<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 24, 1999
REGISTRATION NO. 33-86894
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
POST-EFFECTIVE
AMENDMENT NO. 5
TO THE
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
IDS MANAGED FUTURES, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 06-1189438
(State of Organization) (IRS Employer
Identification
Number)
</TABLE>
6793
(Primary Standard Industrial Classification Code Number)
C/O 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 offices)
BARBARA A. PFENDLER
C/O 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 TO:
JOSEPH H. HARRISON, JR.
JAMES B. BIERY
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
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 (the "Securities Act") 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 this Form is a post-effective amendment filed pursuant to Rule 426(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE>
PART ONE
IDS MANAGED FUTURES, L.P.
$28,000,000
LIMITED PARTNERSHIP INTERESTS
THE FUND
The Fund trades in the U.S. and international futures and forward markets in
currencies, interest rates, energy and agricultural products, metals and stock
indices.
The primary objective of the Fund is substantial capital appreciation over
time.
An investment in the Fund offers a potentially valuable means of
diversifying a traditional portfolio of stocks and bonds and has the potential
to be profitable in both rising and falling markets.
THE TRADING ADVISORS
John W. Henry & Company, Inc. is one of the largest professional managed
futures advisors in terms of assets under management in the managed futures
industry.
Welton Investment Corporation has been managing institutional, corporate and
individual investments in the futures and foreign exchange markets for over ten
years.
GENERAL PARTNERS
CIS Investments, Inc. and IDS Futures Corporation are the general partners
of the Fund.
CIS Investments, Inc. is an affiliate of Cargill, Incorporated, one of the
largest private companies in the United States. IDS Futures Corporation is an
affiliate of American Express Financial Corporation.
THE UNITS
The Units are available for subscription on the last day of each month at
approximately 109.9% of the then current Net Asset Value. Units will be offered
until December 31, 2001 unless all the Units are sold before that date. The
General Partners may decide to register additional Units and/or extend the
offering.
As of February 28, 1999, the Net Asset Value per Unit, after adjusting for a
3-for-1 split on February 28, 1995, was $363.46.
Subscriptions Funds will be deposited in escrow at U.S. Bank National
Association, St. Paul, Minnesota until invested in the Units as of the last day
of the month. Interest earned on an investor's subscription will be paid to the
investor within thirty days after the investor becomes a limited partner, unless
the interest is less than $10 in which case it will be paid to the Fund.
American Express Financial Advisors Inc., the Fund's Selling Agent, will use
its best efforts to sell the Units. There is no minimum number of Units which
must be sold as of the beginning of any particular month. If the total amount of
this offering, $28 million, is sold to unaffiliated investors, the General
Partners will retain $0.84 million as an Offering Expense Charge and the Selling
Agent will retain as much as $1.68 million in selling commissions.
THE RISKS
Before you decide whether to invest, read this entire prospectus carefully
and consider "The Risks You Face" beginning on page 8.
- You could lose all or substantially all of your investment in the Fund.
- The Fund is speculative and it takes positions with total values that are
bigger than the total amount of the Fund's assets. The face value of the
Fund's positions typically range from 7 to 30 times its aggregate Net
Asset Value.
- Performance has been volatile. The Net Asset Value per Unit has fluctuated
almost 25% in a single month.
- Substantial expenses, totalling almost 5.375% per annum, must be offset by
trading profits and interest income.
- There is no market for the Units. You may not redeem Units until you have
been a Limited Partner in the Fund for six months. Thereafter, Units may
be redeemed only as of the end of a calendar month.
- A significant portion of the Fund's trading is on non-U.S. markets which
are not subject to the same degree of regulation as U.S. markets.
- You will be required to make representations and warranties in connection
with your investment.
MINIMUM INVESTMENT: $1,000
This Prospectus is in two parts: a disclosure document and a statement of
additional information. These parts are bound together, and both contain
important information. Subscribers are encouraged to discuss their investment
decision with their financial, tax and legal advisers.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
CIS INVESTMENTS, INC. / IDS FUTURES CORPORATION
CO-GENERAL PARTNERS
, 1999
<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 ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES 43 TO 47
AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAKEVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGES 8 TO 13.
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.
------------------------
1
<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.
------------------------
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR EXHIBITS IN THE
FUND'S REGISTRATION STATEMENT. YOU CAN READ AND COPY THE ENTIRE REGISTRATION
STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE SEC IN
WASHINGTON, D.C.
THE FUND FILES QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU CAN READ AND
COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN CHICAGO, NEW YORK
OR WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0300 FOR FURTHER
INFORMATION.
THE FUND'S FILINGS ARE POSTED AT THE SEC WEBSITE AT HTTP://WWW.SEC.GOV.
------------------------
<TABLE>
<S> <C>
CIS INVESTMENTS, INC. IDS FUTURES CORPORATION
233 SOUTH WACKER DRIVE IDS TOWER 10
SUITE 2300 MINNEAPOLIS, MINNESOTA 55440
CHICAGO, ILLINOIS 60606 (612) 671-3131
(312) 460-4000
</TABLE>
2
<PAGE>
IDS MANAGED FUTURES, L.P.
ORGANIZATIONAL CHART
[LOGO]
CISI is a subsidiary of the Clearing Broker and IDS Futures is an affiliate
of the Selling Agent/ Introducing Broker. See "Conflicts of Interest" beginning
at page 54 and "Transactions Between the Fund and the General Partner's at page
57.
3
<PAGE>
IDS MANAGED FUTURES, L.P.
CONTENTS
PART ONE
DISCLOSURE DOCUMENT
<TABLE>
<S> <C>
Summary............................................................................... 5
The Risks You Face.................................................................... 11
Investment Factors.................................................................... 17
How the Fund Works.................................................................... 19
Performance of the Fund............................................................... 21
Selected Financial Information........................................................ 23
Management's Analysis of Operations................................................... 23
Quantitative and Qualitative Disclosures About the Fund's Market Risk................. 26
The General Partners.................................................................. 31
The Trading Advisors.................................................................. 34
John W. Henry & Company, Inc.......................................................... 35
JWH Principals........................................................................ 37
Performance of the JWH Financial and Metals Portfolio................................. 40
Welton Investment Corporation......................................................... 43
Welton Principals..................................................................... 44
Performance of the Welton Diversified Portfolio....................................... 45
Comparative Performance of the Trading Advisors....................................... 48
Interest Income....................................................................... 49
Charges............................................................................... 50
Brokerage Arrangements................................................................ 54
Redemptions; Net Asset Value.......................................................... 56
Conflicts of Interest................................................................. 58
Transactions Between the General Partners and the Fund................................ 60
The Limited Partnership Agreement..................................................... 61
Tax Consequences...................................................................... 63
Plan of Distribution.................................................................. 66
Lawyers; Accountants.................................................................. 67
Financial Statements.................................................................. 68
PART TWO
STATEMENT OF ADDITIONAL
INFORMATION
Futures Markets and Trading Methods................................................... 1
Blue Sky Glossary..................................................................... 3
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Exhibit A--Amended and Restated Limited Partnership Agreement......................... A-1
Exhibit B--Subscription Requirements.................................................. B-1
Exhibit C--Subscription Agreement and Power of Attorney............................... C-1
Exhibit D--Request for Redemption..................................................... D-1
</TABLE>
4
<PAGE>
SUMMARY
GENERAL
IDS Managed Futures, L.P. is a Delaware limited partnership which trades a
wide range of U.S. and international futures and forward contracts and related
options. CIS Investments, Inc. ("CISI") and IDS Futures Corporation ("IDS
Futures") are the Fund's general partners. John W. Henry & Company,
Inc.-Registered Trademark- ("JWH"), and Welton Investment Corporation ("Welton")
are its Trading Advisors.
The Fund began trading on June 16, 1987 with an initial capitalization of
$7,372,260 and a Net Asset Value per Unit of $225.43. The beginning Net Asset
Value per Unit was $75.14 after adjusting for the 3-for-1 split on February 28,
1995. As of February 28, 1999, the Fund's Net Asset Value per Unit was $363.46.
THE FUND AND ITS OBJECTIVES
The Fund's primary objective is to achieve substantial capital appreciation
over time through professionally managed speculative trading in futures
contracts, forward currency contracts, physical commodities and related options
on exchanges and markets located in the United States and abroad. The Fund
offers investors an opportunity to participate in markets not typically
represented in an individual's portfolio, as well as the potential to profit
from rising as well as falling prices. The success of the Fund is not dependent
on favorable economic conditions, national or international. In fact, periods of
economic uncertainty can augment the profit potential of the Fund by increasing
the likelihood of significant movements in commodity prices, the exchange rates
between various countries, world stock prices and interest rates.
Currently, JWH manages approximately 65% of the Fund's assets pursuant to
its Financial and Metals Portfolio and Welton manages approximately 35% pursuant
to its Diversified Portfolio. The General Partners will allocate 65% of the
proceeds of this offering to JWH and 35% to Welton.
THE ADVISORS AND THEIR PROGRAMS
JWH
JWH has been a Trading Advisor for the Fund since its inception. JWH manages
capital in commodities, financial futures and foreign exchange markets for
international banks, brokerage firms, pension funds, institutions and high net
worth individuals. JWH trades on a 24-hour basis in a wide range of futures and
forward contracts--over sixty markets as of the date of this prospectus--in the
United States, Europe and Asia. JWH is one of the largest managed futures
advisors in terms of assets under management, trading approximately $2.2 billion
in client capital as of January 31, 1999.
JWH'S PROGRAM USED FOR THE FUND
JWH currently uses its Financial and Metals Portfolio for the Fund. The
Financial and Metals Portfolio has been trading client capital since October
1984 and has an annualized net rate of return of 36.0% from inception through
January 31, 1999. The Financial and Metals Portfolio, which has the most assets
under management of any JWH program, seeks to identify and capitalize on
intermediate and long-term price movements in global financial and precious
metals markets. Currency positions may be held both as outrights--trading
positions taken in foreign currencies versus the U.S. dollar--and cross
rates--foreign currencies against each other--in the interbank market and on
futures exchanges. If a trend is identified, the program attempts to take a
position; in non-trending markets, the program may remain neutral or liquidate
open positions. As of January 31, 1999, JWH had approximately $1.03 billion
under management pursuant to the Financial and Metals Portfolio.
5
<PAGE>
WELTON
Welton became a Trading Advisor to the Fund in July 1997. Welton manages
capital on behalf of individual, institutional and corporate clients in a wide
range of markets. As of February 28, 1999, Welton was managing approximately
$152 million of client capital pursuant to its Diversified Portfolio.
WELTON'S PROGRAM USED FOR THE FUND
The Fund currently uses Welton's Diversified Portfolio, Welton's most
diversified trading program in terms of markets traded and trading strategies
employed.
Welton's Diversified Portfolio started trading in April 1992 and has an
annualized net rate of return of 16.77% through February 28, 1999. Of all the
Welton trading programs, the Diversified Portfolio trades in the widest spectrum
of markets and seeks exposure to all major market sectors including interest
rates, currencies, stock indices, metals, energy and agricultural commodities.
The Diversified Portfolio uses multiple trading strategies in an attempt to earn
profits in a variety of market conditions.
------------------------
THE TRADING PROGRAMS USED BY THE FUND ARE TECHNICAL, TREND-FOLLOWING
COMPUTERIZED TRADING SYSTEMS.
The mathematical models used by the Trading Advisors' trading programs are
technical systems, generating trading signals on the basis of statistical
research into past market prices. The Trading Advisors do not attempt to analyze
underlying economic factors, identify mispricings in the market or predict
future prices.
The Trading Advisors are trend-following traders. A trend-following trader's
primary trading objective is to participate in major price trends--sustained
price movements either up or down. Such price trends may be relatively
infrequent. Trend-following traders anticipate that over half of their positions
will be unprofitable. Their strategy is based on making sufficiently large
profits from the trends which they identify and follow to generate overall
profits despite the more numerous but, hopefully, smaller losses incurred on the
majority of their positions.
See "The Risks You Face" beginning at page 8.
MARKETS TRADED
The trading programs currently used by the Fund emphasize trading currencies
and financial instruments, but participate in most major sectors of the global
economy, which include:
CURRENCIES
Australian Dollar
British Pound
Canadian Dollar
Euro
Hong Kong Dollar
Japanese Yen
Malaysian Ringgit
New Zealand Dollar
South African Rand
Swedish Krone
Swiss Franc
6
<PAGE>
FINANCIAL INSTRUMENTS
Australian
(90-day) Bank Bills
Australian (3-year and 10-year)
Treasury Bonds
Canadian Bank Bills
Canadian Bonds
Eurobibor
Eurodollar
Eurolira
Euroswiss
Euroyen
French Notionnel Bonds
French PIBOR
German BOBL
German Bonds
Italian Bonds
Japanese Bonds
Spanish Bonds
Spanish MIBOR
U.K. Long "Gilts"
U.K. Short Sterling
U.S. 10-year Treasury Notes
U.S. Treasury Bonds
STOCK INDICES
Australian All Ordinaries Index
CAC 40 Stock Index (France)
DAX (German)
FTSE 100 (UK)
New York Composite
Nikkei 225 Index (Japan)
S&P 500 Stock Index
METALS
Aluminum
Copper
Gold
Lead
Nickel
Palladium
Platinum
Silver
Tin
Zinc
AGRICULTURAL PRODUCTS
Cattle
Cocoa
Coffee
Corn
Cotton
Hogs
Lumber
Orange Juice
Soybeans
Soymeal
Soy Oil
Sugar
Wheat
ENERGY
Crude Oil
Natural Gas
London Gasoil
No. 2 Heating Oil
Unleaded Gasoline
THE FUND MAY TRADE IN ALL OR ONLY SOME OF THESE MARKETS AT ANY GIVEN TIME.
THERE IS NO WAY TO PREDICT WHICH MARKETS THE FUND WILL TRADE OR WHAT ITS
RELATIVE COMMITMENTS TO THE DIFFERENT MARKETS WILL BE.
As of February 28, 1999, the Fund had the following approximate market
sector commitments.
<TABLE>
<S> <C>
Currencies........................................................... 23%
Financial Instruments................................................ 37%
Stock Indices........................................................ 12%
Metals............................................................... 16%
Agricultural Products................................................ 11%
Energy............................................................... 1%
</TABLE>
7
<PAGE>
[PIE CHART OF
MARKET SECTORS]
THE GENERAL PARTNERS
CISI and IDS Futures are the General Partners and Commodity Pool Operators
of the Fund. CISI was incorporated in Delaware in 1983 and is an affiliate of
Cargill Investor Services, Inc., the Fund's Clearing Broker. In addition to the
Fund, CISI is the commodity pool operator of two other public commodity
pools--one jointly with IDS--and one private commodity pool. As of February 28,
1999, the aggregate capitalization of these funds was $213.4 million.
IDS Futures was incorporated in Minnesota in 1986 and is an affiliate of
American Express Financial Advisors Inc., the Fund's Selling Agent and
Introducing Broker. The General Partners perform all administrative functions on
behalf of the Fund.
MAJOR RISKS OF THE FUND
The Fund is a speculative investment. It is not possible to predict how the
Fund will perform over either the long or short term.
Investors must be prepared to lose all or substantially all of their
investment in the Units.
There can be no assurance that the past performance of either the Fund or
the Trading Advisors indicates how they will perform in the future.
To date, the performance of the Fund has been volatile (one commonly
accepted measure of risk). The Net Asset Value per Unit has varied almost 25% in
a single month.
The Fund could incur large losses over short periods.
The Fund typically takes positions with a face amount of 7 to 30 times of
its total Net Assets.
Positive correlation between the trading programs (because they trade in
some of the same markets and are technical, trend-following programs) reduces
diversification and increases the risk of loss.
The performance of the Trading Advisors' trading programs is dependent upon
market trends of the type that their models are designed to identify. Trendless
periods are frequent, and during such periods the Fund is unlikely to be
profitable.
Trading on foreign contract markets involves additional risks, including the
risks of inadequate or lack of regulation, exchange-rate fluctuations,
expropriation, credit and investment controls and counterparty insolvency.
There can be no assurance of the continued availability of the Trading
Advisors or their key principals.
Because its performance is entirely unpredicta-ble, there is no way of
telling when is a good time to invest in the Fund. Investors have no means of
knowing whether they are buying Units at a time when profitable periods are
ending, beginning, or not in progress.
8
<PAGE>
No market exists for the Units, and Units may be redeemed only once a month
beginning with the seventh month after an investor has been admitted to the Fund
as a Limited Partner. Because investors must submit irrevocable subscriptions by
the tenth calendar day of the month of investment as well as redemption notices
by the tenth calendar day prior to the month-end of redemption, they cannot know
the Net Asset Value at which they will acquire or redeem Units. Investors cannot
control the maximum losses on their Units because they cannot be sure of the
redemption value of their Units.
As Unitholders, investors have no voice in the operation of the Fund; they
are entirely dependent on the General Partners and Trading Advisors for the
success of their investment.
FREE LOOK ALTERNATIVE
Investors must submit their subscription documents to the General Partners
by the tenth calendar day of the month to be considered for acceptance in that
month. The Selling Agent will send investors a confirmation of receipt and the
most recent month-end account statement the day after the investor's
subscription documents are received. Investors then have sixteen days to decide
whether they want to invest.
FEES AND EXPENSES
At the time you invest in the Fund, your investment will be subject to a 6%
Sales Charge and a 3% Offering Expense Charge. In addition, the Fund is subject
to substantial ongoing fees and expenses including the Trading Advisors'
management and incentive fees, administrative fees, brokerage commissions and
trading fees and periodic operating expenses.
During the first twelve months of an investment by a new Limited Partner,
the initial investment will be subject to expenses of approximately 14.375%
taking into account the one-time Sales Charge and the Offering Expense Charge.
Thereafter, the estimated break-even calculation for the Fund will be reduced to
approximately 5.375% per annum. If the Fund is unable to earn profits and
interest sufficient to offset its expenses, its assets will likely be reduced by
expenses during the year. The General Partners have estimated certain Fund
expenses for purposes of the following breakeven table. There can be no
assurance that the expenses to be incurred by the Fund will not exceed the
estimated amounts.
BREAKEVEN TABLE
<TABLE>
<CAPTION>
TWELVE-MONTH
TWELVE-MONTH DOLLAR BREAKEVEN
PERCENTAGE ($1,000 INITIAL
EXPENSES BREAKEVEN INVESTMENT)++
- ------------------------------------------------------------------------- ------------- ------------------------
<S> <C> <C>
Sales Charge*............................................................ 6.00% $ 60.00
Offering Expense Charge.................................................. 3.00% $ 30.00
Administrative Fees...................................................... 1.375% $ 13.75
Brokerage Fees........................................................... 2.75% $ 27.50
Advisory Management Fees**............................................... 3.65% $ 36.50
Advisory Incentive Fees**................................................ 1.20% $ 12.00
Periodic Operating Expenses.............................................. 0.50% $ 5.00
LESS Interest Income**................................................... (4.10)% (41.00 )
RETURN ON $1,000 INITIAL INVESTMENT REQUIRED FOR "BREAK-EVEN" IF UNITS
HELD AT LEAST TWELVE MONTHS............................................ 14.375% $ 143.75
------ -------
</TABLE>
- ------------------------
* Limited Partners who are representatives or employees of America Express
Financial Advisors Inc. or certain corporate affiliates will not pay a Sales
Charge.
9
<PAGE>
** Estimated. JWH's management fee is 4% per annum of the assets it manages and
Welton's is 3% per annum of the assets it manages. JWH receives a quarterly
incentive fee of 15% of the Trading Profits it generates and Welton receives
a quarterly incentive fee of 18% of its Trading Profits. Consequently, an
incentive fee could be due in a breakeven or losing year.
++ Assumes a constant $1,000 Net Asset Value.
SEE "CHARGES" AT PAGE 47.
PRINCIPAL TAX ASPECTS OF OWNING UNITS
Investors are taxed each year on any gains recognized by the Fund whether or
not they redeem any Units or receive any distributions from the Fund.
40% of any trading profits on U.S. exchange-traded contracts are taxed as
short-term capital gains at the 39.6% maximum ordinary income rate for
individuals, while 60% of such gains are taxed as long-term capital gain at a
20% maximum rate for individuals. The Fund's trading gains from other contracts
will be primarily short-term capital gain. This tax treatment applies regardless
of how long an investor holds Units. If, on the other hand, an individual
investor held a stock or bond for twelve months, all the gain realized on its
sale would generally be taxed at a 20% maximum rate.
Losses on the Units may be deducted against capital gains. Any losses in
excess of capital gains may only be deducted against ordinary income to the
extent of $3,000 per year. Consequently, investors could pay tax on the Fund's
interest income even though they have lost money on their Units. See "Tax
Consequences" beginning at page 59.
AN INVESTMENT IN THE UNITS SHOULD BE CONSIDERED AS A LONG-TERM COMMITMENT
The market conditions in which the Fund is likely to recognize significant
profits occur infrequently. An investor should plan to hold Units for long
enough to have a realistic opportunity for a number of such trends to develop.
10
<PAGE>
The General Partners believe that investors should consider the Units at
least a three to five year commitment.
IS THE FUND A SUITABLE INVESTMENT FOR YOU?
You should consider investing in the Fund if you are interested in its
potential to produce enhanced returns over the long term that are generally
unrelated to the returns of the traditional debt and equity markets and you are
prepared to risk significant losses. The General Partners believe that the Fund
should be viewed as a diversification opportunity for an investor's entire
investment portfolio, not as a complete investment program. No one should invest
more than 10% of his or her readily marketable assets in the Fund.
THE RISKS YOU FACE
POSSIBLE TOTAL LOSS OF AN INVESTMENT IN THE FUND
You could lose all or substantially all of your investment in the Fund.
INVESTING IN THE UNITS MIGHT NOT DIVERSIFY AN OVERALL PORTFOLIO
One of the objectives of the Fund is to add an element of diversification to
a traditional securities portfolio. While the Fund may perform in a manner
largely independent from the general stock and bond markets, there is no
assurance it will do so. An investment in the Fund could increase rather than
reduce overall portfolio losses during periods when the Fund as well as stocks
and bonds decline in value. There is no way of predicting whether the Fund will
lose more or less than stocks and bonds in declining markets. Investors must not
rely on the Fund as any form of hedge against losses in their core securities
portfolios.
Prospective investors should consider whether diversification in itself is
worthwhile even if the Fund is unprofitable.
INVESTORS MUST NOT RELY ON THE PAST PERFORMANCE OF EITHER THE FUND OR THE
TRADING ADVISORS IN DECIDING WHETHER TO BUY UNITS
The performance of the Fund is entirely unpredictable, and the past
performance of the Fund as well as that of the Trading Advisors is not
necessarily indicative of their future results.
The price data which technical trading advisors research in developing their
programs may not reflect the changing dynamics of future markets. If not, the
trading programs would have little chance of being profitable. An influx of new
market participants, changes in market regulation, international political
developments, demographic changes and numerous other factors can contribute to
once-successful strategies becoming outdated. Not all of these factors can be
identified, much less quantified. There can be no assurance that Trading
Advisors will trade profitably for the Fund.
VOLATILE TRADING HISTORY
The Fund's performance has been characterized by significant volatility.
Since the inception of trading, the largest "peak-to-valley" drawdown was nearly
28% and the largest monthly loss was nearly 17%. Even if the Fund is successful,
it is likely to experience significant losses from time to time.
OVERLAP OF THE MARKETS TRADED BY THE TRADING ADVISORS REDUCES DIVERSIFICATION,
INCREASING THE RISK OF LOSS
The trading programs used by the Fund trade in overlapping markets.
11
<PAGE>
ITS SUBSTANTIAL EXPENSES WILL CAUSE LOSSES FOR THE FUND UNLESS OFFSET BY PROFITS
AND INTEREST INCOME
The Fund pays fixed annual expenses of approximately 4.175% of its average
month-end assets. In addition to this annual expense level, the Fund is subject
to quarterly incentive fees on any Trading Profits. Because these incentive fees
are calculated quarterly, they could represent a substantial expense to the Fund
even in a breakeven or losing year. Overall, investors must expect that the Fund
will pay about 5.375% per year in total expenses.
The Fund's expenses could, over time, result in significant losses. Except
for the incentive fees, these expenses are not contingent and are payable
whether or not the Fund is profitable.
THE TRADING ADVISORS ANALYZE ONLY TECHNICAL MARKET DATA, NOT ANY ECONOMIC
FACTORS EXTERNAL TO MARKET PRICES
The Trading Advisors' trading programs focus exclusively on statistical
analysis of market prices. Consequently, any factor external to the market
itself which dominates prices is likely to cause major losses. For example, a
pending political or economic event may be very likely to cause a major price
movement, but the Trading Advisors' programs would continue to maintain
positions that would incur major losses as a result of such movement if the
programs indicated that it should do so.
The likelihood of the Units being profitable could be materially diminished
during periods when events external to the markets themselves have an important
impact on prices. During such periods, the Trading Advisors' historical price
analysis could establish positions on the wrong side of the price movements
caused by such events.
LACK OF PRICE TRENDS OR OF THE TYPES OF PRICE TRENDS WHICH THE TRADING PROGRAMS
CAN IDENTIFY WILL CAUSE MAJOR LOSSES
The Fund cannot trade profitably unless major price trends occur in at least
certain markets that it trades. Many markets are trendless most of the time, and
in static markets the trading programs are likely to incur losses. In fact, each
Trading Advisor expects a significant percentage of its trades to be
unprofitable; each depends on significant gains from a few major trends to
offset these losses. Moreover, it is not just any price trend, but price trends
of the type which the Trading Advisors' systems have been designed to identify,
which are necessary for the Fund to be profitable.
THE DANGER TO THE FUND OF "WHIPSAW" MARKETS
Often, the most unprofitable market conditions for the Fund are those in
which prices "whipsaw," moving quickly upward, then reversing, then moving
upward again, then reversing again. In such conditions, the trading programs may
establish losing positions based on incorrectly identifying both the brief
upward or downward price movements as trends.
THE LARGE SIZE OF THE FUND'S TRADING POSITIONS INCREASES THE RISK OF SUDDEN,
MAJOR LOSSES
At times the Fund takes positions with face values up to approximately
thirty times its total equity. Consequently, even small price movements can
cause major losses.
UNIT VALUES ARE UNPREDICTABLE AND VARY SIGNIFICANTLY MONTH-TO-MONTH
The Net Asset Value per Unit can vary significantly month-to-month. In
January 1990, there was almost a 25% change in the value of a Unit. Investors
cannot know at the time they submit a subscription or a redemption request what
the subscription price or redemption value of their Units will be.
The only way to take money out of the Fund is to redeem Units. However, you
may not redeem Units during the first six months following your admission to the
Fund as a Limited Partner. Thereafter, you can
12
<PAGE>
only redeem Units at month-end on ten calendar days' advance notice. The
restrictions imposed on redemptions limit your ability to protect yourself
against major losses by redeeming Units.
Transfers of Units are subject to limitations as well, such as advance
written notice of any intent to transfer and the consent of the General Partners
to such transfer.
In addition, investors are unable to know whether they are subscribing for
Units after a significant upswing in the Net Asset Value per Unit--often a time
when the Fund has an increased probability of entering into a losing period.
ALTERATION OF TRADING SYSTEMS AND CONTRACTS AND MARKETS TRADED
The Trading Advisors may, in their discretion, change and adjust their
trading programs, as well as the contracts and markets which they trade. These
adjustments may result in foregoing profits which the trading programs would
otherwise have captured, as well as incurring losses which they would otherwise
have avoided. Neither the General Partners nor the Limited Partners are likely
to be informed of any non-material changes in the trading programs.
INCREASED COMPETITION FROM OTHER TREND-FOLLOWING TRADERS COULD REDUCE THE FUND'S
PROFITABILITY
There has been a dramatic increase over the past twenty years in the amount
of assets managed by trend-following trading systems like the Trading Advisors'
programs. In 1980, the amount of assets in the managed futures industry were
estimated at approximately $300 million; by the end of 1998, this estimate had
risen to approximately $34.9 billion. It is also estimated that over half of all
managed futures trading advisors rely primarily on trend-following systems.
