payment may be made by the Partnership as set
forth in paragraph 21. All of such expenses shall be billed directly to the
Partnership. The aggregate annual expenses of every character paid or incurred
by the Partnership, including management and advisory fees based on the
Partnership's Net Asset
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Value but excluding commodity brokerage commissions, incentive fees, legal,
audit and extraordinary expenses calculated at least quarterly on a basis
consistently applied, shall be reasonable but in no event shall exceed 1/2 of 1%
of Net Asset Value per month. Appropriate reserves may be created, accrued and
charged against the Partnership's assets for contingent liabilities, if any, as
of the date any such contingent liability becomes known to the General Partners.
Additionally, the summation of the Administrative Fees and Administrative
Expenses, Brokerage Commissions and transaction fees and costs to be paid by the
Partnership, any Management Fee, any Advisory Fee, and any financial benefit
from interest income earned on Partnership assets in excess of the interest paid
to the Partnership shall total no more than 14% of the Partnership's Net Asset
Value available for trading and the Net Asset Value available for trading shall
not exceed 100% of the Partnership's Net Asset Value. The General Partners will
annually review the total of these expenses paid by the Partnership to ensure
that they do not exceed 14% of the Net Asset Value available for trading. Should
these expenses total more than 14% of the Net Asset Value available for trading,
the General Partners will pay and will not be reimbursed by the Partnership for
such excess.
10. LIMITED LIABILITY OF LIMITED PARTNERS.
Each Unit, when purchased in accordance with this Agreement, shall be fully
paid and nonassessable. Any provisions of this Agreement to the contrary
notwithstanding, no Limited Partner shall be liable for the Partnership
obligations in excess of the capital contributed by him and profits attributable
thereto, if any, and such other amounts as he may be liable for pursuant to the
Act. If the Partnership were unable otherwise to meet its obligations, the
Limited Partners might be required to repay to the Partnership for a period of
one year after the return of a Limited Partner's capital contribution or any
part thereof such returned capital contribution, including profits, if any, any
distributions and amounts received upon redemption, and interest thereon, but
only to the extent necessary to discharge the Partnership's liabilities to
creditors who extended credit to the Partnership during the period such capital
contribution was held by the Partnership.
11. RETURN OF LIMITED PARTNER'S CAPITAL CONTRIBUTION.
Except to the extent that a Limited Partner shall have the right to withdraw
capital in accordance with paragraph 16 below, no Limited Partner shall have any
right to demand the return of his capital contribution or any profits added
thereto, except upon termination and dissolution of the Partnership. In no event
shall a Limited Partner be entitled to demand or receive property other than
cash.
The General Partners shall not be personally liable for the return or
repayment of all or any portion of the capital or profits of any Partner (or
assignee), it being expressly agreed that any such return of capital or profits
made pursuant to this Agreement shall be made solely from the assets (which
shall not include any right of contribution from the General Partners) of the
Partnership.
CONDUCT OF THE PARTNERSHIP'S BUSINESS
12. TRADING POLICIES.
The Partnership shall adhere to the following trading policies:
(a) Funds will be invested only in futures contracts which are traded in
sufficient volume to permit, in the opinion of the Advisors to the
Partnership, ease of taking and liquidating positions. The Advisors may at
any time determine to expand or reduce the number of commodity interests
traded by that portion of assets under their respective control.
(b) No Advisor will acquire on behalf of the Partnership additional
positions in any commodity interest if such additional positions, when added
to the existing open positions initiated by the
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Advisor, would result in a net long or short position for that commodity
interest requiring as margin or premiums more than 15% of the Partnership
assets allocated to that Advisor's management. For purposes of implementing
this policy, soybeans will be treated as one commodity interest and soybean
oil and soybean meal will be treated together as one commodity interest.
(c) The Partnership will not normally be as highly leveraged as
permitted in the case of an investment by an individual. On the basis of
information supplied by the Advisors, the General Partners estimate that
between 20% and 60% of the Partnership's assets will normally be committed
as initial margin (although the percentage may be more or less than such
range from time to time). To reduce the Clearing Broker's risk, additional
restrictions on the leverage of the Partnership may be imposed by the
Clearing Broker without notice at any time.
(d) No Advisor will acquire on behalf of the Partnership additional
positions in any commodity interest if such additional positions, when added
to the existing open positions initiated by the Advisor, would result in
aggregate net long or short positions (including any forward contracts) for
all commodity interests requiring as margin or premiums more than 66 2/3% of
the Partnership's assets allocated to that Advisor's management.
(e) The Partnership will not generally enter into an open position for a
particular commodity during a delivery month for that commodity. However,
the Partnership may occasionally make or accept delivery of a commodity.
This may occur because an Advisor's trading strategy may, from time to time,
identify certain trends which occur in delivery months which can be taken
advantage of by the Partnership. The Partnership may take delivery of a
commodity and take a corresponding short position in the commodity by
selling futures contracts for the commodity. The Partnership will not engage
in cash commodity transactions, except as indicated above, unless the cash
position is hedged.
(f) The Partnership will not employ the trading technique, commonly
known as "pyramiding," in which the speculator uses unrealized profits on
existing positions as margin for the purchase or sale of additional
positions in the same or a related commodity interest. However, the Advisors
may take into account the Partnership's open trade equity in assets of the
Partnership in determining whether to acquire additional commodity futures
contracts on behalf of the Partnership.
(g) The Partnership will not purchase, sell or trade in securities or
write, purchase, sell or trade in options to purchase or sell securities,
commodity futures contracts or physical commodities unless such options have
been approved for trading on a designated contract market by the CFTC. The
Partnership may trade in foreign options if permitted under the Commodity
Exchange Act, as amended, and CFTC regulations, but only when and to the
extent authorized in writing by the General Partners to the Advisors. The
Partnership may trade in futures contracts on securities.
(h) The Partnership will not generally utilize borrowings, except for
short-term borrowings where the Partnership takes delivery of any cash
commodity or to the extent that Cargill Investor Services, Inc., as the
Partnership's clearing broker, obtains lines of credit for the trading of
forward contracts with banks. The Partnership will not make any loans.
(i) The Advisors may, from time to time, employ trading techniques such
as spreads or straddles on behalf of the Partnership. The term "spread" or
"straddle" describes a transaction involving the simultaneous buying and
selling of commodity interests dealing with the same or different commodity
interests but involving different delivery dates or markets, and in which
the trader expects to earn profits from a widening or narrowing movement of
the two prices of the commodity interests.
(j) The Partnership may trade in futures contracts on foreign currencies
through foreign and domestic commodity exchanges, including the
International Monetary Market Division of the Chicago Mercantile Exchange.
The Partnership may also establish positions in foreign currencies through
banks or in the interbank market. Forward contracts on foreign currencies
will be transacted only with
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banks having in excess of $100,000,000 in combined capital and surplus. No
specific limitation on the percentage or amount of forward contracts, if
any, engaged in by the Partnership has been imposed.
(k) The Partnership's assets will not be commingled with the assets of
any other person; funds used to satisfy margin requirements will not be
considered commingled.
(l) No Advisor to the Partnership will be permitted to engage in
churning the assets of the Partnership.
(m) No rebates or give ups may be paid to or received by the General
Partners, nor may the General Partners participate in any reciprocal
business arrangements which could circumvent this prohibition, but retention
of Cargill Investor Services, Inc. to act as the Partnership's clearing
broker and retention of American Express Financial Advisors Inc. to act as
the Partnership's introducing broker shall not be deemed to violate this
prohibition. The General Partners and their affiliates shall not establish
or participate in any reciprocal business arrangements which would
circumvent the restrictions against dealing with affiliates or other
interested parties, but this prohibition shall not be deemed to prevent the
Partnership from using the services of Cargill Investor Services, Inc. as
clearing broker or American Express Financial Advisors Inc. as introducing
broker.
Material changes in the trading policies described above must be approved by
a vote of a majority of the outstanding Units (not including Units held by the
General Partners or their corporate affiliates). A change in commodity interests
traded shall not be deemed to be a material change in the trading policies. If
the General Partners determine, in their sole discretion, using prudent business
judgment, that any trading instructions issued by the Partnership's Advisors
violate one of the Partnership's trading policies, the General Partners may
negate such trading instructions.
13. REPORTS AND STATEMENTS.
The General Partners, in their sole discretion, may cause the Partnership to
make, refrain from making or, once having made, revoke, the election referred to
in Section 754 of the Internal Revenue Code of 1986, as amended, and any similar
election provided by state or local law or any similar provision enacted in lieu
thereof. Each Limited Partner shall be furnished as of the end of each month and
as of the end of each fiscal year with (i) such reports (in such detail) as are
required to be given to Limited Partners by the rules of the Commodity Futures
Trading Commission, (ii) any other reports (in such detail) as are required by
any other governmental authority which has jurisdiction over the activities of
the Partnership; and (iii) any other reports or information which the General
Partners, in their discretion, determine to be necessary or appropriate. Each
Limited Partner shall be furnished an annual report containing audited financial
statements examined by an independent public accountant within 90 days after the
close of each fiscal year, setting forth, among other matters:
(a) The Net Asset Value of the Partnership and the Net Asset Value per
Unit at the end of the fiscal year or the total value of a Partner's
interest in the Partnership;
(b) the total amount of (i) management, administrative, and advisory
fees, (ii) brokerage commissions and fees for commodity and other investment
transactions during the fiscal year and (iii) all other expenses incurred or
accrued by the Partnership during the fiscal year;
(c) any change in the Partnership's commodity trading advisors or any
material change in the management of the Partnership's commodity trading
advisors;
(d) any other material business dealings between the Partnership, the
General Partners, the commodity trading advisors, its commodity broker or
any principal of any of the foregoing;
(e) the actual performance of the Partnership during prescribed time
periods;
(f) a statement of financial condition as of the close of the fiscal
year and preceding fiscal year;
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(g) statements of income (loss), changes in financial position and
changes in partners' equity during the fiscal year and the previous fiscal
year; and
(h) appropriate footnote disclosures and such further material
information as may be necessary to make the financial statements not
misleading.
In addition to the annual report, the General Partners will furnish each
Limited Partner, within 30 days of the end of each month, with an account
statement (unaudited) covering such month, which statement shall contain
generally the same type of information set forth in the items (a) - (e) above.
Each Limited Partner shall also be notified within seven business days from the
date of any decline in the Net Asset Value per Unit to less than 50% of the Net
Asset Value per Unit since the last business day on which the Partnership's Net
Asset Value was calculated, and shall at that time be provided with a
description of Limited Partners' voting rights hereunder. The General Partners
will also furnish each Limited Partner with tax information not later than March
15 of each year in a form which may be utilized in the preparation of income tax
returns.
14. PARTNERSHIP RECORDS.
Proper books of account and records relating to the Partnership's business
shall be made and kept by the General Partners as required by the Commodity
Exchange Act, as amended, and the rules and regulations promulgated thereunder.
Such books and records shall be kept on an accrual basis. Limited Partners or
their duly authorized representatives may inspect and copy (upon payment of
reasonable reproduction costs) such books and records during normal business
hours at the Partnership's principal office. Upon request, copies of such books
and records will be sent to any Limited Partner if reasonable reproduction and
distribution costs are paid by such Limited Partner, or as otherwise required by
the Commodity Exchange Act, as amended, and the rules and regulations
promulgated thereunder.
ADMISSION AND WITHDRAWAL OF PARTNERS
15. TRANSFERS OF UNITS.
Subject to compliance with the suitability standards of the Partnership,
federal and state securities laws and the rules of any other applicable
governmental authority, Units may be assigned, transferred or disposed of at the
election of a Limited Partner upon written notice to the General Partners. No
consent of the General Partners is necessary. No assignment, transfer or
disposition shall be effective against the Partnership or the General Partners
until the General Partners receive the written notice described below. The
assignee shall become a substituted Limited Partner in the Partnership only upon
the consent of the General Partners (which consent may be granted or withheld at
their sole discretion). An assignee who becomes a substituted limited partner
will be subject to all of the rights and liabilities of the assigning limited
partner. An assignment of Units will not be permitted if, in the judgment of the
General Partners, such assignment may cause the partnership to be taxable under
the Internal Revenue Code as a corporation or an association rather than as a
partnership.
The written notice of assignment shall specify the name and address of the
assignee, the date of assignment, shall include a statement by the assignee that
he agrees to give written notice to the General Partners upon any subsequent
assignment and shall be signed by the assignor (or his duly authorized
representative) and assignee. The General Partners may, in their sole
discretion, waive receipt of the above-described notice or waive any defect
therein. If an assignment, transfer or disposition occurs by reason of the death
of a Limited Partner or assignee, written notice of such assignment may be given
by the duly authorized representative of the estate of the Limited Partner or
assignee and shall be supported by such proof of legal authority and valid
assignment as may be reasonably requested by the General Partners. Neither the
estate nor any beneficiary of a deceased Limited Partner or assignee will have
any right to withdraw any capital or profits from the Partnership except by
redemption of Units. A substituted Limited
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Partner shall have all rights and powers and shall be subject to all the
restrictions and liabilities of his assignor; PROVIDED, HOWEVER, that a
substituted Limited Partner shall not be subject to those liabilities of which
he was ignorant at the time he became a substituted Limited Partner and which
could not be ascertained from the Certificate of Limited Partnership. Each
Limited Partner agrees that with the consent of the General Partners any
assignee may become a substituted Limited Partner without the further act or
consent of any Limited Partner. Each Limited Partner agrees that he has no right
to consent to and will not consent to any person or entity becoming a
substituted Limited Partner, except as set forth in the preceding sentence. If
the General Partners withhold consent, an assignee shall not become a
substituted Limited Partner and shall not have any of the rights of a Limited
Partner, except that the assignee shall be entitled to receive that share of
capital or profits and shall have that right of redemption to which his assignor
would otherwise have been entitled. An assigning Limited Partner shall remain
liable to the Partnership as provided in the Act, regardless of whether his
assignee becomes a substituted Limited Partner.
16. REDEMPTION OF UNITS.
No redemptions are permitted during the first six months after an investor
has been first admitted to the Partnership. Thereafter, a Limited Partner (or
any assignee of Units whom the General Partners have received written notice as
described in paragraph 15 above) may withdraw from the Partnership all or any
part of his capital contributions and undistributed profits, if any, effective
as of the last trading day of any month. Redemption amounts may be designated
either in terms of a number of Units or an amount in dollars. The minimum
redemption amount, whether requested in terms of dollars or Units, is the lesser
of $500 or the Net Asset Value of two Units, unless the Limited Partner is
redeeming his entire interest in the Partnership. Redemptions may be obtained by
a Limited Partner by requiring the Partnership to redeem any or all of his Units
based on Net Asset Value per Unit, calculated as of the close of business (as
determined by the General Partners) on the effective date of redemption;
PROVIDED, that (1) there remains property of the Partnership sufficient to pay
all liabilities, contingent or otherwise, of the Partnership (except any
liability to Partners on account of their capital contributions) and (2) the
General Partners shall have timely received a Request for Redemption as
hereinafter defined. As used herein, Request for Redemption shall mean a letter
in the form specified by the General Partners sent by a Limited Partner (or any
assignee of whom the General Partners have received written notice as described
in paragraph 15 above) and received by the General Partners ten days prior to
the end of the month of the requested redemption. A form of Request for
Redemption may be obtained by written request to the General Partners. The
General Partners may declare additional redemption dates upon notice to the
Limited Partners. Upon redemption, a Partner (or any assignee of whom the
General Partners have received written notice as described above) shall receive
from the Partnership for each Unit redeemed an amount based on the Net Asset
Value per Unit, less any amount owing by such Partner (and assignees, if any) to
the Partnership. If redemption is requested by an assignee, all amounts owed by
the Partner to whom such Units was sold by the Partnership as well as all
amounts owed by all assignees who owned such Unit shall be deducted from the
amount paid to such assignee upon redemption of his Units. An assignee shall not
be entitled to redemption until the General Partners have received written
notice (as described in Paragraph 15 above) of the assignment, transfer or
disposition under which the assignee claims an interest in the Units to be
redeemed and shall have no claim against the Partnership or the General Partners
with respect to distributions or amounts paid on redemption of Units prior to
the receipt by the General Partners or such notice. Profits and losses shall be
allocated to Partners in proportion to their respective units and to their
respective dates of redemption in accordance with Section 8(b) hereof. The
Partnership's commodity positions will be liquidated to the extent necessary to
effect redemptions. Redemptions are contingent upon the Partnership having
property sufficient to discharge its liabilities (contingent or otherwise) on
the effective date of redemption. If the General Partners determine that
permitting the number of redemptions sought would be detrimental to the tax
status of the Partnership, they may restrict the number of redemptions to be
permitted, and shall select by lot so many redemptions as will not, in their
judgment, impair the Partnership's tax status.
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After the 3-for-1 split of Units (as described in paragraph 17 hereof)
occurs, if the Net Asset Value per Unit (as defined in paragraph 4(a) hereof)
decreases below $125 (after adding back any distributions from the Partnership
to the Limited Partners), at the close of business on any trading day, the
Partnership will attempt to liquidate all open positions as expeditiously as
possible and suspend trading. Within ten business days after the date of any
such suspension of trading, the General Partners shall either give notice to the
Limited Partners of their intention to withdraw from the Partnership or shall
declare a special redemption date. Such special redemption date, if declared,
shall be a business day within 30 business days from the date of suspension of
trading by the Partnership, and the General Partners shall mail notice of such
date to each Limited Partner (and assignee of Units of whom they have notice
pursuant to paragraph 15 above) by first class mail, postage prepaid, not later
than ten business days prior to such special redemption date together with
instructions as to the procedure such Partner or assignee must follow to have
his Units redeemed on such date. Upon redemption pursuant to a special
redemption date, a Partner (or any assignee of whom the General Partners have
received written notice as described in paragraph 15 above) shall receive from
the Partnership for each Unit redeemed an amount equal to the Net Asset Value
per Unit determined as of the close of business on such special redemption date
less any amount owing by such Partner (and assignees, if any) to the
Partnership. If redemption is requested by an assignee, all amounts owed by the
Partner to whom such Unit was sold by the Partnership as well as all amounts
owed by all assignees who owned such Unit shall be deducted from the amount paid
to such assignee upon redemption of his Unit. An assignee shall not be entitled
to redemption until the General Partners have received written notice (as
described in paragraph 15 above) of the assignment, transfer or disposition
under which the assignee claims an interest in the Units to be redeemed. If,
after such special redemption date, the Partnership's Net Asset value is at
least $500,000, the Partnership will resume trading, unless the General Partners
elect to withdraw from the Partnership.
Payment will be made within ten business days after the effective date of
redemption or special date of redemption, except that under special
circumstances, including but not limited to inability to liquidate commodity
positions as of the effective date of redemption (including any special
redemption date) or default or delay in payments due the Partnership from
commodity brokers, banks or other persons, the Partnership may in turn delay
payment to Partners requesting redemption of Units of the proportionate part of
the Net Asset Value of the Units represented by the sums which are the subject
of such default or delay.
The General Partners may require any subscriber which is an employee benefit
plan subject to Title I of the Employee Retirement Income Security Act of 1974
to withdraw in whole or in part from the Partnership through redemption of its
Units if such withdrawal, in the General Partners' sole good faith judgment, is
necessary to avoid violation by the Partnership and/or Limited Partners which
are employee benefit plans of applicable provisions of such statute.
17. OFFERING OF UNITS OF LIMITED PARTNERSHIP INTEREST.
The General Partners on behalf of the Partnership shall (i) cause to be
filed a registration statement or registration statements, and such amendments
thereto as the General Partners deem advisable, with the Securities and Exchange
Commission for the registration and public offering of Units, (ii) qualify Units
for sale under the securities laws of such States of the United States or other
jurisdictions as the General Partners shall deem advisable and (iii) take such
action with respect to the matters described in (i) and (ii) as it shall deem
advisable or necessary. The expenses of the Partnership in connection with such
filings, qualifications and offerings, other than selling commissions, shall be
advanced by the General Partners, but the Partnership will subsequently
reimburse the General Partners for such expenses out of the proceeds of the
offering. The terms and provisions of this Section 17 that pertain to the
Partnership's original offering to the public shall be superseded by the terms
and provisions of the prospectus given to investors in connection with any
subsequent offering.
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The General Partners are authorized to take such action and make such
arrangements for the sale of the Units as they deem appropriate, including
without limitation (i) the execution on behalf of the Partnership of a selling
agreement appointing American Express Financial Advisors Inc. as agent of the
Partnership for the offer and sale of the Units during the offering period as
contemplated in a prospectus and appointing American Express Financial Advisors
Inc. as the Fund's introducing broker, and (ii) the indemnification of American
Express Financial Advisors Inc. and John W. Henry & Company, Inc. and Sabre Fund
Management Limited (the Partnership's initial Advisors) and each person
controlling them against certain liabilities incurred in connection with the
issuance and sale of the Units. The General Partners will keep copies of all
subscription agreements (including suitability records) signed by Limited
Partners in connection with public offerings of Units for a period of six years.
If the Partnership shall not have obtained during the period of its initial
public offering of the Units subscriptions representing an aggregate offering
price of $1,000,000 this Agreement shall terminate, and all capital contributed
to the Partnership shall be promptly returned to the contributors thereof. In
addition, any interest which shall have accrued (from the time of deposit of
each subscription to the time such funds are released by the Escrow Agent
referred to below) shall be promptly distributed to such contributors. The
General Partners and officers, directors, shareholders and employees of Cargill
Investor Services, Inc. and American Express Financial Advisors Inc., may
subscribe for Units and any such subscriptions shall be included in determining
whether the minimum subscription requirement is met. All initial subscriptions
will be held in escrow by the Marquette Bank Minneapolis, N.A. (the "ESCROW
AGENT"). The Partnership shall not commence trading operations unless and until
the General Partners have accepted subscriptions for Units representing an
aggregate offering price of $1,000,000 pursuant to the Partnership's initial
public offering of Units. The allocable portion of any interest earned on each
subscription shall be distributed to each subscriber. The General Partners may
terminate any offering of Units at any time. The aggregate of all capital
contributions shall be available to the Partnership to carry on its business,
and no interest shall be paid by the Partnership on any such contributions after
such contributions are released by the Escrow Agent.
