<PAGE>
FILED PURSUANT TO RULE 424(b)(3)
PART ONE REGISTRATION NO. 33-86894
- -------------------------------------------------------------------------------
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 5.675% per annum, must be offset
by trading profits.
- - 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 DISAPPROVED OF
THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE
MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED
ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
--------------------
CIS INVESTMENTS, INC. / IDS FUTURES CORPORATION
CO-GENERAL PARTNERS
APRIL 30, 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 46 TO 50 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.
--------------------------
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.
-------------------------
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
-1-
<PAGE>
IDS MANAGED FUTURES, L.P.
ORGANIZATIONAL CHART
[CHART]
CISI is a subsidiary of the Clearing Broker and IDS Futures is an
affiliate of the Selling Agent, who is also the Fund's Introducing Broker.
See "Conflicts of Interest" beginning at page 54 and "Transactions Between
the General Partners and the Fund" at page 56.
-2-
<PAGE>
IDS MANAGED FUTURES, L.P.
CONTENTS
PART ONE
DISCLOSURE DOCUMENT
<TABLE>
<S> <C>
Summary................................................................. 3
The Risks You Face...................................................... 8
Investment Factors...................................................... 13
How the Fund Works...................................................... 15
Performance of the Fund................................................. 17
Selected Financial Information.......................................... 19
Management's Analysis of Operations..................................... 19
Quantitative and Qualitative Disclosures About the
Fund's Market Risk.................................................... 22
The General Partners.................................................... 27
The Trading Advisors.................................................... 30
John W. Henry & Company, Inc............................................ 30
JWH Principals.......................................................... 33
Performance of the JWH Financial
and Metals Portfolio.................................................. 36
Welton Investment Corporation........................................... 39
Welton Principals....................................................... 40
Performance of the Welton Diversified
Portfolio............................................................. 41
Comparative Performance of the Trading Advisors......................... 44
Interest Income......................................................... 45
Charges................................................................. 46
Brokerage Arrangements.................................................. 50
Redemptions; Net Asset Value............................................ 52
Conflicts of Interest................................................... 54
Transactions Between the General Partners
and the Fund.......................................................... 56
The Limited Partnership Agreement....................................... 56
Tax Consequences........................................................ 58
Plan of Distribution.................................................... 61
Lawyers; Accountants.................................................... 62
Financial Statements.................................................... 63
PART TWO
STATEMENT OF ADDITIONAL
INFORMATION
Futures Markets and Trading Methods..................................... 1
Blue Sky Glossary....................................................... 3
- ---------------
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>
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. ("JWH[ILLEGIBLE]"), and Welton Investment Corporation ("Welton") are its
current 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 a 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.
-3-
<PAGE>
THE TRADING 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 February 28, 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 35.9% from inception through
February 28, 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
as 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 February 28, 1999, JWH had
approximately $1.02 billion under management pursuant to the Financial and
Metals Portfolio.
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.
-4-
<PAGE>
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 Malaysian Ringgit
British Pound New Zealand Dollar
Canadian Dollar South African Rand
Euro Swedish Krone
Hong Kong Dollar Swiss Franc
Japanese Yen
FINANCIAL INSTRUMENTS
- ------------------------------------------------------------------------------
Australian French Notionnel Bonds
(90-day) Bank Bills French PIBOR
Australian German BOBL
(3-year and 10-year) German Bonds
Treasury Bonds Italian Bonds
Canadian Bank Bills Japanese Bonds
Canadian Bonds Spanish Bonds
Eurobibor Spanish MIBOR
Eurodollar U.K. Long "Gilts"
Eurolira U.K. Short Sterling
Euroswiss U.S. 10-year
Euroyen Treasury Notes
U.S. Treasury Bonds
STOCK INDICES
- ------------------------------------------------------------------------------
Australian All FTSE 100 (UK)
Ordinaries Index New York Composite
CAC 40 Stock Index Nikkei 225 Index
(France) (Japan)
DAX (German) S&P 500 Stock Index
METALS
- ------------------------------------------------------------------------------
Aluminum Palladium
Copper Platinum
Gold Silver
Lead Tin
Nickel Zinc
AGRICULTURAL PRODUCTS
- ------------------------------------------------------------------------------
Cattle Orange Juice
Cocoa Soybeans
Coffee Soymeal
Corn Soy Oil
Cotton Sugar
Hogs Wheat
Lumber
ENERGY
- ------------------------------------------------------------------------------
Crude Oil No. 2 Heating Oil
Natural Gas Unleaded Gasoline
London Gasoil
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.