Although the amount of trading in the futures industry as a whole has increased
significantly during the same period of time, the increase in managed money
increases trading competition. The more competition there is for the same
positions, the more costly and harder they are to acquire.
THE TRADING ADVISORS' HIGH LEVEL OF EQUITY UNDER MANAGEMENT COULD LEAD TO
DIMINISHED RETURNS
The Trading Advisors have a significant amount of assets under management.
As of January 31, 1999, JWH had approximately $2.0 billion under management and
Welton had approximately $177 million under management. The more money a Trading
Advisor manages, the more difficult it may be for the Trading Advisor to trade
profitably because of the difficulty of trading larger positions without
adversely affecting prices and performance. Large trades result in more price
slippage than do smaller orders.
ILLIQUID MARKETS COULD MAKE IT IMPOSSIBLE FOR THE FUND TO REALIZE PROFITS OR
LIMIT LOSSES
In illiquid markets, the Trading Advisors could be unable to capitalize on
the opportunities identified by their programs or to close out positions against
which the market is moving. There are numerous factors which can contribute to
market illiquidity, far too many for a Trading Advisor to predict when or where
illiquid markets may occur. The Trading Advisors attempt to limit their trading
to highly liquid markets, but there can be no assurance that a market which has
been highly liquid in the past will not experience periods of unexpected
illiquidity.
Unexpected market illiquidity has caused major losses in recent years in
such sectors as emerging markets, fixed income relative value strategies and
mortgage- backed securities. There can be no assurance that the same will not
happen to the Fund at any time or from time to time.
THE TRADING ADVISORS TRADE EXTENSIVELY IN FOREIGN MARKETS; THESE MARKETS ARE
LESS REGULATED THAN U.S. MARKETS AND ARE SUBJECT TO EXCHANGE RATE, MARKET
PRACTICES AND POLITICAL RISKS
The trading programs used for the Fund trade a great deal outside the U.S.
From time to time, as much as 75% of the Fund's overall market exposure could
involve positions taken on foreign markets.
13
<PAGE>
Foreign trading involves risks--including exchange-rate exposure, possible
governmental intervention and lack of regulation--which U.S. trading does not.
In addition, the Fund may not have the same access to certain positions on
foreign exchanges as do local traders, and the historical market data on which
the Trading Advisors base their strategies may not be as reliable or accessible
as it is in the United States. Certain foreign exchanges may also be in a more
or less developmental stage so that prior price histories may not be indicative
of current price dynamics. The rights of clients in the event of the insolvency
or bankruptcy of a non-U.S. market or broker are also likely to be more limited
than in the case of U.S. markets or brokers.
UNREGULATED MARKETS LACK REGULATORY PROTECTIONS OF EXCHANGES
The Fund may trade spot and forward contracts in currencies in unregulated
markets. It is impossible to determine fair pricing, prevent abuses such as
"front-running" or impose other effective forms of control over such markets.
The absence of regulation could expose the Fund in certain circumstances to
significant losses which it might otherwise have avoided.
REGULATORY CHANGES COULD RESTRICT THE FUND'S OPERATIONS
The Fund implements a speculative, highly leveraged strategy. From time to
time there is governmental scrutiny of these types of strategies and political
pressure to regulate their activities. For example, the Malaysian government
recently blamed the collapse of its currency on speculative funds and called for
international restrictions on their operations.
Regulatory changes could adversely affect the Fund by restricting its
markets, limiting its trading and/or increasing the taxes to which Limited
Partners are subject. As an example, in the mid-1980s the Commodity Futures
Trading Commission raised doubts concerning the legality of futures funds
trading currency forwards, and the legality of exchange of futures for physicals
transactions comes under periodic CFTC review. EFPs are a mechanism for
converting a foreign currency forward into a futures contract. If the Trading
Advisors cannot trade currency forwards or EFPs for the Fund, the effect on the
Fund could be material and adverse. The General Partners are not aware of any
pending or threatened regulatory developments which might adversely affect the
Fund. However, adverse regulatory initiatives could develop suddenly and without
notice.
POSSIBLE EFFECTS OF THE EUROPEAN MONETARY UNION
The Trading Advisors trade European currencies. The January 1, 1999
inauguration of the Euro and the market's reaction to the Euro, or to any
nation's possible withdrawal from the European Monetary Union, may adversely
affect the trading opportunities, or trading results generally, of currency
traders. The absence of historical Euro pricing data could be detrimental to
trend-following traders such as the Trading Advisors.
The conversion to a single euro-currency is a very significant and novel
political and economic event and there can be no certainty about its direct or
indirect future effects on currency markets. Unforeseen effects of the European
Monetary Union could result in trading losses for the Fund.
THE FUND COULD LOSE ASSETS AND HAVE ITS TRADING DISRUPTED DUE TO THE BANKRUPTCY
OF THE CLEARING BROKER OR OTHERS
The Fund is subject to the risk of CIS, exchange or clearinghouse
insolvency. Fund assets could be lost or impounded in such an insolvency during
lengthy bankruptcy proceedings. Were a substantial portion of the Fund's capital
tied up in a bankruptcy, the General Partners might suspend or limit trading,
perhaps causing the Fund to miss significant profit opportunities. No fund
managed by the General Partners has ever lost any assets due to the bankruptcy
or default of a broker, exchange or clearinghouse, but there can be no assurance
that this will not happen in the future.
14
<PAGE>
POSSIBILITY OF TERMINATION OF THE FUND BEFORE EXPIRATION OF ITS STATED TERM
CISI and/or IDS may withdraw as a general partner of the Fund upon 120 days'
notice. If both General Partners were to withdraw, the Fund would terminate
unless a substitute general partner was obtained. Other events, such as a
long-term substantial loss suffered by the Fund, could also cause the Fund to
terminate before the expiration of its stated term. This could cause you to
liquidate your investment and upset the overall maturity and timing of your
investment portfolio. If the registrations with the CFTC or memberships in the
National Futures Association of the Advisors, the General Partners, CIS or
American Express Financial Advisors Inc. were revoked or suspended, such entity
would no longer be able to provide services to the Fund.
YEAR 2000 ISSUES
THE FUND
Although the Fund relies on the smooth functioning of third parties'
computer systems, the Fund itself has no systems or technology applications of
its own relevant to its operations. Thus, the Fund has no expenses related to
addressing year 2000 issues.
CIS
CIS and CISI share computer and technology systems. CIS surveyed its major
applications in 1996 to see if they were Year 2000 compliant. Systems identified
with the Year 2000 problem were targeted for replacement or modification.
Replacement and modification projects are currently underway. In addition, CIS
has dedicated resources to assess its work processes and verify that it will be
able to handle the changes in the next millennium. This process addresses
software applications as well as key vendor, bank and customer relationships.
The expenses CIS has incurred to date in addressing its Year 2000 issues have
not had a material impact on its financial position, and CIS does not expect
that the expenses to be incurred in becoming fully Year 2000 complaint will have
such an impact.
During 1997, CIS participated in developing the industry-wide test plan with
the Futures Industry Association, with whom it continues to work closely. CIS
has participated in BETA testing, which began in September 1998, and will
participate again with the FIA in "street wide" testing during the second
quarter of 1999.
In addition, CIS has begun developing various "contingency plans" in the
event that mission critical systems should fail. This development is proceeding
on schedule.
CIS is taking this issue seriously and has a goal of maintaining reasonable
procedures in order to eliminate as much risk as possible to its customers
(including the Fund), its counterparties and itself. Despite the best efforts of
CIS, CISFS and CISI, there can be no assurance that the above steps will be
sufficient or that all potential problems have been identified in order to avoid
any adverse impact to the Fund. CIS and its affiliates make no representations
or warranties related to Year 2000 readiness or compliance, including but not
limited to business interruption, whether from failures in their own computer
systems, those of the Trading Advisors or any other third party.
JWH
JWH is taking immediate action to identify any of its computer systems that
are Year 2000 vulnerable. If such systems are identified that negatively affect
its services (E.G., trade details, fee information), it will take immediate
action to update those systems, extensively test the systems internally and, if
appropriate, with other parties, to ensure that system interdependencies have
been adequately addressed, and establish contingency plans and provide such
plans in the event of a malfunction of any part of the systems. If JWH becomes
aware of a Year 2000 vulnerable system which is unable to be corrected by the
year 2000, it will notify the General Partners in a timely manner.
15
<PAGE>
WELTON
In early 1998, Welton initiated an extensive review of all internal software
and hardware, as well as external interfaces to outside third party service
providers and trading exchanges. All outside sources of data and all firms
currently reporting daily and/or monthly equity data have indicated that they
are (or will be) Year 2000 compliant. Welton continues to monitor the results of
field tests, published reports, and Web sites of suppliers and customers. All of
Welton's trading software has been developed in house, contains full date logic,
and is fully Year 2000 compliant. Welton has developed an independent back
office that can be reconciled with a futures commission merchant's data for risk
management, account monitoring, and client reports. This is online as a back up
in the event a variety of government and futures commission merchant interfaces
encounter Year 2000 problems.
Additionally, Welton has taken steps to address the risk of any
non-compliant outside data from entering the firm's systems by means of embedded
software checking routines. If there are severe utility disruptions, Welton has
back-up electrical generation equipment, multiple data vendors and routing
(e.g., satellites and leased lines) on the premises to enable Welton to continue
trading operations. Also, as a part of Welton's extensive security process, the
firm maintains fully redundant hardware and software capabilities off site.
In summary, all hardware, software, communications equipment and business
processes at Welton are believed to be fully Year 2000 compliant. In the event
Welton becomes aware of a Year 2000 vulnerable system which is unable to be
corrected before December 31, 1999, it will notify the General Partners in a
timely manner.
GENERAL
There can be no assurance that the Trading Advisors and the Fund's other
service providers have anticipated every step necessary to avoid any adverse
effect on the Fund attributable to the Year 2000 problem. The General Partners
believe that a most likely worst case scenario would be one in which it becomes
impossible for the Fund to continue trading as a result of the Year 2000
problem. If the General Partners and/or the Trading Advisors assess such a
situation in advance of the December 31, 1999, the Fund will either liquidate
all positions prior to that date and/or establish relationships with additional
counterparties in order to permit trading to continue.
INVESTORS ARE TAXED EVERY YEAR ON THEIR SHARE OF THE FUND'S PROFITS--NOT ONLY
WHEN THEY REDEEM AS WOULD BE THE CASE IF THEY HELD STOCKS OR BONDS
Investors are taxed each year on their investment in the Fund, irrespective
of whether they redeem any Units.
All performance information included in this Prospectus is presented on a
pre-tax basis; the investors who experienced such performance had to pay the
related taxes from other sources.
Over time, the compounding effects of the annual taxation of the Fund's
income are material to the economic consequences of investing in the Fund. For
example, a 10% compound annual rate of return over five years would result in an
initial $10,000 investment compounding to $16,105. However, if one factors in a
30% tax rate each year, the result would be $14,025.
THE FUND TRADING GAINS ARE TAXED AT HIGHER SHORT-TERM CAPITAL GAINS RATE
Investors are taxed on their share of any trading profits of the Fund at
both short- and long-term capital gain rates depending on the mix of U.S.
exchange-traded contracts and non-U.S. contracts traded. These tax rates are
determined irrespective of how long an investor holds Units. Consequently, the
tax rate on the Fund's trading gains may be higher than those applicable to
other investments held by an investor for a comparable period.
16
<PAGE>
TAX COULD BE DUE FROM INVESTORS ON THEIR SHARE OF THE FUND'S INTEREST INCOME
DESPITE OVERALL LOSSES
Investors may be required to pay tax on their allocable share of the Fund's
interest income, even though the Fund incurs overall losses. Trading losses can
only be used to offset trading gains and $3,000 of ordinary income each year.
Consequently, if an investor were allocated $5,000 of interest income and
$10,000 of net trading losses, the investor would owe tax on $2,000 of interest
income even though the investor would have a $5,000 loss for the year. The
$7,000 capital loss would carry forward, but subject to the same limitation on
its deductibility against ordinary income.
INVESTMENT FACTORS
AN INVESTMENT IN THE FUND OFFERS THE POTENTIAL OF ACHIEVING SUBSTANTIAL
CAPITAL APPRECIATION OVER TIME TO THOSE INVESTORS WHOSE RISK TOLERANCE LEVELS
CAN ACCEPT SIGNIFICANT RISK AND EXPECTED VOLATILITY IN PERFORMANCE. IF
SUBSTANTIAL LOSSES CAN BE AVOIDED, THE GENERAL PARTNERS BELIEVE THAT THE FUND
HAS A REASONABLE OPPORTUNITY TO GENERATE SIGNIFICANT PROFITS OVER TIME, DESPITE
EXHIBITING CONSIDERABLE INTRA-PERIOD VOLATILITY, BY CAPITALIZING ON MAJOR PRICE
MOVEMENTS WHEN THEY DO OCCUR. IF SUCCESSFUL, THE FUND OFFERS INVESTORS THE
FOLLOWING POTENTIAL ADVANTAGES.
ACCESS TO THE TRADING ADVISORS AND THEIR TRADING PROGRAMS
By investing in the Fund, subscribers have the opportunity to place assets
with experienced active managed futures advisors whose advisory and management
services are generally unavailable to small investors. For example, JWH is one
of the largest advisors in the managed futures industry in terms of assets under
management. JWH typically requires a substantial amount of money--$5,000,000 or
more-- to open a managed account. Investors in the Fund are able to gain access
to JWH, as well as Welton, for a small fraction of the Trading Advisors' normal
minimum account size.
INVESTMENT DIVERSIFICATION
The globalization of the world's economy offers potentially valuable trading
opportunities, as major political and economic events continue to influence
world markets, at times dramatically. Volatility in interest rates, the
possibility of significant fluctuations in the value of commodities and
currencies, the consolidation of European currencies, fragility in world banking
and credit mechanisms and the growing interdependence among national economies
create high risks but also substantial opportunities for profit. These
developments may make an investment into an investment vehicle such as the Fund
timely.
Unlike a traditional diversified portfolio of stocks, bonds and real estate,
the profit potential of the Fund does not depend upon favorable general economic
conditions. As demonstrated by the graph below, the Fund is as likely to be
profitable (or unprofitable) during periods of declining stock, bond and real
estate markets as at any other time. In addition to the expected non-correlation
in its performance with the performance of the general equity and debt markets,
the Fund's flexibility to take either long or short positions, as opposed to
traditional portfolios which are typically heavily weighted towards the former,
can be an important advantage in times of economic uncertainty.
An investor who is not prepared to spend substantial time trading in the
futures and forward markets may nevertheless participate in the commodities and
financial markets through investing in the Fund, thereby obtaining
diversification from traditional investments such as a diversified portfolio of
stocks, bonds and real estate. By allocating a portion of the risk segment of a
traditional diversified portfolio to the Fund, an investor has the potential, if
the Fund is successful, to enhance the prospects for superior performance of the
overall portfolio as well as to reduce the volatility of the portfolio over time
and the dependence of such portfolio on any single country's economy.
17
<PAGE>
PORTFOLIO DIVERSIFICATION ILLUSTRATION
(MONTHLY PERCENTAGE CHANGE IN VALUE)
<TABLE>
<CAPTION>
FUTURES SP500
<S> <C> <C>
6/30/87 -0.08 5.05
7/31/87 0.83 5.07
8/31/87 0.09 3.73
9/30/87 -2.35 -2.19
10/31/87 15.30 -21.54
11/30/87 8.53 -8.24
12/31/87 4.31 7.61
1/31/88 -4.36 4.20
2/29/88 1.28 4.64
3/31/88 -7.93 -3.09
4/30/88 -3.28 1.11
5/31/88 -0.34 0.85
6/30/88 11.61 4.59
7/31/88 -9.41 -0.38
8/31/88 -1.76 -3.39
9/30/88 3.65 4.26
10/31/88 0.20 2.78
11/30/88 -0.12 -1.43
12/31/88 -3.99 1.74
1/31/89 3.35 7.30
2/28/89 -5.06 -2.49
3/31/89 2.98 2.33
4/30/89 -3.83 5.19
5/31/89 19.25 4.03
6/30/89 -5.20 -0.56
7/31/89 6.00 9.02
8/31/89 -7.67 1.95
9/30/89 -6.55 -0.41
10/31/89 -5.97 -2.32
11/30/89 12.57 2.03
12/31/89 -0.70 2.40
1/31/90 24.84 -6.71
2/28/90 12.64 1.30
3/31/90 3.61 2.65
4/30/90 5.79 -2.49
5/31/90 -16.81 9.73
6/30/90 2.69 -0.67
7/31/90 8.95 -0.32
8/31/90 9.90 -9.03
9/30/90 5.64 -4.86
10/31/90 -2.42 -0.42
11/30/90 0.49 6.45
12/31/90 -1.63 2.78
1/31/91 -1.55 4.34
2/28/91 1.76 7.14
3/31/91 0.59 2.42
4/30/91 -1.85 0.24
5/31/91 -2.03 4.30
6/30/91 3.60 -4.58
7/31/91 -11.27 4.66
8/31/91 4.12 2.36
9/30/91 13.37 -1.67
10/31/91 -3.94 1.34
11/30/91 3.51 -4.02
12/31/91 20.71 11.42
1/31/92 -13.95 -1.86
2/29/92 -9.43 1.29
3/31/92 0.69 -1.94
4/30/92 -6.30 2.93
5/31/92 -1.74 0.49
6/30/92 15.58 -1.49
7/31/92 18.09 4.08
8/31/92 7.92 -2.05
9/30/92 -3.29 1.18
10/31/92 -3.60 0.34
11/30/92 -2.03 3.40
12/31/92 -0.64 1.23
1/31/93 1.19 0.84
2/28/93 10.80 1.36
3/31/93 -0.82 2.11
4/30/93 6.54 -2.42
5/31/93 1.34 2.67
6/30/93 1.44 0.29
7/31/93 8.35 -0.40
8/31/93 3.09 3.79
9/30/93 -0.29 -0.79
10/31/93 -0.04 2.07
11/30/93 -0.03 -0.95
12/31/93 2.03 1.21
1/31/94 -4.48 3.40
2/28/94 -3.29 -2.71
3/31/94 5.76 -4.35
4/30/94 -0.67 1.28
5/31/94 3.98 1.64
6/30/94 2.72 -2.45
7/31/94 -2.87 3.28
8/31/94 -2.15 4.09
9/30/94 -0.45 -2.44
10/31/94 0.03 2.24
11/30/94 -3.51 -3.64
12/31/94 -1.68 1.48
1/31/95 -3.05 2.59
2/28/95 8.41 3.89
3/31/95 7.90 2.95
4/30/95 4.71 2.94
5/31/95 1.86 3.99
6/30/95 -2.84 2.32
7/31/95 0.27 3.31
8/31/95 -0.05 0.25
9/30/95 -1.14 4.22
10/31/95 -0.26 -0.36
11/30/95 2.43 4.39
12/31/95 3.42 1.93
1/31/96 4.07 3.40
2/29/96 -3.48 0.93
3/31/96 -0.16 0.96
4/30/96 3.50 1.47
5/31/96 -2.44 2.57
6/30/96 0.51 0.38
7/31/96 -1.09 -4.42
8/31/96 0.47 2.11
9/30/96 3.34 5.62
10/31/96 9.26 2.76
11/30/96 6.71 7.55
12/31/96 -1.48 -1.98
1/31/97 3.68 6.24
2/28/97 0.08 0.79
3/31/97 -0.18 -4.10
4/30/97 -2.00 5.96
5/31/97 -5.51 6.08
6/30/97 2.74 4.48
7/31/97 11.05 7.95
8/31/97 -4.38 -5.60
9/30/97 1.73 5.47
10/31/97 -1.17 -3.34
11/30/97 1.67 4.63
12/31/97 1.61 1.72
1/31/98 -2.88 1.10
2/28/98 -0.36 7.21
3/31/98 0.94 5.12
4/30/98 -6.22 1.01
5/31/98 2.49 -1.72
6/30/98 -3.54 4.06
7/31/98 -0.97 -1.06
8/31/98 12.72 -14.44
9/30/98 9.70 6.41
10/31/98 -2.96 8.13
11/30/98 -5.24 6.06
12/31/98 6.46 5.76
1/31/99 -4.20 4.18
2/28/99 -0.65 -3.11
</TABLE>
18
<PAGE>
OPPORTUNITY TO PROFIT IN DECLINING AS WELL AS IN RISING MARKETS
The futures markets offer the ability to trade either side of the market.
Unlike short selling in the securities markets, taking short positions in the
futures market (or buying a put option or selling a call option) in anticipation
of a drop in price can be accomplished without additional restrictions or
special margin requirements. Selling short is no more difficult than
establishing a long position.
The profit and loss potential of futures trading is not dependent upon
economic prosperity or interest rate or currency stability. Positive and
negative returns may be realized in both rising and declining markets. It is
potentially advantageous for investors to own assets which can appreciate during
a period of generally declining prices, financial disruption or economic
instability.
INTEREST ON FUND ASSETS
Each month, the Clearing Broker pays the Fund 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 yield on the 90-day U.S. Treasury bills issued during that
month. The interest earned on the Fund's assets can offset a substantial portion
of its routine costs. The Fund's interest income represents a source of revenue
entirely independent of the success or failure of its speculative futures and
forward trading.
LIMITED LIABILITY
An investor who opens an individual futures account is generally liable for
all losses incurred in such account. Investors may lose substantially more than
they commit to an account particularly in light of the large positions in
relation to capital used in futures and forward trading. However, a Limited
Partner cannot lose more than his or her investment in the Fund plus
undistributed profits. In fact, in the event the Net Asset Value of a Unit
decreases to less than $125 as of the close of business on any day, the General
Partners are required to cause the Fund to liquidate all open positions, suspend
trading and declare a Special Redemption Date in accordance with the provisions
in the Fund's Limited Partnership Agreement. Without limited liability, it could
be imprudent for an investor to participate in strategies like those applied by
the Trading Advisors where positions may be large in relation to account equity.
ADMINISTRATIVE CONVENIENCE
The Fund is structured so as to substantially eliminate the administrative
burden which otherwise would be involved if Limited Partners engaged directly in
futures and forward trading. Limited Partners receive monthly unaudited and
annual certified financial reports as well as all tax information relating to
the Fund necessary for Limited Partners to complete their federal income tax
returns. The approximate daily Net Asset Value per Unit is available by calling
your financial planner or CISI at (312) 460-4000.
HOW THE FUND WORKS
BUYING UNITS
You buy Units as of the last business day of any month at Net Asset Value
plus the Sales Charge and the Offering Expense Charge. Your subscription must be
submitted by the tenth calendar day of the month to be considered for acceptance
as a Limited Partner that month. Late subscriptions will be applied to Unit
sales as of the end of the second month after receipt, unless revoked. All
subscription funds will be held in an interest bearing escrow account until your
subscription is accepted or rejected.
The Selling Agent will promptly send you a confirmation of your investment
and a copy of the Fund's most recent monthly account statement. You will then
have sixteen days from the date of the confirmation to decide whether or not you
wish your subscription to be retained by the Fund. If you wish to invest in the
Fund, no further action is necessary. If, during the sixteen day period, you
decided that you do not wish to invest, you must notify the Selling Agent by
mail or telephone of your decision; the escrow agent will
19
<PAGE>
promptly return your subscription funds. Notification instructions will be
included with the confirmation and monthly account statement.
Investors need to submit a Subscription Agreement with each purchase of
Units.
The minimum purchase for first-time investors is $1,000. Additional
investments may be made in $100 increments.
USE OF PROCEEDS
One hundred percent of the net subscription proceeds are credited to the
Fund's commodity accounts with the Clearing Broker. The Fund uses the proceeds
to engage in speculative trading in commodity futures contracts, forward
contracts and other commodity interests, including options thereon. 65% of the
net proceeds are allocated to JWH to trade in accordance with the Financial and
Metals Portfolio trading program and 35% of the net proceeds are allocated to
Welton to trade in accordance with its Diversified Portfolio trading program.
Historically, the Fund has used approximately 20% to 60% of its assets as
initial margin for futures trading. The General Partners believe that
approximately the same percentage of assets will be used for margin, although
the percentage may be more or less than the historical range.
The General Partners have agreed to pay all ongoing offering expenses
regardless of total cost. The Offering Expense Charge is 3% of the gross per
Unit price, and is intended to reimburse the General Partners for offering
costs. 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.
The Fund receives interest 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 each month. The Clearing Broker retains all
interest earned on Fund assets in excess of the amount paid to the Fund.
REDEEMING UNITS
You can redeem Units monthly beginning the seventh month following your
admission to the Fund as a Limited Partner. Redemption requests must be received
by the General Partners no later than the tenth business day prior to the end of
the month which you redeem. A Request for Redemption is attached to Part II of
this Prospectus as Exhibit D. Unless you are redeeming all of your Units, the
minimum redemption amount is the lesser of two Units or $500 and your remaining
interest in the Fund must equal the lesser of $500 or the Net Asset Value of two
Units.
UNCERTAIN SUBSCRIPTION AND REDEMPTION VALUE OF UNITS
The Fund sells and redeems Units at subscription or redemption date Net
Asset Value, not at the Net Asset Value as of the date that subscriptions or
redemption requests are submitted. Investors must submit subscriptions no later
than the tenth day of the month prior to investment and redemption requests no
later than the tenth business day prior to the end of the month. Because of the
volatility of Unit values, these delays mean that investors cannot know the
value at which they will purchase or redeem their Units.
Material adverse changes in the Fund's financial position could occur
between the time an investor commits to acquire or redeem Units and the time the
purchase or redemption is made.
NO DISTRIBUTIONS INTENDED
The Fund does not anticipate making any distributions to investors. No
distributions have been made to date.
20
<PAGE>
IDS MANAGED FUTURES, L.P.
PERFORMANCE OF THE FUND
Name of Pool: IDS Managed Futures, L.P.
Type of Pool: Publicly offered
Inception of Trading: June 16, 1987
Aggregate Subscriptions: $54,962,098
Current Net Asset Value: $54,644,917
Worst Monthly Decline: (6.22)% (4/98)
Worst Peak-to-Valley Decline: (12.94)% (07/94 - 01/95)
<TABLE>
<CAPTION>
MONTHLY PERFORMANCE 1999 1998 1997 1996 1995 1994
- ----------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
JANUARY............................ (4.20)% (2.88)% 3.68 % 4.07 % (3.05)% (4.48)%
FEBRUARY........................... (0.65)% (0.36)% 0.08 % (3.48)% 8.41 % (3.29)%
MARCH.............................. 0.94 % (0.18)% (0.16)% 7.90 % 5.76 %
APRIL.............................. (6.22)% (2.00)% 3.50 % 4.71 % (0.67)%
MAY................................ 2.49 % (5.51)% (2.44)% 1.86 % 3.98 %
JUNE............................... (3.54)% 2.74 % 0.51 % (2.84)% 2.72 %
JULY............................... (0.97)% 11.05 % (1.09)% 0.27 % (2.87)%
AUGUST............................. 12.72 % (4.38)% 0.47 % (0.05)% (2.15)%
SEPTEMBER.......................... 9.70 % 1.73 % 3.34 % (1.14)% (0.45)%
OCTOBER............................ (2.96)% (1.17)% 9.26 % (0.26)% 0.03 %
NOVEMBER........................... (5.24)% 1.67 % 6.71 % 2.43 % (3.51)%
DECEMBER........................... 6.46 % 1.61 % (1.48)% 3.42 % (1.68)%
----- ------ ------ ------ ------ -----
Compound Annual Rate of Return..... (4.82)% 8.55 % 8.68 % 20.08 % 23.03 % (6.93)%
----- ------ ------ ------ ------ -----
----- ------ ------ ------ ------ -----
</TABLE>
- ------------------------
Prior to July 1997, Fund assets were allocated equally between JWH and Sabre
Fund Management Limited. In July 1997, the Fund's assets were reallocated 65% to
JWH, 30% to Welton and 5% to Sabre. Sabre's advisory contract terminated
December 31, 1997 and its allocation of Fund assets was moved to Welton.