All Units subscribed for upon receipt of a check or draft of the subscriber
are issued subject to the collection of the funds represented by such check or
draft. In the event a check or draft of a subscriber for Units representing
payment for Units is returned unpaid, the Partnership shall cancel the Units
issued to such subscriber represented by such returned check or draft and the
General Partners shall file an amendment, if required, to the Partnership's
Certificate of Limited Partnership reflecting such cancellation. Any losses or
profits sustained by the Partnership in connection with the Partnership's
commodity trading allocable to such canceled Units shall be deemed an increase
or decrease in Net Asset Value and allocated among the remaining partners as
described in paragraph 8 above. Each subscriber agrees to reimburse the
Partnership for any expenses or losses incurred in connection with any such
cancellation of Units issued to him.
As of the close of business on February 28, 1995, regardless of whether
Units are then being offered, each Unit shall be divided into three Units, each
of which shall have Net Asset Value per Unit equal to one-third the Net Asset
Value per Unit on that date prior to such division. The resulting Net Asset
Value per Unit will constitute the Net Asset Value per Unit thereafter.
18. ADMISSION OF ADDITIONAL PARTNERS.
At any time the General Partners may, in their sole discretion and subject
to applicable law, admit additional Limited Partners, each of which newly
admitted Limited Partner shall contribute cash to the capital of the Partnership
for each Unit of Limited Partnership Interest to be acquired in at least the
minimum amount specified in paragraph 7. Pursuant to paragraph 15, the General
Partners may consent to and admit any assignee of Units as a substituted Limited
Partner. There is no limit on the total number of Units which may be
outstanding.
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19. POWER OF ATTORNEY.
Each Limited Partner, by the execution of this Agreement, whether by
counterpart or separate instrument, does irrevocably constitute and appoint the
General Partners his true and lawful attorneys and agents, with full power of
substitution and with full power and authority in his name, place and stead, to
admit additional Limited Partners, to file, prosecute, defend, settle or
compromise any and all actions at law or suits in equity for or on behalf of the
Partnership with respect to any claim, demand or liability asserted or
threatened by or against the Partnership, and to execute, acknowledge, swear to,
deliver, file and record in the appropriate public offices and publish (i) all
certificates and other instruments (including counterparts of this Agreement)
which the General Partners deem appropriate to qualify or continue the
Partnership as a limited partnership in the jurisdictions in which the
Partnership may conduct business or which may be required to be filed by the
Partnership under the laws of any jurisdiction; (ii) all instruments which the
General Partners deem appropriate to reflect a change or modification of the
Partnership in accordance with the terms of this Agreement relating to the
Partnership or any amendment thereto; (iii) all conveyances and other
instruments which the General Partners deem appropriate to reflect the
dissolution and termination of the Partnership; and (iv) certificates of assumed
name. The Power of Attorney granted herein shall be irrevocable and deemed to be
a power coupled with an interest and shall survive the incapacity or death of a
Limited Partner. Each Limited Partner hereby agrees to be bound by any
representation made by the General Partners and by any successor thereto, acting
in good faith pursuant to such Power of Attorney. Each Limited Partner agrees to
execute a special Power of Attorney on a document separate from this Agreement.
In the event of any conflict between this Agreement and any instruments filed by
the General Partners pursuant to the Power of Attorney granted in this paragraph
19, this Agreement shall control.
20. WITHDRAWAL OF A PARTNER.
The Partnership shall terminate and be dissolved upon the withdrawal of the
General Partners. A General Partner may withdraw from the Partnership at any
time on 120 days' written notice by first class mail, postage prepaid to each
Limited Partner. If the Limited Partners or the remaining General Partner elect
to continue the Partnership, the withdrawing General Partner shall pay all
expenses incurred as a result of its withdrawal. The withdrawing General Partner
shall cease to be a General Partner as of the day of such withdrawal, and shall
then receive a return of its capital plus any portion of compensation as a
General Partner accrued and owing to it at such time.
If any of the events specified below occurs in regard to a General Partner,
the General Partner shall be considered to have submitted a notice of withdrawal
from the Partnership as of the date of the occurrence of such event:
(a) any levy or attachment by a creditor on or by any person claiming a
lien on any material interest of the General Partner if such levy or
attachment is not cured within 10 days;
(b) any assignment by the General Partner of any interest for the
benefit of creditors;
(c) any voluntary filing by the General Partner, or filing by another
against the General Partner, of any petition for adjudication of such
General Partner as insolvent or bankrupt;
(d) any use of any insolvency or similar act by the General Partner;
(e) any filing by the General Partner of a petition for reorganization
or arrangement under any provision of state or federal bankruptcy laws then
in force and effect;
(f) any appointment in any insolvency proceeding of any receiver or
trustee for the General Partner or any material portion of the General
Partner's property;
(g) any adjudgment of bankruptcy or insolvency, or entry of an order for
relief in any bankruptcy or insolvency proceeding; and
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(h) the filing of any petition for, or consent to, any of the foregoing
by the General Partner or the filing of an answer or other pleading
admitting or failing to contest material allegations contained in a petition
filed against it in any proceeding of such nature.
Unless written consent from all Limited Partners is obtained permitting a
General Partner to continue to act in that capacity, a General Partner shall be
considered to have submitted a notice of withdrawal if 120 days after the
commencement of any proceeding against it seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar relief under any
statute, law or regulation such proceeding has not been dismissed, or if within
90 days after the appointment without its consent or acquiescence of a trustee,
receiver or liquidator of the General Partner or all or any substantial part of
its properties, the appointment is not vacated or stayed, or within 90 days
after the expiration of any such stay, the appointment is not vacated.
A Limited Partner will cease to be a Partner upon redemption or assignment
of all of his Units. The death, legal disability, withdrawal, insolvency or
dissolution of a Limited Partner shall not terminate or dissolve the Partnership
and such Limited Partner, his estate, custodian or personal representative shall
have no right to withdraw or value such Limited Partner's interest in the
Partnership except as provided in paragraph 16 above. Each Limited Partner (and
any assignee of a Limited Partner's interest) expressly agrees that, in the
event of his death, he waives on behalf of himself and his estate and any person
interested therein to waive, the furnishing of any inventory, accounting or
appraisal of the assets of the Partnership and any right to an audit of the
Partnership other than those expressly granted or established in paragraph 13.
INDEMNIFICATION
21. INDEMNIFICATION.
(a) A General Partner and its Affiliates, shall bear no liability to the
Partnership or to any Limited Partner for any loss suffered by the Partnership
which arises out of any action or inaction of the General Partner or its
Affiliates if such action or inaction did not constitute negligence or
misconduct of the General Partner or its Affiliate and if the General Partner or
its Affiliate, in good faith, determined that its course of conduct for which
exculpation is sought was in the best interest of the Partnership, and if the
General Partner or its Affiliate was acting on behalf of or performing services
for the Partnership and wholly within the scope of authority of the General
Partner.
(b) A General Partner and its Affiliates, may be indemnified by the
Partnership, but only out of the assets of the Partnership and not from the
assets of the Limited Partners, against expenses, including attorney's fees,
judgments and amounts paid in settlement, actually and reasonably incurred by
the General Partner or such Affiliates in connection with the Partnership
PROVIDED that such expense were not the result of negligence or misconduct on
the part of the General Partner or its Affiliate, the General Partner or its
Affiliate determined in good faith that its course of conduct was in the best
interests of the Partnership, and the General Partner or its Affiliate was
acting on behalf of or performing services for the Partnership and wholly within
the scope of authority of the General Partner. The Partnership shall not advance
Partnership funds to a General Partner or any of its Affiliates for legal
expenses and other costs incurred as a result of any legal action brought
against the General Partner or its Affiliate.
(c) Notwithstanding subparagraph (a) and subparagraph (b) of this paragraph
21, the General Partner and its Affiliates and any person acting as a
broker-dealer shall not be indemnified for any losses, liabilities or expenses
arising from or out of an alleged violation of federal or state securities laws
unless (1) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, or
(2) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (3) a court of
competent
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jurisdiction approves a settlement of the claims against a particular indemnitee
and finds that indemnification of the settlement and related costs should be
made.
(d) In any claim for indemnification for federal or state securities law
violations, the party seeking indemnification shall place before the court the
positions of the Securities and Exchange Commission and the Massachusetts
Securities Division, and the position of any state regulatory authority where
partnership interests were offered or sold with respect to the issue of
indemnification for securities law violations.
(e) For purposes of this Paragraph 21 an Affiliate is: any person owning or
controlling, directly or indirectly, either General Partner or who is under
common control with a General Partner, and any officer or director of either
General Partner, and each affiliate may be entitled to exculpation or
indemnification under this Paragraph 21 in circumstances in which such Affiliate
is being sued for an act of such General Partner solely because of its
relationship to the General Partner, or in circumstances in which such person is
actually performing the duties of the General Partner in regard to the
Partnership.
(f) The Partnership shall not incur the cost of that portion of any
liability insurance which may insure either General Partner and its Affiliates
who are performing services on behalf of the Partnership for any liability as to
which such person is prohibited from being indemnified hereunder.
GOVERNANCE OF THE PARTNERSHIP
22. AMENDMENTS AND MEETINGS.
(a) AMENDMENTS PROPOSED BY THE GENERAL PARTNERS. If at any time during the
term of the Partnership the General Partners shall deem it necessary or
desirable to amend this Agreement, such amendment shall be effective only if
embodied in an instrument signed by the General Partners and by Limited Partners
owning more than fifty percent (50%) of the Units then owned by the Limited
Partners (not including any Units held by the General Partners or their
corporate affiliates) and if made in accordance with and to the extent
permissible under the Act. For purposes of obtaining a written vote, the General
Partners may require response within a specified time with respect to amendments
proposed by them. Any such supplemental or amendatory agreement shall be adhered
to and have the same effect from and after its effective date as if the same had
originally been embodied in and formed a part of this Agreement; PROVIDED,
HOWEVER, that no such supplemental or amendatory agreement shall change or alter
this paragraph 22, extend the term of the Partnership, change the Partnership to
a general partnership, change the liability or reduce the capital account of any
Partner or modify the percentage or profits, losses or distributions to which
any Partner is entitled. In addition, reduction of the capital account of any
assignee or modification of the percentage of profits, losses or distributions
to which an assignee is entitled hereunder shall not be effected by amendment or
supplement to this Agreement without such assignee's consent.
The General Partners may amend this Agreement without the consent of the
Limited Partners in order: (i) to clarify any inaccuracy, ambiguity or reconcile
any inconsistency; (ii) to add to the representations, duties or obligations of
the General Partners or surrender any right or power of the General Partners for
the benefit of the Limited Partners; (iii) to delete or add any provision of
this Agreement required to be deleted or added by the staff of the Securities
and Exchange Commission or other federal agency or any state securities official
or similar official or in order to opt to be governed by any amendment or
successor statute to the Act; (iv) change the name of the Partnership or the
location of the principal place of business of the Partnership; (v) change this
Agreement in any manner that is appropriate or necessary to qualify or maintain
the qualification of the Partnership as a limited partnership or a partnership
in which the Limited Partners have limited liability under the laws of any state
or that is appropriate or necessary to ensure that the Partnership will not be
treated as an association taxable as a corporation for federal income tax
purposes; (vi) change this Agreement in any manner that does not adversely
affect the Limited Partners in any material respect or that is required or
contemplated by other provisions of this Agreement; (vii) make
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<PAGE>
any amendment that is appropriate or necessary, in the opinion of the General
Partners, to prevent the Partnership or the General Partners or their directors
or officers from in any manner being subjected to the provisions of the
Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940,
as amended, or "plan asset" regulations adopted under ERISA, regardless of
whether substantially similar to plan asset regulations currently applied or
proposed by the United States Department of Labor; or (viii) make any other
amendment similar to the foregoing; PROVIDED, that no such amendment will be
adverse to the interests of the Limited Partners.
(b) MEETINGS; AMENDMENTS PROPOSED BY THE LIMITED PARTNERS. Upon payment of
the costs of reproduction and mailing, any Limited Partner upon written request
addressed to the General Partners shall be entitled to obtain from the General
Partners a list of the names and addresses of record of all Limited Partners and
the number of Units held by each; PROVIDED, HOWEVER, that any Limited Partner
requesting such list shall give written assurance that the list will not in any
event be used for commercial purposes. In addition, such list will be made
available at the Partnership's principal office for the review of any Limited
Partner or his representative at reasonable times. Upon receipt of a written
request, signed by Limited Partners owning at least 10% of the Units then owned
by Limited Partners, that a meeting of the Partnership be called to vote upon
any matter which the Limited Partners may vote upon pursuant to this Agreement,
the General Partners shall, by written notice to each Limited Partner of record
delivered in person or by certified mail, within fifteen days after such
receipt, call a meeting of the Partnership. Such meeting shall be held at least
thirty but not more than fifty days after the mailing of such notice, and such
notice shall specify the date, a reasonable place and time, and the purpose of
such meeting. Partners may vote in person or by proxy at any such meeting. At
any meeting called pursuant to this subparagraph 22(b), upon affirmative vote
(which may be in person or by proxy) of Limited Partners owning more than 50% of
the Units then owned by the Limited Partners (not including any Units held by
the General Partners or their corporate affiliates), the following actions may
be taken: (i) this Amended and Restated Limited Partnership Agreement may be
amended in accordance with and only to the extent permissible under the Act;
PROVIDED, HOWEVER, that no amendment shall alter this paragraph 22, extend the
term of the Partnership, change the Partnership to a general partnership, change
the liability or reduce the capital account of any Partner or modify the
percentage of profits, losses or distributions to which any Partner is entitled
(in addition, reduction of the capital account of any assignee or modification
of the percentage of profits, losses or distributions to which an assignee is
entitled hereunder shall not be effected by amendment or supplement to this
Agreement without such assignee's consent); (ii) the Partnership may be
dissolved; (iii) the General Partners may be removed; (iv) a successor (or
successors) general partner may be elected as long as the Partnership continues
to have one General Partner, PROVIDED that the election of a general partner at
a time when there is no remaining General Partner, after an event of withdrawal
or removal of the last remaining General Partner, may only be conducted in
accordance with the Act; (v) a new general partner or general partners may be
elected if the General Partners elect to withdraw from the Partnership,
PROVIDED, that the appointment of the new general partner(s) is effective as of
the date of any such withdrawal; (vi) any contracts with the General Partners or
any of their affiliates may be terminated on sixty days notice without penalty;
and (vii) the sale of all the assets of the Partnership may be approved.
(c) PROXY RULES. In the event the Partnership is required to comply with
Regulation 14A under the Securities Exchange Act of 1934 (the "PROXY RULES") or
any successor regulation, the foregoing time periods specified in this paragraph
22 may be altered by the General Partners so as not to conflict therewith.
23. GOVERNING LAWS.
The validity and construction of this Agreement shall be governed by and
construed by the laws of the State of Delaware without regard to principles of
conflicts of law; PROVIDED, that the foregoing choice of law shall not restrict
the application of any state's securities laws to the sale of Units to its
residents or within such state.
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<PAGE>
24. MISCELLANEOUS.
(a) NOTICES. All notices or other communications required or permitted to
be given pursuant to this Agreement shall be in writing and shall be considered
as properly given or made if mailed postage prepaid, or if telegraphed, by
prepaid telegram, and addressed, if to IDS Managed Futures, L.P. c/o CIS
Investments, Inc., and IDS Futures Corporation, 233 South Wacker Drive, Suite
2300, Chicago, Illinois 60606, and if to a Limited Partner, to the address set
forth above such Limited Partner's signature on the signature page annexed
hereto. Any Limited Partner may change his address by giving notice in writing
to the General Partners stating his new address, and the General Partners may
change their address by giving such notice to all Partners. Commencing on the
tenth day after the giving of such notice by any Limited Partner or the General
Partners, such newly designated address shall be such Partner's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
(b) BINDING EFFECT. This Agreement shall inure to and be binding upon all
of the parties, their successors and assigns, custodians, estates, heirs and
personal representatives. For purposes of determining the rights of any Partner
or assignee hereunder, the Partnership and the General Partners may rely upon
the Partnership records as to who are Partners and assignees and all Partners
and assignees agree that their rights shall be determined and that they shall be
bound thereby.
(c) HEADINGS. Paragraph headings in no way define, extend or describe the
scope of this Agreement or the effect of any of its provisions.
(d) COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original but all of which shall constitute one
instrument.
<TABLE>
<CAPTION>
<S> <C>
CIS INVESTMENTS, INC. FOR THE LIMITED PARTNERS:
General Partner
CIS INVESTMENTS, INC.
As Attorney-in-Fact
By /s/ HAL T. HANSEN
President
By /s/ HAL T. HANSEN
President
IDS FUTURES CORPORATION
General Partner
IDS FUTURES CORPORATION
As Attorney-in-Fact
By /s/ JANIS E. MILLER
President
By /s/ JANIS E. MILLER
President
</TABLE>
A-21
<PAGE>
EXHIBIT B
IDS MANAGED FUTURES, L.P.
SUBSCRIPTION REQUIREMENTS
The purchase of Units of Limited Partnership Interest in IDS Managed
Futures, L.P. may be made only by persons who have (i) a net worth of at least
$150,000 (exclusive of home, furnishings and automobiles) or (ii) a net worth
(similarly calculated) of at least $45,000 and a minimum annual gross income of
at least $45,000. Residents of certain states in which Units may be qualified
for sale may be subject to greater net worth (similarly calculated), annual
income and other financial requirements. See "SUITABILITY REQUIREMENTS," below.
Purchaser represents (for Purchaser, and if Purchaser is an entity, on
behalf of and with respect to each of Purchaser's shareholders, partners or
beneficiaries) by executing and delivering the Partnership's Subscription
Agreement and Power of Attorney, that he/she meets the financial requirements
applicable to his/her state of residence and that he/she is of legal age to
execute this Agreement. If Purchaser no longer meets such financial
requirements, or if any other information provided in connection with this
subscription becomes inaccurate, prior to his/her admission to the Partnership
as a limited partner, he/she will immediately notify the General Partners.
Purchaser is urged to review carefully the responses, representations and
warranties he/she is making herein and in the Subscription Agreement and Power
of Attorney. Purchaser agrees that this subscription may be accepted or rejected
in whole or in part by CIS Investments, Inc. and IDS Futures Corporation (the
"GENERAL PARTNERS") in their sole and absolute discretion. Purchaser certifies
that he/she has received a Prospectus of the Partnership dated August , 1997.
Purchaser acknowledges that the representations and warranties herein are made
through the Partnership's Subscription Agreement and Power of Attorney to, and
may be relied upon by, the Partnership, the General Partners, and the Selling
Agent.
Purchaser should read the following notices: (a) he/she can lose his/her
entire investment in the Partnership; (b) there is no assurance that the
Partnership will have results similar to the past performance of the Partnership
(see the caption "PAST PERFORMANCE OF THE FUND" in the Prospectus); (c) CIS
Investments, Inc., a General Partner, is a wholly-owned subsidiary of Cargill
Investor Services, Inc., the Partnership's clearing broker, and IDS Futures
Corporation, a General Partner, is an affiliate of American Express Financial
Advisors, Inc., the Partnership's selling agent and introducing broker, and
conflicts of interest therefore exist (see the captions "CONFLICTS OF INTEREST,"
and "FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS" in the Prospectus); (d)
Cargill Investor Services, Inc., the Partnership's clearing broker, and American
Express Financial Advisors Inc., the Partnership's introducing broker, will
receive, pursuant to the brokerage agreement described in the Prospectus,
substantial brokerage commissions from the Partnership which will exceed the
lowest such rates which are otherwise available (see the caption "CONFLICTS OF
INTEREST" in the Prospectus); (e) the redemption of Units is restricted (see the
caption "REDEMPTIONS" in the Prospectus), he/she will have no right to demand
distributions from the Partnership and the transferability of Units is also
restricted; (f) investment in the Partnership and trading in commodity interests
have certain special federal income tax aspects and that he/she should seek such
advice from qualified sources (E.G., attorneys or accountants) as he/she deems
necessary; (g) the data in the tables under "PAST PERFORMANCE OF THE FUND" and
"PAST PERFORMANCE OF JWH AND WELTON" in the Prospectus should be read only in
conjunction with the Notes accompanying such tables, and that such data should
not be interpreted to mean that the Partnership will have performance results
similar to those reported in the future or that it will realize any profits; and
(h) the Partnership has entered into advisory agreements with John W. Henry &
Company, Inc., Welton Investment Corporation and Sabre Fund Management Limited
as the Partnership's commodity trading advisors and with American Express
Financial Advisors Inc. and Cargill Investor Services, Inc. as the Partnership's
introducing and clearing brokers, respectively.
Purchaser also agrees by delivering the Partnership's Subscription Agreement
and Power of Attorney that he/she shall become a limited partner, and he/she
hereby agrees to each and every term of the Limited Partnership Agreement as if
his/her signature were subscribed thereto. The General Partners, as the
<PAGE>
Purchaser's Attorneys-in-Fact, may subscribe his/her name to the Certificate of
Limited Partnership and the Limited Partnership Agreement.
SPECIAL REQUIREMENTS FOR EMPLOYEE PENSION PLANS OR INDIVIDUAL RETIREMENT
ACCOUNTS
In addition to all of the foregoing representations, acknowledgments, and
agreements, any subscriber to the Partnership which is a trust or other entity
established to fund an employee benefit plan subject to the fiduciary provisions
of Title I of the Employee Retirement Income Security Act of 1974 ("ERISA") or
of Section 4975 of the Internal Revenue Code ("CODE") also makes through the
Partnership's Subscription Agreement and Power of Attorney the representations
and agreements enumerated below.
Plans subject to ERISA generally include all funded retirement or deferred
compensation plans, whether or not qualified for tax purposes (including Keogh
plans and IRAs), and certain types of funded fringe benefit plans (such as
VEBAs). All employee benefit plans will be assumed to be subject to ERISA unless
the plan demonstrates to the satisfaction of CIS Investments, Inc. and IDS
Futures Corporation, the General Partners, that it is exempt.
For all such entities, the Subscription Agreement and Power of Attorney must
be executed by a "named fiduciary" of the plan (as defined by Section 402(a)(2)
of ERISA), who has the authority under the terms of the plan to authorize an
investment in IDS Managed Futures, L.P. Generally, the named fiduciary must be a
trustee of the trust, unless authority to direct trust investments has been
delegated to another named fiduciary or to an investment manager pursuant to
Section 403(a) of ERISA. Execution of the Subscription Agreement and Power of
Attorney by the employer maintaining the plan is not sufficient unless such
employer is also a named fiduciary.