Monthly rates of return are calculated by dividing net performance for the
month by beginning equity.
Worst peak-to-valley decline means the greatest cumulative percentage
decline in month-end net asset value 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 decline is calculated
by comparing the initial month-end net asset value to each subsequent month-end
net asset value. A new trading "peak" is established each time the month-end net
asset value exceeds all prior month-end net asset values.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
21
<PAGE>
THE FOLLOWING GRAPH SHOWS ACTUAL PERFORMANCE OF THE FUND VERSUS CERTAIN
INDICES. ALL PERFORMANCE RETURNS ARE BASED UPON AN INITIAL $10,000 INVESTMENT IN
JUNE 1987.
<TABLE>
<CAPTION>
FUTURES CPI SP500 L BOND
<S> <C> <C> <C> <C>
5/31/87 $10,000 $10,000 $10,000 $10,000
6/30/87 $ 9,992 $10,035 $10,505 $10,138
7/31/87 $10,075 $10,061 $11,037 $10,130
8/31/87 $10,084 $10,114 $11,449 $10,075
9/30/87 $ 9,847 $10,167 $11,198 $ 9,861
10/31/87 $11,354 $10,193 $ 8,786 $10,212
11/30/87 $12,322 $10,203 $ 8,062 $10,293
12/31/87 $12,853 $10,203 $ 8,675 $10,433
1/31/88 $12,293 $10,229 $ 9,040 $10,801
2/29/88 $12,450 $10,256 $ 9,459 $10,929
3/31/88 $11,463 $10,300 $ 9,168 $10,826
4/30/88 $11,087 $10,051 $10,111 $ 9,946
5/31/88 $11,049 $10,085 $10,197 $ 9,879
6/30/88 $12,332 $10,129 $10,664 $10,117
7/31/88 $11,172 $10,171 $10,624 $10,065
8/31/88 $10,975 $10,214 $10,264 $10,091
9/30/88 $11,375 $10,282 $10,700 $10,319
10/31/88 $11,398 $10,316 $10,998 $10,513
11/30/88 $11,385 $10,324 $10,841 $10,386
12/31/88 $10,930 $10,342 $11,030 $10,397
1/31/89 $11,296 $10,394 $11,836 $10,547
2/28/89 $10,725 $10,436 $11,541 $10,471
3/31/89 $11,044 $10,497 $11,810 $10,516
4/30/89 $10,621 $10,565 $12,423 $10,736
5/31/89 $12,666 $10,625 $12,924 $11,018
6/30/89 $12,007 $10,651 $12,851 $11,353
7/31/89 $12,728 $10,676 $14,010 $11,595
8/31/89 $11,752 $10,693 $14,283 $11,423
9/30/89 $10,982 $10,728 $14,225 $11,482
10/31/89 $10,326 $10,779 $13,895 $11,764
11/30/89 $11,624 $10,805 $14,177 $11,876
12/31/89 $11,543 $10,822 $14,517 $11,908
1/31/90 $14,410 $10,934 $13,543 $11,766
2/28/90 $16,232 $10,985 $13,719 $11,804
3/31/90 $16,818 $11,046 $14,082 $11,812
4/30/90 $17,791 $11,063 $13,731 $11,703
5/31/90 $14,801 $11,089 $15,067 $12,050
6/30/90 $15,199 $11,149 $14,966 $12,243
7/31/90 $16,559 $11,191 $14,918 $12,412
8/31/90 $18,198 $11,294 $13,571 $12,245
9/30/90 $19,225 $11,389 $12,912 $12,347
10/31/90 $18,760 $11,457 $12,857 $12,504
11/30/90 $18,852 $11,482 $13,686 $12,773
12/31/90 $18,544 $11,482 $14,067 $12,972
1/31/91 $18,257 $11,551 $14,679 $13,133
2/28/91 $18,578 $11,569 $15,727 $13,244
3/31/91 $18,688 $11,586 $16,107 $13,336
4/30/91 $18,342 $11,603 $16,145 $13,480
5/31/91 $17,970 $11,638 $16,840 $13,558
6/30/91 $18,617 $11,673 $16,069 $13,551
7/31/91 $16,519 $11,690 $16,817 $13,740
8/31/91 $17,199 $11,724 $17,215 $14,036
9/30/91 $19,499 $11,776 $16,926 $14,321
10/31/91 $18,730 $11,794 $17,153 $14,480
11/30/91 $19,388 $11,828 $16,464 $14,613
12/31/91 $23,403 $11,836 $18,344 $15,047
1/31/92 $20,138 $11,853 $18,002 $14,843
2/29/92 $18,239 $11,895 $18,236 $14,939
3/31/92 $18,365 $11,956 $17,881 $14,856
4/30/92 $17,208 $11,973 $18,406 $14,963
5/31/92 $16,909 $11,990 $18,496 $15,245
6/30/92 $19,543 $12,033 $18,220 $15,456
7/31/92 $23,078 $12,058 $18,965 $15,771
8/31/92 $24,906 $12,092 $18,577 $15,930
9/30/92 $24,087 $12,126 $18,795 $16,120
10/31/92 $23,220 $12,168 $18,860 $15,905
11/30/92 $22,748 $12,185 $19,500 $15,909
12/31/92 $22,603 $12,177 $19,739 $16,162
1/31/93 $22,872 $12,236 $19,904 $16,472
2/28/93 $25,342 $12,279 $20,175 $16,760
3/31/93 $25,134 $12,322 $20,601 $16,831
4/30/93 $26,778 $12,356 $20,103 $16,948
5/31/93 $27,137 $12,374 $20,639 $16,970
6/30/93 $27,527 $12,391 $20,700 $17,278
7/31/93 $29,826 $12,391 $20,616 $17,376
8/31/93 $30,747 $12,426 $21,397 $17,680
9/30/93 $30,658 $12,452 $21,228 $17,728
10/31/93 $30,646 $12,503 $21,667 $17,793
11/30/93 $30,637 $12,512 $21,461 $17,642
12/31/93 $31,259 $12,512 $21,721 $17,738
1/31/94 $29,858 $12,545 $22,459 $17,977
2/28/94 $28,876 $12,588 $21,850 $17,664
3/31/94 $30,539 $12,631 $20,898 $17,228
4/30/94 $30,335 $12,649 $21,166 $17,090
5/31/94 $31,542 $12,657 $21,512 $17,088
6/30/94 $32,400 $12,701 $20,986 $17,051
7/31/94 $31,470 $12,735 $21,674 $17,390
8/31/94 $30,793 $12,786 $22,561 $17,411
9/30/94 $30,655 $12,820 $22,011 $17,155
10/31/94 $30,664 $12,829 $22,503 $17,140
11/30/94 $29,588 $12,846 $21,685 $17,102
12/31/94 $29,091 $12,846 $22,006 $17,220
1/31/95 $28,203 $12,897 $22,576 $17,561
2/28/95 $30,575 $12,949 $23,455 $17,979
3/31/95 $32,991 $12,992 $24,146 $18,088
4/30/95 $34,545 $13,034 $24,857 $18,342
5/31/95 $35,187 $13,061 $25,848 $19,051
6/30/95 $34,188 $13,087 $26,448 $19,191
7/31/95 $34,280 $13,087 $27,325 $19,148
8/31/95 $34,263 $13,121 $27,393 $19,380
9/30/95 $33,872 $13,147 $28,549 $19,568
10/31/95 $33,784 $13,190 $28,447 $19,822
11/30/95 $34,605 $13,181 $29,694 $20,120
12/31/95 $35,789 $13,172 $30,266 $20,401
1/31/96 $37,245 $13,250 $31,295 $20,536
2/29/96 $35,949 $13,292 $31,586 $20,179
3/31/96 $35,892 $13,361 $31,890 $20,037
4/30/96 $37,148 $13,413 $32,360 $19,925
5/31/96 $36,242 $13,439 $33,193 $19,885
6/30/96 $36,426 $13,447 $33,320 $20,152
7/31/96 $36,029 $13,472 $31,848 $20,206
8/31/96 $36,199 $13,498 $32,521 $20,172
9/30/96 $37,408 $13,541 $34,350 $20,523
10/31/96 $40,872 $13,584 $35,297 $20,979
11/30/96 $43,614 $13,610 $37,962 $21,337
12/31/96 $42,969 $13,610 $37,210 $21,139
1/31/97 $44,550 $13,654 $39,534 $21,204
2/28/97 $44,586 $13,696 $39,844 $21,257
3/31/97 $44,505 $13,730 $38,210 $21,021
4/30/97 $43,615 $13,747 $40,489 $21,337
5/31/97 $41,212 $13,739 $42,953 $21,539
6/30/97 $42,341 $13,755 $44,876 $21,796
7/31/97 $47,020 $13,772 $48,446 $22,384
8/31/97 $44,961 $13,798 $45,734 $22,194
9/30/97 $45,738 $13,832 $48,237 $22,522
10/31/97 $45,203 $13,867 $46,628 $22,849
11/30/97 $45,958 $13,858 $48,784 $22,954
12/31/97 $46,698 $13,842 $49,622 $23,186
1/31/98 $45,353 $13,868 $50,170 $23,483
2/28/98 $45,190 $13,895 $53,786 $23,464
3/31/98 $45,615 $13,921 $56,538 $23,544
4/30/98 $42,777 $13,946 $57,107 $23,666
5/31/98 $43,843 $13,971 $56,126 $23,891
6/30/98 $42,291 $13,988 $58,405 $24,094
7/31/98 $41,880 $14,005 $57,784 $24,145
8/31/98 $47,207 $14,021 $49,440 $24,538
9/30/98 $51,787 $14,038 $52,608 $25,112
10/31/98 $50,254 $14,072 $56,883 $24,979
11/30/98 $47,620 $14,072 $60,329 $25,122
12/31/98 $50,697 $14,064 $63,803 $25,197
1/31/99 $48,567 $14,097 $66,471 $25,376
2/28/99 $48,252 $14,097 $64,405 $24,932
</TABLE>
STANDARD & POOR'S CORP./S&P 500 TOTAL RETURN INDEX (INCLUDES REINVESTMENT OF
DIVIDENDS). The S&P 500 is a market capitalization weighted price index
composed of 500 widely held common stocks listed on the New York Stock Exchange,
American Stock Exchange and Over-The-Counter market. This index is unmanaged and
reflects the inherent volatility and liquidity of the equity markets.
LEHMAN AGGREGATE BOND INDEX. This index is unmanaged, consists of
representative government and corporate bonds as well as asset-backed and
mortgage-backed securities and reflects the liquidity of the bond markets. Bond
investments are fixed income investments and have been generally less volatile
than equities or commodities but are sensitive to interest-rate movement.
CONSUMER PRICE INDEX. U.S. Department of Labor, Bureau of Statistics/CPI
Index.
IDS MANAGED FUTURES, L.P., A MANAGED FUND. Actual performance has reflected
the more speculative and volatile nature of trading in commodity interests.
Investors may liquidate their Units on a monthly basis after six months.
22
<PAGE>
SELECTED FINANCIAL INFORMATION
THE FOLLOWING SELECTED FINANCIAL INFORMATION FOR THE YEARS ENDED DECEMBER
31, 1998, 1997, 1996, 1995 AND 1994 IS DERIVED FROM THE FINANCIAL STATEMENTS OF
THE FUND, WHICH HAVE BEEN AUDITED BY KPMG LLP.
------------------------
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Operating Revenues.................... $ 9,512,575 $ 7,618,500 $ 10,189,635 $ 8,419,239 $ 278,901
Income (loss) from continuing
operations.......................... $ 4,578,497 $ 3,778,125 $ 6,701,475 5,755,268 ($ 1,530,228)
Income (loss) per unit*............... $ 30.08 $ 28.09 $ 54.14 50.46 (16.30)
Total assets.......................... $ 58,570,323 $ 50,592,432 $ 41,669,309 33,275,874 24,184,896
Long term obligations................. 0 0 0 0 0
Cash dividend obligations............. 0 0 0 0 0
</TABLE>
- ------------------------
* FIGURES HAVE BEEN ADJUSTED FOR A 3-FOR-1 SPLIT ON FEBRUARY 28, 1995 FOR
COMPARATIVE PURPOSES.
MANAGEMENT'S ANALYSIS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Trading Advisors' programs do not predict price movements. No
fundamental economic supply or demand analysis is used in attempting to identify
mispricings in the market, and no macroeconomic assessments of the relative
strengths of different national economies or economic sectors is made. Instead,
the programs apply proprietary computer models to analyze past market data, and
from this data alone attempt to determine whether market prices are trending.
Technical traders such as the Trading Advisors base their strategies on the
theory that market prices reflect the collective judgment of numerous different
traders and are, accordingly, the best and most efficient indication of market
movements. However, there are frequent periods during which fundamental factors
external to the market dominate prices.
If the Trading Advisors' models identify trends, they signal positions which
follow the trends. When these models identify trends as having ended or
reversed, the positions are either closed out or reversed. Due to their trend-
following character, the Trading Advisors' programs do not predict either the
commencement or the end of a price movement. Rather, their objective is to
identify trends early enough to profit from them and to detect their end or
reversal in time to close out the Fund's positions while retaining most of the
profits made from following the trends.
In analyzing the performance of the Trading Advisors' trend-following
programs, economic conditions, political events, weather factors, etc., are not
directly relevant because only market data has any input into their trading
results. There is no direct connection between particular market conditions and
price trends. There are so many influences on the markets that the same general
type of economic event may lead to a price trend in some cases but not in
others. The analysis is further complicated by the fact that the programs are
designed to recognize only certain types of trends and to apply only certain
criteria of when a trend has begun. Consequently, even though significant price
trends may occur, if these trends are not comprised of the type of intra-period
price movements which the programs are designed to identify, the Fund may miss
the trend altogether.
The Fund's success depends on the Trading Advisors' ability to recognize and
capitalize on major price movements and other profit opportunities in different
sectors of the world economy. Because of the speculative nature of its trading,
operational or economic trends have little relevance to the Fund's results, and
its past performance is not necessarily indicative of its future results. The
General Partners believe, however, that there are certain market conditions--for
example, markets with major price movements--in which the Fund has a better
opportunity of being profitable than in others.
23
<PAGE>
The following performance summary outlines certain major price trends which
the Trading Advisors' programs have identified for the Fund. The fact that
certain trends were captured does not imply that others, perhaps larger and
potentially more profitable trends, were not missed or that the Trading Advisors
will be able to capture similar trends in the future. Moreover, the fact that
the programs were profitable in certain market sectors in the past does not mean
that they will be so in the future.
The performance summary is an outline description of how the Fund performed
in the past, not necessarily any indication of how it will perform in the
future. Furthermore, the general causes to which certain trends are attributed
may or may not in fact have caused such trends, as opposed to simply having
occurred at about the same time.
While there can be no assurance that the Trading Advisors will trade
profitably even in trending markets, markets in which substantial and sustained
price movements occur offer the best profit potential for the Fund.
PERFORMANCE SUMMARY
FROM INCEPTION UNTIL JULY 1997, JWH AND SABRE FUND MANAGEMENT LIMITED WERE
THE FUND'S ONLY TRADING ADVISORS AND FUND ASSETS WERE ALLOCATED EQUALLY TO EACH
TRADING ADVISOR. WELTON BECAME A TRADING ADVISOR IN JULY 1997 AND THE FUND
ASSETS WERE REALLOCATED 65% TO JWH, 30% TO WELTON AND 5% TO SABRE. SABRE'S
ADVISORY CONTRACT TERMINATED AT THE END OF 1997 AND SABRE'S ALLOCATION OF FUND
ASSETS WAS MOVED TO WELTON. CONSEQUENTLY, THE PERFORMANCE SUMMARY FOR THE YEARS
1996 AND 1997 REFLECT THE TRADING OF SABRE AND REFERENCES TO TRADING ADVISORS IN
THOSE YEARS INCLUDE SABRE.
1998
The year 1998 was marked by declining global interest rates and commodity
prices and extremely volatile currency fluctuations. The Fund produced a net
gain of 8.55% for the calendar year. One of the key markets that consistently
reported profits during the year was the energy sector; primarily crude oil.
Short crude oil prices throughout the year were beneficial to the Fund.
Additionally, coffee prices fell 28% during the year and the Fund benefitted
from its short positions in coffee prices.
The first quarter was marked by a flight to quality in the bond market,
namely German bunds and U.S. bonds amidst turbulence in the Asian markets. The
U.S. dollar remained volatile for the first two months of the year and
strengthened during March, primarily versus the German mark and Swiss franc. The
volatility in both these sectors produced overall losses for the Fund. Warren
Buffett was rumored and then confirmed to be holding significant silver
positions anticipating a rise in silver prices. Long silver prices were
beneficial to the Fund.
In the second quarter, the U.S. dollar strengthened against the Japanese yen
until the U.S. Government intervened to support the Japanese yen, essentially
selling the U.S. dollar and depressing the value of the U.S. dollar relative to
most major world currencies. By July, the U.S. dollar was back at all-time highs
against the Japanese yen. Overall, the Fund gained as a result of the
fluctuation of the U.S. dollar. However, the ripple effect created volatility
for the U.S. dollar versus the European currencies. Precious metals, namely
silver, reversed as prices slumped. Gold prices seesawed up and down never
settling on direction. The volatility in these markets was unprofitable for the
Fund.
The third quarter was highlighted by a devaluation of the Russian ruble
which sent shock waves through the world equity markets as traders liquidated
equities in favor of sovereign debt. Even prior to the Russian crisis, the Fund
was well positioned to take advantage of rising bonds. The Fund was long the
U.S., German and Japan bond markets. Interest rates on the U.S. 30-year long
bond fell below 5%, the lowest level in over 30 years. In addition, the Fund was
short the Nikkei and FTSE equity indices. Gold and silver prices fell to 1998
lows, and short positions in these precious metals were profitable.
24
<PAGE>
The fourth quarter saw extremes in the currency sector as the U.S. dollar
again gyrated for the last three months of the year. A long Japanese yen
position provided the only profit for the Fund in October but was the largest
losing position in November. Yet, by December, long Japanese yen positions were
again providing profits. The Fed eased interest rates one quarter point three
times in seven weeks. However, long U.S. bond positions reaped few rewards as
these rate cuts had already been factored into the market. Global stock indices
rebounded beginning in October and long positions in the S&P and German DAX
proved rewarding. The Fund ended the year with a profit of $4,578,497.
1997
In 1997, the global futures markets showed a great deal of volatility and
the Trading Advisors were well positioned to profit from several of these moves.
The Fund produced a net gain of 8.68% for the calendar year. The year 1997 was
marked by declining gold prices and interest rates around the globe and a rising
U.S. dollar relative to the German mark and Japanese yen. The strength of these
market moves proved beneficial to the Fund. The price of gold declined to the
lowest level in over a decade reflecting its declining value as an alternative
monetary asset as central banks increased their willingness to sell or lease the
precious metal. Solid gains were generated in the global interest rate markets,
particularly in the Japanese Government bond where yields plummeted to historic
lows as the nation sank relentlessly into a recession. Strong gains were also
recorded in Australian 10-year bonds and 3-year notes and in German and Italian
bonds. Gains were realized in positions in the German mark, which weakened in
world markets as hopes for European Monetary Union rose. The U.S. dollar
dominated the world currencies reflecting sound economic fundamentals in the
U.S. The Fund benefited from the upward price movement in natural gas during the
summer and fall. However, energy markets were disappointing as ample world
inventories and mild weather kept supply and demand in balance. In addition,
losses were incurred in agricultural markets, despite strong performance by
coffee futures earlier in the year. The Fund ended the year with a profit of
$3,778,125.
1996
In 1996, there were numerous opportunities in the global futures markets and
the 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.
LIQUIDITY AND CAPITAL RESOURCES
The amount of assets invested in the Fund generally does not affect its
performance, as typically this amount is not a limiting factor on the positions
acquired by the Trading Advisors, and the Fund's expenses are primarily charged
as a fixed percentage of or are proportional to its asset base, however large.
The Fund sells no securities other than the Units. The Fund borrows only to
a limited extent and only on a strictly short-term basis in order to finance
losses on non-U.S. dollar denominated trading positions pending the conversion
of the Fund's dollar deposits. These borrowings are at a prevailing short-term
rate
25
<PAGE>
in the relevant currency. They have been immaterial to the Fund's operation to
date and are expected to continue to be so.
The Net Asset Value of the Fund's cash and financial instruments is not
materially affected by inflation. Changes in interest rates, which are often
associated with inflation, could cause the value of certain of the Fund's debt
securities to decline, but only to a limited extent. More importantly, changes
in interest rates could cause periods of strong up or down price trends, during
which the Fund's profit potential generally increases. Inflation or deflation in
commodity prices could also generate price movements which the programs might
successfully follow.
The Fund's assets are held in cash. Accordingly, except in very unusual
circumstances, the Fund should be able to close out any or all of its open
trading positions and liquidate any or all of its securities holdings quickly
and at market prices. This should permit the Trading Advisors to limit losses as
well as reduce market exposure on short notice should their programs indicate
reducing market exposure. In addition, because there is a readily available
market value for the Fund's positions and assets, the Fund's monthly Net Asset
Value calculations are precise.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT THE FUND'S MARKET RISK
INTRODUCTION
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE
The Fund is a speculative commodity pool. The market sensitive instruments
held by it are acquired for speculative trading purposes, and all or
substantially all of the Fund's assets are subject to the risk of trading loss.
Unlike an operating company, the risk of market sensitive instruments is
integral, not incidental, to the Fund's main line of business.
Market movements result in frequent changes in the fair market value of the
Fund's open positions and, consequently, in its earnings and cash flow. The
Fund's market risk is influenced by a wide variety of factors, including the
level and volatility of interest rates, exchange rates, equity price levels, the
market value of financial instruments and commodity contracts, the
diversification effects among the Fund's open positions and the liquidity of the
markets in which it trades.
The Fund can acquire and/or liquidate both long and short positions in a
wide range of different markets. Consequently, it is not possible to predict how
a particular future market scenario will affect performance, and the Fund's past
performance is not necessarily indicative of its future results.
Value at Risk is a measure of the maximum amount which the Fund could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Fund's speculative trading and the recurrence in the markets
traded by the Fund of market movements far exceeding expectations could result
in actual trading or non-trading losses far beyond the indicated Value at Risk
or the Fund's experience to date (I.E., "risk of ruin"). In light of the
foregoing as well as the risks and uncertainties intrinsic to all future
projections, the inclusion of the quantification included in this section should
not be considered to constitute any assurance or representation that the Fund's
losses in any market sector will be limited to Value at Risk or by the Fund's
attempts to manage its market risk.
STANDARD OF MATERIALITY
Materiality as used in this section, "Qualitative and Quantitative
Disclosures About Market Risk," is based on an assessment of reasonably possible
market movements and the potential losses caused by such movements, taking into
account the leverage, optionality and multiplier features of the Fund's market
sensitive instruments.
26
<PAGE>
QUANTIFYING THE FUND'S TRADING VALUE AT RISK
QUALITATIVE FORWARD-LOOKING STATEMENTS
THE FOLLOWING QUANTITATIVE DISCLOSURES REGARDING THE FUND'S MARKET RISK
EXPOSURES CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SAFE
HARBOR FROM CIVIL LIABILITY PROVIDED FOR SUCH STATEMENTS BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (SET FORTH IN SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934). ALL
QUANTITATIVE DISCLOSURES IN THIS SECTION ARE DEEMED TO BE FORWARD-LOOKING
STATEMENTS FOR PURPOSES OF THE SAFE HARBOR, EXCEPT FOR STATEMENTS OF HISTORICAL
FACT.
The Fund's risk exposure in the various market sectors traded by the Trading
Advisors is quantified below in terms of Value at Risk. Due to the Fund's
mark-to-market accounting, any loss in the fair value of the Fund's open
positions is directly reflected in the Fund's earnings (realized or unrealized)
and cash flow (at least in the case of exchange-traded contracts in which
profits and losses on open positions are settled daily through variation
margin).
Exchange maintenance margin requirements have been used by the Fund as the
measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed the maximum losses reasonably expected to be
incurred in the fair value of any given contract in 95%--99% of any one-day
intervals. The maintenance margin levels are established by dealers and
exchanges using historical price studies as well as an assessment of current
market volatility (including the implied volatility of the options on a given
futures contract) and economic fundamentals to provide a probabilistic estimate
of the maximum expected near-term one-day price fluctuation. Maintenance margin
has been used rather than the more generally available initial margin, because
initial margin includes a credit risk component which is not relevant to Value
at Risk.
The market sensitive instruments traded by the Fund are exchange traded.
The fair value of the Fund's futures and forward positions does not have any
optionality component. However, Welton also trades commodity options on behalf
of the Fund. The Value at Risk associated with options is reflected in the
following table as the margin requirement attributable to the instrument
underlying each option. Where this instrument is a futures contract, the futures
margin, and where this instrument is a physical commodity, the futures-
equivalent maintenance margin has been used. This calculation is conservative in
that it assumes that the fair value of an option will decline by the same amount
as the fair value of the underlying instrument, whereas, in fact, the fair
values of the options traded by the Fund in all cases fluctuate to a lesser
extent than those of the underlying instruments.
In quantifying the Fund's Value at Risk, 100% positive correlation in the
different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been aggregated to determine each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the Fund's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
THE FUND'S TRADING VALUE AT RISK IN DIFFERENT MARKET SECTORS
The following table indicates the trading Value at Risk associated with the
Fund's open positions by market category as of December 31, 1998. All open
position trading risk exposures of the Fund have been
27
<PAGE>
included in calculating the figures set forth below. As of December 31, 1998,
the Fund's total capitalization was approximately $57.7 million.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------
<S> <C> <C>
% OF TOTAL
MARKET SECTOR VALUE AT RISK CAPITALIZATION
- ----------------------------------------------------------------------------------- ------------- ---------------
Interest Rates..................................................................... $3.9 million 6.8%
Currencies......................................................................... $0.7 million 1.3%
Stock Indices...................................................................... $0.6 million 1.0%
Precious Metals.................................................................... $0.5 million 0.8%
Commodities........................................................................ $0.1 million 0.2%
Energy............................................................................. $0.1 million 0.2%
-------------
Total............................................................................ $5.9 million 10.3%
------------- ---
------------- ---
</TABLE>
MATERIAL LIMITATIONS ON VALUE AT RISK AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by the Fund is
typically many times the applicable maintenance margin requirement (maintenance
margin requirements generally ranging between approximately 1% and 10% of
contract face value) as well as many times the capitalization of the Fund. The
magnitude of the Fund's open positions creates a "risk of ruin" not typically
found in most other investment vehicles. Because of the size of its positions,
certain market conditions--unusual, but historically recurring from time to
time--could cause the Fund to incur severe losses over a short period of time.
The foregoing Value at Risk table--as well as the past performance of the
Fund--give no indication of this "risk of ruin."
NON-TRADING RISK
The Fund has non-trading market risk on its foreign cash balances not needed
for margin. However, these balances (as well as any market risk they represent)
are immaterial.
The Fund holds substantially all of its assets in cash on deposit with CIS
and CISFS. The Fund has cash flow risk on these cash deposits because if
interest rates decline, so will the interest paid out by CIS and CISFS at the
90% of 90-day Treasury bill rate. As of December 31, 1998, the Fund had
approximately $53 million in cash on deposit with CIS and CISFS.
QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES
THE FOLLOWING QUALITATIVE DISCLOSURES REGARDING THE FUND'S MARKET RISK
EXPOSURES--EXCEPT FOR (I) THOSE DISCLOSURES THAT ARE STATEMENTS OF HISTORICAL
FACT AND (II) THE DESCRIPTIONS OF HOW THE FUND AND THE TRADING ADVISORS MANAGE
THE FUND'S PRIMARY MARKET RISK EXPOSURES--CONSTITUTE FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT. THE FUND'S PRIMARY MARKET RISK EXPOSURES AS WELL AS THE
STRATEGIES USED AND TO BE USED BY THE TRADING ADVISORS FOR MANAGING SUCH
EXPOSURES ARE SUBJECT TO NUMEROUS UNCERTAINTIES, CONTINGENCIES AND RISKS, ANY
ONE OF WHICH COULD CAUSE THE ACTUAL RESULTS OF THE FUND'S RISK CONTROLS TO
DIFFER MATERIALLY FROM THE OBJECTIVES OF SUCH STRATEGIES. GOVERNMENT
INTERVENTIONS, DEFAULTS AND EXPROPRIATIONS, ILLIQUID MARKETS, THE EMERGENCE OF
DOMINANT FUNDAMENTAL FACTORS, POLITICAL UPHEAVALS, CHANGES IN HISTORICAL PRICE
RELATIONSHIPS, AN INFLUX OF NEW MARKET PARTICIPANTS, INCREASED REGULATION AND
MANY OTHER FACTORS COULD RESULT IN MATERIAL LOSSES AS WELL AS IN MATERIAL
CHANGES TO THE RISK EXPOSURES AND THE RISK MANAGEMENT STRATEGIES OF THE FUND.
THERE CAN BE NO ASSURANCE THAT THE FUND'S CURRENT MARKET EXPOSURE AND/OR RISK
MANAGEMENT STRATEGIES WILL NOT CHANGE MATERIALLY OR THAT ANY SUCH STRATEGIES
WILL BE EFFECTIVE IN EITHER THE SHORT- OR LONG-TERM. INVESTORS MUST BE PREPARED
TO LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT IN THE FUND.
28
<PAGE>
The following were the primary trading risk exposures of the Fund as of
December 31, 1998, by market sector.
INTEREST RATES. Interest rate risk is the principal market exposure of the
Fund. Interest rate movements directly affect the price of the sovereign bond
positions held by the Fund and indirectly the value of its stock index and
currency positions. Interest rate movements in one country as well as relative
interest rate movements between countries materially impact the Fund's
profitability. The Fund's primary interest rate exposure is to interest rate
fluctuations in the United States and the other G-7 countries. However, the Fund
also takes positions in the government debt of smaller nations--E.G., Australia
and New Zealand. The General Partners anticipate that G-7 interest rates will
remain the primary market exposure of the Fund for the foreseeable future. The
changes in interest rates which have the most effect on the Fund are changes in
long-term, as opposed to short-term, rates. Most of the speculative positions
held by the Fund are in medium- to long-term instruments. Consequently, even a
material change in short-term rates would have little effect on the Fund were
the medium- to long-term rates to remain steady.
CURRENCIES. The Fund's currency exposure is to exchange rate fluctuations,
primarily fluctuations which disrupt the historical pricing relationships
between different currencies and currency pairs. These fluctuations are
influenced by interest rate changes as well as political and general economic
conditions. The Fund trades in a large number of currencies, including cross-
rates--I.E., positions between two currencies other than the U.S. dollar.
However, the Fund's major exposures have typically been in the dollar/yen,
dollar/mark, dollar/Swiss franc and dollar/pound positions. The General Partners
do not anticipate that the risk profile of the Fund's currency sector will
change significantly in the future, although it is difficult at this point to
predict the effect of the introduction of the Euro on the Trading Advisors
currency trading strategies. The currency trading Value at Risk figure includes
foreign margin amounts converted into U.S. dollars with an incremental
adjustment to reflect the exchange rate risk inherent to the dollar-based Fund
in expressing Value at Risk in a functional currency other than dollars.
STOCK INDICES. The Fund's primary equity exposure is to equity price risk
in the G-7 countries. The stock index futures traded by the Fund are by law
limited to futures on broadly based indices. As of December 31, 1998, the Fund's
primary exposures were in the S&P and NASDAQ (US), FTSE (England) and Hang Seng
(Hong Kong) stock indices. The General Partners anticipate little trading in
non-G-7 stock indices. The Fund is primarily exposed to the risk of adverse
price trends or static markets in the major U.S., European and Japanese indices.
(Static markets would not cause major market changes but would make it difficult
for the Fund to avoid being "whipsawed" into numerous small losses.)
METALS. The Fund's metals market exposure is to fluctuations in the price
of gold and silver as well as various of the industrial metals. The Trading
Advisors have from time to time taken substantial positions as they have
perceived market opportunities to develop. The General Partners anticipate that
trading will continue across most of the available metals contracts.
COMMODITIES. The Fund's primary commodities exposure is to agricultural
price movements which are often directly affected by severe or unexpected
weather conditions. Soybean oil, coffee, cattle, cotton and rubber accounted for
the substantial bulk of the Fund's commodities exposure as of December 31, 1998.
In the past, the Fund also has had material market exposure to grains, sugar and
cocoa and may do so again in the future. Welton and the Fund will continue to
trade a wide variety of commodity contracts.
ENERGY. The Fund's primary energy market exposure is to gas and oil price
movements, often resulting from political developments in the Middle East.
Although the Trading Advisors trade natural gas to a limited extent, oil and oil
products are by far the dominant energy market exposure of the Fund. Oil prices
are currently depressed, but they can be volatile and substantial profits and
losses have been and are expected to continue to be experienced in this market.
29
<PAGE>
QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE
The following were the only non-trading risk exposures of the Fund as of
December 31, 1998.
FOREIGN CURRENCY BALANCES. The Fund's primary foreign currency balances are
in Japanese yen, German marks, British pounds and Australian dollars. The Fund
controls the non-trading risk of these balances by regularly converting these
balances back into dollars (no less frequently than twice a month).
CASH POSITION. The Fund holds substantially all its assets in cash at CIS
and CISFS, earning interest at 90% of the average 90-day Treasury bill rate for
Treasury bills issued during each month.
QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE
The General Partners monitor the Fund's performance and the concentration of
its open positions, and consult with the Trading Advisors concerning the Fund's
overall risk profile. If the General Partners felt it necessary to do so, the
General Partners could require the Trading Advisors to close out individual
positions as well as entire programs traded on behalf of the Fund. However, any
such intervention would be a highly unusual event. The General Partners
primarily rely on the Trading Advisors own risk control policies while
maintaining a general supervisory overview of the Fund's market risk exposures.
RISK MANAGEMENT
JWH attempts to control risk in all aspects of the investment process--from
confirmation of a trend to determining the optimal exposure in a given market,
and to money management issues such as the startup or upgrade of investor
accounts. JWH double checks the accuracy of market data, and will not trade a
market without multiple price sources for analytical input. In constructing a
portfolio, JWH seeks to control overall risk as well as the risk of any one
position, and JWH trades only markets that have been identified as having
positive performance characteristics. Trading discipline requires plans for the
exit of a market as well as for entry. JWH factors the point of exit into the
decision to enter (stop loss). The size of JWH's positions in a particular
market is not a matter of how large a return can be generated but of how much
risk it is willing to take relative to that expected return.
To attempt to reduce the risk of volatility while maintaining the potential
for excellent performance, proprietary research is conducted on an ongoing basis
to refine the JWH investment strategies. Research may suggest substitution of
alternative investment methodologies with respect to particular contracts; this
may occur, for example, when the testing of a new methodology has indicated that
its use might have resulted in different historical performance. In addition,
risk management research and analysis may suggest modifications regarding the
relative weighting among various contracts, the addition or deletion of
particular contracts from a program, or a change in position size in relation to
account equity. 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.
JWH may determine that risks arise when markets are illiquid or erratic,
such as may occur cyclically during holiday seasons, or on the basis of
irregularly occurring market events. In such cases, 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.
Adjustments in position size in relation to account equity have been and
continue to be an integral part of JWH's investment strategy. At its discretion,
JWH may adjust the size of a position in relation to equity in certain markets
or entire programs. Such adjustments may be made at certain times for some
programs but not for others. Factors which may affect the decision to adjust the
size of a position in relation to account equity include ongoing research,
program volatility, assessments of current market volatility and risk exposure,
subjective judgment, and evaluation of these and other general market
conditions.
30
<PAGE>
Welton's portfolios are subject to an on-going process of monitoring and
review. Risk is managed at all levels in the investment process. In advance of
entering a position, the risk of each trade is determined in relationship to the
potential exposure and volatility impact of that open position in an account
proportionate to its size. Multiple indicators of risk exposure are calculated
including initial risk, volatility, intra-period volatility, open equity risk,
and margin exposure. Various risk measures for each trade are determined before
trade entry and monitored throughout the life span of the trade.
The factors used to assess risk exposure and performance risks more
generally include (i) initial risk per trade (by model and market); (ii)
volatility (standard deviation of returns) per trade throughout the holding
period; (iii) open equity risk (by market, market group and portfolio); (iv)
margin to equity ratio (by market and portfolio); (v) judgment of extraordinary
event or report risk; (vi) portfolio level volatility (standard deviation and
negative semi-variant standard deviation); (vii) slippage (model efficiency and
market liquidity) monitoring overtime; and (viii) value-at-risk measures by
market, sector, macro-economic views, and portfolio. Multiple other factors
would need to be included for business risks, implementation quality
assessments, and the like. Furthermore, Welton retains the right to exercise
discretion.
THE GENERAL PARTNERS
The General Partners of the Fund are CISI and IDS Futures. CISI is a wholly-
owned subsidiary of the Fund's Clearing Broker. IDS Futures is a wholly-owned
subsidiary of IDS Management Corporation, which is itself a wholly-owned
subsidiary of American Express Financial Corporation. American Express Financial
Corporation is also the parent of the Fund's Selling Agent/Introducing Broker.
Together, CISI and IDS Futures are responsible for administering the Fund's
affairs. Both 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 NFA.
The General Partners maintain an aggregate 1% interest in the Fund. As of
February 28, 1999, principals of the General Partners owned a total of 2,883.58
Units. Neither the General Partners nor their individual principals trade or
intend to trade commodity interests for their own accounts. The performance
history of the General Partners with respect to the Fund is presented on page
17.
CISI
CISI was incorporated in Delaware in 1983. It has been registered with the
CFTC under the Commodity Exchange Act as a commodity pool operator since
December 13, 1985 and is a member of NFA in such capacity. CISI maintains its
principal office at 233 South Wacker Drive, Suite 2300, Chicago, Illinois 60606;
telephone (312) 460-4000. The records of the Fund are kept at CISI's principal
office. The officers and directors of CISI do not receive any compensation
directly from CISI.
In addition to the Fund, CISI currently operates two public commodity pools,
one of which is also jointly operated with IDS Futures, and one private
commodity pool.
The directors and officers of CISI are as follows:
BERNARD W. DAN (born in December 1960) is President and a director. Mr. Dan
has been President of CIS since June 1, 1998. He joined CIS in 1985 and held
various operational positions. In 1986 Mr. Dan was assigned to Cargill Investor
Services, Ltd. in London as Administrative Manager for all operational
activities. In 1989 Mr. Dan was assigned to the CIS New York Regional Office as
the Administrative Manager. Mr. Dan was named Director of Cargill Investor
Services (Singapore) Pte Ltd. at the formation of the company in November 1994
and continued in that position until April 1997. Mr. Dan actively serves within
the futures industry on exchange committees and industry user groups. He
received a B.S. degree in accounting from St. John's University, Collegeville,
Minnesota.
BARBARA A. PFENDLER (born in May 1953) is Vice President and a director. Ms.
Pfendler is a graduate of the University of Colorado, Boulder. She began her
career with Cargill, Incorporated in 1975. She held
31
<PAGE>
various merchandising and management positions within the organization's Oilseed
Processing Division before transferring to CIS in 1986 where she is responsible
for the Fund Services Group. She was appointed Vice President of CISI in May
1990 and Vice President of CIS in June 1996.
RICHARD A. DRIVER (born in September 1947) is Vice President, Treasurer and
a director. Mr. Driver became a Vice President and a director of CISI on June
29, 1993. Mr. Driver graduated from the University of North Carolina in 1969 and
he received a Master's Degree from the American Graduate School of International
Management in 1973. Mr. Driver began working for Cargill, Incorporated in 1973
and joined CIS in 1977 as Vice President of Operations.
JAN R. WAYE (born in June 1948) is Vice President. Mr. Waye assumed the
position of Senior Vice President of CIS in mid-September 1996, after returning
from London where he held various management positions for Cargill Investor
Services, Ltd. including most recently Managing Director for CIS Europe. He was
appointed Vice President of CISI on June 24, 1997. Mr. Waye joined Cargill in
1970 and served in various commodity trading and management positions 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. 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, Minnesota, with a B.A. degree in
Communications and Economics in 1970.
CHRISTOPHER MALO (born in August 1956) is Vice President. Mr. Malo graduated
from Indiana University in 1978 with a B.S. in Accounting and further completed
the University of Minnesota Executive Program in 1993. He started work at
Cargill, Incorporated in June 1978. He joined CIS in 1979, and served as
Secretary/Treasurer and Controller from 1983 until 1991. He was elected Vice
President, Administration and Operations in July 1991. He was Managing Director
in Europe from 1996 until January 1999, responsible for CIS activities and
operations in Europe, the Middle East and Russia. He was an active member of the
FIA-UK Chapter and LIFFE Membership and Rules Committee. He currently serves on
the Board of the FIA in Chicago.
RONALD L. DAVIS (born in September 1953) is Vice President. Mr. Davis
graduated from Illinois Institute of Technology, Chicago, Illinois in 1975 with
a B.S. and an M.B.A. in 1977. He began his career in the futures industry with
A. G. Becker, Incorporated in 1980 and joined CIS in 1987 as the Administrative
Manager of the Fund Services Group. He is responsible for all administrative,
accounting and reporting functions of all CISI funds. In June 1998, Mr. Davis
became Business Development Manager of the Fund Services Group.
REBECCA S. STEINDEL (born in April 1965) is Secretary. Ms. Steindel
graduated from the University of Illinois in 1987. She began working at CIS in
August 1987. She has held various financial and risk management positions at CIS
and was elected Risk and Compliance Officer and Secretary in August 1997. She
currently serves on the Board of Directors and Executive Committee of the FIA
Financial Management Division.
BRUCE H. BARNETT (born in June 1947) is an 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 L.L.M. in 1973. He started
work at Cargill, Incorporated in 1990 as Vice President, Taxes. From 1987 to
1990, Mr. Barnett held various positions at Unilever, a European-based
multi-national corporation.
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<PAGE>
HENRY W. GJERSDAL, JR. (born in May 1954) is an Assistant Secretary. Mr.
Gjersdal received a B.A. 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 and became Assistant Secretary on June 25, 1996.
PATRICE H. HALBACH (born in August 1953) is an Assistant Secretary. Ms.
Halbach graduated Phi Beta Kappa from the University of Minnesota with a B.A.
degree in history. In 1980 she received a J.D. degree CUM LAUDE from the
University of Minnesota. 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 was 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 January 1999, she was named Vice President, Tax, of Cargill,
Incorporated. In her current position as Vice President, Tax, Ms. Halbach
oversees Cargill, Incorporated's global tax function.
IDS FUTURES
IDS Futures was incorporated 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 and is a member of NFA in such capacity.
The principal office of IDS Futures is at IDS Tower 10, Minneapolis, Minnesota
55440. 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:
PETER L. SLATTERY (born in July 1965) is President and a director. Mr.
Slattery was elected director effective September 24, 1997, and has been
President of IDS Futures since January 20, 1998. He has been employed by
American Express Financial Corporation since 1994. Since April 1997 he has been
responsible for day-to-day management of variable asset non-proprietary
businesses for American Express Financial Advisors Inc. In addition, he has
responsibility for contract negotiation for all non-proprietary company's and
oversees American Express Financial Advisors' direct investment and limited
partnership business. Prior to joining American Express Financial Corporation,
he was director of planning and development at Caribou Coffee Inc. since 1992.
He received a B.S. from Babson College, and an M.B.A. from the University of
Colorado.
MICHAEL L. WEINER (born in July 1946) is Vice President, Secretary and
Treasurer. Mr. Weiner is the Vice President--Tax Research and Audit of American
Express Financial Corporation. 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) is a Vice President. Mr. Knight has
been employed by American Express Financial Corporation since July 1975. He is
currently Controller--Variable Assets, and responsible for mutual funds, limited
partnerships, variable annuities and wealth management services.
33
<PAGE>
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.
PETER J. ANDERSON (born in March 1942), is a Director. Mr. Anderson is
Chairman and Chief Investment Officer of American Express Asset Management Group
Inc. (formerly IDS Advisory Group Inc.), as well as Senior Vice
President--Investments, and a member of the board of directors of American
Express Financial Corporation. Mr. Anderson joined American Express Asset
Management Group Inc. in April 1982 as Senior Vice President--IDS Equity
Advisors, a division of American Express Asset Management Group Inc. He became
President of American Express Asset Management Group Inc. 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.
THE TRADING ADVISORS
Each Trading Advisor is an independent commodity trading advisor and is not
affiliated with, either General Partner, the Clearing Broker, the Selling
Agent/Introducing Broker or the Fund. Each Trading Advisor directs trading for
the Fund completely independently of the other, and will have no knowledge of
trading decisions being made by the other.
The Trading Advisors are described in the following sections of this
Prospectus. The descriptions of JWH and Welton have been developed by JWH and
Welton, 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.
THE ADVISORY CONTRACTS
The General Partners, in their sole discretion, may reallocate assets
between the Trading Advisors or among other trading advisors which may be
appointed by them. The JWH advisory contract extends to December 31, 1999. The
advisory contract with Welton extends to December 31, 1999, and may be renewed
by the Fund for two 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.
There is no assurance that, after the expiration or termination of the
Advisory Contracts, the Fund will be able to retain the advisory services of JWH
or Welton, or that if such services are available they will be on the same terms
as those of the initial Advisory Contracts.
The Fund will indemnify a Trading Advisor, its principals and employees to
the fullest 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. A Trading Advisor, its affiliates
and its related parties will not be liable to the Fund or the Limited Partners
unless its conduct violates the standards for indemnification by the Fund.
34
<PAGE>
JOHN W. HENRY & COMPANY, INC.
BACKGROUND
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 Florida in 1997. JWH's offices are at One Glendinning Place,
Westport, Connecticut 06880 and 301 Yamato Road, Suite 2200, Boca Raton, Florida
33431-4931. JWH's registration as a Commodity Trading Advisor ("CTA"; a person
which directs the trading of futures accounts for clients, including commodity
pools) became effective in November 1980. JWH is a member of NFA in this
capacity. "JWH" is the registered trademark of John W. Henry & Company, Inc.
For a description of the principals of JWH, see "JWH Principals" beginning
at page 33.
TRADING STRATEGY
THE FOLLOWING DESCRIPTION OF JWH'S TRADING STRATEGY RELATES TO JWH GENERALLY
AND NOT TO THE FUND ITSELF.
GENERAL
JWH specializes in managing institutional and individual capital in the
global futures, interest rate and foreign exchange markets. Since 1981, JWH has
developed and implemented proprietary trend-following trading techniques that
focus on long-term rather than short-term, day-to-day trends. As of the date of
this prospectus, JWH operates eleven trading programs.
IMPLEMENTING THE JWH TRADING PROGRAMS
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. The first step in the
JWH investment process is the identification of a price trend. JWH focuses on
attempting to implement a trading methodology which identifies a majority of the
significant, as opposed to the more numerous small, price trends in a given
market.
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 30% to 40% 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 greatest cumulative percentage decline in daily net asset value which
JWH has experienced in any single program was nearly 60% on a composite basis
since its inception. Prospective investors in the Fund 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 over
sixty 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.
35
<PAGE>
Throughout the investment process, risk controls designed to reduce the
possibility of an extraordinary loss in any one market are maintained.
Proprietary research is conducted on an ongoing basis to refine the JWH
investment strategies and attempt to reduce volatility while maintaining the
potential for excellent performance.
The Investment Policy Committee ("IPC") is a senior-level advisory group,
broadly responsible for evaluating and overseeing the firm's trading policies.
The IPC provides a forum for collective development and implementation of
investment policies. The IPC meets periodically to discuss issues relating to
implementation of the firm's investment process and its application to markets,
including research on new investments and strategies in relation to the trading
models JWH employs. Typical issues analyzed by the IPC include liquidity,
position size, capacity, performance cycles, and new product and market
strategies. The IPC also examines regularly the impact of changing market
conditions on the firm's strategic allocation program, a multi-program trading
strategy which is currently part of an exclusivity arrangement with one fund
manager. Composition of the IPC, and participation in its discussions and
decisions by non-members, may vary over time. All recommendations of the IPC are
subject to final approval by the chairman. The IPC does not make day-to-day
trading decisions.
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. This could occur, for example, when
JWH determines that markets are illiquid or erratic, such as may occur
cyclically during holiday seasons or on the basis of irregularly occurring
market events. Subjective aspects of JWH's quantitative models also include the
determination of the size of the position in relation to account equity, when an
account should commence trading, markets traded, contracts traded, contracts and
contract month selection, and effective trade execution.
PROGRAM MODIFICATIONS
Proprietary research is conducted on an ongoing basis to refine the JWH
investment strategies and attempt to reduce volatility. While the basic
philosophy underlying the firm's investment methodology has remained intact
throughout its history, the potential benefits of employing more than one
investment methodology, or in varying combinations, is a subject of continual
testing, review and evaluation. Extensive research 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. However, most investment programs maintain a
consistent portfolio composition to allow opportunities in as many major market
trends as possible.
All cash in a JWH investment program is available to be used to trade in a
JWH program. The amounts committed to margin will vary from time to time. 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 trading programs is dynamic, and JWH may
vary the weighting at its discretion as market conditions, liquidity, position
limit considerations and other factors warrant. CISI will generally not be
informed of any such changes.
ADJUSTING THE SIZE OF THE TRADING POSITIONS TAKEN
Adjustments to position size in relation to account equity have been and
continue to be an integral part of JWH's investment strategy. At its discretion,
JWH may adjust the size of a position in relation to account equity in certain
markets or entire programs. Such adjustments may be made at certain times for
some accounts but not for others. Factors which may affect the decision to
adjust leverage include: ongoing
36
<PAGE>
research; program volatility; current market volatility; risk exposure; and
subjective judgment and evaluation of these and other general market conditions.
Such decisions to change the size of a position in relation to account equity
may positively or negatively affect performance, and will alter risk exposure
for an account. Such adjustments may lead to greater profits or losses, more
frequent and larger margin calls and greater brokerage expense. No assurance is
given that such adjustments will be to the financial advantage of investors in
the Fund. JWH reserves the right to alter, at its sole discretion and without
notification to the Fund, its policies regarding the size of positions taken in
relation to account equity.
ADDITION, REDEMPTION AND REALLOCATION OF CAPITAL FOR COMMODITY POOL ACCOUNTS
Investors purchase or redeem Units at Net Asset Value on the close of
business on the last business day of the month. In order to provide market
exposure commensurate with the Fund's equity 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 and redemptions at a Net Asset Value that will be the same for
each of these transactions, and to eliminate possible variations in Net Asset
Values 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, at its sole discretion, adjust its investment of the assets associated
with the addition or redemption 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 Fund equity level changes. The use
of discretion by JWH in the application of this procedure may affect performance
positively or negatively.
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 and forward contracts when JWH believes that cash markets offer
comparable or superior market liquidity or the ability to execute transactions
at a single price. The CFTC does not regulate cash transactions, which are
subject to the risk of counterparty failure, inability or refusal to perform
with respect to such contracts.
JWH PRINCIPALS
The following are the principals of JWH:
The sole shareholder of JWH is the John W. Henry Trust dated July 27, 1990.
MR. JOHN W. HENRY is chairman of the JWH Board of Directors and is trustee and
sole beneficiary of the John W. Henry Trust. Mr. Henry is also a member of the
Investment Policy Committee. 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 investor accounts.
Mr. Henry currently serves on the Board of Directors of the Futures Industry
Association ("FIA"). He also 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 NFA. He
has also served 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 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 also
37
<PAGE>
a principal of Westport Capital Management Corporation, Global Capital
Management Limited, JWH Investment 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 other than JWH and its affiliates.
MR. MARK H. MITCHELL is vice chairman, counsel to the firm and a member of
the JWH Board of Directors. His duties include the coordination and allocation
of responsibilities among JWH and its affiliates. He is also vice chairman and a
director of JWH Asset Management, Inc. and JWH Financial Products, Inc. Prior to
joining JWH in January 1994, Mr. Mitchell was a partner at Chapman and Cutler,
in Chicago, where he headed the law firm's futures law practice from August 1983
to December 1993. He also served as General Counsel of the Managed Funds
Association ("MFA") and General Counsel of NAFTA. Mr. Mitchell is currently a
member of the Commodity Pool Operator/Commodity Trading Advisor Advisory
Committee. In addition, he has served as a member of the NFA Special Committee
for the Review of Multi-tiered Regulatory Approach to NFA Rules, the Government
Relations Committee of the MFA, and the Executive Committee of the Law and
Compliance Division of the FIA. In 1985, he received the Richard P. Donchian
Award for Outstanding Contributions to the Field of Commodity Money Management.
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. VERNE O. SEDLACEK is the president and chief operating officer and a
member of the JWH Investment Policy Committee. Mr. Sedlacek is responsible for
the day-to-day management of the firm. He is also president and a director of
Westport Capital Management Corporation and Global Capital Management Limited,
and vice president of JWH Financial Products, Inc. Prior to joining JWH in July
1998, Mr. Sedlacek was the executive vice president and chief financial officer
of Harvard Management Company, Inc., a wholly-owned subsidiary of Harvard
University, which at the time of his departure managed approximately $14 billion
of University-related funds. He joined Harvard Management Company in March 1983
and was responsible for managing the areas of personnel, budgets, systems,
performance analysis, contracts, credit, compliance, custody, operations, cash
management, securities lending and market risk evaluation. Mr. Sedlacek
currently serves on the Board of Directors of the FIA and the Chicago Mercantile
Exchange, and is a member of the Global Markets Advisory Committee of the CFTC.
Mr. Sedlacek received his A.B. in Economics from Princeton University, M.B.A. in
Accounting from New York University and received his C.P.A. from the State of
New York in 1978.
MR. E. LYNDON TEFFT is a senior vice president and the chief financial
officer. He is also the treasurer of Westport Capital Management Corporation and
JWH Asset Management, Inc., and vice president of JWH Financial Products, Inc.
Prior to joining JWH in October 1998, Mr. Tefft was the Director of MIS and a
vice president at Harvard Management Company, Inc. where he was responsible for
directing the design, development, and operation of global equity, bond, and
derivative trading, accounting and settlement systems beginning in May 1994. Mr.
Tefft was the director of the Office of Financial Systems (controller) at
Harvard University from July 1983 to April 1994. He was responsible for the
University's centralized controllership, financial reporting, debt management,
and financial operations. Mr. Tefft received a B.S. in Industrial Management
from Purdue University, and an M.B.A. from Wharton School of Business at the
University of Pennsylvania.
DR. MARK S. RZEPCZYNSKI is a senior vice president, research and trading,
and a member of the JWH Investment Policy Committee. Dr. Rzepczynski joined JWH
in May 1998. He is also vice president of JWH Financial Products, Inc. From May
1995 to April 1998, Dr. Rzepczynski was vice president and director of taxable
credit and quantitative research in the fixed-income division of Fidelity
Management and Research where he oversaw credit and quantitative research
recommendations for all Fidelity taxable fixed-income funds. From April 1993 to
April 1995, Dr. Rzepczynski was a portfolio manager and director of research for
CSI Asset Management, Inc., a fixed-income money management subsidiary of
Prudential Insurance.
38
<PAGE>
Dr. Rzepczynski has a B.A. CUM LAUDE in Economics from Loyola University of
Chicago, and an A.M. and Ph.D. in Economics from Brown University.
MS. ELIZABETH A. M. KENTON is a senior vice president, compliance. 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 senior vice president of JWH Investment
Management, Inc., a director of Westport Capital Management Corporation, the
vice president of JWH Asset Management, Inc. and JWH Financial Products, Inc.,
and a director of Global Capital Management Limited. She received a B.S. in
Finance from Ithaca College.