The person executing the Fund's Subscription Agreement and Power of Attorney
on behalf of a subscribing plan (the "PLAN"), in consideration of the Plan being
permitted to acquire interests in IDS Managed Futures, L.P., a Delaware limited
partnership, agrees by executing its Subscription Agreement and Power of
Attorney to the following terms and conditions, which terms and conditions shall
be treated as though incorporated in the Subscription Agreement and Power of
Attorney of the Plan of such date herewith, and shall be in addition to and
shall not supersede the terms and conditions set forth therein.
(1) The undersigned hereby represents and warrants as follows:
(a) The undersigned is either a named fiduciary of the Plan (as defined
in Section 402 (a)(2) of ERISA) or an investment manager of the Plan (as
defined in Section 3(38) of ERISA) with full authority under the terms of
the Plan and full authority from all Plan beneficiaries, if required, to
cause the Plan to invest in the Partnership, to execute the Subscription
Agreement and Power of Attorney in favor of CIS Investments, Inc. and IDS
Futures Corporation, as general partners of IDS Managed Futures, L.P. Such
investment has been duly approved by all other named fiduciaries whose
approval is required, if any, and is not prohibited or restricted by any
provisions of the Plan or of any related instrument.
(b) As a named fiduciary or investment manager, the undersigned has
independently determined that the investment by the Plan in the Partnership
satisfies all requirements of Section 404(a)(1) of ERISA, specifically
including the "prudent man" standard of Section 404(a)(1)(B) and the
"diversification" standard of Section 404(a)(1)(C), and will not be
prohibited under any of the provisions of Section 406 of ERISA or of Section
4975(c)(1) of the Code. The undersigned has requested and received all
information from the General Partners which it, after due inquiry,
considered relevant to such determinations. In determining that the
requirements of Section 404(a)(1) are satisfied, the undersigned has taken
into account the fact that the Partnership was not specifically designed as
an investment vehicle for employee benefit plans, and will not be
administered with the requirements of such plans in mind. Specifically, the
undersigned has taken into account the
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facts that (i) there is a substantial risk of a complete loss of the Plan's
investment; and (ii) an investment in the Partnership will be illiquid,
except for certain redemption rights, and funds so invested will not be
readily available for the payment of employee benefits. Taking these
factors, and all other factors relating to the Partnership into account, the
undersigned has concluded that investment in the Partnership constitutes an
appropriate part of the Plan's overall investment program.
(2) The undersigned hereby agrees that he/she or it will notify the General
Partners, in writing, of (a) any termination, substantial contraction, merger or
consolidation of the Plan, or transfer of its assets to any other plan, (b) any
amendment to the Plan or any related instrument which materially affects the
investments of the Plan or the authority of any named fiduciary or investment
manager to authorize Plan investments; and (c) any alteration in the identity of
any named fiduciary or investment manager, including itself, who has the
authority to approve Plan investments.
(3) It is the understanding of the Plan and the undersigned that the General
Partners will not, as a result of the Plan's investment in the Partnership, be
considered fiduciaries of the Plan as defined in Section 3(21) of ERISA. If,
however, a General Partner or any officer, employee, or agent of the General
Partners is ever held to be a fiduciary, it is agreed that, in accordance with
the provisions of Sections 402(c)(1), 405(b)(1), 405(c)(2), and 405(d) of ERISA,
that the fiduciary responsibilities of such person shall be limited to his or
its duties in administering the business of the Partnership, and he, she or it
shall not be responsible for any other duties with respect to the Plan
(specifically including evaluating the initial or continued appropriateness of
the Plan's investment in the Partnership under Section 404(a)(1) of ERISA). The
undersigned hereby further agrees that he, she or it will indemnify and hold
harmless any such person against any liability asserted against such person
under Section 409 of ERISA or any tax assessed against such person under Section
4975 of the Code, including costs and attorneys' fees reasonably incurred in
defending against such liability, and any additional tax imposed on such person
by reason of payments made pursuant to such indemnity.
(4) It is further understood by the Plan and the undersigned that, anything
else contained in the Limited Partnership Agreement to the contrary
notwithstanding, if at any time the General Partners, in their sole discretion,
determine that the continued participation by the Plan in the Partnership would
cause a violation of any of the provisions of Section 406 of ERISA or Section
4975 of the Code, the General Partners may require the Plan to withdraw in whole
or part from the Partnership in accordance with the provisions of Section 16 of
the Fund's Limited Partnership Agreement. Nothing herein shall be construed to
impose any responsibility on the General Partners to determine whether an
investment in the Partnership satisfies the requirements of Section 404(a)(1) of
ERISA, or to relieve the undersigned or any other fiduciary of responsibility
for preventing the Plan from violating the provisions of Section 406 of ERISA or
Section 4975 of the Code.
(5) CIS Investments, Inc., IDS Futures Corporation, Cargill Investor
Services, Inc., American Express Financial Advisors Inc., John W. Henry &
Company, Inc. and their respective affiliates do not render any investment
advice on a regular basis pursuant to a mutual understanding, arrangement, or
agreement, written or otherwise, between the Plan and any of such parties who
will act in regard to the Partnership and none of such parties renders any
investment advice to the Plan which furnishes the primary basis for investment
decisions with respect to assets of the Plan.
SUITABILITY REQUIREMENTS
The states listed below require that residents of those states must meet
higher minimum suitability requirements and/or higher minimum investments than
those established by the Fund of a net worth of at least $45,000 (exclusive of
home, furnishings and automobiles) plus a minimum annual gross income of at
least $45,000 or, in the alternative, a net worth of $150,000 (exclusive of
home, furnishings and automobiles) and a minimum investment of $1,000.
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<PAGE>
Massachusetts, Minnesota, Missouri and North Carolina require that residents
of those states must meet minimum suitability requirements of a net worth
(excluding home, furnishings and automobiles) of at least $60,000 plus a gross
annual income of at least $60,000 or, in the alternative, a net worth of at
least $225,000 (exclusive of home, furnishings and automobiles).
California: Net worth of at least $100,000 (exclusive of home, furnishings
and automobile) plus an annual gross income of at least $65,000 or, in the
alternative, a net worth of at least $250,000.
Iowa: Net worth of at least $100,000 (exclusive of home, furnishings and
automobile) plus an annual taxable income of at least $75,000 or, in the
alternative, a net worth of at least $350,000.
Michigan: Net worth of at least $60,000 (exclusive of home, furnishings,
automobiles and investment in the Fund) plus a gross annual income of at least
$60,000 or, in the alternative, a net worth (as defined above) of at least
$225,000. Additionally, a subscriber's investment in the Fund may not exceed 10%
of his or her net worth (exclusive of home, home furnishings, automobiles and
investment in the Fund).
Pennsylvania: Net worth of at least $275,000 (exclusive of home, furnishings
and automobiles). Additionally, if subscriber's net worth, as described above,
is less than $1,000,000, then subscriber's investment in the Fund may not exceed
10% of his/her net worth.
Tennessee: A gross income of at least $65,000 in the most recent past tax
year and in the current tax year and a net worth of $65,000 (exclusive of home,
furnishings and automobile) or, in the alternative, a net worth (exclusive of
home, furnishings and automobile) of at least $250,000.
Oregon and Texas: Net worth of at least $60,000 (exclusive of home, home
furnishings and automobiles) plus an annual taxable income of at least $60,000
or, in the alternative, a net worth of at least $225,000.
Washington: Net worth (exclusive of home, furnishings and automobiles) or
joint net worth with spouse in excess of $1,000,000 or an income in excess of
$200,000 or joint income with spouse in excess of $300,000 in each of the last
two tax years and reasonably expects to achieve the same level of income in the
current year.
MINIMUM INVESTMENT CRITERIA
Although the General Partners of the Fund believe that a minimum investment
of $1,000 is appropriate for the Fund, the states listed below require that
residents of those states must make a larger initial minimum investment in the
Fund.
<TABLE>
<S> <C>
Iowa: $ 3,000
Minnesota: $ 2,500
Nebraska: $ 5,000
North Carolina: $ 5,000
Texas: $ 5,000
</TABLE>
ATTENTION CALIFORNIA RESIDENTS:
The General Partners, pursuant to Section 260.141.11 of the California Code
of Regulations, are required to deliver to each California investor a copy of
the rules regarding the restriction on transferring your limited partnership
units.
RULE 260.141.11. RESTRICTION ON TRANSFER
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy
of this section to be delivered to each issuee or
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<PAGE>
transferee of such security at the time the certificate evidencing the security
is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or
custodian for the account of the transferee or the transferee's ancestors,
descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien given
by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, PROVIDED that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation,
or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113
of the Code, PROVIDED that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed property law of another state, if, in
either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
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<PAGE>
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; PROVIDED that any such transfer is on the
condition that any certificate evidencing the security issued to such
transferee shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OR THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
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<PAGE>
SUBSCRIPTION INSTRUCTIONS
Subscribers for Units of Limited Partnership Interest in IDS Managed
Futures, L.P. must deliver an executed copy of the Subscription Agreement and
Power of Attorney (Exhibit C) with a check for the amount of such subscription
payable to First Trust National Association. The minimum subscription (including
subscriptions of Individual Retirement Accounts, Keogh Plans and Employee
Benefit Plans) is $1,000 (certain states have higher minimum amounts); any
greater subscription amount must be in increments of $100. Each subscriber
should review carefully the Subscription Requirements (Exhibit B) before
completing and executing the Subscription Agreement and Power of Attorney
(Exhibit C).
The subscriber should return the completed Subscription Agreement and Power
of Attorney and the check to: American Express Financial Advisors Inc.,
Geographic Service Team, P.O. Box 74, Minneapolis, Minnesota 55440. Subscription
checks must be made payable to First Trust National Association, St. Paul,
Minnesota as Escrow Agent for IDS Managed Futures, L.P.
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IDS MANAGED FUTURES, L.P.
SUBSCRIPTION AGREEMENT
(Complete after reading reverse side of agreement)
COMPLETE IF NONQUALIFIED INVESTMENT COMPLETE IF QUALIFIED INVESTMENT
Name in which Units are to be Name in which IRA, Keogh or
registered (unless form on the Qualified Plan Units are to be
right is applicable) registered.
- ----------------------------------- AMERICAN EXPRESS TRUST COMPANY
Name of Subscribing Individual or -----------------------------------
Entity -----------------------------------
- ----------------------------------- FBO
- ----------------------------------- 51-6041053
Tax Year End* -----------------------------------
*If other than 12/31. Custodial Tax ID (for IRS
Reporting) Tax Year
End*
INVESTOR'S TAXPAYER
ID
INVESTOR'S MAILING ADDRESS MAKE CHECKS PAYABLE TO:
- ----------------------------------- FIRST TRUST NATIONAL ASSOCIATION
Street or P.O. Box Investment Amount
- ----------------------------------- $
City State Zip
( )
- -----------------------------------
Phone
Account No. (Corporate Office use
only)
<TABLE>
<S> <C> <C> <C> <C>
OWNERSHIP TYPE:
- -Individual -IRA -Keogh -JTRS -Trust
- -Partnership -UGMA State: -Community Property -Tenants-in-Common
- -Profit Sharing Plan -Pension Plan -Money Purchase Plan
- -Other (specify)
<CAPTION>
OWNERSHIP TYPE:
<S> <C>
- -Individual -Corporation
- -Partnership
- -Profit Sharing Plan
- -Other (specify)
</TABLE>
If this investment is for a ACKNOWLEDGMENTS
qualified employee benefit plan, an Subscriber(s) acknowledge(s) the
individual retirement account or following by initialing each of the
other tax-exempt investor, in statements below:
making this investment on behalf of
such entity, I (we) acknowledge I/We meet the minimum income and
specifically that the prospectus net worth
contains pertinent tax sections standards established for the
with respect to benefit plans Partnership;
entitled, "Tax Information--Tax I/We am/are purchasing interests in
Exempt Investors" and "Purchases by the Partnership
Employee Benefit Plans--ERISA for my/our own account;
Considerations," and in particular, I/We have received a copy of the
the inclusion therein relating to Prospectus and the
unrelated business taxable income, Annual Report for the Partnership.
and I (we) have satisfied myself -----------------------------------
(ourselves) as to the potential tax For Use By American Express
consequences of such provisions on Financial Advisor
this investment. I have reasonable grounds to
Signature believe, based on information
Signature (if joint owner) obtained from the investor
concerning his/her investment
Date City and objectives, other investments,
State financial situation and needs and
any other information known by me,
Name of Subscribing Individual or that an investment in the
Entity--Printed Partnership is suitable for such
investor in light of his/her
Signature of Authorized Fiduciary, financial position, net worth and
Trustee, Partner or Corporate other suitability characteristics.
Officer (title) I have also informed the investor
of the unlikelihood of a public
Name of Authorized Fiduciary, trading market developing for the
Trustee, Partner or Corporate Units during the term of the
Officer-- Printed Partnership and of the restriction
The trustee, corporate officer or on the redemption of Units.
partner whose signature appears The financial advisor must sign
above certifies that he/she has below in order to substantiate
full power and authority from all compliance with Rule 2430 and 2440
beneficiaries, shareholders or of the NASD Conduct Rules.
partners of the entity named above -----------------------------------
to execute this Subscription Financial Advisor Date
Agreement on behalf of the entity
and to make the representations and
warranties made herein on their
behalf and that investment in the
Partnership has been affirmatively
authorized by the governing board
or body of such entity and is not
prohibited by law or the governing
documents of the entity.
C-2
<PAGE>
EXHIBIT C
IDS MANAGED FUTURES, L.P.
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
(1) SUBSCRIPTIONS. The undersigned ("Subscriber") hereby subscribes for
Units of Limited Partnership Interest ("Units") in IDS Managed Futures, L.P.
(the "Partnership") at a price per Unit, if an Affiliated Purchaser, equal to
the Net Asset Value per Unit as of the close of business on the last business
day of the month in which the General Partners accept such subscriptions and
admit the subscribers as Limited Partners, plus the amount of the Offering
Expense charge on a per Unit basis, and if a non-Affiliated Purchaser, at a
price per Unit equal to the Net Asset Value per Unit as of the last business day
of the month in which the General Partners accept such subscriptions and admit
the subscribers as Limited Partners, plus the amount of the Sales Charge and the
Offering Expense Charge on a per Unit basis (minimum initial subscription:
$1,000 including subscriptions for Individual Retirement Accounts and Keogh
Plans). Concurrently with or prior to delivery of this Subscription Agreement
and Power of Attorney, the Subscriber is delivering a check payable to First
Trust National Association, as escrow agent for IDS Managed Futures, L.P. for
the amount of his/her subscription to American Express Financial Advisors Inc.,
Geographic Service Team, P.O. Box 74, Minneapolis, Minnesota 55440. The General
Partners may, in their sole and absolute discretion, accept or reject this
subscription, and this subscription cannot be revoked, cancelled, or terminated
by subscriber except as provided below. If this subscription is accepted,
subscriber agrees to contribute the amount of the subscription to the
Partnership and to be bound by the terms of its Amended and Restated Limited
Partnership Agreement.
All subscription documents from a potential investor must be received by
American Express Financial Advisors by the tenth calendar day of the month if
they are to be considered for acceptance by the Fund in that month. American
Express Financial Advisors will promptly send a confirmation of the investment
and a copy of the Fund's most recent monthly account statement to the potential
investor. The mailing of the confirmation and the account statement marks the
beginning of the "Free Look" period. The Free Look period is 16 days. During
this time the prospective investor will have the opportunity to determine
whether he or she wishes his or her subscription to be retained by the Fund. The
potential investor must notify American Express Financial Advisors by mail or
telephone (pursuant to instructions in the notice from American Financial
Advisors) of his or her decision not to invest. No further action is required in
response to the notification from American Express Financial Advisors if the
investor elects to subscribe. The investor's negative response must be received
by American Express Financial Advisors during the Free Look period. Investors
electing to withdraw their subscription pursuant to the above alternative will
promptly receive a return of their subscription funds from the escrow agent. The
investor may withdraw his or her subscription for any reason during the Free
Look period. All subscriptions are subject to acceptance by the General
Partners.
(2) REPRESENTATIONS AND WARRANTIES. In addition to the representations to
be acknowledged in the box on the facing page, Subscriber represents that he/she
has had an opportunity to ask questions relating to the Subscriptions
Requirements or to the Prospectus.
(3) POWER OF ATTORNEY. In connection with the interest in IDS Managed
Futures, L.P. acquired or to be acquired pursuant to this subscription,
Subscriber hereby irrevocably constitutes and appoints CIS Investments, Inc. and
IDS Futures Corporation (the General Partners of the Partnership), with full
power of substitution, his/her true and lawful attorneys-in-fact, with full
power and authority in his/her name, place and stead, to admit additional
limited partners to the Partnership, to file, prosecute, defend, settle or
compromise any and all actions at law or suits in equity for or on behalf of the
Partnership with respect to any claim, demand or liability asserted or
threatened by or against the Partnership, and to execute, acknowledge, swear to,
deliver, file and record on his/her behalf in the appropriate public offices and
publish (i) all certificates and other instruments (including but not limited to
a Certificate of Limited Partnership and a certificate of doing business under
an assumed name) which the General Partners deem appropriate to qualify or
continue the Partnership as a limited partnership in the jurisdictions in which
the Partnership may conduct business or which may be required to be filed by the
Partnership or the Partners under the laws of any jurisdiction; (ii) all
instruments which the General Partners deem appropriate to reflect a change or
modification of the Partnership in accordance with the terms of the Limited
Partnership Agreement relating to the Partnership or any amendment thereto; and
(iii) all conveyances and other instruments which the General Partners deem
appropriate to reflect the dissolution and termination of the Partnership. The
foregoing grant of authority is a special power of attorney coupled with an
interest, is irrevocable, and shall survive Subscriber's death or incapacity.
Subscriber hereby agrees to be bound by any representation made by the General
Partners and by any successor thereto, acting in good faith pursuant hereto.
C-3
<PAGE>
LIMITED PARTNERSHIP PURCHASE PLAN AGREEMENT
Please complete this form for each limited partnership sponsored by
companies in the American Express Financial Corporation Group of companies when
making purchases without a sales commission. Mail or route this form, the
American Express Financial Advisors new business application, the partnership
subscription agreement and a check to:
American Express Financial Advisors Inc.
Geographic Service Team
P.O. Box 74
Minneapolis, MN 55440
The following individuals are eligible to purchase limited partnership
interests without paying a sales commission:
Advisors, managers and employees of companies in the American
Express Financial Corporation Group of Companies.
Eligible persons may purchase limited partnership interests in partnerships
sponsored by the American Express Financial Group of Companies without paying
the sales charge which is the base selling commission payable to American
Express Financial Advisors Inc., not including any dealer/manager fee or other
similar charge.
I UNDERSTAND THAT THE TOTAL DISCOUNT I RECEIVE WILL BE REPORTED ON MY FORM
W-2 OR 1099 AS TAXABLE INCOME TO ME. (100% TO INDEPENDENT CONTRACTORS; 80% FOR
EMPLOYEES).
I REPRESENT THAT I HAVE PURCHASED THESE LIMITED PARTNERSHIP INTERESTS AS AN
INVESTMENT AND NOT WITH A VIEW TOWARD THEIR RESALE.
Please check the appropriate box and fill out your employee or advisor
number below. Advisor numbers must include the check digit.
I am an
<TABLE>
<S> <C> <C>
1. Independent Contractor (veteran advisor, district manager)
----
2.
---- American Express Employee (first year advisors, division V.P., region V.P.,
associate manager, training and recruiting manager, division staff, home
office staff)
</TABLE>
Advisor/Employee Number ________________________________________________________
Unit/DO Number _________________________________ Advisor/Employee Name ________
Partnership Name __________________________________________________ Partnership
Account
Number ____
(Entered by
New
Business)
Investment Amount $ ______________________________________________________
Signature ____________________________________________________
Date ____________________________________________________
C-4
<PAGE>
EXHIBIT D
IDS MANAGED FUTURES
REQUEST FOR REDEMPTION
____________, 19__
IDS Managed Futures, L.P.
c/o American Express Financial Advisors Inc.
c/o Unit 580
P.O. Box 534
Minneapolis, Minnesota 55440
Dear Sirs:
The undersigned hereby requests redemption of $______ or ______ Units
(please designate redemption amount in terms of dollars or Units) of the
partnership identified below, less any amount the undersigned owes to such
Partnership. The undersigned hereby represents and warrants that he, she, or it
is the true and lawful owner of the Unit or Units to which this request relates
with full power and authority to request redemption of such Unit(s). The
undersigned acknowledges that no redemptions are permitted during the first six
months after he/she has been first admitted to the Partnership. Further, the
undersigned acknowledges that if he/she redeems any of his/her Units, he/she
will not be permitted to purchase any Units offered by the Partnership for six
months following the date of any such redemption. In addition, the undersigned
acknowledges that if he/she purchases any Units of the Partnership in connection
with a public offering of Units, he/she will not be permitted to redeem such
Units or any previously purchased Units of the same partnership for a period of
six months from the date of the most recent purchase. Such Unit(s) are not
subject to any pledge or otherwise encumbered in any fashion. Redemption shall
be effective as of the last trading day of the month in which the General
Partners receive this Request, PROVIDED that the General Partners receive notice
ten days in advance of such date, and shall be in an amount based on Net Asset
Value per Unit on such date. The minimum redemption amount, whether requested in
terms of dollars or Units, is the lesser of $500 or the Net Asset Value of two
Units, unless the undersigned is redeeming his/her entire interest in the
Partnership.
<PAGE>
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS OF
LIMITED PARTNERSHIP INTEREST ARE REGISTERED
<TABLE>
<S> <C>
Please forward such funds by mail to the undersigned at:
- ------------------------------------------------------------------------------------------
Name Street, City, State and Zip Code
Please forward such funds to the following IDS account:
- ------------------------------------------- -------------------------------------------
Product Name Account Number
- -------------------------------------------
Subscriber Tax ID Number
ENTITY LIMITED PARTNER: INDIVIDUAL LIMITED PARTNER:
(or Assignee) (or Assignee)
- ------------------------------------------- -------------------------------------------
(Name of entity)
By -------------------------------------- -------------------------------------------
(Authorized trustee partner
or corporate officer)
- ------------------------------------------- -------------------------------------------
(Print title of authorized (Signature of all partners
trustee, partner or corporate officer) or assignees)
- ------------------------------------------- -------------------------------------------
Customer Account Number Name of Partnership
</TABLE>
D-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are estimates of the approximate amounts of fees and
expenses payable by the Registrant in connection with the issuance and sale of
Units of Limited Partnership Interest (such fees and expenses will be paid
jointly by the General Partners, and in return, the General Partners will
receive the Offering Expense Charge as described in the Prospectus):
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
---------------
<S> <C>
Securities and Exchange Commission Registration Fee*......................... $ 17,240.00
National Association of Securities Dealers, Inc. Filing Fee*................. 5,500.00
Printing Expenses............................................................ 85,000.00
Accounting Fees and Expenses................................................. 25,000.00
Seminars..................................................................... 100,000.00
Blue Sky Fees and Expenses (including Legal Fees)............................ 40,000.00
Legal Fees and Expenses...................................................... 75,000.00
Escrow Fees.................................................................. 26,700.00
Marketing Expenses........................................................... 85,000.00
Miscellaneous Expenses....................................................... 50,000.00
---------------
TOTAL.................................................................... $ 509,440.00
---------------
---------------
</TABLE>
- ------------------------
* Fees marked with an asterisk are exact rather than estimated and
approximate.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 21 of the Limited Partnership Agreement included herein as Exhibit
3.1, provides for indemnification of the General Partners, their officers,
directors and persons owning or controlling the General Partners, under the
circumstances described therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
One Unit of Limited Partnership Interest was sold for $235 to Wendell
Halvorson, the initial Limited Partner, in order to permit establishment of IDS
Managed Futures, L.P. as a Delaware limited partnership on December 16, 1986.
The sale of such Unit was exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) thereof. No discounts or commissions were paid in
connection therewith; no purchaser other than Mr. Halvorson was solicited.
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(1) EXHIBITS
The following documents are filed herewith and made a part of this
Registration Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Selling Agreement among Registrant, American Express Financial Advisors Inc., IDS Futures
Corporation and CIS Investments, Inc.
1.2 Form of Amendment to Selling Agreement among Registrant, American Express Financial Advisors Inc.,
IDS Futures Corporation and CIS Investments, Inc.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
3.1 Amended and Restated Limited Partnership Agreement (attached to Prospectus as Exhibit A).
3.2 Subscription Requirements (attached to Prospectus as Exhibit B).
3.3 Subscription Agreement and Power of Attorney (attached to Prospectus as Exhibit C).
3.4 Request for Redemption (attached to Prospectus as Exhibit D).
5.1* Securities Opinion and Consent of Chapman and Cutler to the Registrant.
8.1* Tax Opinion and Consent of Chapman and Cutler to the Registrant.
10.1.1* Advisory Contract between Registrant and John W. Henry & Co., Inc. and Sabre Fund Management Limited.
10.1.2* Amendment to Advisory Contract between Registrant and John W. Henry & Co., Inc.
10.1.3* Amendment to Advisory Contract between Registrant and Sabre Fund Management Limited.
10.1.4* Amendment to Advisory Contract between Registrant, John W. Henry & Co., Inc., and Sabre Fund
Management Limited dated April 30, 1996.
10.1.5 Advisory Contract between Registrant and Welton Investment Corporation dated July 2, 1997.
10.2 Escrow Agreement between Registrant and First Trust National Association (replaces prior Escrow
Agreement between Registrant and First Bank National Association).
10.3* Brokerage Agreement between Registrant, Cargill Investor Services, Inc., and American Express
Financial Advisors Inc.
10.4* Form of Net Worth Agreement between Cargill Investor Services, Inc. and CIS Investments, Inc. and
between IDS Financial Corporation and IDS Futures Corporation.
10.5* Form of Representation Agreement between IDS Managed Futures, L.P., American Express Financial
Advisors Inc., CIS Investments, Inc., Cargill Investor Services, Inc., IDS Futures Corporation,
John W. Henry & Co., Inc. and Sabre Fund Management Limited.
10.6* Foreign Exchange Account Agreement between CIS Financial Services, Inc. and Registrant.
10.7 Form of Representation Agreement between IDS Managed Futures, L.P., American Express Financial
Advisors Inc., CIS Investments, Inc., Cargill Investor Services, Inc., IDS Futures Corporation and
Welton Investment Corporation.
23.1 The consent of KPMG Peat Marwick LLP.
23.2 The consent of Ernst & Young LLP.
23.3 The consent of Chapman and Cutler.
</TABLE>
- ------------------------
* Previously filed.
(2) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are required to be filed with the
registration statement.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(b) To reflect in the Prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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.
II-3
<PAGE>
SIGNATURES
Pursuant to 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 for filing on Form S-1 and has duly caused this Post-Effective
Amendment No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis and State of
Minnesota on July 23, 1997.
IDS MANAGED FUTURES, L.P.
By IDS Futures Corporation
/s/ MICHAEL L. WEINER
-----------------------------------------
Michael L. Weiner
VICE PRESIDENT, SECRETARY AND TREASURER
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to the Registration Statement on Form S-1 has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ LORI J. LARSON
- ------------------------------ President and Director IDS 7/23/97
Lori J. Larson Futures Corporation
/s/ MICHAEL L. WEINER Vice President, Secretary
- ------------------------------ and Treasurer of IDS 7/23/97
Michael L. Weiner Futures Corporation
/s/ JOHN M. KNIGHT
- ------------------------------ Vice President IDS Futures 7/23/97
John M. Knight Corporation
/s/ MORRIS GOODWIN, JR.
- ------------------------------ Director IDS Futures 7/23/97
Morris Goodwin, Jr. Corporation
/s/ PETER J. ANDERSON
- ------------------------------ Director IDS Futures 7/23/97
Peter J. Anderson Corporation
(Being the principal executive officer, the principal financial and accounting
officer and all of the directors of IDS Futures Corporation)
IDS FUTURES CORPORATION
General Partner of
Registrant
By /s/ MICHAEL L. WEINER
-------------------------
Michael L. Weiner
VICE PRESIDENT, SECRETARY
AND TREASURER
II-4
<PAGE>
IDS MANAGED FUTURES, L.P.
By CIS Investments, Inc.
(General Partner)
By /s/ HAL T. HANSEN
-----------------------------------------
Hal T. Hansen
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 3 to the Registration Statement on Form S-1 has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ HAL T. HANSEN
- ------------------------------ President and Director of July 29, 1997
Hal T. Hansen CIS Investments, Inc.
/s/ L. CARLTON ANDERSON Vice President and
- ------------------------------ Director of CIS July 29, 1997
L. Carlton Anderson Investments, Inc.
/s/ CHRISTOPHER MALO
- ------------------------------ Vice President of CIS July 29, 1997
Christopher Malo Investments, Inc.
/s/ RICHARD A. DRIVER Vice President and
- ------------------------------ Director of CIS July 29, 1997
Richard A. Driver Investments, Inc.
/s/ BARBARA A. PFENDLER
- ------------------------------ Vice President of CIS July 29, 1997
Barbara A. Pfendler Investments, Inc.
/s/ JAN R. WAYE
- ------------------------------ Senior Vice President of July 29, 1997
Jan R. Waye CIS Investments, Inc.
/s/ DONALD ZYCK
- ------------------------------ Treasurer and Secretary of July 29, 1997
Donald Zyck CIS Investments, Inc.
(Being the principal executive officer, the principal financial and accounting
officer and all of the directors of CIS Investments, Inc.)
CIS INVESTMENTS, INC.
General Partner of
Registrant
By /s/ HAL T. HANSEN
-------------------------
Hal T. Hansen
PRESIDENT
II-5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
POST-EFFECTIVE
AMENDMENT NO. 3
TO THE
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXHIBITS
------------------------
IDS MANAGED FUTURES, L.P.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Selling Agreement among Registrant, American Express Financial Advisors Inc., IDS Futures
Corporation and CIS Investments, Inc.
1.2 Form of Amendment to Selling Agreement among Registrant, American Express Financial Advisors Inc.,
IDS Futures Corporations and CIS Investments, Inc.
3.1 Amended and Restated Limited Partnership Agreement (attached to Prospectus as Exhibit A).
3.2 Subscription Requirements (attached to Prospectus as Exhibit B).
3.3 Subscription Agreement and Power of Attorney (attached to Prospectus as Exhibit C).
3.4 Request for Redemption (attached to Prospectus as Exhibit D).
5.1* Securities Opinion and Consent of Chapman and Cutler to the Registrant.
8.1* Tax Opinion and Consent of Chapman and Cutler to the Registrant.
10.1.1* Advisory Contract between Registrant and John W. Henry & Co., Inc. and Sabre Fund Management Limited.
10.1.2* Amendment to Advisory Contract between Registrant and John W. Henry & Co., Inc.
10.1.3* Amendment to Advisory Contract between Registrant and Sabre Fund Management Limited.
10.1.4* Amendment to Advisory Contract between Registrant, John W. Henry & Co., Inc., and Sabre Fund
Management Limited dated April 30, 1996.
10.1.5 Advisory Contract between Registrant and Welton Investment Corporation dated July 2, 1997.
10.2 Escrow Agreement between Registrant and First Trust National Association (replaces prior Escrow
Agreement between Registrant and First Bank National Association).
10.3* Brokerage Agreement between Registrant, Cargill Investor Services, Inc., and American Express
Financial Advisors Inc.
10.4* Form of Net Worth Agreement between Cargill Investor Services, Inc. and CIS Investments, Inc. and
between IDS Financial Corporation and IDS Futures Corporation.
10.5* Form of Representation Agreement between IDS Managed Futures, L.P., American Express Financial
Advisors Inc., CIS Investments, Inc., Cargill Investor Services, Inc., IDS Futures Corporation,
John W. Henry & Co., Inc. and Sabre Fund Management Limited.
10.6* Foreign Exchange Account Agreement between CIS Financial Services, Inc. and Registrant.
10.7 Form of Representation Agreement between IDS Managed Futures, L.P., American Express Financial
Advisors Inc., CIS Investments, Inc., Cargill Investor Services, Inc., IDS Futures Corporation and
Welton Investment Corporation.
23.1 The consent of KPMG Peat Marwick LLP.
23.2 The consent of Ernst & Young LLP.
23.3 The consent of Chapman and Cutler.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
EXHIBIT 1.2
IDS MANAGED FUTURES, L.P.
FIRST AMENDMENT TO
SELLING AGREEMENT DATED JUNE 26, 1995
This First Amendment made as of _____________, 1997, among IDS Managed
Futures, L.P., a Delaware limited partnership ("PARTNERSHIP"); American Express
Financial Advisors Inc., a Delaware corporation ("SELLING AGENT"); CIS
Investments, Inc., a Delaware corporation ("CISI"); and IDS Futures
Corporation, a Minnesota corporation ("IDS FUTURES") (CISI and IDS Futures are
collectively referred to as the "GENERAL PARTNERS"), is made on the following
premises, terms and conditions:
RECITALS
WHEREAS, the parties hereto have entered into that certain Selling
Agreement dated as of June 26, 1995 (the "SELLING AGREEMENT"); and
WHEREAS, the parties desire to amend the Selling Agreement to extend the
term of the Selling Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the parties hereto hereby agree as follows:
1. The second sentence of Section 5(a) of the Selling Agreement is
hereby amended to read in its entirety as follows:
The Selling Agent agrees to use its best efforts to procure
subscriptions for the Units at the price per Unit set forth
in the Prospectus and to continue such efforts to and
including July 31, 1999, unless all of the Units registered
are sold prior to that date or the General Partners
determine to extend the offering of Units beyond such date.
2. Except as specifically amended by this document, the Selling
Agreement shall remain unchanged and shall continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, this First Amendment has been executed on behalf of
the Partnership by its General Partners and on behalf of each corporate party
by its duly authorized officer all as of the day and year first above written.
IDS MANAGED FUTURES, L.P.
By: CIS Investments, Inc., General
Partner
By _______________________________________
Its ____________________________________
By: IDS Futures Corporation, General
Partner
By _______________________________________
Its ____________________________________
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By _______________________________________
Its ____________________________________
CIS INVESTMENTS, INC.
By _______________________________________
Its ____________________________________
IDS FUTURES CORPORATION
By _______________________________________
Its ____________________________________
-2-
<PAGE>
EXHIBIT 10.1.5
IDS MANAGED FUTURES, L.P.
ADVISORY CONTRACT
THIS ADVISORY CONTRACT is made and entered into as of the 2nd day of July,
1997 (the "AGREEMENT"), by and among IDS Managed Futures, L.P., a Delaware
limited partnership (the "PARTNERSHIP"), IDS Futures Corporation, a Minnesota
corporation ("IDS FUTURES"), CIS Investments, Inc., a Delaware corporation
("CISI") (IDS Futures and CISI are collectively referred to as the "GENERAL
PARTNERS" and individually referred to as a "GENERAL PARTNER") and Welton
Investment Corporation, a Delaware corporation ("WELTON");
WITNESSETH:
WHEREAS, the Partnership was organized primarily for the purpose of
trading, buying, selling, spreading or otherwise acquiring, holding or disposing
of commodity futures contracts on U.S. exchanges and, in addition, from time to
time the Partnership also may engage in transactions in futures contracts on
foreign exchanges, forward contracts, options on commodity futures contracts and
physical commodities on U.S. exchanges and other commodity interests
(collectively "COMMODITIES"); and
WHEREAS, the Partnership is currently engaged in an offering ("OFFERING")
of units of limited partnership interest in the Partnership (the "UNITS")
through American Express Financial Advisors Inc., an affiliate of IDS Futures
Corporation, and in connection therewith, the Partnership has previously filed
with the United States Securities and Exchange Commission (the "SEC"), pursuant
to the United States Securities Act of 1933, as amended (the "1933 ACT"), a
registration statement on Form S-1 effective June 26, 1995, to register an
additional $50,000,000 in aggregate Units plus the unsold amount from prior
offerings, and has subsequently filed (i) Post-Effective Amendment No. 1
effective July 31, 1996, and (ii) Post-Effective Amendment No. 2, not declared
effective with the SEC. The Partnership is in the process of preparing and
filing Post-Effective Amendment No. 3 with the SEC, and as part thereof a
prospectus, to extend the offering period of the offering and update financial
and certain other information. (The above-referenced registration statement,
together with all amendments thereto, shall be referred to herein as the
"REGISTRATION STATEMENT" and which prospectus together with all supplements
thereto in substantially the final form filed with the SEC under the Act shall
be referred to herein as the "PROSPECTUS"); and
WHEREAS, the General Partners desire to utilize the services of Welton in
connection with the commodity trading activities of the Partnership; and
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WHEREAS, Welton is registered as a commodity trading advisor under the
Commodity Exchange Act, as amended ("CE ACT"), and is a member of the National
Futures Association ("NFA") as a commodity trading advisor ("CTA") and will
maintain such registration and membership for the term of this Agreement; and
WHEREAS, the Partnership and Welton desire to enter into this Agreement in
order to set forth the terms and conditions upon which Welton will render and
implement commodity advisory services in connection with the conduct by the
Partnership of its commodity trading activities during the term of this
Agreement;
NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL COVENANTS AND CONDITIONS
HEREINAFTER SET FORTH, the parties hereto hereby agree as follows:
1. DUTIES OF THE ADVISOR. The Partnership hereby appoints Welton as its
exclusive attorney-in-fact to invest and reinvest in Commodities the assets of
the Partnership which the General Partners allocate to Welton on the terms and
conditions set forth herein. This limited power-of-attorney is a continuing
power and shall continue in effect with respect to Welton until terminated
hereunder. To this end, Welton (i) agrees to act as one of the commodity
trading advisors employed by the General Partners on behalf of the Partnership,
and specifically, to exercise discretion with respect to that portion of the
assets of the Partnership which the General Partners allocate to Welton's
management upon the terms and conditions, and for the purposes, set forth in
this Agreement and in the Prospectus of the Partnership relating to the offering
of Units, and (ii) shall have sole authority and responsibility for directing
the investment and reinvestment of the Partnership's assets allocated to it in
Commodities for the term of this Agreement pursuant to Welton's trading systems,
methods and strategies included in Welton's Diversified Portfolio, a description
of which is attached hereto as Exhibit A and hereby made a part hereof
(hereinafter referred to as Welton's "TRADING APPROACH"), as set forth in the
Prospectus.
To the extent that assets of the Partnership are invested in United States
Treasury bills or other investments approved by the Commodity Futures Trading
Commission ("CFTC") for the investment of "customer" funds or are held in cash,
the General Partners will have the responsibility for the management thereof in
investments other than Commodities. Welton will use its good faith best efforts
in determining the investment and reinvestment of the Partnership's assets
allocated to it in compliance with the Partnership's Trading Policies and
limitations as set forth in Exhibit B attached hereto and hereby made a part
hereof (hereinafter referred to as the "TRADING POLICIES"), and in accordance
with Welton's Trading Approach, and, to the extent Welton is notified thereof
and (except as set forth in the last sentence of this paragraph) agrees thereto,
in accordance with revisions to such Trading Policies and limitations made by
the General Partners (each using its good faith business judgment) in accordance
with the terms of this Agreement and the Prospectus. In the event that the
General Partners shall, in their sole discretion, determine that any trading
instruction issued by Welton violates the Partnership's Trading Policies or
limitations, or for any other reason, is not in the best interests of the
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Partnership, then the General Partners may override such trading instruction
upon prior notice to Welton, if practical, or, otherwise, as soon as possible
thereafter. Nothing herein shall be construed to prevent the General Partners
from imposing any limitation(s) on the trading activities of the Partnership
beyond those enumerated in the Prospectus if the General Partners determine
(each using its good faith business judgment) that such limitation(s) are
necessary in the best interests of the Partnership, in which case Welton will
adhere to such limitations following written notification thereof.
In the event that Welton wishes to use a Trading Approach other than or in
addition to the Trading Approach set forth in the Prospectus in connection with
its trading for the Partnership, either in whole or in part, it may not do so
unless Welton gives the General Partners prior written notice of its intention
to utilize such different Trading Approach, including a description of such
different Trading Approach and the General Partners consent thereto in writing.
Welton also agrees to give the Partnership prior written notice of any
proposed material change in its Trading Approach as set forth in the
Prospectus, and agrees not to make any material change in such Trading
Approach (as applied to the Partnership) without the prior express written
approval of the General Partners, it being understood that Welton shall be
free to institute non-material changes in its Trading Approach (as applied to
the Partnership) without such prior written approval. Without limiting the
generality of the foregoing, refinements to Welton's Trading Approach, the
addition or deletion of Commodities to or from Welton's Trading Approach, or
a change not exceeding 25% in the leverage of any such Trading Approach,
shall not be deemed a material change in Welton's Trading Approach, and prior
approval of the General Partners shall not be required therefor.
All purchases and sales of Commodities shall be for the account and risk of
the Partnership.
2. INDEMNIFICATION. Neither Welton, its employees, directors, officers,
shareholders or partners, or any person who controls or who is controlled by
Welton, shall be liable to the General Partners, their officers, directors,
shareholders or employees, or the Partnership, its partners or any of their
successors or assigns under this Agreement, except by reason of acts or
omissions in contravention of the express terms of this Agreement or due to
their misconduct or negligence or by reason of not having acted in good faith in
the reasonable belief that such actions or omissions were in, or not opposed to,
the best interests of the Partnership; it being understood that, without
limiting Welton's liability hereunder, trading profits or losses incurred on
behalf of the Partnership shall be for the account of the Partnership and Welton
shall not incur any credit or liability for such profits or losses and Welton
shall not in any way be responsible for the acts or omissions of the other
trading advisors.
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Welton, and each officer, director, shareholder, partner and employee of
Welton, and each person who controls and who is controlled by Welton, shall be
indemnified by the Partnership, to the fullest extent permitted by law, against
any losses, judgments, liabilities, expenses (including reasonable attorneys'
fees and accountants' fees) and claims, including settlements, incurred or
sustained by Welton in connection with any acts or omissions of Welton relating
to its management of its allocable share of Partnership assets pursuant to this
Agreement or with its status as a trading advisor to the Partnership, PROVIDED
that (i) there has been no judicial determination that such liability was the
result of negligence, misconduct or a breach of this Agreement on the part of
Welton, nor (ii) any judicial determination that Welton, and its officers,
directors, shareholders, partners and employees (as applicable), and each person
controlling or controlled by Welton, did not act (or took no action) in good
faith and in a manner reasonably believed by it and them to be in, or not
opposed to, the best interests of the Partnership. Any such indemnification
involving a material amount, unless ordered or expressly permitted by a court,
shall be made by the Partnership only upon the written advice of independent
counsel acceptable to the Partnership that Welton has met the applicable
standard of conduct described above.
Expenses incurred in defending a threatened or pending civil,
administrative or criminal action, suit or proceeding against the foregoing
indemnitees may be paid by the Partnership or the General Partners in advance of
the final disposition of such action, suit or proceeding if (i) the legal
action, suit or proceeding, if not sustained, would entitle the indemnitees to
indemnification pursuant to the preceding paragraph, and (ii) Welton undertakes
to repay the advanced funds to the Partnership and the General Partners in cases
in which the foregoing indemnitees are not entitled to indemnification pursuant
to the preceding paragraph. Expenses incurred in defending a threatened or
pending civil, administrative or criminal action, suit or proceeding against
Welton and one or both General Partners shall be paid initially by such General
Partner(s), subject to subsequent proportionate reimbursement by Welton in the
event of an unfavorable determination with respect to Welton; PROVIDED, that
such initial payment of expenses shall not be made by such General Partner(s) on
behalf of Welton if Welton elects to be represented by counsel of its own choice
or if the defense of Welton involves distinct issues of law or of fact, and,
PROVIDED FURTHER, that in the event of the initial payment of such expenses by
such General Partner(s), such General Partner(s) shall have the exclusive right
to select counsel.