MR. DAVID M. KOZAK is a senior vice president, general counsel, and
secretary to the corporation. He is also secretary of JWH Investment Management,
Inc., JWH Asset Management, Inc., and JWH Financial Products, Inc. and a
director and secretary of Westport Capital Management Corporation. Prior to
joining JWH in September 1995, Mr. Kozak had been a partner at the law firm of
Chapman and Cutler from 1989 and an associate from September 1983. In his
practice there he concentrated in commodity futures law, with an emphasis on
commodity money management. Mr. Kozak is currently the secretary and a director
of the MFA, and is a member of that organization's Executive and Government
Relations Committees. He is also a member of the Special Committee on CPO/CTA
Disclosure Issues and the Special Committee for the Review of Multi-Tiered
Regulatory Approach to NFA Rules, both of NFA. He is also chairman of the
subcommittee on CTA and CPO issues of the Committee on Futures Regulation of the
Association of the Bar of the City of New York. 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, proprietary trading and a
member of the JWH Investment Policy Committee. He is responsible for the
implementation and oversight of the firm's proprietary strategies and
investments. Mr. Koshi joined JWH in August 1988 as a professional in the
Finance Department, and since 1990 has held positions of increasing
responsibility in the Trading Department. He received a B.S. in Finance from
California State University at Long Beach.
MR. MATTHEW J. DRISCOLL is vice president, trading and chief trader. He is
also a member of the JWH Investment Policy Committee. He is responsible for the
supervision and administration of all aspects of order execution strategies and
implementation of trading policies and procedures. Mr. Driscoll joined JWH in
March 1991 as a member of its trading department. Since joining the firm, he has
held positions of increasing responsibility as they relate to the development
and implementation of JWH's trading strategies and procedures. He has played a
major role in the development of JWH's 24-hour trading operation. Mr. Driscoll
attended Pace University.
MR. EDWIN B. TWIST is a director of JWH and has held that position since
August 1993. Mr. Twist is also a director of JWH Investment 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 and internal projects of
JWH's Florida office.
MR. JULIUS A. STANIEWICZ is a vice president, senior strategist, and a
member of the JWH Investment Policy Committee. He is also president of JWH Asset
Management, Inc. and JWH Financial Products, Inc. and a vice president of
Westport Capital Management Corporation. He joined JWH in March of 1992. Mr.
Staniewicz received a B.A. in Economics from Cornell University.
The additional principals of JWH have the following titles: Christopher E.
Deakins, vice president, investor services; Nancy O. Fox, vice president,
investment support; Kevin J. Treacy, vice president, corporate finance; Florence
Y. Sofer, vice president, marketing; Paul D. Braica, vice president, analytics;
Andrew D. Willard, vice president, information technology; William G. Kelley,
vice president, investor services, international; and Robert B. Lendrim, vice
president, investor services.
39
<PAGE>
PERFORMANCE OF THE JWH FINANCIAL AND METALS PORTFOLIO
PROGRAM COMPOSITION
<TABLE>
<S> <C>
Global Interest Rates Foreign Exchange
Global Stock Indices Precious Metals
</TABLE>
<TABLE>
<S> <C>
Inception of Client Account Trading: October 1982
Inception of Client Account Trading in Program: October 1984
Assets Managed on January 31, 1999: $2,000,000,000
Assets Managed Pursuant to the Program on January 31, 1999 $1,029,000,000
Number of Open Accounts
28
Worst Monthly Decline on an Individual Account Basis
(10.1)% (2/96)
Worst Peak-to-Valley Decline on an Individual Account Basis
(30.5)%
(6/94-1/95)
Average Compounded Annualized Rate of Return since January 1994
14.6%
Average Compounded Annualized Rate of Return since inception in October
1984
36.0%
</TABLE>
<TABLE>
<CAPTION>
MONTHLY
PERFORMANCE 1999 1998 1997 1996 1995 1994
- ---------------------------- ------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
January..................... (4.8)% (3.5)% 4.4% 6.0% (3.8)% (2.9)%
February.................... (4.0)% (2.2)% (5.5)% 15.7% (0.6)%
March....................... (1.6)% (0.7)% 0.7% 15.3% 7.2%
April....................... (7.9)% (2.9)% 2.3% 6.1% 0.9%
May......................... 3.2% (8.3)% (1.7)% 1.2% 1.3%
June........................ (4.8)% 4.1% 2.2% (1.7)% 4.5%
July........................ (0.9)% 15.8% (1.1)% (2.3)% (6.1)%
August...................... 17.5% (3.7)% (0.8)% 2.1% (4.1)%
September................... 15.3% 2.2% 3.2% (2.1)% 1.5%
October..................... (3.8)% 2.0% 14.3% 0.3% 1.7%
November.................... (7.5)% 2.5% 10.9% 2.6% (4.4)%
December.................... 8.9% 2.9% (2.6)% 1.7% (3.5)%
Compound Annual Rate of
Return...................... (4.8)% 7.2% 15.2% 29.7% 38.5% (5.3)%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
40
<PAGE>
NOTES ON PERFORMANCE RECORDS
FROM THE INCEPTION OF TRADING OF THE JWH PROGRAMS, THE GREATEST CUMULATIVE
PERCENTAGE DECLINE IN DAILY NET ASSET VALUE EXPERIENCED IN ANY SINGLE PROGRAM
WAS NEARLY 60% ON A COMPOSITE BASIS, AND CERTAIN INDIVIDUAL ACCOUNTS INCLUDED IN
SUCH PROGRAM EXPERIENCED EVEN GREATER DECLINES. (THE PERFORMANCE INFORMATION FOR
THE FINANCIAL AND METALS PORTFOLIO PRIOR TO JANUARY 1994 IS NOT PRESENTED, IN
ACCORDANCE WITH CFTC POLICY). CERTAIN JWH ACCOUNTS HAVE LOST 10% OR MORE IN A
SINGLE TRADING DAY. PROSPECTIVE INVESTORS SHOULD UNDERSTAND THAT SIMILAR OR
GREATER DRAWDOWNS ARE POSSIBLE IN THE FUTURE. THERE CAN BE NO ASSURANCE THAT JWH
WILL TRADE PROFITABLY FOR THE FUND OR AVOID SUDDEN AND SEVERE LOSSES.
An investor should note that the composite capsule performance presentations
include 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 versus forward contracts and
contract months; (d) trading size to equity ratio resulting from procedures for
the commencement of trading and the 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 a particular program; (f)
the amount of interest income earned by an account, which will depend on the
rates paid by futures commission merchants on equity deposits and/or on the
portion of an account invested in interest-bearing obligations such as 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
commissions 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) timing
of additions and withdrawals. Notwithstanding these material differences among
accounts, the composite remains a valid representation of the accounts included
therein.
Composite performance presentation is only allowed for accounts which are
not materially different. To decide if there are material differences among
accounts traded pursuant to the same trading program, 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 applied
(i) if the arithmetic average of two percentages is greater than ten 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 five
percentage points but less than ten percentage points and the difference between
the two is 1.5 percentage points or less; and (iii) if the arithmetic average of
the two percentages is less than five percentage points and the difference
between the two is one 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 material.
The gross trading performance of each JWH investment program and each individual
JWH account within the relevant program not satisfying the above parameters is
then reviewed to determine whether any material differences that are detected
could produce misleading composite performance results. 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 than 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.
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. During the periods covered by the capsule
performance records, and particularly since 1989, JWH has increased and
41
<PAGE>
decreased position size in relation to account equity in certain markets and
entire programs, and also altered the composition of the markets and contracts
for certain programs. In general since 1992, JWH began implementing certain
position size adjustments that were of a more permanent nature. Investors should
be aware that commencing in August 1992, JWH decreased the position size in
relation to account equity by 50% for the Financial and Metals Portfolio.
While historical returns represent actual performance achieved, investors
should be aware that the position size relative to account equity utilized
currently or in the future may be significantly different from that used during
previous time periods.
In addition, the subjective aspects of JWH's trading methods described under
"--Trading Strategy" above, have been utilized more often in recent years and
therefore may have had a more pronounced effect on performance results during
such recent periods. The choice of an investment program (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)
will have an effect on performance results. In reviewing the JWH performance
information, prospective investors should bear in mind the possible effects of
these variations on rates of return and the application of JWH's investment
methods.
Prior to December 1991 capsule performance records are presented on a cash
basis except as otherwise stated in the notes to the records. The recording of
items on a cash basis should not, for most months, be materially different from
presenting such rates of return on an accrual basis. Any differences in the
monthly rates of return between the two methods are immaterial to the overall
performance presented. With the change to the accrual basis of accounting for
incentive fees in December 1991 for JWH, the net effect on 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 is materially equivalent to the full accrual basis. In
August 1998, JWH made an adjustment to the accounting method employed for the
Financial and Metal Portfolio.
Advisory fees vary from account to account managed pursuant to all programs.
In addition, the calculation of management and incentive fees is subject to
variation due to agreed-upon definitions contained in each account's advisory
agreement. Management fees vary from 0% to 6% of assets under management;
incentive fees vary from 0% to 25% of profits. Such variations in advisory fees
may have a material impact on the performance of an account from time to time.
NOTES TO CAPSULE PERFORMANCE SUMMARY
Number of open accounts is the number of accounts directed by JWH pursuant
to the investment program shown as of January 31, 1999.
Assets under management in a program is the aggregate amount of total
equity, excluding "notional" equity under management of JWH in the investment
program shown as of January 31, 1999.
Worst monthly decline on an individual account basis within the past five
years is the largest monthly loss experienced by any single account in the
relevant 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. Worst monthly decline information includes
the month and year of such decline.
42
<PAGE>
Worst peak-to-valley decline on an individual account basis is the largest
percentage decline by any single account in the relevant 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 equalled 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. The worst peak-to-valley decline since
inception is the worst peak-to-valley decline by the program as a composite.
Compound 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. Average Compounded Annualized
Rate of Return is similarly calculated, except that before subtracting one (1)
from the product, the product is exponentially changed by the factor of one (1)
divided by the number of years in the program's performance record, then one (1)
is subtracted.
Monthly Rates of Return are calculated by dividing net performance by the
sum of beginning equity, plus additions minus withdrawals. If additions and
withdrawals are material to the program's performance, they are time-weighted.
If time-weighting is materially misleading, then the only accounts traded method
is utilized.
Proprietary capital is included in the rates of return for the Financial and
Metals Portfolio, but does not have a material impact on the rates of return.
WELTON INVESTMENT CORPORATION
Welton Investment Corporation 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
CFTC, is a Commodity Trading Advisor and Commodity Pool Operator member of NFA
and is also a member of the Managed Funds Association.
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
- Style diversification
- Portfolio allocation and management
- Trade execution analysis
- Formal monitoring and review systems
These principles are the basis to pursue strong rates of return with controlled
volatility and with low correlation to other managed futures programs, hedge
funds and other alternative strategies as well as to traditional fixed income
and equity investments.
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 diversi-fication; of all potential strategic approaches to
various market conditions with the goal of
43
<PAGE>
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's trading
strategies independently or in complementary combinations across diverse 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 5-20% of the trading
size of the account. 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
diversified trading styles and quantitative investment models across the global
futures, options and currency markets. These are designed to achieve attractive
absolute rates of return with low correlation to the returns of traditional
asset classes and even other skill based alternative strategies. The second
category includes an inherently customized investment program designed to
improve returns relative to accepted global investment performance benchmarks
such as a fixed income index or note. Welton currently operates four trading
programs. In directing trading for the Fund, Welton will employ its Diversified
Portfolio.
DIVERSIFIED PORTFOLIO
The Diversified Portfolio manages client 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 style diversification epitomizes
Welton's core principles in advising on investor assets in the global
marketplace.
WELTON PRINCIPALS
PATRICK L. WELTON is the Chief Executive Officer, and Chairman of Welton
Investment Corporation. Dr. Welton developed the mathematical analysis
techniques and systems 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 Systems
44
<PAGE>
Corporation 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 NFA. He is currently serving on the Board of Directors of
the National Futures Association. He is registered as an Associated Person with
NFA.
ANNETTE L. WELTON is a co-founder of Welton Investment Corporation, a
Director, Chief Operational and Chief Financial Officer. Ms. Welton participated
in the early development of the systems software employed by Welton in its
trading and portfolio management methods. Since 1988, Ms. Welton has continued
to participate in the research committee, 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 Operator affiliate. Ms.
Welton earned a Bachelor of Science Degree in 1984 from the University of
California at Los Angeles. Since 1992, Ms. Welton has participated in the
Managed Funds Association's Public Relations and Trading and Markets Committees.
She has served on NFA's Nominating Committee in the Commodity Trading Advisory
category and has authored and co-authored several articles published in various
alternative investment trade publications. She is registered as an Associated
Person with NFA.
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 Systems 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. From November
1988 through March 1998, he was a pilot with Delta Airlines. Mr. Harris is
responsible for business development efforts and industry representation, as
well as participating in strategic planning for Welton. Mr. Harris is a member
of the Alternative Investments Management Association and serves on its
International Development Committee as well as the Institutional Money
Management Advisory Committee of the New York Mercantile Exchange. 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 Investment Corporation
since 1993 and is registered as an Associated Person with NFA.
OTHER WELTON PROGRAMS
In addition to the Diversified Portfolio, Welton currently operates three
other trading programs, none of which will be utilized by the Fund.
PERFORMANCE OF THE WELTON DIVERSIFIED PORTFOLIO
The results set forth in the following table for accounts managed pursuant
to Welton's Diversified Portfolio are not indicative of the results which may be
achieved by the Fund in the future. PAST PERFORMANCE IS 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 Welton pursuant to its Diversified Portfolio.
The experience of individual accounts, including the Fund, have and will differ
from the composite results shown. Since Welton has modified and will continue to
modify its trading methods from time to time, the results shown in the table do
not necessarily reflect the precise trading methods to be used by 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
45
<PAGE>
performance of particular accounts managed by Welton may vary from the
performance of other accounts managed by Welton due to such factors 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 is employed, the amount of interest income earned by an account, the
timing of orders to open or close positions and trading instructions and/or
restricting of the client.
INVESTORS SHOULD NOTE THAT THE FOLLOWING PERFORMANCE TABLE IS A COMPOSITE OF
INDIVIDUAL ACCOUNTS WHICH VARY ACCORDING TO ACCOUNT 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 THE ACCOUNT SIZE FOR EACH
INDIVIDUAL ACCOUNT MAY BE MORE OR LESS THAN THE FUND. CONSEQUENTLY, THE
FOLLOWING PERFORMANCE TABLES MAY NOT PRESENT AS MEANINGFUL INFORMATION TO
INVESTORS AS THE ACTUAL PERFORMANCE OF THE FUND, WHICH IS PRESENTED ON PAGE 17.
46
<PAGE>
PERFORMANCE OF THE WELTON TRADING PROGRAM
DIVERSIFIED PORTFOLIO
<TABLE>
<CAPTION>
<S> <C>
Inception of Client Trading: February 1989
Inception of Client Account Trading in Program: April 1992
Assets Managed (excluding notional funds) on February 28, 1999: $177,000,000
</TABLE>
<TABLE>
<S> <C>
Assets Managed Pursuant to the Program (excluding notional funds) on
February 28, 1999: $152,000,000
Number of Open Accounts: 52
Worst Monthly Decline: (15.94)% (2/96)
Worst Peak-to-Valley Decline: (25.96)% (1/96-8/96)
Average Compounded Annualized Rate of Return since inception in
June 1994: 19.19%
Average Compounded Annualized Rate of Return since inception in
April 1992: 16.77%
</TABLE>
<TABLE>
<CAPTION>
MONTHLY 1999* 1998 1997 1996 1995 1994
- ---------------------------- ------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
January..................... (2.01)% (1.72)% 2.42% 5.94% (3.94)% (4.74)%
February.................... (2.82)% 6.81% 6.21% (15.94)% 8.90% (6.67)%
March....................... 6.18% (1.57)% (1.86)% 10.11% 0.69%
April....................... (3.50)% 0.28% 4.66% 3.57% (5.32)%
May......................... 2.30% 3.78% (7.71)% 11.71% 5.77%
June........................ (0.85)% 5.96% (1.72)% (1.38)% 5.72%
July........................ (0.25)% 12.83% (2.83)% (2.57)% (4.04)%
August...................... 5.63% (6.16)% (2.70)% (1.25)% (6.40)%
September................... 2.33% 1.25% 7.48% 1.55% 3.18%
October..................... (4.58)% (6.14)% 13.16% (7.39)% 0.48%
November.................... 2.61% 2.79% 9.97% 4.77% 14.60%
December.................... 1.77% 1.23% 2.15% 9.44% 1.23%
Compound Annual Rate of
Return.................... (4.77)% 17.20% 23.62% 7.17% 36.35% 2.38%
</TABLE>
- ------------------------
* Rates of Return for 1999 are estimates.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
47
<PAGE>
COMPARATIVE PERFORMANCE OF THE TRADING ADVISORS
<TABLE>
<CAPTION>
JWH WELTON
<S> <C> <C>
12/31/93 $10,000 $10,000
1/31/94 $ 9,710 $ 9,526
2/28/94 $ 9,652 $ 8,891
3/31/94 $10,347 $ 8,952
4/30/94 $10,440 $ 8,476
5/31/94 $10,576 $ 8,965
6/30/94 $11,051 $ 9,478
7/31/94 $10,377 $ 9,095
8/31/94 $ 9,952 $ 8,513
9/30/94 $10,101 $ 8,783
10/31/94 $10,273 $ 8,825
11/30/94 $ 9,821 $11,460
12/31/94 $ 9,477 $11,601
1/31/95 $ 9,117 $11,144
2/28/95 $10,548 $12,136
3/31/95 $12,162 $13,363
4/30/95 $12,904 $13,840
5/31/95 $13,059 $15,460
6/30/95 $12,837 $15,247
7/31/95 $12,542 $14,855
8/31/95 $12,805 $14,669
9/30/95 $12,536 $14,897
10/31/95 $12,574 $13,796
11/30/95 $12,901 $14,454
12/31/95 $13,120 $15,818
1/31/96 $13,907 $16,758
2/28/96 $13,142 $14,087
3/31/96 $13,234 $13,825
4/30/96 $13,539 $14,469
5/31/96 $13,309 $13,353
6/30/96 $13,601 $13,124
7/31/96 $13,452 $12,752
8/31/96 $13,344 $12,408
9/30/96 $13,771 $13,336
10/31/96 $15,740 $15,091
11/30/96 $17,456 $16,596
12/31/96 $17,002 $16,953
1/31/97 $17,750 $17,363
2/28/97 $17,360 $18,441
3/31/97 $17,238 $18,152
4/30/97 $16,738 $18,202
5/31/97 $15,349 $18,890
6/30/97 $15,978 $20,016
7/31/97 $18,503 $22,584
8/31/97 $17,818 $21,193
9/30/97 $18,210 $21,458
10/31/97 $18,575 $20,141
11/30/97 $19,039 $20,703
12/31/97 $19,591 $20,957
1/31/98 $18,905 $20,597
2/28/98 $18,149 $21,999
3/31/98 $17,859 $23,359
4/30/98 $16,448 $22,541
5/31/98 $16,974 $23,060
6/30/98 $16,159 $22,864
7/31/98 $16,014 $22,807
8/31/98 $18,817 $24,091
9/30/98 $21,695 $24,640
10/31/98 $20,871 $23,519
11/30/98 $19,306 $24,041
12/31/98 $21,024 $24,466
1/31/99 $20,015 $23,975
2/28/99 $ $23,299
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Other
trading advisors may be used to manage assets of the Fund from time to time.
Potential investors should note that the graphs shown above represent past
performance results of the Trading Advisors and not that of the Fund. The past
performance results are the composite performance of the respective trading
program of each Trading Advisor to be used for the Fund, however, actual results
for the Fund will vary due to the amount of fees charged.
48
<PAGE>
INTEREST INCOME
The Fund's assets are generally deposited with CIS and CISFS.
On the fifth business day of each month, CIS and CISFS credit the Fund with
interest on 100% of the Fund's net assets on deposit with CIS or CISFS, as the
case may be, in the previous month at a rate equal to 90% of the average 90-day
Treasury bill rate for Treasury bills issued during that month.
CIS retains any interest earned on the Fund's assets in excess of the
amounts paid to the Fund.
Although the Fund has not yet traded in the spot and forward currency
markets, it will be required to deposit margin with CISFS when it does
participate in these markets. CIS will satisfy such margin requirements by
transferring Fund assets from the Fund's account at CIS to CISFS. Amounts
transferred to CISFS as margin on spot and forward currency and precious metals
positions will not be held by CISFS as customer segregated funds under the CEA
and the rules of the CFTC but will be included in determining the interest to be
credited to the Fund as described above.
The Fund's assets are used either as margin to secure the Fund's obligations
under the open positions which it holds in the markets or as a reserve to
support further trading in the event of market losses. The assets deposited as
margin with and held by the Clearing Broker are held in "customer segregated
funds accounts" or "foreign futures and foreign options secured amount accounts"
(in the case of futures and options traded on non-U.S. exchanges), as prescribed
by the CEA and applicable CFTC regulations. If assets are deposited as margin
with and held by CISFS they will be held in unregulated accounts. In general,
approximately 80% to 94% of the Fund's assets are held in customer segregated
funds accounts, with the remainder in foreign futures and options secured
accounts. The Fund's assets are held in cash.
49
<PAGE>
CHARGES
CHARGES PAID BY THE FUND
The Fund is subject to the following charges and fees.
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- ------------------------ --------------------------------------- ---------------------------------------------
<S> <C> <C>
JWH Incentive Fee 15% of Trading Profits, if any, in each
quarter attributable to trading directed by
it.
Management Fee 1/3 of 1% (a 4% annual rate) of month-end Net
Asset Value of Fund assets subject to its
management.
Welton Incentive Fee 18% of Trading Profits, if any, in each
quarter attributable to trading directed by
it.
Management Fee 1/4 of 1% (a 3% annual rate) of month-end Net
Asset Value of Fund assets subject to its
management.
American Express Brokerage Commissions $20 per round turn trade of the total $35 per
Financial Advisors Inc. round turn trade commission.
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 Annual administrative fee 1.125% of Net Asset Value on first day of
Fund's fiscal year.
CISI Annual administrative fee 0.25% of Net Asset Value on first day of
Fund's fiscal year.
</TABLE>
50
<PAGE>
<TABLE>
<S> <C> <C>
CIS Brokerage Commissions $15 per round turn trade of the total $35 per
round turn trade commission.
CIS Reimbursement of delivery, insurance, Actual payments to third parties in
storage, NFA, clearing, give-up, connection with the Fund's trading.
electronic trading, EFP and exchange
transaction fees, and any other charges
paid to third parties
CIS Financial benefit from interest income Interest earned on Fund assets in excess of
the amount of interest paid to the Fund. From
1993 to 1998 this amount ranged between .41%
to .54% 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.
CISFS Brokerage Commissions A maximum of $15 per round turn trade of the
total $35 per round turn trade commission.
Third Parties Periodic legal, accounting, auditing, Actual expenses incurred, estimated at
printing, recording and filing fees, approximately 1% of the Fund's Net Asset
and postage charges 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 Expense
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.
</TABLE>
DESCRIPTION OF CHARGES TO THE FUND
ADVISORY FEES
JWH receives a monthly management fee of 1/3 of 1% (a 4% annual rate)
and Welton receives a monthly management fee of 1/4 of 1% (a 3% annual rate).
In each case, the management fee is calculated only on the assets of the Fund
under the management of the Trading Advisor. Management fees are paid monthly
and deducted prior to the calculation of the quarterly incentive fees.
51
<PAGE>
INCENTIVE FEES
JWH receives a quarterly incentive fee equal to 15% of Trading Profits,
if any, attributable to trading directed by it and Welton receives a
quarterly incentive fee equal to 18% of Trading Profits, if any, attributable
to trading directed by it. Trading Profits is the excess of (A) the Net Asset
Value of the Fund's assets managed by 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 managed by
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,
interest realized on Fund assets managed by the Trading Advisor is excluded.
Also, allocations of Fund assets to a Trading Advisor and reallocations of
Fund assets away from a Trading Advisor increase or decrease, respectively,
the highest Net Asset Value referred to in (B) above.
Units redeemed on a date other than at quarter-end shall be treated as if
redeemed at the end of the quarter for purposes of calculating incentive fees
and incentive fees, if any, shall be paid to the Trading Advisors at that time.
Subsequent losses do not reduce incentive fees once they are earned.
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 it makes profits of $500,000 during the
first quarter. The fees paid to JWH would be $75,000 (15% of $500,000) and
the new value of the Fund assets allocated to JWH 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 trading 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.
BROKERAGE EXPENSES.
Cargill Investors Services, Inc. acts as the Fund's Clearing Broker. 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). Prior to 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 of $35 per trade plus any differential
associated with execution costs on 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 20 CENTS per
round turn futures transaction and 10 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.
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 a $35 commission per round turn trade to the Clearing Broker
or CISFS, as the case may be, which in turn pays $20 per round turn trade to
American Express Financial Advisors Inc. in its
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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 General Partners annually review the brokerage commissions,
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
such charges do not exceed 12% of the Fund's average monthly Net Asset Value.
The General Partners also annually review the Fund's brokerage charges to assure
that they 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.
Historically the Fund's annual brokerage expenses have ranged from
approximately 2.5% to 4.1% of the Fund's Net Asset Value. Based on currently
anticipated commission rates and the frequency, of the Trading Advisors' past
trades, the General Partners estimate that the Fund's annual brokerage expenses
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.
ADMINISTRATIVE FEES
Each of the General Partners receives an annual administrative fee based
on the Fund's Net Asset Value on the first business day of each fiscal year.
The annual administrative fee payable to IDS Futures and CISI is 1.125% and
0.25%, respectively, 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 the Clearing
Broker retains under this arrangement will vary over time, depending on
applicable interest rates and the Net Asset Value of the Fund. From 1993 to
1998 this amount ranged from between .41% and .54% 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 they incurred, they shall retain the excess. If actual
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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. 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. Affiliated Purchasers
will not pay a Sales Charge. The maximum amount of such payments to the
Selling Agent will be $1.68 million if all of the Units offered hereby are
sold to non-Affiliated Purchasers and $28 million 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.
EXTRAORDINARY EXPENSES
The Fund will be required to pay any extraordinary expenses, such as taxes,
incurred in its operation. To date, the Fund has not incurred any extraordinary
expenses and, in CISI's experience with other managed futures funds, such
expenses have been negligible. Extraordinary expenses, if any, would not reduce
Trading Profits for purposes of calculating the Trading Advisors' incentive
fees.
BROKERAGE ARRANGEMENTS
THE CLEARING BROKER
CIS 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 in Chicago, New York,
Kansas City and Minnesota as well as in England, France, Switzerland and
Singapore. 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 500 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.
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
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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
ARE PERMITTED TO 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 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. If in the future the Fund pays
less than $35 for each roundturn trade, the Clearing Broker and the Introducing
Broker may receive amounts in proportions that differ from the current
allocation. Either party may terminate the Commodity Brokerage Agreement on 60
days notice. 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.
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 any contracts with the General Partners or their affiliates.
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. The
Commodity Brokerage 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 CIS 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
American Express Financial Advisors Inc., a Delaware corporation organized
in 1984, 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. American
Express Financial Advisors Inc. has more than 9,500 employees and, in addition,
maintains a nationwide financial planning force of more than 8,700 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-
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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. 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. American Express Financial Advisors
Inc. receives such commissions for its ongoing services to the Fund and to the
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.
THE FOREIGN CURRENCY BROKER
CIS Financial Services, Inc. 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 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 trans-actions. 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 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.
REDEMPTIONS; NET ASSET VALUE
REDEMPTIONS
THE FUND IS INTENDED AS A MEDIUM- TO LONG-TERM, "BUY AND HOLD" INVESTMENT.
THE FUND'S OBJECTIVES ARE TO ACHIEVE SUBSTANTIAL CAPITAL APPRECIATION OVER TIME.
THE FUND IS NOT INTENDED TO ACHIEVE, NOR TO ATTEMPT TO ACHIEVE, SIGNIFICANT
APPRECIATION OVER THE SHORT TERM.
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
redeem any or all of his or her Units effective as of the last trading day of
any month at the Net Asset Value per Unit. 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 calendar days prior to the
last trading day of the month in order for the
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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 calendar days prior to the last trading day of a month,
the Redemption Requests will have an effective date of redemption of the last
trading day of the subsequent month.
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. If a Limited Partner redeems
less than his or her entire interest in the Fund, his or her remaining interest
must equal the lesser of $500 or the Net Asset Value of two Units.
Redemption payments will generally 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 right to obtain
redemption is contingent upon the Fund having property sufficient to discharge
its liabilities (contingent or otherwise) on the effective date of redemption.
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.
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 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. 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.
NET ASSET VALUE
The Net Asset Value of the Fund is its assets less its liabilities
determined in accordance with generally accepted accounting principles. The Net
Asset Value per Unit is the Net Asset Value of the Fund divided by the number of
Units outstanding.
When calculating Net Asset Value, futures or option contracts traded on a
United States commodity exchange are valued at the settlement price on the date
of valuation. If an open position cannot be liquidated on the day with respect
to which Net Asset Value is being determined, the settlement price on the first
subsequent day on which the position can be liquidated shall be the basis for
determining the liquidating value of such position for such day, or such other
value as the General Partners may deem fair and reasonable. The liquidating
value of a commodity futures or option contract not traded on a United States
commodity exchange shall mean its liquidating value as determined by the General
Partners on a basis consistently applied for each different variety of contract.
Accrued incentive fee liabilities reduce Net Asset Value (subject, however, to
possible whole or partial reversal if the Fund incurs subsequent losses) even if
such accrued incentive fees may never, in fact, be finally paid to the Trading
Advisors.
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CONFLICTS OF INTEREST
THE GENERAL PARTNERS
CISI and IDS Futures are general partners of the Fund and affiliates of the
Fund's Clearing Broker, Introducing Broker/Selling Agent and Foreign Currency
Broker. The General Partners have both a duty to act in the best interests of
the Limited Partners and the Fund and an interest in benefitting their
affiliates. Accordingly, the General Partners are subject to the following
conflicts of interest.
BROKERAGE COMMISSIONS
The General Partners have a duty to reduce the brokerage commissions and
an interest in generating additional brokerage commission through either
higher round turn rates or more trading to benefit their affiliates. However,
the Trading Advisors determine the volume and frequency of trading and they
are unaffiliated with the General Partners. Additionally, the Clearing Broker
and Introducing Broker may charge other accounts higher fees. As a result,
the General Partners believe that the brokerage arrangements are fair to the
Fund.
ANNUAL ADMINISTRATIVE FEES
The General Partners receive an annual administrative fee based upon the
beginning Net Asset Value of the Fund. These fees were determined by the
General Partners without any negotiation between them and the Fund.
Distributions are made at the discretion of the General Partners. Because
distributions reduce the Fund's Net Asset Value, the General Partners have a
conflict of interest between making distributions in the best interests of the
Fund and increasing the Fund's Net Asset Value to increase their annual
administrative fees.
INTEREST
CIS pays the Fund interest on 100% of the average monthly net assets on
deposit with it at a rate equal to 90% of the average 90-day U.S. Treasury
bill rate for Treasury bills issued during the month. CIS retains the excess
interest earned on the Fund's deposits. CISI has a conflict of interest
between making distributions in the best interests of the Fund and increasing
the amount of Fund assets on deposit with its affiliate.
OTHER POOLS AND ACCOUNTS
The Clearing Broker acts as commodity broker for commodity pools other than
the Fund. The General Partners have established 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 it advises. The Clearing Broker, the Introducing Broker, and the General
Partners will not knowingly or deliberately favor any other commodity pool or
account over the Fund with respect to the execution of commodity trades.
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.
OTHER ACTIVITIES OF THE CLEARING BROKER, INTRODUCING BROKER, GENERAL PARTNERS
AND TRADING ADVISORS, AND THEIR OFFICERS AND EMPLOYEES
The General Partners allocate their resources among a number of different
investment funds. They may have financial incentives to favor certain investment
funds over the Fund.
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
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Clearing Broker, the Introducing Broker and the General Partners may also be
members of committees of 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.
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 in the best interests of the
Limited Partners and their interest in continuing to receive ongoing
compensation related to administrative fees and brokerage commissions, which is
dependent on the Limited Partners continuing to participate in the Fund.
CIS; CISFS
CIS executes trades for different clients in the same markets at the same
time. Consequently, other clients may receive better prices on the same trades
than the Fund, causing the Fund to pay higher prices for its positions.
CIS and CISFS must allocate their resources among many different clients.
They could have financial incentives to favor certain accounts over the Fund.
Because of the competitive nature of the markets in which they trade, to the
extent that either CIS or CISFS prefers other clients over the Fund, the Fund is
likely to be negatively impacted.
THE TRADING ADVISORS
GENERAL
The Trading Advisors manage many accounts other than the Fund.
Consequently, the Trading Advisors may devote less resources to the Fund's
trading to the detriment of the Fund.
Some of the Trading Advisors' principals devote a substantial portion of
their business time to ventures other than managing the Fund, including ventures
unrelated to futures trading. The Fund may be at a competitive disadvantage to
other accounts which are managed by advisors whose principals devote their
entire attention to futures trading.
FINANCIAL INCENTIVES TO DISFAVOR THE FUND
If the Fund has losses, the Trading Advisors may have an incentive to
prefer other clients because they could begin to receive incentive
compensation from such clients without having to earn back any losses.
THE SELLING AGENT
The Selling Agent receives the Sales Charge for every Unit sold to a
non-Affiliated Purchaser. Consequently, the Selling Agent has a conflict of
interest in advising their clients whether to invest in the Units.
The Selling Agent receives ongoing compensation based on the trading
activity of the Fund. Consequently, in advising clients whether to redeem their
Units the Selling Agent will have a conflict of interest between its interest in
maximizing the compensation which it will receive from the Fund and giving its
clients the financial advice which the Selling Agent believes to be in such
clients' best interests.
PROPRIETARY TRADING
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
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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 as or opposite to client
positions, due to testing a new quantitative model or program, a neutral
allocation system, and/or trading pursuant to individual discretionary methods.
On occasion, their orders may receive better fills than client accounts. Records
for these accounts will not be made available to Limited Partners.
Employees and principals of JWH (other than Mr. Henry) are not permitted to
trade 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. Records of these accounts will not be made available to
Limited Partners.
Records of proprietary trading will not be available for inspection by
Limited Partners.
Proprietary trading by JWH or Mr. Henry could, if substantial in size and
conducted in the same markets traded by the Fund, cause losses for the Fund by
increasing the cost at which it must acquire and liquidate positions. Over time,
the losses resulting from such increased prices could make it difficult for the
Fund to earn profits even if its trading were otherwise successful.
Welton and its principals trade futures, options and securities for their
own accounts. 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.
TRANSACTIONS BETWEEN THE GENERAL PARTNERS AND THE FUND
Each of the service providers to the Fund, other than the Trading Advisors,
are affiliated with one of the General Partners. The General Partners negotiated
with the Trading Advisors over the level of their management and incentive fees.
However, none of the fees the Fund pays to the General Partners or their
affiliates were negotiated, and they may be higher than would have been obtained
in arm's-length bargaining.
The Fund pays CIS substantial brokerage commissions a portion of which is
paid to America Express Financial Advisors, Inc. The Fund also pays CIS interest
on short-term loans extended by CIS to cover losses on foreign currency
positions and permits CIS to retain a portion of the interest earned on the
Fund's assets.
No loans have been, are or will be outstanding between the General Partners
or any of their principals and the Fund.
Descriptions of the dealings between the Fund the General Partners and their
affiliates are set forth under "Selected Financial Data," "Interest Income,"
"Charges" and "Brokerage Arrangements."
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THE 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. Certain
features of the Partnership Agreement are explained below.
NATURE OF THE FUND
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).
MANAGEMENT OF THE FUND
Under the Partnership Agreement, the General Partners shall have the
exclusive management and control of all aspects of the business of the Fund.
Limited Partners holding more than 50% of the outstanding Units may require the
Fund to terminate any agreement with an affiliate of either General Partner on
60 days notice without penalty.
The Fund will operate and pay all of its administrative expenses, including
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.
MINIMUM INVESTMENT; NET WORTH REQUIREMENT
The General Partners are required to maintain together a 1% investment in
the Fund. In addition, the General Partners are required to maintain together a
net worth no less than 10% of the aggregate capital contributions to each
partnership for which they act as General Partner. The General Partners satisfy
the net worth requirement applicable to them by means of a demand note payable
to it from IDS Financial Corporation (now named American Express Financial
Corporation), in the case of IDS Futures, and a subscription agreement from
Cargill Investor Services, Inc., as well as a demand note payable to it from
Cargill, Incorporated in the case of CISI.
DISTRIBUTIONS BY THE FUND
The General Partners, in their sole discretion, decide whether the Fund will
make any distributions to its partners. To date, the Fund has not made any
distributions.
REDEMPTIONS
Limited Partner's may not redeem their Units during the first six months
after being admitted to the Fund as a Limited Partner. Thereafter, Units may be
redeemed as of the last trading day of any month at Net Asset Value upon ten
calendar days prior written notice. In the event the Net Asset Value per Unit
declines below $125 (after adding back any distributions) at the close of
business on any trading day, the General Partners shall close out all positions,
suspend trading and declare a special redemption date.
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.
61
<PAGE>
TRANSFERS OF UNITS
A Limited Partner may assign his or her Units upon prior notice to the
General Partners. No assignee, without the consent of the General Partners may
become a substituted limited partner. If the General Partners withhold consent,
an assignee will only have the right to share in the profits of the Fund and to
redeem Units to the extent to which the assigning limited partner would have
otherwise been entitled.
INDEMNIFICATION
The General Partners and their affiliates shall not be liable to the Fund or
to the Limited Partners other than for acts or omissions constituting negligence
or misconduct or which were not taken in good faith or were not 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 the Fund, PROVIDED that the expense for which indemnification is sought was
not the result of negligence or misconduct by the General Partner.
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). A
General Partner may withdraw completely 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 Fund will terminate upon the first to occur of the following: (i)
December 31, 2006; (ii) Limited Partners owning more than 50% of the Units
(excluding any Units held by the General Partners or their corporate
affiliates), elect to dissolve the Fund; (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.
AMENDMENTS; MEETINGS
The Partnership Agreement may be amended in any respect by holders of a
majority of the outstanding Units, 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 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.
An amendment may be proposed or approved at a meeting of the partners. The
General Partners or the holders of at least 10% of the outstanding Units may
call a meeting. No annual meetings have been or are expected to be held.
FISCAL YEAR
The fiscal year of the Fund ends on December 31.
REPORTS AND ACCOUNTING
The Fund uses the accrual method of accounting and its books are audited
annually by the Fund's independent public accountant. Each Limited Partner
receives an annual report containing audited financial statements and monthly
statements.
62
<PAGE>
The General Partners will also furnish each Limited Partner with tax
information in a form which may be utilized in the preparation of income tax
returns.
TRADING POLICIES
The Fund has established certain trading policies which are set forth in
Section 12 of the Partnership Agreement.
TAX CONSEQUENCES
THE FOLLOWING CONSTITUTES THE OPINION OF SIDLEY & AUSTIN AND SUMMARIZES THE
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO UNITED STATES TAXPAYERS WHO ARE
INDIVIDUALS.
THE FUND'S TAX STATUS
In the opinion of Sidley & Austin, the Fund will be classified as a
partnership for federal income tax purposes. Consequently, the Limited Partners
individually, not the Fund itself, are subject to tax.
The General Partners believe that all of the income expected to be generated
by the Fund will constitute "qualifying income" and have so advised Sidley &
Austin. As a result, in the opinion of Sidley & Austin, the Fund will not be
subject to tax as a corporation under the provisions applicable to "publicly-
traded partnerships."
TAXATION OF UNITHOLDERS ON PROFITS OR LOSSES OF THE FUND
Each Unitholder must pay tax on his or her share of the Fund's income and
gains. Such share must be included each year in a Unitholder's taxable income
whether or not such Unitholder has redeemed Units. In addition, a Unitholder may
be subject to paying taxes on the Fund's interest income even though the Net
Asset Value per Unit has decreased due to trading losses. See "--Tax on Capital
Gains and Losses; Interest Income," below.
The Fund provides each Unitholder with an annual schedule of his or her
share of the Fund's tax items. The Fund generally allocates these items equally
to each Unit. However, when a Unitholder redeems Units, the Fund allocates
capital gains or losses so as to reduce or eliminate any difference between the
redemption proceeds and the tax accounts of such Units.
LIMITED DEDUCTIBILITY OF FUND LOSSES AND DEDUCTIONS
A Unitholder may not deduct Fund losses or deductions in excess of his or
her tax basis in his or her Units as of year-end. Generally, a Unitholder's tax
basis in his or her Units is the amount paid for such Units reduced (but not
below zero) by his or her share of any Fund distributions, losses and deductions
and increased by his or her share of the Fund's income and gains.
LIMITED DEDUCTIBILITY FOR CERTAIN EXPENSES
Individual taxpayers are subject to material limitations on their ability to
deduct investment advisory expenses and other expenses of producing income.
Sidley & Austin has opined that the amount, if any, of the Fund's expenses which
might be subject to this limitation should be DE MINIMIS. However, the IRS could
take a different position. The IRS could contend that the Management and
Incentive Fees should be characterized as "investment advisory expenses" because
the Fund is not engaged in a "trade or business."
Individuals cannot deduct investment advisory expenses in calculating their
alternative minimum tax.
63
<PAGE>
YEAR-END MARK-TO-MARKET OF OPEN POSITIONS
Section 1256 Contracts are futures, futures options traded on U.S.
exchanges, certain foreign currency contracts and stock index options. Certain
of the Fund's open positions are Section 1256 Contracts. Section 1256 Contracts
that remain open at the end of each year are treated for tax purposes as if such
positions had been sold and any gain or loss recognized. The gain or loss on
Section 1256 Contracts is characterized as 40% short-term capital gain or loss
and 60% long-term capital gain or loss regardless of how long any given position
has been held. Non-U.S. exchange-traded futures and forwards are generally
non-Section 1256 Contracts. Gain or loss on non-Section 1256 Contracts will be
recognized when sold by the Fund and will be primarily short-term gain or loss.
TAXATION OF FOREIGN CURRENCY TRANSACTIONS
Certain forward contracts, futures contracts or similar instruments entered
into or acquired by the Fund will be Section 988 transactions if the amount paid
or received is denominated in terms of or determined by reference to the value
of a currency other than the U.S. dollar. In general foreign currency gain or
loss on Section 988 transactions is characterized as ordinary income or loss,
except that gain or loss on regulated futures contracts or non-equity options on
foreign currencies that are Section 1256 Contracts is characterized as capital
gain or loss. See "Year-End Mark-to-Market of Open Positions," above. The Fund
has elected to be treated as a qualified fund, causing all gain or loss from
trading of forward contracts and foreign-currency futures contracts (other than
Section 1256 Contracts) to be characterized as short-term capital gain or loss.
In addition, all such contracts will be subject to the "mark-to-market" rules.
Adverse tax consequences might result, however, if the Fund failed to meet the
requirements of electing qualified fund status in a taxable year.
TAX ON CAPITAL GAINS AND LOSSES; INTEREST INCOME
As described under "--Year-End Mark-to-Market of Open Positions," the Fund's
trading generates 60% long-term capital gains or losses and 40% short-term
capital gains or losses from its Section 1256 Contracts and primarily short-term
capital gain or loss from its non-Section 1256 Contracts. Individuals pay tax on
long-term capital gains at a maximum rate of 20%. Short-term capital gains are
subject to tax at the same rates as ordinary income, with a maximum rate of
39.6% for individuals.
Individual taxpayers may deduct capital losses only to the extent of their
capital gains plus $3,000. Accordingly, the Fund could incur significant losses
but a Unitholder could be required to pay taxes on his or her share of the
Fund's interest income.
If an individual taxpayer incurs a net capital loss for a year, he may elect
to carryback (up to three years) the portion of such loss which consists of a
net loss on Section 1256 Contracts. A taxpayer may deduct such losses only
against net capital gain for a carryback year to the extent that such gain
includes gains on Section 1256 Contracts. To the extent that a taxpayer could
not use such losses to offset gains on Section 1256 Contracts in a carryback
year, the taxpayer may carryforward such losses indefinitely as losses on
Section 1256 Contracts.
SYNDICATION EXPENSES
The costs associated with the ongoing offering of the Units under this
Prospectus and any subsequent ongoing offering expenses incurred by the Fund
will be non-deductible syndication expenses. The IRS could also contend that a
portion of the brokerage fees paid to the Clearing Broker or the Introducing
Broker constitute non-deductible syndication expenses.
64
<PAGE>
TAXATION OF FOREIGN INVESTORS
A Limited Partner who is a non-resident alien individual, foreign
corporation, foreign partnership, foreign trust or foreign estate (a "Foreign
Limited Partner") generally is not subject to taxation by the United States on
capital gains from commodity or derivatives trading, provided that such Foreign
Limited Partner (in the case of an individual) does not spend more than 182 days
in the United States during his or her taxable year, and provided further, that
such Foreign Limited Partner is not engaged in a trade or business within the
United States during a taxable year to which income, gain, or loss is treated as
"effectively connected." An investment in the Fund should not, by itself, cause
a Foreign Limited Partner to be engaged in a trade or business within the United
States for the foregoing purposes, assuming that the trading activities of the
Fund will be conducted as described in this Prospectus. Pursuant to a "safe
harbor" in the Code, an investment fund whose U.S. business activities consist
solely of trading commodities and derivatives for its own account should not be
treated as engaged in a trade or business within the United States provided that
such investment fund is not a dealer in commodities or derivatives and that the
commodities traded are of a kind customarily dealt in on an organized commodity
exchange. The General Partners have advised Sidley & Austin of the contracts
that the Fund will trade. Based on a review of such contracts as of the date of
this Prospectus, the Fund has been advised by its counsel, Sidley & Austin, that
such contracts should satisfy the safe harbor. If the contracts traded by the
Fund in the future were not covered by the safe harbor, there is a risk that the
Fund would be treated as engaged in a trade or business within the United
States. In the event that the Fund were found to be engaged in a United States
trade or business, a Foreign Limited Partner would be required to file a United
States federal income tax return for such year and pay tax at full United States
rates. In the case of a Foreign Limited Partner which is a foreign corporation,
an additional 30% "branch profits" tax might be imposed. Furthermore, in such
event the Fund would be required to withhold taxes from the income or gain
allocable to such a Limited Partner under Section 1446 of the Code.
A Foreign Limited Partner is not subject to United States tax on certain
interest income, including income attributable to (i) original issue discount on
Treasury bills having a maturity of 183 days or less or (ii) commercial bank
deposits, provided, in either case, that such Foreign Limited Partner is not
engaged in a trade or business within the United States during a taxable year.
Additionally, a Foreign Limited Partner, not engaged in a trade or business
within the United States, is not subject to United States tax on interest income
(other than certain so-called "contingent interest") attributable to obligations
issued after July 18, 1984 that are in registered form if the Foreign Limited
Partner provides the Fund with a Form W-8.
UNRELATED BUSINESS TAXABLE INCOME
Tax-exempt Limited Partners will not be required to pay tax on their share
of income or gains of the Fund, provided that such Limited Partners do not
purchase Units with borrowed funds.
IRS AUDITS OF THE FUND AND ITS LIMITED PARTNERS
The IRS is required to audit Fund-related items at the Fund rather than the
partner level. CISI is the Fund's "tax matters partner" with general authority
to determine the Fund's responses to a tax audit. If an audit of the Fund
results in an adjustment, all partners may be required to pay additional taxes
plus interest as well as penalties, and could themselves be audited.
STATE AND OTHER TAXES
In addition to the federal income tax consequences described above, the Fund
and the partners may be subject to various state and other taxes. For example,
the Fund may be subject to a 1.5% Personal Property Replacement Tax in Illinois.
Such tax is imposed on the net income of the Fund allocable to Illinois.
------------------------
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS BEFORE
DECIDING WHETHER TO INVEST.
65
<PAGE>
PLAN OF DISTRIBUTION
THE SUBSCRIPTION PROCEDURE
Units are offered at the Net Asset Value per Unit as of the close of
business on the last business day of the month during which the General Partners
are accepting subscriptions. The minimum initial investment is $1,000 and the
incremental subscription amount is $100, plus the amounts of the Sales Charge
and the Offering Expense Charge. Affiliated Purchasers do not pay the Sales
Charge. Units will be offered until July 31, 2001, unless all of the Units are
sold prior to that date or the General Partners decide to extend the offering
beyond such date.
In order to purchase Units, investors must complete, execute and deliver to
the Selling Agent an original of the Subscription Agreement and Power of
Attorney which accompanies this Prospectus, together with a check for the amount
of his or her subscription. Pending investments will be held in escrow in
interest-bearing instruments by U.S. Bank National Association, St. Paul,
Minnesota, as Escrow Agent, until such subscriptions have been accepted by the
General Partners. Subscription checks must be made out to U.S. Bank National
Association, St. Paul, Minnesota, as Escrow Agent for IDS Managed Futures, L.P.
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 offering of Units will be made by the Fund through the Selling Agent on
a best efforts basis without any firm underwriting commitment.
FREE LOOK ALTERNATIVE
After prospective investors have delivered their subscription documents
along with their subscription checks to the Selling Agent, the Selling Agent
will mail a confirmation along with a copy of the Fund's most recent account
statement to the prospective investor on the next business day. During the next
sixteen days, prospective investors have the opportunity to review the Fund's
most recent account statement and to determine whether they wish to rescind
their subscription. Prospective investors may rescind their subscriptions for
any reason during the Free-Look period. 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.
SUBSCRIBERS' REPRESENTATIONS AND WARRANTIES
By executing a Subscription Agreement and Power of Attorney Signature Page,
such subscriber is representing and warranting, among other things, that: (i)
the subscriber is of legal age to execute and deliver the Subscription Agreement
and Power of Attorney and has full power and authority to do so; (ii) the
subscriber has read and understands "Exhibit B--Subscription Requirements" of
Part II of this Prospectus and meets or exceeds the applicable suitability
criteria of net worth and annual income set forth therein; and (iii) the
subscriber has received a copy of this Prospectus. These representations and
warranties might be used by the General Partners or others against a subscriber
in the event that the subscriber were to take a position inconsistent therewith.
While the foregoing representations and warranties will be binding on
subscribers, the General Partners believe that to a large extent such
representations and warranties would be implied from the fact that an investor
has subscribed for Units. NONETHELESS, NO PROSPECTIVE SUBSCRIBER WHO IS NOT
PREPARED TO MAKE SUCH REPRESENTATIONS AND WARRANTIES, AND TO BE BOUND BY THEM,
SHOULD CONSIDER INVESTING IN THE UNITS.
66
<PAGE>
THE SELLING AGENT
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
Sales Charge equals 6% of the first $50,000 subscribed, 4% of the second
$50,000, 2% of the subsequent $400,000 and 1% of any subscriptions in excess of
$500,000.
In addition to the Sales Charge, the Selling Agent receives from CIS a
portion of the round turn commissions in its capacity as Introducing Broker.
LAWYERS; ACCOUNTANTS
Sidley & Austin, Chicago, Illinois has advised the General Partners on the
offering of the Units. Sidley & Austin drafted "Tax Consequences." Sidley &
Austin does not represent the Fund or the Limited Partners in matters relating
to the Fund.
The financial statements of IDS Managed Futures, L.P. as of December 31,
1998 and December 31, 1997 included herein have been audited by KPMG LLP.
The financial statements of CISI as of May 31, 1998 and 1997 included herein
have been audited by KPMG LLP.
The balance sheet of IDS Futures Corporation as of December 31, 1998
included herein has been audited by Ernst & Young LLP.
67
<PAGE>
FINANCIAL STATEMENTS
SCHEDULES ARE OMITTED FOR THE REASON THAT THEY ARE NOT REQUIRED OR ARE NOT
APPLICABLE OR THAT EQUIVALENT INFORMATION HAS BEEN INCLUDED IN THE FINANCIAL
STATEMENTS OR NOTES THERETO.
------------------------
REPORT OF INDEPENDENT AUDITORS
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
IDS MANAGED FUTURES, L.P.
Independent Auditors' Report......................................................................... 69
Statements of Financial Condition as of December 31, 1998 and 1997................................... 70
Statements of Operations for the years ended December 31, 1998, 1997 and 1996........................ 71
Statements of Partners' Capital for the years ended December 31, 1998, 1997 and 1996................. 72
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996........................ 73
Notes to Financial Statements........................................................................ 74
IDS FUTURES CORPORATION
Independent Auditors' Report......................................................................... 79
Balance Sheet as of December 31, 1998................................................................ 80
Notes to Balance Sheet............................................................................... 81
CIS INVESTMENTS, INC.
Independent Auditors' Report......................................................................... 84
Statements of Financial Condition as of May 31, 1998 and 1997........................................ 85
Statements of Income for the years ended May 31, 1998 and 1997....................................... 86
Statements of Changes in Stockholder's Equity for the years ended May 31, 1998 and 1997.............. 87
Statements of Cash Flows of the years ended May 31, 1998 and 1997.................................... 88
Notes to Financial Statements........................................................................ 89
</TABLE>
68
<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. (the Partnership) as of December 31, 1998 and 1997, and
the related statements of operations, partners' capital, and cash flows for each
of the years in the three-year period ended December 31, 1998. 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, 1998 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998, in
conformity with generally accepted accounting principles.
KPMG LLP
February 5, 1999
Chicago, Illinois
69
<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---------- ---------
<S> <C> <C>
Assets:
Equity in commodity futures trading accounts:
Cash on deposit with Clearing Broker.............................. $52,649,782 47,936,067
Unrealized gain on open futures and options contracts............. 5,740,766 2,454,648
---------- ---------
58,390,548 50,390,715
Interest receivable............................................... 179,775 201,717
---------- ---------
Total assets...................................................... $58,570,323 50,592,432
---------- ---------
---------- ---------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued commissions on open futures and options contracts due to
AXP Advisors and CIS............................................ $ 129,531 99,412
Accrued exchange, clearing, and NFA fees.......................... 2,100 3,642
Accrued management fees........................................... 173,726 150,667
Accrued incentive fees............................................ -- 184,102
Accrued operating expenses........................................ 125,906 114,033
Accrued selling commissions and organization and offering
expenses........................................................ 87,188 86,819
Redemptions payable............................................... 308,694 490,756
---------- ---------
Total liabilities................................................... 827,145 1,129,431
---------- ---------
Partner's capital:
Limited Partners (148,334.99 and 137,994.05 units outstanding at
December 31, 1998 and 1997, respectively)....................... 56,642,072 48,541,669
General Partners (2,884.19 and 2,619.16 units outstanding at
December 31, 1998 and 1997, respectively........................ 1,101,106 921,332
---------- ---------
Total partners' capital............................................. 57,743,178 49,463,001
---------- ---------
$58,570,323 50,592,432
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
70
<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ---------- ------------
<S> <C> <C> <C>
Revenues:
Gain on trading of commodity futures contracts:
Realized gain on closed positions.................................... $ 4,255,156 4,545,484 9,559,339
Increase (decrease) in unrealized gain on open futures contracts..... 3,286,118 1,586,579 (837,500)
Interest income........................................................ 2,148,711 2,032,524 1,575,843
Foreign currency transaction loss...................................... (177,410) (546,087) (108,047)
------------ ---------- ------------
Total revenues........................................................... 9,512,575 7,618,500 10,189,635
------------ ---------- ------------
Expenses:
Commission paid to AXP Advisors and CIS................................ 1,354,116 1,142,101 851,858
Exchange, clearing, and NFA fees....................................... 64,522 41,957 30,222
Management fees........................................................ 1,852,486 1,609,144 1,088,343
Incentive fees......................................................... 876,259 396,625 978,214
General partner fee to IDSFC and CISI.................................. 680,117 544,056 447,067
Operating expenses..................................................... 106,578 96,492 92,456
------------ ---------- ------------
Total expenses........................................................... 4,934,078 3,840,375 3,488,160
------------ ---------- ------------
Net profit............................................................... $ 4,578,497 3,778,125 6,701,475
------------ ---------- ------------
------------ ---------- ------------
Profit per unit of limited partnership interest.......................... $ 30.08 28.09 54.14
Profit per unit of general partnership interest.......................... 30.08 28.09 54.14
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
See accompanying notes to financial statements.