3. OBLIGATIONS OF THE PARTNERSHIP AND WELTON. The Partnership, the
General Partners and Welton (only with respect to making the disclosures
regarding itself set forth in the immediately following sentence) respectively
agree to cooperate and use their good faith best efforts in connection with (a)
the preparation of amendments to the Registration Statement and the Prospectus;
(b) the filing of amendments to the Registration Statement and the Prospectus
with such governmental and self-regulatory authorities as the General Partners
deem appropriate for the registration and sale of the Units and the taking of
such other actions not inconsistent with this Agreement as the General Partners
may determine to be necessary or advisable in order to make the proposed offer
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and sale of Units lawful in any jurisdiction; and (c) causing the amendments to
the Registration Statement to remain effective under the 1933 Act and the
securities or Blue Sky laws of such jurisdictions as the General Partners may
deem appropriate. Welton agrees to make all necessary disclosures regarding
itself, its officers, partners and principals, trading performance, Trading
Approach, customer accounts (other than the names of customers or any other
information which Welton deems to be proprietary or confidential, unless such
disclosure is required by law or regulation, including, without limitation, all
material disclosures required in connection with the preparation and filing of
the Registration Statement or Prospectus) and otherwise as may be required, in
the reasonable judgment of the General Partners, to be made in the Registration
Statement and Prospectus and in such applications. No description of Welton in
the Registration Statement, Prospectus, promotional material or otherwise may be
distributed by the General Partners without the prior consent of Welton.
Welton agrees to participate in "road show" and similar presentations in
connection with the offering of the Units to the extent reasonably requested by
the General Partners, on the following conditions: (i) all reasonable expenses
incurred by Welton in the course of such participation will be for the account
of the General Partners or the Partnership, and if paid directly by Welton shall
be reimbursed to Welton, (ii) Welton shall not be obligated to take any action
which might require registration as a broker-dealer or investment adviser under
any applicable federal or state law, and (iii) Welton shall not be required to
assist in "road show" or similar presentations to the extent that, on the advice
of counsel, Welton reasonably believes that doing so would interfere with
Welton's trading activities or be unlawful. The parties acknowledge that Welton
has not been, either alone or in conjunction with the General Partners or their
affiliates, an organizer or promoter of the Partnership.
Welton agrees to execute a Representation Agreement in a form mutually
acceptable to all parties hereto, relating to the offering of the Units
("REPRESENTATION AGREEMENT") which shall contain, among other things, such
representations, warranties, covenants and indemnities of Welton, the
Partnership and the General Partners, as may be agreed upon between and among
the parties.
4. ADVISOR INDEPENDENCE. Welton is and shall for all purposes herein be
deemed to be an independent contractor with respect to the Partnership, the
General Partners and the other trading advisors of the Partnership, and shall,
unless otherwise expressly authorized, have no authority to act for or to
represent the Partnership, the General Partners or the other trading advisors in
any way or otherwise be deemed to be a general agent of the Partnership, the
General Partners or the other trading advisors.
The Partnership and the General Partners acknowledge that the Trading
Approach of Welton is the confidential property of Welton. Nothing in this
Agreement shall require Welton to disclose the confidential or proprietary
details of Welton's Trading Approach, except (i) to the extent required by law
or regulation, (ii) to the extent that such details may have come to be
disseminated to the general public through the actions or omissions of persons
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other than the General Partners or the Partnership, or (iii) to the extent such
details are disclosed in the Registration Statement. The Partnership and the
General Partners further agree that they will keep confidential and will not
disseminate Welton's trading advice to the Partnership, except as, and to the
extent, that it may be determined by the General Partners to be (i) necessary
for professional service providers or affiliates of the General Partners to
provide ordinary business services to the Partnership, (ii) the performance of
brokerage services with the Partnership's commodity broker(s), or (iii) required
by law or regulation.
5. COMMODITY BROKER. All Commodities trades for the account of the
Partnership shall be made through such commodity broker or brokers as the
General Partners direct. Welton shall have authority to communicate all orders
directly to such broker(s). Welton shall not have any authority or
responsibility in selecting or supervising any broker for execution of
Commodities trades of the Partnership or for negotiating commission rates to be
charged therefor. At the present time it is contemplated that the Partnership
will execute all Commodities trades through Cargill Investor Services, Inc. and
that brokerage commissions payable by the Partnership will equal $35 per round
turn plus applicable exchange, clearing, NFA fees, give-up charges and
international differentials. Welton shall be notified in writing by the General
Partners if any Commodities trades for the account of the Partnership are to be
made through any futures commission merchant other than Cargill Investor
Services, Inc. ("CIS").
In addition, Welton may engage in exchange for physical transactions with
respect to currencies into futures contracts. Welton may execute transactions
at such other broker(s), and upon such terms and conditions, as Welton and the
General Partners agree if such broker(s) agree to "give up" all such
transactions to CIS for clearance and the General Partners' consent to executing
brokers shall not be unreasonably withheld.
6. FEES. In consideration of and in compensation for the performance of
Welton's services under this Agreement, the Partnership agrees that it will pay
to Welton the following: (i) a monthly management fee (the "MANAGEMENT FEE")
equal to 1/12 of 3% of the Partnership's Net Asset Value (as hereinafter
defined) under the management of Welton as of the end of each month, and (ii) a
quarterly incentive fee (the "INCENTIVE FEE") of Eighteen Percent (18%) of
Trading Profits (as hereinafter defined) on the Net Asset Value (as hereinafter
defined) of the Partnership allocated by the General Partners to Welton's
management and the calculation and payment of such incentive fees shall not be
affected by the performance of the other trading advisors. Trading Profits for
Welton shall be computed as of the close of trading on the last day of each
calendar quarter (March 31, June 30, September 30 and December 31). The first
Incentive Fee which may be due and owing to Welton in respect of any Trading
Profits shall be computed as of the end of the first calendar quarter during
which Welton managed the partnership's assets allocated to it for at least sixty
(60) days. Trading Profits shall be computed solely on the performance of
Welton and shall not include or be affected by the performance of the other
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trading advisors. Payment of the Management Fee and of the Incentive Fee shall
be made as soon as practicable following the end of the period to which they
relate. Management Fee shall be paid monthly and deducted prior to the
calculation of the quarterly Incentive Fees. The Incentive Fee shall accrue
monthly and be payable to Welton quarterly.
"NET ASSET VALUE" means the Partnership's total assets less total
liabilities, including any liability for organization and offering
expenses, to be determined on the basis of generally accepted accounting
principles, consistently applied, except as set forth below. For purposes
of this calculation:
(a) Net Asset Value shall include any unrealized profit or loss on
securities and open commodity positions and any other credit or debit
accruing to the Partnership but unpaid or not received by the Partnership.
(b) All securities and open commodity positions shall be valued at
their then market value which means, with respect to open commodity
positions, the settlement price as determined by the exchange on which the
transaction is effected or the most recent appropriate quotation as
supplied by the Clearing Broker or banks through which the transaction is
effected. If there are no trades on the date of the calculation due to
operation of the daily price fluctuation limits or due to a closing of the
exchange on which the transaction is executed, the contract will be valued
at fair value as determined by the General Partners. Interest, if any,
shall accrue monthly.
(c) Brokerage commissions on open positions shall be accrued in full
upon the initiation of such open positions as a liability of the
Partnership. Management Fees shall be paid monthly and deducted prior to
the calculation of the quarterly Incentive Fee.
"TRADING PROFITS" (for purposes of calculating Welton's Incentive Fee)
is defined as the excess (if any) of (A) the Net Asset Value of the
Partnership's funds under Welton's management as of the last day of any
calendar quarter (before deduction of Incentive Fees payable for such
quarter) over (B) the highest Net Asset Value of the Partnership's funds
under the management of Welton as of the last day of the most recent
calendar quarter for which an Incentive Fee was due and owing or with
respect to the first Incentive Fee which may be due and owing, the Net
Asset Value of the initial Partnership funds allocated to Welton on the
date Welton commences trading Partnership assets. In computing Trading
Profits, the difference between (A) and (B) above shall be (i) decreased by
all interest realized on the Welton's allocable share of Partnership assets
subject to Welton's management between the dates referred to in (A) and
(B), and (ii) increased by Welton's allocable share of any distributions or
redemptions paid or payable by the Partnership as of, or subsequent to, the
date in (B) through the date in (A), and (iii) adjusted (either increased
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or decreased, as the case may be) to reflect Welton's allocable share of
any additional allocations or negative reallocations of Partnership assets
from the date in (B) to the last day of the calendar quarter as of which
the current Incentive Fee calculation is made. For purposes of calculating
Trading Profits attributable to the assets under the management of Welton,
the definition of Net Asset Value shall be modified, insofar as it takes
into consideration the amount of Incentive and Management Fees payable by
and brokerage commissions accrued by the Partnership, to provide for the
allocation of such Incentive and Management Fees and brokerage commissions
specifically to the assets under the management of Welton which is entitled
to such fees or whose trading decisions generated those brokerage
commissions.
Incentive Fees shall be paid within 10 business days after the end of the
quarter for which they are earned. For purposes of determining whether an
Incentive Fee is payable by Units which are redeemed other than at quarter end,
the dates of such redemptions shall be considered as if they were the last day
of the quarter.
If an Incentive Fee shall have been paid by the Partnership to Welton in
respect of any calendar quarter and Welton shall incur subsequent losses on the
Partnership's assets subject to its management, Welton shall nevertheless be
entitled to retain amounts previously paid to it in respect of Trading Profits.
In addition, if the amount of assets allocated to Welton's management is
reduced, whether due to redemptions, distributions or reallocations, there will
be a proportionate reduction in the related loss carryforward amount, the amount
of which shall be determined by multiplying the amount of the loss carryforward
by a fraction, of which the numerator shall be the amount of the reduction in
the assets allocated to Welton's management and the denominator shall be the
amount of the assets allocated to Welton's management immediately prior to the
reduction.
7. TERMS AND TERMINATION. The term of the Agreement shall commence on
the date this Agreement is executed and continue until December 31, 1998. This
Agreement shall automatically renew with respect to Welton on the same terms as
set forth herein for three additional twelve-month terms commencing January 1
and ending December 31, unless the Partnership shall give Welton 60 days prior
written notice prior to termination of the then-current twelve-month period.
This renewal right shall be applicable irrespective of any change in trading
advisors of the Partnership or reallocation of Partnership assets among the
trading advisors or to other trading advisors.
This Agreement shall terminate automatically in the event that the
Partnership is terminated. This Agreement may be terminated at the election of
the Partnership at any time, upon written notice to Welton in the event that:
(A) the Net Asset Value of Partnership funds allocated to Welton's management
decreases as of the close of trading on any business day by more than thirty
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percent (30%) from the sum of the Net Asset Value of the Partnership's funds
allocated to Welton on the date Welton commenced trading Partnership assets plus
the Net Asset Value of any funds which may be allocated to Welton thereafter
(after adding back all redemptions, distributions and reallocations made to
Welton or any additional trading advisors in respect of such assets); (B) Welton
is unable, to any material extent, to use its agreed-upon Trading Approach, as
such Trading Approach may be refined or modified in the future in accordance
with the terms of this Agreement for the benefit of the Partnership; (C)
Welton's registration as a commodity trading advisor under the CE Act, or
membership as a commodity trading advisor with the NFA is revoked, suspended,
terminated or not renewed; (D) the General Partners determine in good faith that
Welton has failed to conform to (i) the Partnership's Trading Policies or
limitations, as they may be revised or modified, or (ii) any agreed-upon Trading
Approach; (E) there is an unauthorized assignment of this Agreement by Welton;
(F) Welton dissolves, merges or consolidates with another entity or sells a
substantial portion of its assets, any portion of its Trading Approach utilized
by the Partnership or its business goodwill, in each instance without the
consent of the General Partners; (G) there is a change of control of Welton; (H)
Welton becomes bankrupt or insolvent; (I) Patrick Welton ceases to be an active
executive officer of Welton; or (J) the General Partners for any reason or for
no reason, in their sole discretion, terminate this Agreement by providing 30
days' written notice to Welton.
In addition, Welton has the right to terminate this Agreement at any time,
upon written notice to the Partnership in the event (i) of the receipt by Welton
of an opinion of independent counsel that solely by reason of Welton's
activities with respect to the Partnership, Welton is required to register as an
investment adviser under the Investment Advisers Act of 1940; (ii) that the Net
Asset Value of Partnership assets under Welton's management decreases by more
than 50% from the time trading commences solely as a result of a reallocation of
Partnership assets pursuant to Section 7 of this Agreement (I.E., not including
any decrease attributable to losses on commodity interest transactions directed
by Welton) immediately following any such reallocation; (iii) that the
registration of either General Partner as a commodity pool operator under the CE
Act, or its NFA membership as a commodity pool operator is revoked, suspended,
terminated or not renewed; (iv) that the General Partners elect (pursuant to
Section 1 of this Agreement) to have Welton use a different Trading Approach in
Welton's management of its allocable share of Partnership assets from that which
Welton is then using to manage such assets and Welton objects to using such
different Trading Approach; (v) that the General Partners override a trading
instruction of Welton pursuant to Section 1 of this Agreement for reasons
unrelated to a determination by the General Partners that Welton has violated
the Partnership's Trading Policies or limitations; (vi) that the General
Partners impose additional trading limitation(s) pursuant to Section 1 of this
Agreement which Welton does not agree to follow in its management of its
allocable share of Partnership assets; (vii) there is an unauthorized assignment
of this Agreement by the General Partners of the Partnership; or (viii) other
good cause is shown to which the written consent of the General Partners is
obtained.
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In the event that this Agreement is terminated with respect to, or by,
Welton pursuant to this Section 7, Welton shall be entitled to the Incentive
Fee, if any, which shall be computed as if the effective date of termination was
the last day of the then current calendar quarter. If this Agreement is
terminated on a day other than the last day of a calendar month, the Management
Fee described herein shall be determined as if such date were the end of a month
and such fee shall be pro-rated based on the ratio of the number of trading days
in the month through the date of termination to the total number of trading days
in the month. The rights of Welton to fees earned through the date of
expiration or termination shall survive this Agreement until satisfied.
8. FUNDS ALLOCATED TO MANAGEMENT OF WELTON. Initially, Welton shall be
allocated approximately thirty percent (30%) of the Partnership's assets to
manage in accordance with Section 1 of this Agreement. At any time thereafter,
in their sole discretion, the General Partners may reallocate assets of the
Partnership among the Partnership's trading advisors or among other additional
trading advisors which may be appointed without terminating this Agreement.
Welton may, however, in its sole discretion, refuse an increase in its
allocation of Partnership assets, whether resulting from a reallocation from the
other trading advisors or an allocation resulting from any sales of additional
Units subsequent to the close of the offering period (as defined in the
Prospectus). Welton agrees that (i) redemptions, distributions and payment of
Partnership expenses (except Management and Incentive Fees) shall be charged
against, and (ii) interest income earned by the Partnership shall be credited
to, the assets managed by Welton in what the General Partners determine to be as
close as practicable to Welton's proportionate share of the Partnership's assets
as of the time of the initial allocation or subsequent reallocation of these
assets. Any Management and Incentive Fees paid or payable by the Partnership to
Welton shall only be charged against the assets of Welton. In the event that
losses incurred by any CTA exceeds the assets allocated to the CTA, the General
Partners will withdraw the funds necessary to cover such excess losses from the
assets under the management of the other CTAs, including Welton, in proportion
to the amount of Partnership assets being managed by such CTA.
9. OTHER ACCOUNTS OF WELTON. Welton shall be free to manage and trade
accounts for other investors (including other public and private commodity
pools) during the term of this Agreement and to use the same or other
information and Trading Approach utilized in the performance of services for the
Partnership for such other accounts so long as Welton's ability to carry out its
obligations and duties to the Partnership pursuant to this Agreement is not
materially impaired thereby. Furthermore, neither Welton nor any shareholder,
partner, director, officer, employee or agent, as applicable, of Welton shall
cause or permit Welton to engage in any business enterprise not presently
engaged in which is unrelated to the giving of commodity advice or the operation
of commodity pools if such other business might reasonably be expected to have a
material adverse effect on Welton's ability to perform its obligations and
duties to the Partnership under this Agreement, unless it obtains the prior
written consent from the General Partners, which consent shall not be
unreasonably withheld. In addition, Welton, and its shareholders, partners,
directors, officers, employees and agents, as applicable, also will be permitted
to trade in Commodities for their own accounts so long as Welton's ability to
carry out its obligations and duties to the Partnership is not materially
impaired thereby.
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So long as Welton is performing services for the Partnership, it agrees
that it will not accept additional capital for management in the Commodities
markets if doing so would have a reasonable likelihood of resulting in Welton
having to modify materially the Trading Approach being used by Welton for the
Partnership in a manner which might reasonably be expected to have a material
adverse effect on the Partnership (without limiting the generality of the
foregoing, it is understood that this paragraph shall not prohibit the
acceptance of additional capital, which acceptance requires only routine
adjustments to trading patterns in order to comply with speculative position
limits or daily trading limits).
Welton agrees that, in its management of accounts other than the account of
the Partnership, Welton will not knowingly or deliberately favor any other
account managed or controlled by it or any of its principals or affiliates (in
whole or in part) over the Partnership on an overall basis. The preceding
sentence shall not be interpreted to preclude (i) Welton from charging another
client fees which differ from the fees to be paid to Welton hereunder, or (ii)
an adjustment by Welton in the implementation of any agreed upon Trading
Approach in accordance with the procedures set forth in Section 1 hereof, which
is undertaken by Welton in good faith in order to accommodate additional
accounts or adjustments deemed, in good faith, by Welton to be appropriate to
the management of a larger account. Welton, upon request, shall provide the
General Partners with an explanation of the material differences, if any, in
performance between the Partnership and any other comparable account for which
Welton or any of its principals or affiliates acts as a commodity trading
advisor (in whole or in part).
Upon the reasonable request of the General Partners, Welton shall provide
the General Partners with such information as they reasonably may request for
the purpose of confirming that the Partnership has been treated equitably
with respect to advice rendered during the term of this Agreement by Welton
for other accounts (including accounts of Welton or its shareholders,
partners, directors, officers, employees, and agents) managed by Welton,
which the parties acknowledge to mean that the General Partners may inspect
all records of Welton related to such other accounts during normal business
hours upon its prior written request. Welton may, in its discretion,
withhold from any such report or inspection the name of the client for whom
any such account is maintained and, in any event, the Partnership and the
General Partners shall keep all such information obtained by it from Welton
confidential.
10. SPECULATIVE POSITION LIMITS. If, at any time during the term of this
Agreement, it appears to Welton that it may be required to aggregate the
Partnership's Commodities positions it controls with the positions of any other
accounts it or any of its shareholders, partners, directors, officers,
11
<PAGE>
employees, or agents owns or controls for purposes of applying the speculative
position limits of the CFTC, any exchange, self-regulatory body, or governmental
authority, Welton will promptly notify the General Partners when the
Partnership's positions are first included in an aggregate amount which equals
or exceeds the applicable speculative limit and will promptly respond thereafter
to requests from the General Partners with respect to the percentage of the
applicable speculative limit reflected by the aggregate positions owned or
controlled by Welton or any of its shareholders, partners, directors, officers,
employees, or agents. Welton agrees that if its trading recommendations are
altered because of the potential application of speculative position limits,
Welton will modify its trading instructions to the Partnership and its other
accounts in a good faith effort to achieve an equitable treatment of all
accounts; Welton will liquidate Commodities positions and/or limit the taking of
new positions in all accounts it manages, including the Partnership, as nearly
as possible in proportion to the assets available for trading of the respective
accounts to the extent necessary to comply with applicable speculative position
limits. Welton presently believes and represents that its program for the
management of the Partnership's account can be implemented for the benefit of
the Partnership notwithstanding the possibility that, from time to time,
speculative position limits may become applicable.
11. BROKERAGE CONFIRMATIONS AND REPORTS. The General Partners will
instruct the Partnership's commodity broker or brokers to furnish Welton with
copies of all trade confirmations and monthly trading statements relating to the
Partnership's assets under the management of Welton. Welton will maintain
records and will monitor all open positions relating thereto.
12. WELTON'S REPRESENTATIONS AND WARRANTIES. Welton represents and
warrants that:
(a) it has full capacity and authority to enter into this Agreement,
and to provide the services required of it hereunder;
(b) it will not, by entering into this Agreement and by acting as a
commodity trading advisor to the Partnership, (i) be required to take any
action contrary to its incorporating document, or any applicable statute,
law or regulation of any jurisdiction or (ii) breach or cause to be
breached any undertaking, agreement, contract, statute, rule or regulation
to which it is a party or by which it is bound which, in the case of (i) or
(ii), would materially limit or materially adversely affect the performance
of its duties under this Agreement;
(c) it is duly registered as a commodity trading advisor under the CE
Act and is a member of the NFA as a commodity trading advisor, and it will
maintain and renew such registration and membership during the term of this
Agreement;
12
<PAGE>
(d) it has provided the Partnership with a copy of its most recent
Disclosure Document as required by Part 4 of the CFTC's regulations,
receipt of which is hereby acknowledged by the Partnership and the General
Partners; and
(e) the amount of Partnership assets to be allocated to Welton would
not, assuming that the Partnership's Net Asset Value is $43,148,000 as of
the commencement of trading by Welton, result in Welton being required to
alter its Trading Approach to a degree which reasonably could be expected
to have a material adverse effect on the Partnership.
The within representations and warranties shall be continuing during the
term of this Agreement, and, if at any time, any event has occurred which would
make or tend to make any of the foregoing not true, with respect to Welton,
Welton will promptly notify the Partnership in writing thereof.
13. THE GENERAL PARTNERS' REPRESENTATIONS AND WARRANTIES. Each General
Partner represents and warrants on behalf of the Partnership and itself that:
(a) it has the capacity and authority to enter into this Agreement;
(b) it will not, by acting as general partner to the Partnership, (i)
be required to take any action contrary to its incorporating documents or
any applicable statute, law or regulation of any jurisdiction, or (ii)
breach or cause to be breached any undertaking, agreement, contract,
statute, rule or regulation to which it or the Partnership is a party or by
which it or the Partnership is bound, which in the case of (i) or (ii),
would limit or materially affect the performance of its or the
Partnership's duties under this Agreement; and
(c) it is duly registered as a commodity pool operator under the CE
Act and is a commodity pool operator member of the NFA, and it will
maintain and renew such registration and membership during the term of this
Agreement.