71
<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
TOTAL
LIMITED GENERAL PARTNERS'
UNITS* PARTNERS PARTNERS CAPITAL
------------ ------------- ---------- ------------
<S> <C> <C> <C> <C>
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
------------ ------------- ---------- ------------
------------ ------------- ---------- ------------
Sale of partnership interests............................ 26,213.79 9,652,700 100,000 9,752,700
Selling commissions and organization offering costs...... -- (844,169) (3,000) (847,169)
------------ ------------- ---------- ------------
Net sales of partnership interests....................... 26,213.79 8,808,531 97,000 8,905,531
Net profit............................................... -- 3,703,214 74,911 3,778,125
Redemptions.............................................. (10,395.53) (3,515,603) -- (3,515,603)
------------ ------------- ---------- ------------
Balance at December 31, 1997............................. 137,994.05 $ 48,541,669 921,332 49,463,001
------------ ------------- ---------- ------------
------------ ------------- ---------- ------------
Sale of partnership interests............................ 24,695.21 9,378,300 100,000 9,478,300
Selling commissions and organization offering costs...... -- (822,213) (3,000) (825,213)
------------ ------------- ---------- ------------
Net sales of partnership interests....................... 24,695.21 8,556,087 97,000 8,653,087
Net Profit............................................... -- 4,495,723 82,774 4,578,497
Redemptions.............................................. (14,354.27) (4,951,407) -- (4,951,407)
------------ ------------- ---------- ------------
Balance at December 31, 1998............................. 148,334.99 $ 56,642,072 1,101,106 57,743,178
------------ ------------- ---------- ------------
Net asset value per unit at December 31, 1998............ $ 381.85 381.85
Net asset value per unit at December 31, 1997............ 351.77 351.77
Net asset value per unit at December 31, 1996............ 323.68 323.68
------------ ------------- ---------- ------------
------------ ------------- ---------- ------------
</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.
72
<PAGE>
IDS MANAGED FUTURES, L.P.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net profit.......................................................... $ 4,578,497 3,778,125 6,701,475
Adjustments to reconcile net profit to net cash provided by
operating activities:
Change in assets and liabilities:
Decrease (increase) in unrealized gain on open futures
contracts....................................................... (3,286,118) (1,586,579) 837,500
Decrease (increase) in interest receivable........................ 21,942 (49,359) (22,249)
Increase (decrease) in accrued liabilities........................ (120,593) (632,835) (793,189)
------------- ------------ ------------
Net cash provided by operating activities............................. 1,193,728 1,509,352 8,309,915
------------- ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of units..................................... 8,653,456 9,585,141 4,486,997
Partner redemptions................................................. (5,133,469) (3,157,208) (4,238,326)
------------- ------------ ------------
Net cash provided by financing activities............................. 3,519,987 6,427,933 248,671
------------- ------------ ------------
Net increase in cash.................................................. 4,713,715 7,937,285 8,558,586
Cash at beginning of year............................................. 47,936,067 39,998,782 31,440,196
------------- ------------ ------------
Cash at end of year................................................... $ 52,649,782 47,936,067 39,998,782
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
73
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998 and 1997
(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 Partnership representing an additional investment of
$10,000,000 were offered by American Express Financial Advisors, Inc. (AXP
Advisors), formerly IDS Financial Services Inc., commencing March 29, 1993. An
additional investment of $20,000,000 was offered by AXP Advisors commencing
January 31, 1994. Commencing June 26, 1995, AXP Advisors offered an additional
investment of $50,000,000. By December 31, 1998, a total of 165,503 units
representing a total investment of $49,457,119 of limited partnership interest
had been sold in the combined offerings. During the offerings, the General
Partners purchased a total of 1,606 additional units representing a total
investment of $459,880. Selling commissions of $2,887,066 were paid to AXP
Advisors by the new limited partners. All new investors paid organization and
offering expenses totaling $2,142,050. See the IDS Managed Futures, L.P.
prospectus dated August 26, 1997 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.
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. 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
74
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998 and 1997
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 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 10 days' written notice to the General
Partners. Payment will be made within 10 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 that offering came into the fund at the end of August
1995. 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 both to
movements in the underlying contract markets as well as to 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.
75
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998 and 1997
(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. (JWH); Welton Investment Corporation
(Welton); 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.
Effective February 1, 1997 the agreement with Sabre was changed to increase the
management fees paid to them to 1/4 of 1% of the month-end net assets. The
agreement with Sabre, which expired on December 31, 1997, was not renewed.
Under signed agreement, JWH will receive a monthly management fee of 1/3 of
1% of the month-end net asset value of the Partnership under its management and
15% of the Partnership's net trading profits, if any, attributable to its
management.
Under signed agreement, Welton will receive a monthly management fee of 1/4
of 1% of the month-end net asset value of the Partnership under its management
and 18% of the Partnership's net trading profits, if any, attributable to its
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 $71,906, $56,820, and $100,027 for the years ended December 31,
1998, 1997 and 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. 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
76
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998 and 1997
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 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 were $869,511,990 and $820,115,419, respectively, on December
31, 1998 and $137,689,850 and $231,540,372, respectively, on December 31, 1997.
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 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 nonperformance
by one of their 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 $3,929,112 and $2,545,273
during 1998 and 1997, respectively. Fair value as of December 31, 1998 and 1997
was $5,740,766 and $2,454,648, 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. As of December 31, 1998, 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, 1998, the cash requirement of the commodity interests of the
Partnership was $6,224,367. This cash requirement was met by $51,092,138 held in
segregated funds and $7,298,410 held in secured funds. At December 31, 1997, the
cash requirement of the commodity interests of the Partnership of $4,973,284 was
met by $44,749,995 being held in segregated funds and $5,641,720 being held in
secured funds. At December 31, 1997 and 1996, cash was on deposit with the
Clearing Broker which exceeded the cash requirement amount.
77
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998 and 1997
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, 1998 and 1997:
<TABLE>
<CAPTION>
COMMODITY GROUP 1998 1997
- ------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
Agricultural....................................................... $ 91,344 315,072
Currency........................................................... 339,704 257,116
Stock Indices...................................................... 511,912 226,950
Energies........................................................... 133,111 52,616
Metals............................................................. (2,413) 1,219,510
Interest........................................................... 4,667,108 383,384
------------ ----------
Total.............................................................. $ 5,740,766 2,454,648
------------ ----------
------------ ----------
</TABLE>
The range of expiration dates of these exchange traded open contracts is
January 1999 to December 1999.
78
<PAGE>
CIS INVESTMENTS, INC.
Balance Sheet (unaudited)
<TABLE>
<CAPTION>
December 31, 1998
- ------------------------------------------------------------------------------
ASSETS 1998
- ------------------------------------------------------------------------------
<S> <C>
Accounts Receivable............................................... $ 428,604
Investment in IDS Managed Futures, L.P............................ 545,094
Investment in IDS Managed Futures II, L.P......................... 225,783
Investment in Everest Futures Fund II, L.P........................ 556,571
Investment in JWH Global Trust.................................... 967,415
- ------------------------------------------------------------------------------
Total assets $2,723,468
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
LIABILITIES AND EQUITY
- ------------------------------------------------------------------------------
Intercompany Payable.............................................. $ 936,580
Income Taxes Payable.............................................. 25,782
- ------------------------------------------------------------------------------
Total Accounts Payable............................................ 962,362
Common stock $100 par value, 30,000 Authorized, 10 issued......... 1,000
Subscribed Stock 29,990 shares.................................... 2,999,000
Less - subscription receivable.................................... (2,999,000)
Paid-in-Capital................................................... 18,250,000
Less notes receivable from parent.................................(18,000,000)
Retained Earnings................................................. 1,510,106
- ------------------------------------------------------------------------------
Total Stockholder's Equity........................................ 1,761,106
- ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $2,723,468
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
THIS BALANCE SHEET, IN THE OPINION OF MANAGEMENT, REFLECTS ALL ADJUSTMENTS
NECESSARY TO FAIRLY STATE THE FINANCIAL CONDITION OF CIS INVESTMENTS, INC. AT
DECEMBER 31, 1998. ALL ADJUSTMENTS MADE WERE OF A NORMAL AND RECURRING
NATURE.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
79
<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 December 31, 1998.
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 December
31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 26, 1999
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
80
<PAGE>
IDS FUTURES CORPORATION
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
1998
------------
<S> <C>
ASSETS:
Cash.............................................................................................. $ 120
Interest-bearing Deposits with Affiliate.......................................................... 1,680,462
Accounts Receivable............................................................................... 22,865
Investment in Limited Partnerships (fair value--$783,319)......................................... 130,714
Deferred Income Taxes............................................................................. 130,714
------------
Total assets...................................................................................... $ 2,188,661
------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Due to Affiliate (NOTE 4)......................................................................... $ 311,504
Other Liabilities................................................................................. 180,118
------------
Total liabilities................................................................................... 491,622
Stockholder's equity:
Common stock, $1 par value:
Authorized and issued Shares--100................................................................. 100
Additional Paid-in Capital........................................................................ 1,974,900
Retained earnings................................................................................. 1,347,039
------------
3,322,039
Less Notes Receivable from Affiliate (NOTE 3)..................................................... (1,625,000)
------------
Net Stockholder's Equity............................................................................ 1,697,039
------------
Total Liabilities and Stockholder's Equity.......................................................... $ 2,188,661
------------
Commitments (NOTE 2)
</TABLE>
SEE ACCOMPANYING NOTES.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
81
<PAGE>
IDS FUTURES CORPORATION
Notes to Balance Sheet
December 31, 1998
(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 AFFILIATE
The Company's interest-bearing deposit with affiliate represents short-term
funds deposited with AEFC. These funds earn interest based upon published
short-term indices. The carrying value of this deposit approximates fair 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.
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
its 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.
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 primarily of the difference in the tax basis and financial
reporting basis of the investments in limited partnerships.
(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 net
worth at least equal to (i) the lesser of $250,000 or 15% of the aggregate
capital contributions of any
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
82
<PAGE>
IDS FUTURES CORPORATION
Notes to Balance Sheet
December 31, 1998
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) AFFILIATE TRANSACTIONS
The Company is allocated various expenses from AEFC, such as programming,
data processing, legal, taxes and other administrative costs. The payable
balance at December 31, 1998 represents allocations that are due to AEFC.
(5) 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.
(6) YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company. All of the
systems used by the Company are maintained by AEFC and are utilized by multiple
subsidiaries and affiliates of AEFC. The Company's business is heavily dependent
upon AEFC's computer systems and has significant interactions with systems of
third parties.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
83
<PAGE>
IDS FUTURES CORPORATION
Notes to Balance Sheet
December 31, 1998
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, has been conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps are being
taken to resolve any potential problems including modification to existing
software and the purchase of new software. These measures are scheduled to be
completed and tested on a timely basis. AEFC's target date for substantially
completing corrective measures on business critical systems was December 31,
1998. Testing of these systems is targeted for completion early in 1999. AEFC is
currently on track with this schedule and is also on track to finish work on
non-critical systems by June 30, 1999.
AEFC continues to evaluate the Year 2000 readiness of advisors and other
third parties whose system failures could have an impact on the Company's
operations. The potential materiality of any such impact is not known at this
time.
AEFC's Year 2000 project includes establishing Year 2000 contingency plans
for all key business units. These plans are being developed and are expected to
be substantially complete by the end of the first quarter of 1999. These plans
will continue to be refined throughout 1999 as additional information related to
potential Year 2000 exposure is gathered.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
84
<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, 1998 and 1997, 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, 1998 and 1997, and the results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
KPMG LLP
July 15, 1998
Chicago, Illinois
85
<PAGE>
CIS INVESTMENTS, INC.
Statements of Financial Condition
May 31, 1998 and 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------------- -------------
<S> <C> <C>
Assets:
Receivable from JWH Global Trust............................................ $ 337,513 515,506
Accrued taxes receivable.................................................... 45,321 78,630
Investments................................................................. 1,914,443 981,038
-------------- -------------
Total assets..................................................................... $ 2,297,277 1,575,174
-------------- -------------
-------------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Accounts payable................................................................. 3,899 400,033
Deferred management fees......................................................... 72,133 58,763
Due to Parent.................................................................... 1,192,827 618,012
-------------- -------------
Total liabilities.............................................................. 1,268,859 1,076,808
-------------- -------------
Stockholder's equity:
Common stock, $100 par value. Authorized 30,000 shares; issued 10 shares......... 1,000 1,000
Common stock subscribed, 29,990 at the years ended 1998 and 1997, respectively... 2,999,000 2,999,000
Less subscription receivable..................................................... (2,999,000) (2,999,000)
Paid-in capital.................................................................. 18,250,000 250,000
Less demand note receivable...................................................... (18,000,000) --
Retained earnings................................................................ 777,418 247,366
-------------- -------------
Total stockholder's equity..................................................... 1,028,418 498,366
-------------- -------------
$ 2,297,277 1,575,174
-------------- -------------
-------------- -------------
</TABLE>
See accompanying notes to financial statements.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
86
<PAGE>
CIS INVESTMENTS, INC.
Statements of Income
Years Ended May 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Revenues:
Management fees.......................................................................... $ 162,315 156,501
Other professional services income....................................................... 670,912 --
Unrealized gain on investments........................................................... 32,558 59,675
---------- ---------
Total revenues............................................................................. 865,785 216,176
Expenses - operating....................................................................... 47,249 5,780
---------- ---------
Income before income taxes................................................................. 818,536 210,396
Income tax expense......................................................................... 288,484 71,784
---------- ---------
Net income................................................................................. $ 530,052 138,612
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to financial statements.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
87
<PAGE>
CIS INVESTMENTS, INC.
Statements of Changes in Stockholder's Equity
Years Ended May 31, 1998 and 1997
<TABLE>
<CAPTION>
COMMON DEMAND
COMMON STOCK SUBSCRIPTIONS PAID-IN NOTE RETAINED
STOCK SUBSCRIBED RECEIVABLE CAPITAL RECEIVABLE EARNINGS TOTAL
----------- ---------- ------------ ------------ ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1996.......... 1,000 2,743,700 (2,743,700) 250,000 -- 108,754 359,754
Common stock subscription........ -- 255,300 (255,300) -- -- -- --
Net income....................... -- -- -- -- -- 138,612 138,612
----------- ---------- ------------ ------------ ------------- --------- ----------
Balance at May 31, 1997.......... $ 1,000 2,999,000 (2,999,000) 250,000 -- 247,366 498,366
Demand Note from Cargill......... -- -- -- 18,000,000 (18,000,000) -- --
Net Income....................... -- -- -- -- -- 530,052 530,052
----------- ---------- ------------ ------------ ------------- --------- ----------
Balance at May 31, 1998.......... 1,000 2,999,000 (2,999,000) 18,250,000 (18,000,000) 777,418 1,028,418
----------- ---------- ------------ ------------ ------------- --------- ----------
----------- ---------- ------------ ------------ ------------- --------- ----------
</TABLE>
See accompanying notes to financial statements.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
88
<PAGE>
CIS INVESTMENTS, INC.
Statements of Cash Flows
Years Ended May 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................................. $ 530,052 $ 138,612
Adjustments to reconcile net income to net cash provided by operating activities:
Unrealized gain on investments........................................................ (32,558) (59,675)
Decrease (increase) in assets:
Accrued taxes receivable............................................................ 33,309 (78,630)
Increase (decrease) in liabilities:
Deferred management fees............................................................ 13,370 11,098
Accounts payable.................................................................... (396,134) 400,033
Accrued taxes payable............................................................... -- (3,347)
---------- ----------
Net cash provided by operating activities................................................. 148,039 408,091
---------- ----------
Cash flows from investing activities:
Organizational and offering costs of JWH Global Trust................................... 177,993 (515,506)
Purchase of investments................................................................. (900,847) (348,642)
---------- ----------
Net cash used in investing activities:.................................................... (722,854) (864,148)
---------- ----------
Net cash provided by financing activities--amount advanced from Parent.................... 574,815 456,057
---------- ----------
Net cash provided by financing activity................................................... 574,815 456,057
---------- ----------
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................................................................................... $ 255,142 $ 153,761
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
89
<PAGE>
CIS INVESTMENTS, INC.
Notes to Financial Statements
May 31, 1998 and 1997
(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.
90
<PAGE>
CIS INVESTMENTS, INC.
Notes to Financial Statements
May 31, 1998 and 1997
(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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- ---------------------
UNITS AMOUNT UNITS AMOUNT
--------- ------------ --------- ----------
<S> <C> <C> <C> <C>
IDS Managed Futures L.P................................................ 1,299 $ 428,833 1,299 $ 403,149
IDS Managed Futures II L.P............................................. 322 194,618 322 182,228
Everest Futures Fund II, L.P........................................... 370 457,647 217 245,661
JWH Global Trust....................................................... 8,007 833,345 1,500 150,000
------------ ----------
$ 1,914,443 $ 981,038
------------ ----------
------------ ----------
</TABLE>
The following represents condensed combined financial information of the
Funds as of May 31, 1998 and 1997 (in thousands).
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Assets...................................................................................... $ 185,018 89,327
---------- ---------
---------- ---------
Liabilities................................................................................. 1,473 550
Capital..................................................................................... 183,545 88,777
---------- ---------
Total liabilities and capital............................................................... $ 185,018 89,327
---------- ---------
---------- ---------
</TABLE>
(3) NET WORTH REQUIREMENTS
The Company is required to maintain an amount of net worth as stated in each
Fund's agreement. For the purpose of compliance, net worth is defined as the
total of common stock issued and subscribed, paid in capital and retained
earnings. At May 31, 1998, 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.
91
<PAGE>
CIS INVESTMENTS, INC.
Notes to Financial Statements
May 31, 1998 and 1997
(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, 1998, it does not appear
that any amount will remain at the end of the amortization period.
(7) DEMAND NOTE RECEIVABLE
The Company received a capital contribution of $18,000,000 from its Parent
and entered into a related non interest bearing demand Note for $18,000,000. No
cash was transferred, nor is it known when and if any will be transferred in the
future. As such, the demand note is shown as a deduction from stockholder's
equity.
92
<PAGE>
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
IDS MANAGED FUTURES, L.P.
$28,000,000
UNITS OF BENEFICIAL INTEREST
---------------------
THIS IS A SPECULATIVE, LEVERAGED INVESTMENT WHICH INVOLVES THE RISK OF LOSS.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
SEE "THE RISKS YOU FACE" BEGINNING AT PAGE 8 IN PART ONE.
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF
ADDITIONAL INFORMATION. THESE PARTS ARE BOUND TOGETHER, AND BOTH CONTAIN
IMPORTANT INFORMATION.
<TABLE>
<S> <C>
CIS INVESTMENTS, INC.
AMERICAN EXPRESS FINANCIAL ADVISORS, INC. IDS FUTURES CORPORATION
SELLING AGENT CO-GENERAL PARTNERS
</TABLE>
------------------
<PAGE>
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Futures Markets and Trading Methods........................................................................ 1
"Blue Sky" Glossary........................................................................................ 3
</TABLE>
------------------------
EXHIBITS
<TABLE>
<S> <C>
Exhibit A:Amended and Restated Limited Partnership Agreement.......................... A-1
Exhibit B: Subscription Requirements.................................................. B-1
Exhibit C: Subscription Instructions.................................................. C-1
Exhibit D: Request for Redemption..................................................... D-1
</TABLE>
<PAGE>
FUTURES MARKETS AND TRADING METHODS
THE FUTURES AND FORWARD MARKETS
FUTURES AND FORWARD CONTRACTS
Futures contracts in the United States can only be traded on approved
exchanges and call for the future delivery of various commodities. These
contractual obligations may be satisfied either by taking or making physical
delivery or by making an offsetting sale or purchase of a futures contract on
the same exchange.
Forward currency contracts are traded off-exchange through banks or dealers.
In such instances, the bank or dealer generally acts as principal in the
transaction and charges "bid-ask" spreads.
Futures and forward trading is a "zero-sum," risk transfer economic
activity. For every gain there is an equal and offsetting loss.
EXCHANGE OF FUTURES FOR PHYSICALS ("EFP") TRANSACTIONS
Although futures contracts are normally entered into through competitive
bidding and offering on an exchange floor (or its electronic equivalent), most
U.S. exchanges allow futures contracts also to be established in a transaction
known as an exchange of futures for physicals ("EFP"). In an EFP transaction
where two parties engage in a cash sale of a commodity underlying a futures
contract, those same two parties are permitted to establish futures positions of
an equivalent quantity opposite to their cash transaction. For example, a seller
of a cash commodity would be permitted to establish a long futures position of
an equivalent quantity and the buyer of the cash commodity would be permitted to
establish a short futures position of the equivalent commodity. In some futures
markets, the cash transaction upon which the EFP is based can be the reversal of
a previously entered into but unsettled cash transaction. In those markets,
because the cash transaction is essentially "transitory," EFPs can serve as a
means for parties to enter into futures contracts at negotiated prices and at
other than during normal trading hours.
HEDGERS AND SPECULATORS
The two broad classifications of persons who trade futures are "hedgers" and
"speculators." Hedging is designed to minimize the losses that may occur because
of price changes, for example, between the time a merchandiser contracts to sell
a commodity and the time of delivery. The futures and forward markets enable the
hedger to shift the risk of price changes to the speculator. The speculator
risks capital with the hope of making profits from such changes. Speculators,
such as the Trust, rarely take delivery of the physical commodity but rather
close out their futures positions through offsetting futures contracts.
EXCHANGES; POSITION AND DAILY LIMITS; MARGINS
Each of the commodity exchanges in the United States has an associated
"clearinghouse." Once trades made between members of an exchange have been
cleared, each clearing broker looks only to the clearinghouse for all payments
in respect of such broker's open positions. The clearinghouse "guarantee" of
performance on open positions does not run to customers. If a member firm goes
bankrupt, customers could lose money.
The Trading Advisors trade for the Fund on a number of foreign commodity
exchanges. Foreign commodity exchanges differ in certain respects from their
United States counterparts and are not regulated by any United States agency.
The CFTC and the United States exchanges have established "speculative
position limits" on the maximum positions that the Trading Advisors may hold or
control in futures contracts on certain commodities.
1
<PAGE>
Most United States exchanges limit the maximum change in futures prices
during any single trading day. Once the "daily limit" has been reached, it
becomes very difficult to execute trades. Because these limits apply on a
day-to-day basis, they do not limit ultimate losses, but may reduce or eliminate
liquidity.
When a position is established, "initial margin" is deposited. On most
exchanges, at the close of each trading day "variation margin," representing the
unrealized gain or loss on the open positions, is either credited to or debited
from a trader's account. If "variation margin" payments cause a trader's
"initial margin" to fall below "maintenance margin" levels, a "margin call" is
made, requiring the trader to deposit additional margin or have his position
closed out.
TRADING METHODS
Managed futures strategies are generally classified as either (i) systematic
or discretionary; and (ii) technical or fundamental.
SYSTEMATIC AND DISCRETIONARY TRADING APPROACHES
A systematic trader relies on trading programs or models to generate trading
signals. Discretionary traders make trading decisions on the basis of their own
judgment.
Each approach involves inherent risks. For example, systematic traders may
incur substantial losses when fundamental or unexpected forces dominate the
markets, while discretionary traders may overlook price trends which would have
been signaled by a system.
TECHNICAL AND FUNDAMENTAL ANALYSIS
Technical analysis operates on the theory that market prices, momentum and
patterns at any given point in time reflect all known factors affecting the
supply and demand for a particular commodity. Consequently, technical analysis
focuses on market data as the most effective means of attempting to predict
future prices.
Fundamental analysis, in contrast, focuses on the study of factors external
to the markets, for example: weather, the economy of a particular country,
government policies, domestic and foreign political and
economic events, and changing trade prospects. Fundamental analysis assumes that
markets are imperfect and that market mispricings can be identified.
TREND-FOLLOWING
Trend-following advisors try to take advantage of major price movements, in
contrast with traders who focus on making many small profits on short-term
trades or through relative value positions. Trend-following traders assume that
most of their trades will be unprofitable. They look for a few large profits
from big trends. During periods with no major price movements, a trend-following
trading advisor is likely to have big losses.
RISK CONTROL TECHNIQUES
Trading advisors often adopt risk management principles. Such principles
typically restrict the size of positions taken as well as establishing stop-loss
points at which losing positions must be liquidated. However, no risk control
technique can assure that big losses will be avoided.
THE TRADING ADVISORS' PROGRAMS ARE SYSTEMATIC, TECHNICAL AND TREND- FOLLOWING.
2
<PAGE>
"BLUE SKY" GLOSSARY
THE FOLLOWING DEFINITIONS ARE INCLUDED IN THIS APPENDIX II IN COMPLIANCE
WITH THE REQUIREMENTS OF VARIOUS STATE SECURITIES ADMINISTRATORS WHO REVIEW
PUBLIC FUTURES FUND OFFERINGS FOR COMPLIANCE WITH THE "GUIDELINES FOR THE
REGISTRATION OF COMMODITY POOL PROGRAMS" STATEMENT OF POLICY PROMULGATED BY THE
NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION, INC. THE FOLLOWING
DEFINITIONS ARE REPRINTED VERBATIM FROM SUCH GUIDELINES AND MAY, ACCORDINGLY,
NOT IN ALL CASES BE RELEVANT TO AN INVESTMENT IN THE FUND.
DEFINITIONS--As used in the Guidelines, the following terms have the
following meanings:
ADMINISTRATOR--The official or agency administering the security laws of a
state.
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.
AFFILIATE--An Affiliate of a Person means: (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the
outstanding voting securities of such Person; (b) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned, controlled
or held with power to vote, by such Person; (c) any Person, directly or
indirectly, controlling, controlled by, or under common control of such Person;
(d) any officer, director or partner of such Person; or (e) if such Person is an
officer, director or partner, any Person for which such Person acts in any such
capacity.
CAPITAL CONTRIBUTIONS--The total investment in a Program by a Participant or
by all Participants, as the case may be.
COMMODITY BROKER--Any Person who engages in the business of effecting
transactions in commodity contracts for the account of others or for his or her
own account.
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.
CROSS REFERENCE SHEET--A compilation of the Guideline sections, referenced
to the page of the prospectus, Program agreement, or other exhibits, and
justification of any deviation from the Guidelines.
NET ASSETS--The total assets, less total liabilities, of the Program
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 Program.
NET ASSET VALUE PER PROGRAM INTEREST--The Net Assets of the Fund divided by
the number of Units outstanding.
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
Program assets during the period, whether the assets are held separately or in a
margin account.
ORGANIZATIONAL AND OFFERING EXPENSES--All expenses incurred by the Program
in connection with and in preparing a Program 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
3
<PAGE>
of qualification of the sale of its Program Interests under federal and state
law, including taxes and fees, and accountants' and attorneys' fees.
PARTICIPANT--The holder of a Program Interest.
PERSON--Any natural Person, partnership, corporation, association or other
legal entity.
PIT BROKERAGE FEE--Pit Brokerage Fee shall include floor brokerage, clearing
fees, National Futures Association fees, and exchange fees.
PROGRAM--A limited partnership, joint venture, corporation, trust or other
entity formed and operated for the purpose of investing in Commodity Contracts.
PROGRAM BROKER--A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
PROGRAM INTEREST--A limited partnership interest or other security
representing ownership in a program.
PYRAMIDING--A method of using all or a part of an unrealized profit in a
Commodity Contract position to provide margin for any additional Commodity
Contracts of the same or related commodities.
SPONSOR--Any Person directly or indirectly instrumental in organizing a
Program or any Person who will manage or participate in the management of a
Program, including a Commodity Broker who pays any portion of the Organizational
Expenses of the Program, and the general partner(s) and any other Person who
regularly performs or selects the Persons who perform services for the Program.
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 Program are
determined.
VALUATION PERIOD--A regular period of time between Valuation Dates.
4
<PAGE>
EXHIBIT A
IDS MANAGED FUTURES, L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
DATED AS OF SEPTEMBER 30, 1994
<PAGE>
IDS MANAGED FUTURES, L.P.
AMENDED AND RESTATED
LIMITED PARTNERSHIP AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
STRUCTURE OF PARTNERSHIP
1. Formation and Name.................................................................................. A-1
2. Principal Offices................................................................................... A-1
3. Business............................................................................................ A-1
4. Term, Dissolution and Fiscal Year................................................................... A-1
(a) Term............................................................................................ A-1
(b) Dissolution..................................................................................... A-1
(c) Fiscal Year..................................................................................... A-1
(d) Certain Definitions............................................................................. A-1
5. Management of the Partnership....................................................................... A-3
CAPITAL STRUCTURE AND PARTNERSHIP FINANCES
6. Net Worth of General Partners....................................................................... A-5
7. Capital Contributions and Partnership Units......................................................... A-5
8. Maintenance of Capital Accounts; Allocation of Profits and Losses................................... A-5
(a) Capital Accounts................................................................................ A-5
(b) Monthly Allocations............................................................................. A-6
(c) Allocation of Profit and Loss for Federal Income Tax Purposes................................... A-6
(d) Deficit Balances................................................................................ A-7
(e) Redemptions and Distributions................................................................... A-7
(f) Judgment of General Partners.................................................................... A-7
9. Expenses and Limitation Thereof..................................................................... A-7
10. Limited Liability of Limited Partner's Capital Contribution......................................... A-8
11. Return of Limited Partners Capital Contribution..................................................... A-8
CONDUCT OF THE PARTNERSHIP'S BUSINESS
12. Trading Policies.................................................................................... A-8
13. Reports and Statements.............................................................................. A-10
14. Partnership Records................................................................................. A-10
ADMISSION AND WITHDRAWAL OF PARTNERS
15. Transfer of Units................................................................................... A-11
16. Redemption of Units................................................................................. A-11
17. Offering of Units of Limited Partnership Interest................................................... A-12
18. Admission of Additional Partner..................................................................... A-13
19. Power of Attorney................................................................................... A-13
20. Withdrawal of a Partner............................................................................. A-14
</TABLE>
A-i
<PAGE>
IDS MANAGED FUTURES, L.P.
TABLE OF CONTENTS (CONT.)
<TABLE>
<CAPTION>
PAGE
---------
<C> <S> <C>
INDEMNIFICATION
21. Indemnification..................................................................................... A-14
GOVERNANCE OF THE PARTNERSHIP
22. Amendments and Meetings............................................................................. A-15
(a) Amendments Proposed by the General Partners..................................................... A-15
(b) Meetings; Amendments Proposed by the Limited Partners........................................... A-16
(c) Proxy Rules..................................................................................... A-16
23. Governing Laws...................................................................................... A-16
24. Miscellaneous....................................................................................... A-17
(a) Notices......................................................................................... A-17
(b) Binding Effect.................................................................................. A-17
(c) Headings........................................................................................ A-17
(d) Counterparts.................................................................................... A-17
Testimonium
Signatures
</TABLE>
A-ii
<PAGE>
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
A-1
<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
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of an 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 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,
shareholders and employees (including representatives of American Express
Financial Advisors Inc., the
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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.
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(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.
(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
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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 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
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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 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.
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(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 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;
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(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;
(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
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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 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
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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.
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
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(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.
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.
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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.
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;
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(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
(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
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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 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
A-19
<PAGE>
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 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.
A-20
<PAGE>
(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.
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.
A-21
<PAGE>
(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>
<S> <C> <C>
CIS INVESTMENTS, INC.
General Partner
By:
----------------------------------------
President
IDS FUTURES CORPORATION
General Partner
By:
----------------------------------------
President
FOR THE LIMITED PARTNERS:
CIS INVESTMENTS, INC.
As Attorney-in-Fact
By:
----------------------------------------
President
IDS FUTURES CORPORATION
As Attorney-in-Fact
By:
----------------------------------------
President
</TABLE>
A-22
<PAGE>
EXHIBIT B
IDS MANAGED FUTURES, L.P.
SUBSCRIPTION REQUIREMENTS
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 Fund'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 Fund 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. ("CISI") and IDS Futures Corporation ("IDS Futures")
(collectively, the "General Partners") in their sole and absolute discretion.
Purchaser certifies that he/she has received a Prospectus of the Fund dated
, 1999. Purchaser acknowledges that the representations and warranties
herein are made through the Fund's Subscription Agreement and Power of Attorney
to, and may be relied upon by, the Fund, the General Partners, and the Selling
Agent.
Purchaser should read the following notices: (a) he/she can lose his/her
entire investment in the Fund; (b) there is no assurance that the Fund will have
results similar to the past performance of the Fund; (c) CISI, a General
Partner, is a wholly-owned subsidiary of Cargill Investor Services, Inc.
("CIS"), the Fund's clearing broker, and IDS Futures, a General Partner, is an
affiliate of American Express Financial Advisors, Inc., the Fund's selling agent
and introducing broker, and conflicts of interest therefore exist; (d) CIS, the
Fund's clearing broker, and American Express Financial Advisors Inc., the Fund's
introducing broker, will receive, pursuant to the brokerage agreement described
in the Prospectus, substantial brokerage commissions from the Fund which will
exceed the lowest such rates which are otherwise available; (e) the redemption
of Units is restricted, he/she will have no right to demand distributions from
the Fund and the transferability of Units is also restricted; (f) investment in
the Fund and trading in commodity interests have certain special federal income
tax aspects and that he/she should seek such advice from qualified sources as
he/she deems necessary; (g) the performance data of the Fund in the Prospectus
should be read only in conjunction with the notes accompanying such information,
and that such data should not be interpreted to mean that the Fund will have
performance results similar to those reported in the future or that it will
realize any profits; and (h) the Fund has entered into advisory agreements with
John W. Henry & Company, Inc. ("JWH") and Welton Investment Corporation
("Welton") as the Fund's commodity trading advisors and brokerage agreements
with American Express Financial Advisors Inc. and CIS as the Fund's introducing
and clearing brokers, respectively.
Purchaser also agrees by delivering the Fund'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 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
If the undersigned is acting on behalf of an "employee benefit plan," as
defined in and subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or any "plan," as defined in Section 4975 of the Internal
Revenue Code of 1986, as amended (the "Code") (each such employee benefit plan
and plan, a "Plan"), the individual signing this Subscription Agreement and
Power of Attorney on behalf of the undersigned, in addition to the
representations and warranties set forth above, hereby
B-1
<PAGE>
further represents and warrants as, or on behalf of the fiduciary of the Plan
responsible for purchasing a Unit (the "Plan Fiduciary") that: (a) the Plan
Fiduciary has considered an investment in the Fund for such Plan in light of the
risks relating thereto; (b) the Plan Fiduciary has determined that, in view of
such considerations, the investment in the Fund for such Plan is consistent with
the Plan Fiduciary's responsibilities under ERISA; (c) the Plan's investment in
the Fund does not violate and is not otherwise inconsistent with the terms of
any legal document constituting the Plan or any trust agreement thereunder; (d)
the Plan's investment in the Fund has been duly authorized and approved by all
necessary parties; (e) none of the General Partners, JWH, IDS Futures, CIS, CIS
Financial Services, Inc. ("CISFS"), any Selling Agent, wholesaler or
correspondent, U.S. Bank National Association (the "Escrow Agent") any of their
respective affiliates or any of their respective agents or employees (i) has
investment discretion with respect to the investment of assets of the Plan used
to purchase Units; (ii) has authority or responsibility to or regularly gives
investment advice with respect to the assets of the Plan used to purchase Units
for a fee and pursuant to an agreement or understanding that such advice will
serve as a primary basis for investment decisions with respect to the Plan and
that such advice will be based on the particular investment needs of the Plan;
or (iii) is an employer maintaining or contributing to the Plan; and (f) the
Plan Fiduciary (i) is authorized to make, and is responsible for, the decision
to invest in the Fund, including the determination that such investment is
consistent with the requirement imposed by Section 404 of ERISA that Plan
investments be diversified so as to minimize the risk of large losses, (ii) is
independent of the General Partners, JWH, CIS, IDS Futures, CISFS, any Selling
Agent, wholesaler or correspondent, the Escrow Agent and any of their respective
affiliates, and (iii) is qualified to make such investment decision. The
undersigned will, at the request of the General Partners, furnish the General
Partners with such information as the General Partners may reasonably require to
establish that the purchase of Units by the Plan does not violate any provision
of ERISA or the Code, including, without limitation, those provisions relating
to "prohibited transactions" by "parties in interest" or "disqualified persons"
as defined therein.
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.
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.
B-2
<PAGE>
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 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;
B-3
<PAGE>
(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;
(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 OF 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.
B-4
<PAGE>
IDS MANAGED FUTURES, L.P.
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 U.S. Bank 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 U.S. Bank National Association, St. Paul,
Minnesota as Escrow Agent for IDS Managed Futures, L.P.
C-i
<PAGE>
IDS Managed Futures, L.P.
[LOGO]
Subscription Agreement
FINANCIAL
For Use After May 1, 1999
ADVISORS
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 Qualified
Registered (unless form on the right is Plan Units Are to Be Registered.
applicable)
American Express Trust Company
- --------------------------------------- -------------------------------------
Name of Subscribing Individual or FBO
Entity
- --------------------------------------- -------------------------------------
Tax Year End* Investor's Taxpayer ID Custodial Tax ID Tax Year End*
(for IRS
Reporting)
51-6041053
- ---------------- ---------------------- ------------------ ------------------
*If other than December 31.
- ------------------------------------------- -----------------------------------
Investor's Residence Address (Required) Investment Information
Street
- -------------------------------------------
Make Checks Payable to
U.S. Bank National Association
- ------------------------------------------- -----------------------------------
City State Zip Investment Amount
$
- ------------------- ---------- ---------- -----------------------------------
- -------------------------------------------
Mailing Address (If different than above)
Street
- -------------------------------------------
- -------------------------------------------
City State Zip
- ------------------- ---------- ----------
Phone Account Number (Corporate Office Use Only)
( )
- ------------------- -----------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Ownership Type
/ / Individual / / JTRS / / UGMA (indicate / / IRA / / Pension Plan / / Other (specify)
state)
/ / Partnership / / Tenants-in-Common / / Keogh / / Profit
--------------- Sharing Plan ---------------
/ / Corporation / / Community Property / / Trust / / Money
Purchase Plan
</TABLE>
- ----------------------------------------------------------------------------
Acknowledgements
Subscriber acknowledges the following by initialing separately each item
below: (all subscribers must initial)
I/(We) meet the minimum income and net worth standards
established for the Partnership;
- ------ ------
I/(We) am (are) purchasing interests in the Partnership for
my (our) own account;
- ------ ------
I/(We) have received a copy of the Prospectus and the Annual
Report for the Partnership.
- ------ ------
- ------------------------------------------------------------------------------
Signatures
If this investment is for a qualified employee benefit plan, an individual
retirement account or other tax-exempt investor, in making this investment on
behalf of such entity, I (we) acknowledge specifically that the prospectus
contains pertinent tax sections with respect to benefit plans entitled "Tax
Information--Tax-Exempt Investors" and "Purchases by Employee Benefit
Plans--ERISA Considerations," and in particular, the inclusion therein
relating to unrelated business taxable income, and I (we) have satisfied
myself (ourselves) as to the potential tax consequences of such provisions on
this investment.
Signature Signature (if joint owner)
- -------------------------------------- --------------------------------------
Date City State Date City State
- ------------------ -------- -------- ------------------ -------- --------
Name of Subscribing Individual or Name of Authorized Fiduciary, Trustee,
Entity--Printed Partner or Corporate Officer (if
applicable)--Printed
- -------------------------------------- --------------------------------------
Signature of Authorized Fiduciary, Trustee, Partner or Corporate Officer
(Specify Title)
- ------------------------------------------------------------------------------
The trustee, corporate officer or partner whose signature appears above
certifies that he/she has full power and authority from all beneficiaries,
shareholders or partners of the entity named above to execute this
Subscription 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.
- --------------------------------------------------------------------------------
For Use By American Express Financial Advisor
I have reasonable grounds to believe, based on information obtained from the
investor concerning his/her investment objectives, other investments, financial
situation and needs and any other information known by me, that an investment in
the Partnership is suitable for such investor in light of his/her financial
position, net worth and other suitability characteristics. I have also informed
the investor of the unlikelihood of a public trading market developing for the
Units during the term of the Partnership and of the restrictions on the
redemption of Units.
The financial advisor must sign below in order to substantiate compliance with
Rule 2430 and 2440 of the NASD Conduct Rules.
Financial Advisor Date
- ---------------------------------------------------------- --------------------
12035-7 J (5/99)
Send all three parts to your Geographic Service Team
C-ii
<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 "Fund") 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 U.S. Bank
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 Fund 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 Express
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 Subscription
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 Fund), 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 Fund, to file, prosecute, defend, settle or compromise any and
all actions at law or suits in equity for or on behalf of the Fund with respect
to any claim, demand or liability asserted or threatened by or against the Fund,
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
C-1
<PAGE>
business under an assumed name) which the General Partners deem appropriate to
qualify or continue the Fund as a limited partnership in the jurisdictions in
which the Fund may conduct business or which may be required to be filed by the
Fund or the Partners under the laws of any jurisdiction; (ii) all instruments
which the General Partners deem appropriate to reflect a change or modification
of the Fund in accordance with the terms of the Limited Partnership Agreement
relating to the Fund 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 Fund. 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-2
<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
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>
<CAPTION>
Advisor/Employee Number ------------------------------------------------------------------
<S> <C>
Unit/DO Number --------------------------- Advisor/Employee Name ----------------------
Partnership Name --------------------------- Partnership Account Number ------------------
(Entered by New Business)
Investment Amount $ ------------------------
Signature ----------------------------------- Date ---------------------------------------
</TABLE>
C-3
<PAGE>
EXHIBIT D
IDS MANAGED FUTURES
REQUEST FOR REDEMPTION
<TABLE>
<S> <C>
IDS MANAGED FUTURES, L.P.
C/O AMERICAN EXPRESS FINANCIAL ADVISORS INC.
GEOGRAPHIC SERVICE TEAM
P.O. BOX 74 --------------------------------------------
MINNEAPOLIS, MINNESOTA 55440 DATE
</TABLE>
Dear Sirs:
The undersigned hereby requests redemption of $ or Units
(please designate redemption amount in terms of dollars or Units or write "all")
of the partnership identified below, less any amount the undersigned owes to
such Fund. 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 heshe has been first admitted to the Fund. 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 Fund for six months following the
date of any such redemption. In addition, the undersigned acknowledges that if
he/she purchases any Units of the Fund 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 Fund.
D-1
<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 updating the Prospectus
and preparing and filing this Post-Effective Amendment No. 5 to the Registration
Statement. (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>
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........................................................ 70,000.00
Escrow Fees.................................................................... 26,700.00
Marketing Expenses............................................................. 85,000.00
Miscellaneous Expenses......................................................... 50,000.00
-------------
TOTAL...................................................................... $ 481,700.00
-------------
-------------
</TABLE>
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.
There have been no recent sales of unregistered securities.
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.
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 Opinion of Sidley & Austin relating to the legality of the Units.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- --------------------------------------------------------------------------------------------------------
<C> <S>
8.1 Opinion of Sidley & Austin with respect to federal income tax consequences.
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 LLP.
23.2 The consent of Ernst & Young LLP.
23.3 The consent of Sidley & Austin (included in Exhibit 5.1).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(2) FINANCIAL STATEMENT SCHEDULES
No financial statement schedules are required to be filed with the
registration statement.
ITEM 17. UNDERTAKINGS.
(a)(1)The undersigned registrant hereby undertakes to file, during any
period in which offers or sales are being made, a post-effective amendment
to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum
II-2
<PAGE>
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 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described in Item 14 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any such 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
has duly caused this Registration Statement or Registration Statement Amendment
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Chicago in the State of Illinois on March 22, 1999.
IDS MANAGED FUTURES, L.P.
By CIS Investments, Inc., General Partner
/s/ BERNARD W. DAN
-----------------------------------------
Bernard W. Dan
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Registration Statement Amendment has been signed below
by the following persons on behalf of CIS Investments, Inc., a general partner
of the Registrant, in the capacities indicated on March 22, 1999.
<TABLE>
<C> <S>
/s/ BERNARD W. DAN
- ------------------------------------------- President and Director (Principal Executive
Bernard W. Dan Officer)
/s/ RICHARD A. DRIVER
- ------------------------------------------- Treasurer and Director (Principal Financial
Richard A. Driver and Accounting Officer)
/s/ BARBARA A. PFENDLER
- ------------------------------------------- Vice President and Director
Barbara A. Pfendler
(Being the principal executive officer, the principal financial and accounting officer and a
majority of the directors of CIS Investments, Inc.)
CIS INVESTMENTS, INC.,
a general partner of Registrant
</TABLE>
By /s/ BERNARD W. DAN
-------------------------
Bernard W. Dan
PRESIDENT
II-4
<PAGE>
IDS MANAGED FUTURES, L.P.
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 Corporation 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 Opinion of Sidley & Austin relating to the legality of the Units.
8.1 Opinion of Sidley & Austin with respect to federal income tax consequences.
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 LLP.
23.2 The consent of Ernst & Young LLP.
23.3 The consent of Sidley & Austin (included in Exhibit 5.1).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
Exhibit 5.1
SIDLEY & AUSTIN
A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
Founded 1866
WASHINGTON, D.C. DALLAS
______ ______
LONDON LOS ANGELES
______ ______
SINGAPORE NEW YORK
______
TOKYO
March 22, 1999
One First National Plaza
Chicago, Illinois 60603
Telephone 312 853 7000
Facsimile 312 853 7036
CIS Investments, Inc.
as a general partner of IDS Managed Futures, L.P.
233 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
IDS Futures Corporation
as a general partner of IDS Managed Futures, L.P.
IDS Tower 10
Minneapolis, Minnesota 55440
RE: IDS MANAGED FUTURES, L.P.
UNITS OF LIMITED PARTNERSHIP INTEREST (THE "UNITS")
Dear Sir or Madam:
We refer to Post-Effective Amendment No. 5 to the Registration Statement
on Form S-1 (the "Registration Statement") filed by IDS Managed Futures,
L.P., a Delaware limited partnership (the "Partnership") with the Securities
and Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the registration of Units of Limited
Partnership as set forth on the cover page of the prospectus included therein
(Reg. No. 33-86894). Capitalized terms not defined herein have the meanings
specified in the Registration Statement.
We are familiar with the proceedings to date with respect to the
proposed issuance and sale of the Units pursuant to the prospectus included
in the Registration Statement and have examined such records, documents and
questions of law, and satisfied ourselves as to such matters of fact, as we
have considered relevant and necessary as a basis for this opinion.
For purposes of rendering this opinion, we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to us as originals, the conformity to originals of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies.
Based on the foregoing, we are of the opinion that:
1. The Partnership has been duly formed and is validly existing in good
standing as a limited partnership under the Delaware Revised Uniform Limited
Partnership Act (the "Act").
2. CIS Investments, Inc. has taken all corporate action required to be
taken by it to
<PAGE>
SIDLEY & AUSTIN CHICAGO
CIS Investments, Inc.
March 22, 1999
Page 2
authorize the issuance and sale of the Units to prospective investors and to
authorize the admission to the Partnership of the persons purchasing Units as
limited partners of the Partnership.
3. IDS Futures Corporation has taken all corporate action required to be
taken by it to authorize the issuance and sale of the Units to prospective
investors and to authorize the admission to the Partnership of the persons
purchasing Units as limited partners of the Partnership.
4. Assuming (i) the due authorization, execution and delivery to the
General Partners of a Subscription Agreement and Power of Attorney (the
"Subscription Agreement") by each subscriber for Units (the "Subscribers"),
(ii) the due acceptance by the General Partners of each Subscription
Agreement and the due acceptance by the General Partners of the admission of
each of the Subscribers as a limited partner of the Partnership, (iii) the
payment by each Subscriber to the Partnership of the full consideration due
for the Units to which such Subscriber has subscribed, (iv) that the books
and records of the Partnership set forth all information required by the
Partnership's Limited Partnership Agreement and the Act, including all
information with respect to all persons and entities to be admitted as
limited partners and their contributions to the Partnership, (v) that the
Subscribers, as limited partners of the Partnership, do not participate in
the control of the business of the Partnership within the meaning of the Act,
(vi) that the Units are offered and sold as described in the prospectus
included in the Registration Statement and the Partnership's Limited
Partnership Agreement, (vii) that the Subscribers meet all of the applicable
suitability standards set forth in the prospectus included in the
Registration Statement and that the representations and warranties of the
Subscribers in their respective Subscription Agreements are true and correct
and (viii) that the Registration Statement shall have become effective under
the Securities Act, the Units to be issued to the Subscribers will represent
valid and legally issued limited partner interests in the Partnership and,
subject to the qualifications set forth below, will be fully paid and
nonassessable limited partner interests in the Partnership, as to which the
Subscribers, as limited partners of the Partnership, will have no liability
in excess of their obligations to make contributions to the Partnership,
their obligations to make other payments provided for in the Partnership's
Limited Partnership Agreement and their share of the Partnership's assets and
undistributed profits (subject to the obligation of a limited partner to
repay funds distributed to such limited partner by the Partnership in certain
circumstances).
5. There are no provisions in the Partnership's Limited Partnership
Agreement the inclusion of which, subject to the terms and conditions set
forth therein, would cause the limited partners, as limited partners of the
Partnership, to be deemed to be participating in the control of the business
of the Partnership within the meaning of the Act.
In giving this opinion, with respect to paragraph 3, we have relied
exclusively on the opinion dated on or about March 22, 1999 of Bruce A.
Kohn, Vice President and Group Counsel of American Express Financial
Corporation, a copy of which is attached hereto, which is limited to the laws
of the State of Minnesota. The balance of this opinion is limited to the
Act and the General Corporation Law of the State of Delaware. We express no
opinion as to the application of the securities or blue sky laws of the
various states (including the State of Delaware) to the sale of the Units.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to our firm included in or made
a part of the Registration Statement.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
[American Express Financial Corporation Letterhead]
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Gentlemen:
This opinion is addressed to you in connection with the filing of
Post-Effective Amendment No. 5 to the Registration Statement on Form S-1
(Reg. No 33- 86894) filed by IDS Managed Futures, L.P. (the "Registration
Statement"), a Delaware limited partnership (the "Partnership") with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, on or about March 23, 1999, relating to the registration of Units of
Limited Partnership Interest in the Partnership ("Units"). Capitalized terms
not defined herein have the meanings specified in the Registration Statement.
I am familiar with the proceedings to date with respect to the proposed
issuance and sale of the Units pursuant to the prospectus included in the
Registration Statement and have examined such records, documents and
questions of law, and have satisfied myself as to such matters of fact, as I
have considered relevant and necessary as a basis for this opinion.
For purposes of rendering this opinion, I have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to me as originals, the conformity to originals of
all documents submitted to me as certified or photostatic copies, and the
authenticity of the originals of such copies.
Based on the foregoing, I am of the opinion that:
1. IDS Futures Corporation is a corporation duly organized and validly
existing under the laws of the State of Minnesota.
2. IDS Futures Corporation has full corporate power and authority to
conduct its business as described in the Registration Statement and
prospectus which constitutes a part thereof.
3. IDS Futures Corporation has taken all corporate action required to be
taken by it to authorize the issuance and sale of the Units to prospective
investors and to authorize the admission to the Partnership of the persons
purchasing Units as limited partners of the Partnership.
I understand that you will rely as to matters of Minnesota law upon this
opinion in connection with an opinion to be submitted by you to the
Partnership and filed by it with the SEC as an exhibit to the Registration
Statement in connection with the filing of the Registration Statement under
the Securities Act of 1993, as amended. In connection with such opinion, I
<PAGE>
hereby consent to your relying as to matters of Minnesota law upon this
opinion. This opinion is rendered solely for your benefit in connection with
the foregoing. I hereby consent to the use of this opinion as an exhibit to
the Registration Statement. Except as stated above, without my prior
consent, this opinion may not be furnished or quoted to, or relied upon by,
any other person or entity for any purpose.
Very truly yours,
/s/ Bruce A. Kohn
Vice President and Group Counsel
<PAGE>
EXHIBIT 8.1
[SIDLEY & AUSTIN LETTERHEAD]
March 23, 1999
CIS Investments, Inc. IDS Futures Corporation
General Partner of General Partner of
IDS Managed Futures, L.P. IDS Managed Futures, L.P.
233 South Wacker Drive IDS Tower 10
Suite 2300 Minneapolis, Minnesota 55440
Chicago, Illinois 60606
Re: Post-Effective Amendment No. 5 to the Registration Statement
on Form S-1
------------------------------------------------------------
Dear Sir or Madam:
We have acted as your counsel in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended, of the Post-Effective Amendment No. 5 to the Registration
Statement on Form S-1 (Reg. No. 33-86894) (the "Post-Effective Amendment")
relating to Units of Limited Partnership Interest ("Units") of IDS Managed
Futures, L.P. (the "Fund"), a Delaware limited partnership.
We have reviewed such data, documents, questions of law and fact and
other matters as we have deemed pertinent for the purpose of this opinion.
Based upon the foregoing, we hereby confirm our opinion set forth under the
caption "Tax Consequences" in the Prospectus (the "Prospectus") constituting
a part of the Post-Effective Amendment and confirm that it accurately
summarizes (subject to the uncertainties referred to therein) the material
aspects of the federal income tax treatment to a United States individual
taxpayer, as of the date hereof, of an investment in the Fund.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
EXHIBIT 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the captions "Selected
Financial Information" and "Lawyers; Accountants" and the use of our report
dated February 5, 1999 with respect to the statements of financial condition
of IDS Managed Futures, L.P. as of December 31, 1998 and 1997 and the related
statements of operations, partners' capital, and cash flows for the years
ended December 31, 1998, 1997, and 1996 and to the use of our report dated
July 15, 1998 with respect to the financial statements of CIS Investments, Inc.
as of May 31, 1998 and 1997 included in Post-Effective Amendment No. 5 to the
Form S-1 Registration Statement (Reg. No. 33-86894) and related Prospectus of
IDS Managed Futures, L.P.
KPMG LLP
March 23, 1999
Chicago, Illinois
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Lawyers;
Accountants" and to the use of our report dated February 26, 1999 with
respect to the balance sheet of IDS Futures Corporation included in
Post-Effective Amendment No. 5 to the Registration Statement (Form S-1 No.
33-86894) and related Prospectus of IDS Managed Futures, L.P. for the
registration of $28,000,000 of limited partnership interests.
/s/ Ernst & Young LLP
March 22, 1999
Minneapolis, Minnesota
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 1998 AND THE STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 WHICH HAVE BEEN AUDITED BY
KPMG LLP AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 52,649,782
<SECURITIES> 0
<RECEIVABLES> 179,775
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,570,323
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,570,323
<CURRENT-LIABILITIES> 827,145
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 57,743,178
<TOTAL-LIABILITY-AND-EQUITY> 58,570,323
<SALES> 0
<TOTAL-REVENUES> 9,512,575
<CGS> 0
<TOTAL-COSTS> 4,934,078
<OTHER-EXPENSES> 4,934,078
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,578,497
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,578,497
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,578,497
<EPS-PRIMARY> 30.08
<EPS-DILUTED> 30.08
</TABLE>