The within representations and warranties shall be continuing during the
term of this Agreement, and, if at any time, any event has occurred which would
make or tend to make any of the foregoing not true, the General Partner with
respect to which such representation or warranty is no longer true promptly will
notify Welton in writing.
14. ASSIGNMENT. This Agreement may not be assigned by any party without
the express prior written consent of the other parties.
15. SUCCESSORS. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors and permitted assigns of each
of them, and no other person (except as otherwise provided herein) shall have
any right or obligation under this Agreement. The terms "successors" and
"assigns" shall not include any purchasers, as such, of Units.
13
<PAGE>
16. AMENDMENT OR MODIFICATION. This Agreement may not be amended or
modified except by the written consent of the parties. Welton shall receive a
copy of all proposed and final amendments and modifications to this Agreement so
long as it is an advisor to the Partnership.
17. NOTICES. Each notice, request, demand, approval or other
communications which may be or is required to be given under this Agreement
shall be in writing in English and shall be deemed to have been properly given
when delivered personally at the address set forth below for the intended party
during normal business hours at such address, when sent by facsimile or other
electronic transmission to the respective facsimile transmission numbers of the
parties set forth below with telephone confirmation of receipt, or when sent by
recognized overnight international courier service or by prepaid registered air
mail, return receipt requested, postage prepaid, addressed as follows:
If to CISI:
CIS Investments, Inc.
233 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
Attention: Barbara A. Pfendler
Facsimile: (312) 460-4939
Confirm: (312) 460-4926
with a copy to:
Chapman and Cutler
111 West Monroe Street
Suite 1600
Chicago, Illinois 60603-4080
Attention: Paul C. Kosin
Facsimile: (312) 701-2361
Confirm: (312) 845-3791
If to the Partnership:
IDS Managed Futures, L.P.
233 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
Attention: Barbara A. Pfendler
Facsimile: (312) 460-4939
Confirm: (312) 460-4926
14
<PAGE>
with a copy to:
Chapman and Cutler
111 West Monroe Street
Suite 1600
Chicago, Illinois 60603-4080
Attention: Paul C. Kosin
Facsimile: (312) 701-2361
Confirm: (312) 845-3791
If to IDS Futures:
IDS Tower 10
Minneapolis, Minnesota 55440
Attention: Ronald Powell, Esq.
Facsimile: (612) 671-3767
Confirm: (612) 671-2088
If to Welton:
via regular mail
Welton Investment Corporation
P.O. Box 6147
Carmel, California 93921-6147
Attention: Patrick Welton
Facsimile: (408) 626-5199
Confirm: (408) 626-5190
via courier service
Welton Investment Corporation
Eastwood Building, 2nd Floor
San Carlos Between 5th and 6th
Carmel, California 93921-6147
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
17th Floor
New York, New York 10022
Attention: Fred M. Santo
Facsimile: (212) 940-7079
Confirm: (212) 940-8720
15
<PAGE>
Notices shall be given to such other addressee or address, or both, or by way of
such other facsimile transmission number, as a particular party may from time to
time designate by written notice to the other parties hereto. Each notice,
request, demand, approval or other communication which is sent in accordance
with this Section shall be deemed given and received for all purposes of this
Agreement as of five business days after the date of deposit thereof for prepaid
registered air mail in a duly constituted post office or branch thereof in the
county of origin of the sending party, two business days after deposit with a
recognized overnight international courier service or, in the case of a
facsimile transmission, the earlier of (i) confirmation of receipt of said
facsimile transmission by the intended recipient thereof or a person at the same
business address as said intended recipient; or (ii) electronic verification by
the sender's facsimile machine of the receipt of said facsimile transmission by
the intended recipient's facsimile machine; PROVIDED, HOWEVER, that any such
electronic verification which does not occur prior to 5:00 p.m. (local time of
the recipient thereof) on a business day shall be deemed to have occurred at
9:00 a.m. (local time of the recipient thereof) on the next business day
following the date of such electronic verification. Notice given to a party
hereto by any other method shall only be deemed to be given and received when
actually received in writing by such party.
18. GOVERNING LAW. The parties agree that this Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
without regard to conflict of laws principles.
19. SURVIVAL. The provisions of this Agreement shall survive the
termination of this Agreement with respect to any matter arising while this
Agreement was in effect.
20. PROMOTIONAL MATERIAL. Welton agrees that prior to using any
promotional literature in which reference to the Partnership is made (other than
a simple statement to the effect that Welton is an advisor to the Partnership or
solely in the context of the preparation of required performance tables and
notes thereto and descriptions thereof), Welton shall furnish a copy of such
information to the General Partners and will not make use of any literature
containing references to the Partnership to which the General Partners
reasonably object, except as otherwise required by law or regulation.
21. NO WAIVER. No failure or delay on the part of any party hereto 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 rights power or remedy. Any waiver granted hereunder must be in writing
and shall be valid only in the specific instance in which given.
16
<PAGE>
22. HEADINGS. Headings to Sections herein are for the convenience of the
parties only, and are not intended to be or to affect the meaning or
interpretation of this Agreement.
23. COMPLETE AGREEMENT. Except as otherwise provided herein, this
Agreement and the Representation Agreement contemplated in the last paragraph of
Section 3 constitutes the entire agreement between the parties with respect to
the matters referred to herein, and no other agreement, verbal or otherwise,
shall be binding upon the parties hereto.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which, when
taken together, shall constitute one original instrument.
25. BEST EFFORTS. As used in this Agreement, "BEST EFFORTS" shall mean
the efforts that a prudent person or entity desirous of achieving a result would
reasonably use in similar circumstances in order to achieve such result as
expeditiously as possible; PROVIDED, HOWEVER, that an obligation to use best
efforts under the Agreement does not require the person or entity subject to
that obligation to incur any substantial financial obligations or any onerous
non-financial obligations or to waive any material rights.
26. The General Partners acknowledge that they have received the commodity
trading advisor disclosure document of Welton. The General Partners further
acknowledge that Welton uses different proprietary trading programs and that
these different trading programs may achieve different trading results.
17
<PAGE>
IN WITNESS WHEREOF, this Advisory Contract has been executed for and on
behalf of the undersigned as of the day and year first above written.
IDS MANAGED FUTURES, L.P. WELTON INVESTMENT CORPORATION
CIS INVESTMENTS, INC.,
General Partner
By: /s/ Barbara A. Pfendler By: /s/ Patrick L. Welton
Its Vice President Its C.E.O.
IDS FUTURES CORPORATION,
General Partner
By /s/ Michael L. Weiner
Its Vice President
CIS INVESTMENTS, INC.
By: /s/ Barbara A. Pfendler
Its Vice President
IDS FUTURES CORPORATION
By: /s/ Michael L. Weiner
Its Vice President
18
<PAGE>
EXHIBIT A
DIVERSIFIED PORTFOLIO
The Diversified Portfolio manages investors assets through exposure to
the widest spectrum of futures markets spanning all major market sectors.
Multiple trading strategies are employed in an attempt to profitably
participate in a variety of market conditions. This emphasis on market and
methodological diversification epitomizes WISC's core principles in advising
on investor assets in the global marketplace.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATES CURRENCIES STOCK PRECIOUS AND ENERGY MEATS GRAINS SOFTS
Australian Bond Australian Dollar INDICES INDUSTRIAL Crude Oil Live Cattle Azuki Beans Coca
Australian T-Bill British Pound All Ordinaries METALS Heating Oil Live Hogs Corn Coffee
British Long Gilt Canadian Dollar CAC 40 Aluminum Natural Gas Soybean Meal Cotton
Canadian Gov't Dollar Index DAX Copper Unleaded Gas Soybean Oil Lumber
Bond German Mark Hang Seng Gold Soybeans Orange Juice
Eurodollar Japanese Yen London FTSE Lead Wheat Rubber
Eurolira Mark-Lira MIB 30 Nickel World Sugar
Euromark Mark-Paris Nasdaq 100 Platinum
Euroswiss Mark-Swedish Nikkei Silver
Euroyen Krona S&P 500 Tin
French Bond Mark-Swiss Franc Zinc
German Bond Mark-Yen
Italian Gov't Bond Mexican Peso
Japanese Gov't Sterling-Mark
Bond Swiss Franc
PIBOR
Short Sterling
Spanish Gov't Bond
US Treasury Bond
</TABLE>
19
<PAGE>
EXHIBIT B
TRADING POLICIES
The objective of the Fund is to achieve substantial appreciation of its
assets through speculative trading in commodity interests, including futures
contracts, forward contracts, physical commodities and related options thereon
on major United States and certain foreign commodity exchanges and in the
interbank forward markets. Commodity interests may include any instruments and
items which are now, or may hereafter be, the subject of futures trading, such
as physical commodities, Treasury bills, mortgage-backed securities, foreign
currencies, options and indexes on securities. The Fund will attempt to
accomplish its objective by following the Trading Policies set forth below:
(i) Fund assets will be invested only in futures contracts which are
traded in sufficient volume to permit, in the independent opinions of each
Trading Advisor, ease of taking and liquidating positions. Each Trading
Advisor may at any time independently determine to expand or reduce the
number of commodity interests traded by that portion of the Fund's assets
under its control.
(ii) No Trading Advisor will acquire on behalf of the Fund additional
positions in any commodity if such additional positions, when added to the
existing open positions initiated by the Trading Advisor, would result in a
net long or short position for that commodity requiring as margin or
premiums more than 15% of the Fund's assets allocated to that Trading
Advisor's management. For purposes of implementing this policy, soybeans
will be treated as one commodity and soybean oil and soybean meal will be
treated together as one commodity.
(iii) The Fund will not normally be as highly leveraged as
permitted in the case of an investment by an individual. On the basis of
information supplied by the Trading Advisors, the General Partners estimate
that between 20% and 60% of the Fund's assets will normally be committed as
initial margin (although the percentage may be more or less than such range
from time to time). This requirement may be changed and, to reduce the
Clearing Broker's risk, additional restrictions on the leverage of the Fund
may be imposed by the Clearing Broker without notice at any time.
(iv) No Trading Advisor will acquire on behalf of the Fund additional
positions in any commodity interest if such additional positions, when
added to the existing open positions initiated by the Trading Advisor,
would result in aggregate net long or short positions (including any
forward contracts) for all commodities requiring as margin or premiums more
than 66-2/3% of the Fund's assets allocated to that Trading Advisor's
management.
<PAGE>
(v) The Fund will not generally enter into an open position for a
particular commodity during a delivery month for that commodity. However,
the Fund may occasionally make or accept delivery of a commodity. This may
occur because a Trading Advisor's trading strategies may, from time to
time, identify certain trends which occur in delivery months which can be
taken advantage of by the Fund. The Fund may take delivery of a commodity
and take a corresponding short position in the commodity by selling futures
contracts for the commodity. The Fund will not engage in cash commodity
transactions, except as indicated above, unless the cash position is
hedged.
(vi) The Fund will not employ the trading technique, commonly known as
"pyramiding," in which the speculator uses unrealized profits on existing
positions as margin for the purchase or sale of additional positions in the
same or a related commodity. However, a Trading Advisor may take into
account the Fund's open trade equity in assets of the Fund in determining
whether to acquire additional commodity futures contracts on behalf of the
Fund.
(vii) The Fund will not purchase, sell or trade in securities or
write, purchase, sell or trade in options to purchase or sell securities,
commodity futures contracts or physical commodities unless such options
have been approved for trading on a designated contract market by the CFTC.
The Fund may trade in foreign options if permitted under the Commodity
Exchange Act, as amended, and CFTC regulations, but only when and to the
extent authorized in writing by the General Partners to the Trading
Advisors. The Fund may trade in futures contracts on securities.
(viii) The Fund will not generally utilize borrowings, except for
short-term borrowings where the Fund takes delivery of any cash commodity
or to the extent that the Fund's Clearing Broker obtains lines of credit
for the trading of forward contracts with banks. The Fund will not make
any loans.
(ix) A Trading Advisor may, from time to time, employ trading
techniques such as spreads or straddles on behalf of the Fund. The term
"spread" or "straddle" describes a transaction involving the simultaneous
buying and selling of commodity interests dealing with the same or a
different commodity interest but involving different delivery dates or
markets, and in which the trader expects to earn profits from a widening or
narrowing movement of the two prices of the commodity interests. See
"FEDERAL INCOME TAX CONSIDERATIONS--PARTNERSHIP TAXATION: ALLOCATION OF
FUND PROFITS AND LOSSES" for a discussion of the tax effects of such
trading.
B-2
<PAGE>
(x) The Fund may trade in futures contracts on foreign currencies
through foreign and domestic commodity exchanges, including the
International Monetary Market Division of the Chicago Mercantile Exchange.
The Fund may also establish positions in foreign currencies through banks
or in the interbank market. Forward contracts on foreign currencies will
be transacted only with banks having in excess of $100,000,000 in combined
capital and surplus. No specific limitation on the percentage or amount of
forward contracts, if any, engaged in by the Fund has been imposed.
(xi) The Fund's assets will not be commingled with the assets of any
other person; funds used to satisfy margin requirements will not be
considered commingled for this purpose.
(xii) No Trading Advisor to the Fund will be permitted to engage
in churning the Fund's assets (I.E., direct excessive trading for the
purpose of generating brokerage commissions without regard for the best
interests of the Fund).
(xiii) No rebates or give ups may be paid to or received by the
General Partners, nor may the General Partners participate in any
reciprocal business arrangements which could circumvent this prohibition,
but retention of Cargill Investor Services, Inc. to act as the Fund's
clearing broker and the retention of American Express Financial Advisors
Inc. to act as the Fund's introducing broker shall not be deemed to violate
this prohibition.
B-3
<PAGE>
EXHIBIT 10.2
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (herein the "AGREEMENT") entered into on the 30th
day of July, 1997, by and between IDS MANAGED FUTURES, L.P.
(herein the "PARTNERSHIP"), AMERICAN EXPRESS FINANCIAL ADVISORS INC. (herein the
"SELLING AGENT"), and FIRST TRUST NATIONAL ASSOCIATION, a national banking
association (herein the "ESCROW AGENT"), all being duly authorized to execute
and deliver this Agreement.
WITNESSETH:
The duties and responsibilities of the Escrow Agent shall be limited to
those expressly set forth in this Agreement. No implied duties of the Escrow
Agent shall be read into this Agreement and the Escrow Agent shall not be
subject to, or obliged to recognize any other agreement between, or direction or
instruction of, any or all of the parties hereto even though reference thereto
may be made herein.
The Escrow Agent may consult with legal counsel of its own choosing and
shall be fully protected in acting or refraining from acting in good faith and
in accordance with the opinion of such counsel.
DUTIES AND RESPONSIBILITIES OF ESCROW AGENT
As Escrow Agent, you are hereby directed to hold, deal with and dispose of
the aforesaid property and any other property at any time held by you hereunder
in the following manner, subject, however, to the terms and conditions
hereinafter set forth:
1. Escrow Agent shall receive the proceeds of subscriptions to the
Partnership for the duration of the offering period. The Escrow Agent shall
segregate subscriptions received according to the dates Selling Agent receives
the subscriptions. Such subscriptions shall be grouped from and after the 11th
calendar day of the month through and including the 10th calendar day of the
next succeeding calendar month ("MONTHLY GROUPS"). If the 10th calendar day
falls on a holiday or weekend, the Monthly Group shall be extended to the next
business day, and the succeeding Monthly Group shall commence on the day after
the last day of the preceding Monthly Group. The Escrow Agent shall pay and
deliver to the Partnership on the last business day of each calendar month,
subscriptions received by the Selling Agent from the Subscribers comprising the
Monthly Group from which subscriptions were received prior to the 11th calendar
day of the month.
Escrow Agent shall pay to subscribers or, at their discretion, to Selling
Agent any interest earnings equal to or exceeding $10.00. Subscription checks
must be made payable to "First Trust National Association, St. Paul, Minnesota
as escrow agent for IDS Managed Futures, L.P."
2. Prior to delivery of the escrowed Proceeds to the Partnership as
described above, the Partnership shall have no title to nor interest in the
Proceeds on deposit in this escrow or in any interest earned thereon, and such
Proceeds and interest shall under no circumstances be subject to the liabilities
or indebtedness of the Partnership.
3. The Escrow Agent shall cause all Proceeds deposited with it pursuant
to this Agreement to be maintained and invested as the General Partners of the
Partnership shall from time to time direct, by certificate executed by an
officer of each General Partner and delivered to the Escrow Agent, in
certificates of deposit, savings accounts, direct United States Government
obligations, money market funds, or other interest-bearing instruments, which
can be readily liquidated so that 100% of the Proceeds so deposited and interest
thereon can if necessary, be returned to the subscribers in accordance with
paragraph 4 below. The Escrow Agent will incur no liability for any loss
suffered so long as the Escrow Agent follows such directions. In the event that
100% of the Proceeds so deposited is not realized upon such liquidation, the
General Partners shall pay the difference into this escrow for distribution to
the subscribers.
4. At any time prior to the termination of this escrow, for whatever
reason, the General Partners may notify the Escrow Agent that a subscription
agreement of a subscriber has not been accepted and such General Partners may
direct the Escrow Agent to return as soon thereafter as may be practicable any
such proceeds held in this escrow for the benefit of such subscriber directly to
such subscriber, without interest.
5. The offering period shall mean a period commencing _______________,
1997 and ending July 31, 1999 or such earlier date if the total amount
of Units registered are sold.
6. The Escrow Agent shall not be obligated to inquire as to the form,
manner of execution or validity of any documents herewith or hereafter deposited
pursuant to the provisions hereof, nor shall the Escrow Agent be obliged to
inquire as to the identity, authority or rights of the persons executing the
same. Said Escrow Agent shall be liable under this Agreement only for its
failure to exercise due care in the performance of its duties expressly set
forth in this Agreement. In case of conflicting demands upon it, said Escrow
Agent may withhold performance of this escrow until such time as said
conflicting demands shall have been withdrawn or the rights of the respective
parties shall have been settled by court adjudication, arbitration, joint order
or otherwise.
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<PAGE>
7. Any notice required or permitted to be given hereunder shall be
delivered by messenger, or dispatched by registered mail, cable or telex, to the
respective party at its address specified below, namely: if to First Trust
National Association, addressed to the attention of Tom Gronlund, Corporate
Trust Administration 2nd Floor, 180 E. Fifth Street, St. Paul, Minnesota 55101;
if to the Partnership or the General Partners, to them at CIS Investments, Inc.,
233 South Wacker Drive, Suite 2300, Chicago, Illinois 60606, Attention: Carlton
Anderson and IDS Futures Corporation, IDS Tower 10, Minneapolis, Minnesota
55440, Attention: Ronald W. Powell; if to American Express Financial Advisors
Inc., to it at IDS Tower 10, Minneapolis, Minnesota 55440, Attention: Ronald W.
Powell; or at such other address as such party may have furnished in writing to
each of the other parties hereto. Any notice so given shall be effective when
received.
8. Your fees as Escrow Agent shall be determined in accordance with, and
shall be payable as specified in, the Schedule of Fees for Escrow Services
attached hereto as Exhibit A and hereby made a part hereof. You shall also be
reimbursed by the Partnership for any reasonable expenses incurred in connection
with this Agreement, including but not limited to the reasonable cost of legal
services should you deem it necessary to retain counsel.
9. You shall not be liable for any action taken or omitted by you in good
faith in accordance with the advice of your counsel and in no event shall you be
liable or responsible except for your own negligence or willful misconduct. You
shall not be responsible for any loss to the Proceeds resulting from the
investment hereof in accordance with the terms of this Agreement.
10. The Partnership and the General Partners warrant to and agree with you
that, unless otherwise expressly set forth in this Agreement: there is no
security interest in the Proceeds or any part thereof; no financing statement
under the Uniform Commercial Code is on file in any jurisdiction claiming a
security interest in or describing (whether specifically or generally) the
Proceeds or any part thereof; and you shall have no responsibility at any time
to ascertain whether or not any security interest exists in the Proceeds or any
part thereof or to file any financing statement under the Uniform Commercial
Code with respect to the Proceeds or any part thereof.
11. The Escrow Agent's duties and responsibilities shall be limited to
those expressly set forth in this Agreement, and the Escrow Agent shall not be
subject to, nor obliged to recognize, any other agreement between, or direction
or instruction of, any or all of the parties hereto; PROVIDED, HOWEVER, with the
Escrow Agent's written consent, this Agreement may be amended at any time or
times by an instrument in writing signed by all the undersigned.
12. If any property subject hereto is at any time attached, subject to
garnishment or levied upon, under any court order, or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, or in case any order, judgment or decree
shall be made or entered by any court affecting such property, or any part
thereof, then in any such events, the Escrow Agent is authorized to rely upon
and comply with any such order, writ, judgment or decree, which it is advised by
legal counsel of its own choosing is binding upon it, and if it complies with
any such order, writ, judgment or decree, it shall not be liable to any of the
parties hereto or any other person, firm, or corporation by reason of such
compliance, even though such order, writ, judgment or decree may be subsequently
reversed, modified, annulled, set aside or vacated.
3
<PAGE>
13. This Agreement shall be construed, enforced, and administered in
accordance with the laws of the State of Minnesota applicable to contracts.
14. The Escrow Agent may resign by giving thirty days written notice by
registered or first class mail sent to the undersigned at their respective
addresses herein set forth; and thereafter shall deliver all remaining deposits
in said escrow to a successor escrow agent acceptable to all parties hereto
which acceptance shall be evidenced by the joint written and signed order of the
undersigned. If no such order is received by the Escrow Agent within thirty
days after mailing such notice, it is unconditionally and irrevocably authorized
and empowered to send any and all items deposited hereunder by registered mail
to the respective depositors thereof.
15. The Escrow Agent is not required to separately record on its books the
name, address and amount of each subscription as received, but shall keep
documents necessary to evidence the name and address of each subscriber, the
aggregate amount of his or her subscription, and the date such subscription was
received.
16. The Partnership may terminate this Agreement for any reason upon
thirty days written notice to the Escrow Agent.
INDEMNIFICATION
1. In conjunction with the solicitation of subscriptions, Selling Agent
obtains a W-9 Certification from each subscriber including the Internal
Revenue Service ("IRS") Tax I.D. Number ("TIN") satisfactory to the IRS and
forwards this information on the subscription form to Escrow Agent for its
requirements to the IRS. Selling Agent makes its best effort to report to
Escrow Agent the correct TIN for each subscriber as reported on the W-9
Certification.
2. The original W-9 Certification is to be retained by the Selling Agent
and no copy of the W-9 Certification will be provided to the Escrow Agent.
3. Escrow Agent relies upon the veracity of the TIN numbers as reported
by the Selling Agent in making its annual income tax reports to the IRS as
required by law.
NOW, THEREFORE, the undersigned jointly represent, state and agree as
follows:
4
<PAGE>
1. Selling Agent certifies to Escrow Agent that it has a W-9
Certification for each subscriber it has reported to Escrow Agent in accordance
with the Escrow Agreement.
2. Selling Agent represents that the subscriber TIN which it certifies to
Escrow Agent is the true and accurate number reported to it on the W-9
Certificate in its custody.
3. Selling Agent agrees to indemnify and hold Escrow Agent harmless from
any and all liabilities, expense or penalty Escrow Agent may incur arising from
Escrow Agent's use of the TIN numbers provided by Selling Agent to Escrow Agent
which are different from those certified to Selling Agent.
4. Selling Agent does not indemnify Escrow Agent for use of a TIN
incorrectly reported by an investor on the form W-9 certification or in
connection with any usage of any TIN by Escrow Agent which is not in compliance
with state or federal regulations.
This Agreement shall not become effective (and you shall have no
responsibility hereunder except to return the property deposited in escrow to
the subscribers) until you shall have received the following and shall have
advised each of the Partnership and the General Partners in writing that the
same are in form and substance satisfactory to you: (1) a certified resolution
of the General Partners' boards of directors authorizing the making and
performance of this Agreement and (2) a certificate as to the names and specimen
signatures of its officers or representatives authorized to sign this Agreement
and notices, instructions and other communications hereunder.
This Agreement shall terminate upon completion of this offering or as
otherwise provided by written instruction from the General Partners to the
Escrow Agent.
Dated: July 30, 1997
5
<PAGE>
Parties to the Escrow
IDS MANAGED FUTURES, L.P.
By: CIS Investments, Inc.
General Partner
/s/ Barbara A. Pfendler
---------------------------------
Its Vice President
BY: IDS FUTURES CORPORATION
General Partner
/s/ Lori J. Larson
---------------------------------
Its President
CIS INVESTMENTS, INC.
By /s/ Barbara A. Pfendler
---------------------------------
Its Vice President
IDS FUTURES CORPORATION
By /s/ Lori J. Larson
---------------------------------
Its President
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By /s/ Lori J. Larson
Its Vice President
Accepted:
FIRST TRUST NATIONAL ASSOCIATION
By /s/ Tom Gronlund
Its Vice President
<PAGE>
EXHIBIT A
SCHEDULE OF FEES FOR ESCROW SERVICES
Acceptance Fee $500.00
Administrative Fee $10.00 per Subscription
CHARGES
Cash Management 25 Basis Points
(.0025 deducted from investment earnings)
Wires Disbursed $20.00 Each
Out-of-Pocket Expenses At Cost
SUBJECT TO CHANGE AFTER TWO (2) YEARS.
<PAGE>
<PAGE>
EXHIBIT 10.7
REPRESENTATION AGREEMENT
CONCERNING THE REGISTRATION STATEMENT
AND THE PROSPECTUS
THIS REPRESENTATION AGREEMENT is dated as of the ____ day of July, 1997
(hereinafter referred to as the "AGREEMENT"), by and among IDS Managed Futures,
L.P., a Delaware limited partnership (the "PARTNERSHIP"), American Express
Financial Advisors Inc. ("AEFA"); CIS Investments, Inc., a Delaware corporation
("CISI"); Cargill Investor Services, Inc., a Delaware corporation ("CIS"); IDS
Futures Corporation, a Minnesota corporation ("IDS FUTURES") (CISI and IDS
Futures are collectively referred to as the "GENERAL PARTNERS" and individually
referred to as a "GENERAL PARTNER") and Welton Investment Corporation, a
Delaware corporation ("WELTON").
WITNESSETH:
WHEREAS, the Partnership and the General Partners entered into an Advisory
Contract with Welton, dated as of July 2, 1997, (the "ADVISORY AGREEMENT"),
pursuant to which Welton has agreed to act as a commodity trading advisor to the
Partnership with respect to the assets of the Partnership which the General
Partners allocate to Welton's management for trading purposes; and
WHEREAS, the Partnership is engaged in a continuous public offering (the
"OFFERING") of units of limited partnership interest in the Partnership (the
"UNITS") through AEFA, an affiliate of IDS Futures. In connection therewith on
November 29, 1994, the Partnership filed with the United States Securities and
Exchange Commission (the "SEC"), pursuant to the United States Securities Act of
1933, as amended (the "1933 ACT"), a registration statement on Form S-1, File
No. 33-86894, and on June 26, 1995 filed Amendment No. 1 to such registration
statement to register the Units, and as a part thereof a prospectus (which
registration statement, together with all amendments thereto, shall be referred
to herein as the "REGISTRATION STATEMENT" and which prospectus, together with
all amendments and
<PAGE>
supplements thereto, in the forms filed with the SEC pursuant to Rule 424
under the 1933 Act shall be referred to herein as the "PROSPECTUS"); and
WHEREAS, the parties hereto wish to set forth their duties and obligations
to each other with respect to the Registration Statement and the Prospectus.
NOW, THEREFORE, the parties agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF WELTON. Welton hereby
represents and warrants to AEFA, CIS, the Partnership and the General
Partners that:
(a) All references in the Prospectus to (i) Welton and its
affiliates and the controlling persons, shareholders, partners,
directors, officers and employees of any of the foregoing (as
applicable), (ii) Welton's trading systems and methods (hereinafter
referred to as Welton's "TRADING APPROACH") and (iii) the actual past
performance of discretionary accounts directed by Welton pursuant to
the Diversified Portfolio, including the notes to the table reflecting
such actual past performance (hereinafter referred to as Welton's
"PAST PERFORMANCE HISTORY"), are complete and accurate in all material
respects and as to such persons, the Trading Approach and the Past
Performance History, the Registration Statement and Prospectus contain
all information required to be included therein by the Commodity
Exchange Act, as amended (the "CE ACT"), and the regulations
thereunder, and do not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which they were made) not
misleading. The term "principal" in this Agreement shall have the
same meaning as that term in
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<PAGE>
Commodity Futures Trading Commission ("CFTC") Regulation
Section 4.10(e) under the CE Act.
(b) Welton will make no use of and will not distribute the
Registration Statement, the Prospectus or the selling materials
related thereto.
(c) This Agreement has been duly and validly authorized,
executed and delivered on behalf of Welton and is a valid and binding
agreement enforceable in accordance with its terms except as may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or similar laws at the time in effect affecting the
enforceability generally of rights of creditors, or by applicable
general equity principles, and except that the enforceability of
indemnification provisions may be limited under applicable federal or
state securities, commodities or other laws. The performance of
Welton's obligations under this Agreement and the consummation of the
transactions set forth in this Agreement, in the Advisory Agreement
and in the Prospectus are not contrary to the provisions of Welton's
formation documents, as applicable, or to the best of its knowledge,
after due inquiry, any applicable statute, law or regulation of any
jurisdiction, and will not result in any violation, breach or default
under any term or provision of any undertaking, contract, agreement or
order to which Welton is a party or by which Welton is bound.
(d) Welton has all governmental and regulatory licenses,
registrations and approvals required by law as may be necessary to
perform its obligations under the Advisory Agreement and this
Agreement and to act as described in the Prospectus (including,
without limitation, registration as a commodity
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<PAGE>
trading advisor under the CE Act and membership as a commodity
trading advisor with the National Futures Association ("NFA")).
(e) Welton is, and at all times through the final monthly
closing date of the Offering and during the term of this Agreement and
the Advisory Agreement will be, a corporation duly formed and validly
existing and in good standing under the laws of Delaware and in good
standing and qualified to do business in each jurisdiction in which
the nature or conduct of its business requires such qualifications and
the failure to be so qualified would materially adversely affect
Welton's ability to perform its obligations hereunder or under the
Advisory Agreement. Welton has full capacity and authority to conduct
its business and to perform its obligations under the Advisory
Agreement and this Agreement, and to act as described in the
Prospectus.
(f) Welton has supplied to or made available for review by the
General Partners and AEFA all documents, statements, agreements and
workpapers requested by them relating to all accounts covered by
Welton's Past Performance History which are in Welton's possession or
to which it has access.
(g) Without limiting the generality of paragraph (a) of this
Section 1, neither Welton nor any of its principals has managed,
controlled or directed, on an overall discretionary basis, the trading
for any commodity account which is required by CFTC regulations and
the rules and regulations under the 1933 Act to be disclosed in the
Registration Statement and the Prospectus which is not set forth in
the Registration and the Prospectus as required.
(h) Welton does not provide any services to any persons or
conduct any business involving advice with respect to investments
other than
-4-
<PAGE>
commodities (as defined in Section 2(a)(1) of the CE Act),
commodity interests (as defined in CFTC Regulation Section 4.10(a)
under the CE Act), and forward contracts on foreign currencies, except
as has been disclosed in writing to the General Partners. Welton is
not required to be registered as an investment adviser under the
United States Investment Advisers Act of 1940, as amended (the
"ADVISERS ACT") or any state law.
(i) As of the date hereof, there has been no material change in
Welton's Past Performance History as set forth in the Registration
Statement or in the Prospectus under the caption "Past Performance of
JWH and Welton" which has not been communicated in writing to and
received by the General Partners and AEFA or their counsel.
(j) Patrick Welton devotes, and will continue to devote, during
the term of the Advisory Agreement and this Agreement, a substantial
portion of his time to the conduct of the business of Welton.
(k) Since the date of the Advisory Agreement, (i) there has not
been any material adverse change in the condition, financial or
otherwise, of Welton or in the earnings, affairs or business prospects
of Welton, whether or not arising in the ordinary course of business,
and (ii) there have not been any material transactions entered into by
Welton other than those in the ordinary course of its business which
have not previously been disclosed by Welton in writing to the General
Partners.
(l) Except as disclosed in the Registration Statement and the
Prospectus, there is no pending, or to the best knowledge of Welton,
after due inquiry, threatened or contemplated action, suit or
proceeding before or by any court, governmental, administrative or
self-regulatory body or arbitration panel to which Welton or its
principals is a party, or to which any of the assets of
-5-
<PAGE>
Welton is subject which might reasonably be expected to result in
any material adverse change in the condition (financial or
otherwise), business or prospects of Welton or might reasonably be
expected to materially adversely affect any of the material assets
of Welton or which might reasonably be expected to (A) materially
impair Welton's ability to discharge its obligations to the
Partnership, or (B) result in an action, suit or proceeding which
would require disclosure in the Registration Statement and/or the
Prospectus; and Welton has not received any notice of an
investigation by (i) the NFA regarding non-compliance with its rules
or the CE Act, (ii) the CFTC regarding non-compliance with the CE
Act, or the rules and regulations thereunder, or (iii) any exchange
regarding non-compliance with its rules, which investigation might
reasonably be expected to (A) materially impair Welton's ability to
discharge its obligations to the Partnership or (B) result in a
matter which would require disclosure in the Registration Statement
and/or the Prospectus.
2. COVENANTS OF WELTON. If, at any time during the term of the
Advisory Agreement or this Agreement, Welton discovers any fact or
omission, or any event or change of circumstances has occurred which would
make Welton's representations and warranties in Section 1 inaccurate or
incomplete in any material respect, or which might render the Prospectus,
with respect to (i) Welton or its principals, (ii) Welton's Trading
Approach, or (iii) Welton's Past Performance History, untrue or misleading
in any material respect, Welton will provide immediate written notification
to the Partnership, the General Partners, CIS and AEFA of any such fact,
omission, event or change of circumstance, and the facts related thereto,
and it is agreed that the failure to provide such notification or the
failure to continue to be in compliance with the
-6-
<PAGE>
foregoing representations and warranties during the term of the Advisory
Agreement or this Agreement within a reasonable time following such
notification shall be cause for the Partnership and the General Partners
to terminate the Advisory Agreement with Welton on prior written notice
to Welton. Welton also agrees that from and after the Effective Date of
the Registration Statement and until the final monthly closing date of
the Offering, it will provide AEFA, the Fund and the General Partners
with updated month-end information relating to the management by Welton
of its Past Performance History as disclosed in the performance tables
relating to the performance of Welton in the Prospectus under the caption
"Past Performance of JWH and Welton." Welton shall use its best efforts
to provide such information within a reasonable period of time after the
end of the month to which such updated information relates and agrees to
provide such information in a format which conforms to the past
performance tables relating to Welton appearing in the Prospectus.
3. MODIFICATION OF REGISTRATION STATEMENT OR PROSPECTUS. If any
event or circumstance occurs as a result of which it becomes necessary, in
the judgment of the General Partners and AEFA, to amend the Registration
Statement in order to make the Registration Statement not materially
misleading or to amend or to supplement the Prospectus in order to make the
Prospectus not materially misleading in light of the circumstances existing
at the time it is delivered to a subscriber, including any such amendment
or supplement required to satisfy the requirement pertaining to commodity
pool operator disclosure documents under the CE Act, as amended, subject to
the limitations set forth in the Advisory Agreement, Welton will furnish
such information with respect to itself and its principals, as well as its
Trading Approach
-7-
<PAGE>
and Past Performance History as the General Partners or AEFA may
reasonably request, and will cooperate to the extent reasonably
necessary in the preparation of any required amendments or supplements to
the Registration Statement and/or the Prospectus.
4. WELTON'S CLOSING OBLIGATIONS. On or prior to the initial monthly
closing with respect to the Offering that Welton manages assets of the
Partnership pursuant to the Advisory Contract ("INITIAL CLOSING DATE"),
Welton shall deliver or cause to be delivered, at the expense of Welton, to
AEFA, the Partnership, and CIS and the General Partners, the reports,
certificates, documents and opinions described below addressed to them and,
except as may be set forth below, dated the Initial Closing Date:
(a) A report from Welton which shall present, for the period
from the date after the last day covered by such Advisor's Past
Performance History as set forth under "Past Performance of JWH and
Welton" in the Prospectus to the latest practicable day before the
Initial Closing Date, figures which shall show the estimated past
performance of Welton for such period, and which shall certify that,
to the best of its knowledge, such figures are complete and accurate
in all material respects.
(b) A certificate of Welton in the form proposed prior to the
Initial Closing Date by counsel to AEFA, the Partnership, CIS and the
General Partners, with such changes in such form as are proposed by
Welton or its counsel and are acceptable to AEFA, the Partnership, CIS
and the General Partners and their counsel so as to make such form
mutually acceptable to
-8-
<PAGE>
AEFA, the Partnership, CIS, the General Partners, Welton, and their
respective counsel, to the effect that:
(i) The representations and warranties of Welton in
Section 1 above are true and correct in all material respects on
the date of the certificate as though made on such date.
(ii) Nothing has come to such Welton's attention which would
cause Welton to believe that, at any time from the time the
Registration Statement initially became effective to the Initial
Closing Date, the Registration Statement, as amended from time to
time, or the Prospectus, as amended or supplemented from time to
time, with respect to Welton, or the affiliates, controlling
persons, shareholders, partners, directors, officers or employees
of any of the foregoing (as applicable), or with respect to
Welton's Trading Approach or Past Performance History, contained
an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make
the statements therein (with respect to the Prospectus, in light
of the circumstances in which they were made) not misleading.
(iii) Since the initial effective date of the Registration
Statement no event or change of circumstance has occurred with
respect to Welton, or the affiliates, controlling persons,
shareholders, partners, directors, officers or employees of any
of the foregoing (as applicable), or with respect to Welton's
Trading Approach or Past Performance History, which should have
been set forth in an amendment of, or supplement to,
-9-
<PAGE>
the Registration Statement or the Prospectus but which has not
been so set forth.
(iv) Welton has performed all covenants and agreements
herein contained to be performed on its part at or prior to the
Initial Closing Date.
(c) A certificate of Welton (together with such supporting
documents as are set forth in the certificate), in the form proposed
prior to the Initial Closing Date by counsel to AEFA, the Partnership,
CIS and the General Partners, with such changes in such form as are
proposed by Welton or its counsel and are acceptable to AEFA, the
Partnership, CIS and the General Partners and their respective counsel
so as to make such form mutually acceptable to AEFA, the Partnership,
CIS, the General Partners, Welton, and their respective counsel, with
respect to, as applicable, (i) the continued effectiveness of the
organizational documents of Welton, (ii) the continued effectiveness
of Welton's registration as a commodity trading advisor under the CE
Act and membership with the NFA and (iii) the incumbency and genuine
signature of the President or Director of Welton.
(d) A certificate from the State of Delaware, to be dated at, on
or around the Initial Closing Date, with respect to Welton's formation
and good standing.
(e) An opinion of counsel, in form and substance satisfactory to
the Partnership, CIS, the General Partners and AEFA and their
respective counsel, to the following effect:
-10-
<PAGE>
(i) Welton is (A) a duly formed and validly existing
corporation in good standing under the laws of the State of
Delaware, and validly existing, in good standing and qualified to
do business in each other jurisdiction in which the nature or
conduct of its business requires such qualification and the
failure to be duly qualified would materially adversely affect
Welton's ability to perform its obligations under this Agreement
or the Advisory Agreement and (B) Welton has full corporate power
and authority under its Certificate of Incorporation to perform
its obligations under the Advisory Agreement and this Agreement,
and to act as described in the Registration Statement and the
Prospectus.
(ii) The Advisory Agreement and this Agreement have been
duly and validly authorized, executed and delivered on behalf of
Welton, and each agreement constitutes the legal, valid and
binding obligations of Welton, enforceable in accordance with
their respective terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws at the time in effect affecting the enforceability
generally of rights of creditors, or by applicable general equity
principles of specific performance, and except that the
enforceability of the indemnification provisions may be limited
under applicable federal or state securities, commodities and
other laws; and the execution and delivery of such agreements and
the incurrence of the obligations thereunder and the consummation
of the transactions set forth in such agreements and in the
Prospectus will not violate or result in a breach of Welton's
formation documents, and, to the best of such
-11-
<PAGE>
counsel's knowledge, after due inquiry, will not result in any
violation, breach or default under any term or provision of any
undertaking, contract, agreement or order to which Welton is a
party or by which Welton is bound.
(iii) Subject to the following paragraph, to the best of such
counsel's knowledge, after due inquiry, Welton has obtained all
required governmental and regulatory licenses, registrations and
approvals required by law as may be necessary in order to perform
its obligations under the Advisory Agreement and this Agreement
and to act as described in the Registration Statement and the
Prospectus (including, without limitation, registration as a
commodity trading advisor under the Commodity Exchange Act, as
amended, and membership as a commodity trading advisor with the
NFA) and such licenses, registrations and approvals have not, to
the best of such counsel's knowledge, after due inquiry, been
rescinded, revoked or otherwise removed.
(iv) To the best of such counsel's knowledge, except as
described in the Prospectus, there is no pending, threatened or
contemplated action, suit or proceeding, known to such counsel,
before or by any court, governmental or regulatory body or
arbitration panel to which Welton or any of the assets of Welton
or any of its principals is subject and which might reasonably be
expected to result in any material adverse change in the
condition (financial or otherwise), business or prospects of
Welton or any of its principals or might reasonably be expected
to materially adversely affect any of the assets of Welton or any
of its principals or
-12-
<PAGE>
which might reasonably be expected to (A) materially impair
Welton's ability to discharge its obligations to the Partnership
or (B) result in a matter which would require disclosure in the
Registration Statement or Prospectus; and, to the best of such
counsel's knowledge, neither Welton nor any of its principals
has received any notice of an investigation by (i) the NFA
regarding non-compliance with its rules or the Commodity
Exchange Act, as amended, (ii) the CFTC regarding non-compliance
with such Act or the Regulations issued thereunder or (iii) any
exchange, regarding non-compliance with its rules, which
investigation might reasonably be expected to (A) materially
impair Welton's ability to discharge its obligations to the
Partnership or (B) result in a matter which would require
disclosure in the Registration Statement or Prospectus.
(v) With respect to Welton and the affiliates, controlling
persons, shareholders, partners, directors, officers and
employees of any of the foregoing, as applicable, and with
respect to Welton's Trading Approach and Past Performance
History, nothing has come to the attention of such counsel that
leads such counsel to believe that the Registration Statement (at
the time it initially became effective and at the time any post-
effective amendment thereto became effective) or the Prospectus
(as first filed pursuant to Rule 424(b) of the 1933 Act or as
subsequently filed pursuant to Rule 424 of the 1933 Act or at the
Initial Closing Date) contains any untrue statement of a material
fact or omits to state a material fact required to be stated
therein or which is necessary to make the statements therein
(with respect to the Prospectus, in light of the
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<PAGE>
circumstances in which they are made) not misleading, except
that such counsel is not required to express any opinion or
belief as to the financial statements or other financial or
statistical data, or as to the Past Performance Tables
contained in the Registration Statement or the Prospectus, under
the heading "Past Performance of JWH and Welton".
On or prior to subsequent monthly closings (each a "MONTHLY CLOSING
DATE"), Welton shall deliver, at the expense of Welton, to AEFA, the
Partnership, CIS and the General Partners the following report and certificate
described below addressed to them, dated the Monthly Closing Date:
(a) A report from Welton which shall present the estimated past
performance of Welton for the period from the date after the last day
covered by the Welton's Past Performance History as set forth under
"Past Performance of JWH and Welton" in the Prospectus to the latest
practicable day before the Monthly Closing Date, and which shall
certify that, to the best of its knowledge, such figures are complete
and accurate in all material respects.
(b) A statement from Welton which shall certify that the
statements, representations and warranties made in certificates
delivered by Welton on the Initial Closing Date pursuant to Section 4
of this Representation Agreement remain true, made on the Monthly
Closing Date, and such statements, representations and warranties may
continue to be relied upon by the parties to whom they are addressed.
5. WELTON'S ACKNOWLEDGMENTS. Welton acknowledges that the
Partnership may at any time withdraw the Registration Statement from the
SEC or otherwise terminate the Registration Statement or the offering of
Units, and upon any such
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<PAGE>
withdrawal or termination, this Agreement shall terminate and none of the
parties hereto shall have any obligation to any other party pursuant to
this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP AND THE GENERAL
PARTNERS. The Partnership and the General Partners hereby represent and
warrant to Welton and CIS that:
(a) On the Date hereof the Partnership is, and at all times
through the final Monthly Closing Date and during the term of this
Agreement and the Advisory Agreement will be, a duly formed and
validly existing limited partnership in good standing under the laws
of the state of Delaware, and each General Partner is, and at all
times through the final Monthly Closing Date and during the term of
this Agreement and the Advisory Agreement will be, a duly formed and
validly existing corporation in good standing under the laws of the
state of Delaware with respect to CISI and under the laws of the state
of Minnesota with respect to IDS Futures, and each General Partner is,
and at all times through the final Monthly Closing Date and during the
term of this Agreement and the Advisory Agreement will be, in good
standing and qualified to do business as a foreign corporation in each
jurisdiction in which the nature or conduct of its business requires
such qualifications and the failure to be so qualified would
materially adversely affect its ability to act as general partner of
the Partnership and perform its obligations hereunder and under the
Advisory Agreement, and each has full capacity and authority to
conduct its business and to perform its obligations under the Advisory
Agreement and this Agreement, and to act as described in the
Registration Statement and the Prospectus.
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<PAGE>
(b) This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Partnership and each General
Partner, respectively, and is a valid and binding agreement of the
Partnership and each General Partner, respectively, enforceable in
accordance with its terms. The performance of the Partnership's and
each General Partner's obligations under this Agreement and the
consummation of the transactions set forth in this Agreement, in the
Advisory Agreement and in the Registration Statement and Prospectus
are not contrary to the provisions of the Partnership's Limited
Partnership Agreement or Certificate of Limited Partnership or each
General Partner's Certificate of Incorporation, respectively, or to
the best of their knowledge, after due inquiry, any applicable
statute, law or regulation of any jurisdiction and will not result in
any violation, breach or default under any term or provision of any
undertaking, contract, agreement or order, to which the Partnership or
each General Partner, respectively, is a party or by which the
Partnership or each General Partner, respectively, is bound.
(c) The Partnership and each General Partner have obtained all
required governmental and regulatory licenses, registrations and
approvals required by law as may be necessary to act as described in
the Registration Statement and the Prospectus (including, without
limitation, each General Partners' registration as a commodity pool
operator under the CE Act and membership as a commodity pool operator
with the NFA).
(d) The Partnership is not required to be registered as an
investment company under the United States Investment Company Act of
1940, as amended (the "INVESTMENT COMPANY ACT").
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<PAGE>
(e) All authorizations, consents or orders of any court, or of
any federal, state or other governmental or regulatory agency or body
required for the valid authorization, issuance, offer and sale of the
Units have been obtained, and, to the best of its knowledge, after due
inquiry no order preventing or suspending the use of the Prospectus
with respect to the Units has been issued by the SEC, the CFTC or the
NFA. The Registration Statement and the Prospectus contain all
statements which are required to be made therein, conform in all
material respects with the requirements of the 1933 Act and the CE
Act, and the rules and regulations of the SEC and the CFTC,
respectively, thereunder, and with the rules of the NFA, and do not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein (with respect to the Prospectus, in light of the
circumstances in which they are made) not misleading, and at all times
subsequent hereto up to and including the final Monthly Closing Date,
the Registration Statement and the Prospectus will contain all
statements required to be made therein and will conform in all
material respects with the requirements of the 1933 Act and the CE
Act, and the rules and regulations of the SEC and the CFTC,
respectively, thereunder, and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein (with respect to
the Prospectus, in light of the circumstances in which they are made)
not misleading; PROVIDED, HOWEVER, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished to the
General Partners, the Partnership or to AEFA by or on behalf
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<PAGE>
of CIS or Welton, including, without limitation, all references to
CIS or Welton and their affiliates, controlling persons,
shareholders, partners, directors, officers and employees, as well
as to Welton's Trading Approach and Past Performance History.
(f) The General Partners and the Partnership shall not
distribute the Registration Statement or the Prospectus.
7. COVENANTS OF THE GENERAL PARTNERS AND THE PARTNERSHIP. If, at
any time during the term of the Advisory Agreement or this Agreement, an
event or change of circumstance has occurred which would make the General
Partners' or the Partnership's representations and warranties in Section 6
of this Agreement inaccurate or incomplete in any material respect, the
Partnership and the General Partners, as appropriate, promptly will provide
notification to Welton and CIS of such event or change of circumstance and
the facts related thereto, and it is agreed that the failure to provide
such notification or the failure to continue to be in compliance with the
foregoing representations and warranties during the term of this Agreement
within a reasonable time following such notification shall be cause for
Welton to terminate the Advisory Agreement on prior written notice to the
Partnership and the General Partners.
8. CLOSING OBLIGATIONS OF THE PARTNERSHIP AND THE GENERAL PARTNERS.
On or prior to the initial closing with respect to the Offering ("INITIAL
CLOSING DATE"), the Partnership and the General Partners, as specified
below, shall deliver or cause to be delivered to Welton and CIS, the
certificates, documents and opinions described below addressed to Welton
and CIS and, except as may be set forth below, dated the Initial Closing
Date:
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(a) Certificates of the Partnership and the General Partners,
addressed to Welton and CIS, in the form proposed prior to the Initial
Closing Date by counsel to the Partnership and the General Partners
with such changes in such form as are proposed by Welton, CIS and
their respective counsel and are acceptable to the Partnership, the
General Partners and their counsel so as to make such form mutually
acceptable to the Partnership, the General Partners, Welton, CIS and
their respective counsel, with respect to, as applicable (i) the
continued effectiveness of the Limited Partnership Agreement and the
Certificate of Limited Partnership of the Partnership and the
Certificate of Incorporation of each General Partner, (ii) the
continued effectiveness of the registration of each General Partner as
a commodity pool operator under the CE Act and membership with the NFA
and (iii) the incumbency and genuine signature of the President and
Secretary of each General Partner.
(b) Certificates from the State of Delaware with respect to the
Partnership and CISI and from the State of Minnesota with respect to
IDS Futures to be dated at, on or around the Initial Closing Date as
to the formation and good standing of the Partnership and each General
Partner.
(c) Certificates of the Partnership and the General Partners in
the form proposed prior to the Initial Closing Date by counsel to the
Partnership and the General Partners with such changes in such form as
are proposed by Welton, CIS and their respective counsel and are
acceptable to the Partnership, the General Partners and their counsel
so as to make such form mutually acceptable to the Partnership, the
General Partners, Welton, CIS and their respective counsel, to the
effect that:
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(i) The representations and warranties in Section 6 above
are true and correct in all material respects on the date of the
certificates as though made on such date, and
(ii) The Partnership and the General Partners have each
performed all covenants and agreements herein contained to be
performed on their part at or prior to the Initial Closing Date.
On or prior to subsequent monthly closings, the Partnerships and the
General Partners, as specified below, shall deliver or cause to be delivered to
Welton and CIS, the certificates described below addressed to Welton and CIS,
dated the Monthly Closing Date:
(a) A certificate from each General Partner to the effect that
the statements, representations and warranties made in certificates
delivered by such General Partner on the Initial Closing Date pursuant
to Section 8 of this Representation Agreement remain true, accurate
and complete in all material respects as if made on the Monthly
Closing Date, and such statements, representations and warranties may
continue to be relied upon by the parties to whom they are addressed.
(b) A certificate from the Partnership to the effect that the
statements, representations and warranties made in certificates
delivered by the Partnership on the Initial Closing Date pursuant to
Section 8 of the Representation Agreement remain true, accurate and
complete in all material respects as if made on the Monthly Closing
Date, and such statements, representations and warranties may continue
to be relied upon by the parties to whom they are addressed.
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9. REPRESENTATIONS AND WARRANTIES OF AEFA. AEFA hereby represents
and warrants to Welton and to CIS that any use or distribution of the
Registration Statement and the Prospectus will comply with the terms and
conditions set forth in the Prospectus, with the Securities Act of 1933, as
amended, the Securities Act of 1934, as amended, all applicable state
securities laws, the rules and regulations promulgated under all such Acts
and all such laws, and all applicable rules and regulations of the National
Association of Securities Dealers, Inc. and any other self-regulatory
organization.
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants in this Agreement, or contained
in certificates required to be delivered hereunder, shall survive the
delivery of any payment for the Units under the Selling Agreement and the
termination of the Advisory Agreement and this Agreement, with respect to
any matter arising while the Advisory Agreement or this Agreement was in
effect. Furthermore, all representations, warranties and covenants
hereunder shall inure to the benefit of the parties to this Agreement and
their respective successors and permitted assigns.
11. INDEMNIFICATION. (a) In any action in which AEFA, the
Partnership, CIS, or the General Partners, or the controlling persons,
shareholders, partners, directors, officers and/or employees of any of the
foregoing are parties (other than an action brought by or in the right of
Welton or by or in the right of any of the foregoing persons), Welton
agrees (A) to indemnify and hold harmless the foregoing persons against any
loss, claim, damage, charge, liability or expense (including, without
limitation, reasonable attorneys' and accountants' fees) to which such
persons may become subject, insofar as such loss, claim, damage, charge,
liability or expense arises
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out of or is based upon (i) any misrepresentation or alleged
misrepresentation or breach or alleged breach of any warranty, covenant
or agreement of Welton contained in this Agreement or (ii) any untrue
statement or alleged untrue statement of any material fact contained in
the Registration Statement or the Prospectus or the omission or the
alleged omission to state in the Registration Statement or the
Prospectus a material fact required to be stated therein or necessary to
make the statements therein (with respect to the Prospectus, in light of
the circumstances in which they are made), not misleading in each case
under this subclause (ii) to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with information
furnished by Welton, including, without limitation, all references to
Welton and its affiliates, controlling persons, shareholders, partners,
directors, officers and employees, as well as to Welton's Trading
Approach and Past Performance History, and including but not limited to,
any notification required and given under this Agreement, including
liabilities under the 1933 Act, the Exchange Act and the CE Act, and (B)
to reimburse each of the foregoing persons for any legal or other fees
or expenses reasonably incurred in connection with investigating or
defending any action or claim arising out of or based upon any of the
foregoing.
(b) In any action in which Welton, CIS, or the controlling persons,
shareholders, partners, directors, officers and/or employees of any of the
foregoing are parties (other than an action brought by or in the right of
the Partnership, the General Partners or AEFA or by or in the right of any
of the foregoing persons), the General Partners agree (A) to indemnify and
hold harmless the foregoing persons against any loss, claim, damage,
charge, liability or expense (including, without
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<PAGE>
limitation, reasonable attorneys' and accountants' fees) to which such
persons may become subject, insofar as such loss, claim, damage, charge,
liability or expense arises out of or is based upon (i) any
misrepresentation or alleged misrepresentation or breach or alleged
breach of any warranty, covenant or agreement of the Partnership or the
General Partners contained in this Agreement, or (ii) any untrue
statement or alleged untrue statement of any material fact contained in
the Registration Statement or the Prospectus or the omission or the
alleged omission to state in the Registration Statement or the
Prospectus a material fact required to be stated therein or necessary to
make the statements therein (with respect to the Prospectus, in light of
the circumstances in which they are made), not misleading in each case
under this subclause (ii) except to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with information furnished
by CIS or Welton including, without limitation, all references to CIS or
Welton and its affiliates, controlling persons, shareholders, partners,
directors, officers and employees, as well as to Welton's Trading
Approach and Past Performance History, and including but not limited to
any notification required and given under this Agreement, including
liabilities under the 1933 Act, the Exchange Act and the CE Act, and (B)
to reimburse each of the foregoing persons for any legal or other fees
or expenses reasonably incurred in connection with investigating or
defending any action or claim arising out of or based upon any of the
foregoing.
(c) None of the indemnifications contained in this Section 11 shall
be applicable with respect to default judgments, confessions of judgment or
settlements
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entered into by an indemnified party claiming indemnification
without the prior written consent of the indemnifying party.
(d) Promptly after receipt by an indemnified party under this
Section 11 of notice of any claim or dispute or commencement of any action
or litigation, such indemnified party will, if a claim in respect thereof
is to be made against an indemnifying party under this Section 11, notify
the indemnifying party of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party otherwise than under this Section 11.
In case any such claim, dispute, action or litigation is brought or
asserted against any indemnified party, and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein, and to the extent that it may wish, to assume the
defense thereof, with counsel specifically approved in writing by such
indemnified party, following notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof: in
which event, the indemnifying party will not be liable to such indemnified
party under this Section 11 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof,
but shall continue to be liable to the indemnified party in all other
respects as heretofore set forth in this Section 11. Notwithstanding any
other provisions of this Section 11, if, in any claim, dispute, action or
litigation as to which indemnity is or may be available, any indemnified
party reasonably determines that its interests are or may be, in whole or
in part, adverse to the interests of the indemnifying party, the
indemnified party may retain its own counsel in connection with such claim,
dispute, action or litigation and shall continue to be indemnified by the
indemnifying party for
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<PAGE>
any legal or any other expenses reasonably incurred in connection with
investigating or defending such claim, dispute, action or litigation.
(e) Expenses incurred by an indemnified party in defending a
threatened or asserted claim or a threatened or pending action may be paid
by the indemnifying party in advance of final disposition or settlement of
such matter, if and to the extent that the person on whose behalf such
expenses are paid shall agree to reimburse the indemnifying party in the
event indemnification is not permitted under this Section 11 upon final
disposition or settlement. Expenses incurred in defending a threatened or
pending civil, administrative or criminal action, suit or proceeding
against Welton and one or both General Partners shall be paid initially by
such General Partner(s), subject to subsequent proportionate reimbursement
by Welton in the event of an unfavorable determination with respect to
Welton; provided, that such initial payment of expenses shall not be made
by such General Partner(s) on behalf of Welton if Welton elects to be
represented by counsel of its own choice or if the defense of Welton
involves distinct issues of law or of fact, and, provided further, that in
the event of the initial payment of such expenses by such General
Partner(s), such General Partner(s) shall have the exclusive right to
select counsel.
(f) The parties hereto acknowledge and agree on their own behalf that
the indemnities provided in this Agreement shall be inapplicable in the
event of any loss, claim, damage, charge or liability arising out of or
based upon, but limited to the extent caused by, any misrepresentation or
breach of any warranty, covenant, or agreement of any indemnified party to
any indemnifying party contained in this Agreement.
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<PAGE>
NOTICES. Each notice, request, demand, approval or other communications
which may be or is required to be given under this Agreement shall be in writing
in English and shall be deemed to have been properly given when delivered
personally at the address set forth below for the intended party during normal
business hours at such address, when sent by facsimile or other electronic
transmission to the respective facsimile transmission numbers of the parties set
forth below with telephone confirmation of receipt, or when sent by recognized
overnight international courier service or by prepaid registered air mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Partnership: IDS Managed Futures, L.P.
233 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
Attention: Barbara A. Pfendler
Facsimile: (312) 460-4939
Confirm: (312) 460-4926
With a copy to: Chapman and Cutler
111 West Monroe Street
Suite 1600
Chicago, Illinois 60603-4080
Attention: Paul C. Kosin
Facsimile: (312) 701-2361
Confirm: (312) 845-3791
If to CISI: CIS Investments, Inc.
233 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
Attention: Barbara A. Pfendler
Facsimile: (312) 460-4939
Confirm: (312) 460-4926
With a copy to: Chapman and Cutler
111 West Monroe Street
Suite 1600
Chicago, Illinois 60603-4080
Attention: Paul C. Kosin
Facsimile: (312) 701-2361
Confirm: (312) 845-3791
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If to IDS Futures: IDS Tower 10
Minneapolis, Minnesota 55440
Attention: Ronald Powell, Esq.
Facsimile: (612) 671-3767
Confirm: (612) 671-2088
If to Welton: VIA REGULAR MAIL
Welton Investment Corporation
P.O. Box 6147
Carmel, California 93921-6147
Attention: Patrick Welton
Facsimile: (408) 626-5199
Confirm: (408) 626-5190
VIA COURIER SERVICE
Welton Investment Corporation
Eastwood Building, 2nd Floor
San Carlos Between 5th and 6th
Carmel, California 93921-6147
With a copy to: Rosenman & Colin LLP
575 Madison Avenue
17th Floor
New York, New York 10022
Attention: Fred M. Santo
Facsimile: (212) 940-7079
Confirm: (212) 940-8720
If to CIS: Cargill Investor Services, Inc.
233 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
Attention: L. Carlton Anderson
Facsimile: (312) 460-4939
Telephone: (312) 460-4925
With a copy to: Linda Cutler, Esq.
Cargill, Incorporated
Cargill Office Center
15407 McGinty Road West
Minnetonka, Minnesota 55391
Facsimile: (612) 742-6349
Telephone: (612) 742-6377
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If to AEFA: American Express Financial Advisors Inc.
IDS Tower 10
Minneapolis, Minnesota 55440
Attention: Ronald Powell, Esq.
Facsimile: (612) 671-3767
Telephone: (612) 671-2088
Notices shall be given to such other addressee or address, or both, or by way of
such other facsimile transmission number, as a particular party may from time to
time designate by written notice to the other parties hereto. Each notice,
request, demand, approval or other communication which is sent in accordance
with this Section shall be deemed given and received for all purposes of this
Agreement as of five business days after the date of deposit thereof for prepaid
registered air mail in a duly constituted post office or branch thereof in the
county of origin of the sending party, two business days after deposit with a
recognized overnight international courier service or, in the case of a
facsimile transmission, the earlier of (i) confirmation of receipt of said
facsimile transmission by the intended recipient thereof or a person at the same
business address as said intended recipient; or (ii) electronic verification by
the sender's facsimile machine of the receipt of said facsimile transmission by
the intended recipient's facsimile machine; provided, however, that any such
electron verification which does not occur prior to 5:00 p.m. (local time of the
recipient thereof) a business day shall be deemed to have occurred at 9:00 a.m.
(local time of the, recipient: thereof) on the next business day following the
date of such electronic verification. Notice given to a party hereto by any
other method shall only be deemed to be given and received when actually
received in writing by such party.
13. GOVERNING LAW. This Agreement shall be deemed to be made under
the laws of the State of Delaware applicable to contracts made and to be
performed in that State and shall be governed by and construed in
accordance with the laws of that State, without regard to the conflict of
laws principles.
14. ARBITRATION. The parties hereto agree that any dispute relating
to the subject matter of this Agreement shall be settled and determined by
arbitration in the City of Chicago pursuant to the rules of the National
Futures Association.
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15. ASSIGNMENT. This Agreement may not be assigned by any party
without the express prior written consent of each of the other parties
hereto.
16. AMENDMENT OR MODIFICATION. This Agreement may not be amended or
modified except by the written consent of each of the parties hereto.
17. SUCCESSORS. Except as forth in Section 10, this Agreement is
made solely for the benefit of and shall be binding upon the Partnership,
CIS, each General Partner, AEFA and Welton, and the respective successors
and permitted assigns of each of them, and no other person shall have any
right or obligation under this Agreement. The terms "SUCCESSORS" and
"ASSIGNS" shall not include any purchasers, as such, of Units.
18. SURVIVAL. The provisions of this Agreement shall survive the
termination of this Agreement with respect to any matter arising while this
Agreement was in effect.
19. NO WAIVER. No failure or delay on the part of any party hereto
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. Any waiver granted hereunder
must be in writing and shall be valid only in the specific instance in
which given.
20. HEADINGS. Headings to Sections herein are for the convenience of
the parties only, and are not intended to be or to affect the meaning or
interpretation of this Agreement.
21. COMPLETE AGREEMENT. Except as otherwise provided herein, this
Agreement and the Advisory Agreement, as amended, constitute the entire
agreement
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between the parties with respect to the matters referred to herein, and
no other agreement, verbal or otherwise, shall be binding upon the parties
hereto.
22. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which,
when taken together, shall constitute one original instrument.
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IN WITNESS WHEREOF, this Representation Agreement has been executed as of
the date and year first above written.
IDS MANAGED FUTURES, L.P.
By CIS INVESTMENTS, INC.,
General Partner AMERICAN EXPRESS FINANCIAL ADVISORS INC.
By_______________________________ By _____________________________________
Its_____________________________ Its____________________________________
By IDS FUTURES CORPORATION, CARGILL INVESTOR SERVICES, INC.
General Partner
By_______________________________ By _____________________________________
Its_____________________________ Its____________________________________
CIS INVESTMENTS, INC. WELTON INVESTMENT CORPORATION
By_______________________________ By _____________________________________
Its_____________________________ Its____________________________________
IDS FUTURES CORPORATION
By_______________________________
Its_____________________________
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EXHIBIT 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "EXPERTS" and to
the use of our report dated January 24, 1997 with respect to the financial
statements of IDS Managed Futures, L.P. as of December 31, 1995 and 1996 and for
each of the years in the three-year period then ended, and to the use of our
report dated July 17, 1997 with respect to the financial statements of CIS
Investments, Inc. as of May 31, 1997 and 1996 included in Post-Effective
Amendment No. 3 to the Registration Statement and related Prospectus of IDS
Managed Futures, L.P. for the registration of $50,000,000 of limited partnership
interests.
KPMG Peat Marwick LLP
July 31, 1997
Chicago, Illinois
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "EXPERTS" and to
the use of our report dated June 24, 1997 with respect to the balance sheet of
IDS Futures Corporation included in Post-Effective Amendment No. 3 to the
Registration Statement (Form S-1 No. 33-86894) and related Prospectus of IDS
Managed Futures, L.P. for the registration of $50,000,000 of limited partnership
interests.
Ernst & Young LLP
Minneapolis, Minnesota
July 24, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF ATTORNEYS
We consent to the references to our firm under the heading "LEGAL MATTERS"
in the Prospectus, and to the reference to our opinion in the Post-Effective
Amendment No. 3 to the Registration Statement and related Prospectus of IDS
Managed Futures, L.P. (the "PARTNERSHIP") for the registration of $50,000,000 of
limited partnership interests. We also consent to the inclusion in the
Post-Effective Amendment No. 3 to the Registration Statement of our opinion as
to the tax consequences of an investment in the Partnership (filed as Exhibit
8.1) and also to the inclusion of our opinion as to the legality of the
Partnership's securities (filed as Exhibit 5.1).
CHAPMAN AND CUTLER
July 29, 1997
Chicago, Illinois