[CHART]
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 Futures --
-5-
<PAGE>
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 unpredictable, 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.
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 end of the month 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
-6-
<PAGE>
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
14.675% 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 5.675% 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
DOLLAR
TWELVE-MONTH 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** (3.80)% ($38.00)
RETURN ON $1,000 14.675% $146.75
------ -------
INITIAL INVESTMENT REQUIRED
FOR "BREAK-EVEN" IF UNITS HELD
AT LEAST TWELVE MONTHS
</TABLE>
- ---------------
* Limited Partners who are representatives or employees of American Express
Financial Advisors Inc. or certain corporate affiliates will not pay a Sales
Charge.
** Estimated. JWH's management fee is 4% per annum of the assets it manages
and Welton's management fee 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 46.
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 58.
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.
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.
-7-
<PAGE>
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 the 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.
ITS SUBSTANTIAL EXPENSES WILL CAUSE LOSSES FOR THE FUND UNLESS OFFSET BY
PROFITS
The Fund pays fixed annual expenses in excess of the interest income it
receives of approximately 4.475% 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 at least 5.675% per year in total expenses in excess of the interest
income it receives.
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 they should do so.
-8-
<PAGE>
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 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
-9-
<PAGE>
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 February 28, 1999, JWH had approximately $2.2 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. 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 THE 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 govern mental 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
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<PAGE>
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 historically have traded European currencies. The
January 1, 1999 inauguration of the Euro and the market's reaction to the
Euro, or to any nation's possible future 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.
POSSIBILITY OF TERMINATION OF THE FUND BEFORE EXPIRATION OF ITS STATED TERM
CISI and/or IDS Futures 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 Trading 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
-11-
<PAGE>
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.
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 CIS, CISFS, CISI, 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 reasonably 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 foresee such a situation in advance of
December 31, 1999, the Fund will either attempt to liquidate all positions
prior to that date and/or establish relationships with additional
counterparties in order to permit trading to continue.
-12-
<PAGE>
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'S 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.
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
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<PAGE>
unprofitable) during periods of declining stock 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.
PORTFOLIO DIVERSIFICATION ILLUSTRATION
(MONTHLY PERCENTAGE CHANGE IN VALUE)
JUNE 1987 THROUGH FEBRUARY 1999
This graph demonstrates the low correlation of the Fund's past performance
with the Standard & Poor's 500 Index
<TABLE>
<CAPTION>
Futures SP500
<S> <C> <C> <C>
5/31/87
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>
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<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 advisor 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 promptly return your subscription funds. Notification instructions
will be included with the confirmation and monthly account statement.
-15-
<PAGE>
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 calendar day prior
to the end of the month during which you want to 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 calendar 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.
-16-
<PAGE>
PERFORMANCE OF THE FUND
IDS MANAGED FUTURES, L.P.
PAST PERFORMANCE SINCE INCEPTION
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 (February 28, 1999)
WORST MONTHLY DECLINE: (6.22)% (4/98)
WORST PEAK TO VALLEY DECLINE: (12.94)% (7/94-1/95)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Month 1999 1998 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January (4.20)% (2.88)% 3.68% 4.07% (3.05)% (4.48)% 1.19%
- -------------------------------------------------------------------------------------------
February (0.65)% (0.36)% 0.08% (3.48)% 8.41% (3.29)% 10.80%
- -------------------------------------------------------------------------------------------
March 0.94% (0.18)% (0.16)% 7.90% 5.76% (0.82)%
- -------------------------------------------------------------------------------------------
April (6.22)% (2.00)% 3.50% 4.71% (0.67)% 6.54%
- -------------------------------------------------------------------------------------------
May 2.49% (5.51)% (2.44)% 1.86% 3.98% 1.34%
- -------------------------------------------------------------------------------------------
June (3.54)% 2.74% 0.51% (2.84)% 2.72% 1.44%
- -------------------------------------------------------------------------------------------
July (0.97)% 11.05% (1.09)% 0.27% (2.87)% 8.35%
- -------------------------------------------------------------------------------------------
August 12.72% (4.38)% 0.47% (0.05)% (2.15)% 3.09%
- -------------------------------------------------------------------------------------------
September 9.70% 1.73% 3.34% (1.14)% (0.45)% (0.29)%
- -------------------------------------------------------------------------------------------
October (2.96)% (1.17)% 9.26% (0.26)% 0.03% (0.04)%
- -------------------------------------------------------------------------------------------
November (5.24)% 1.67% 6.71% 2.43% (3.51)% (0.03)%
- -------------------------------------------------------------------------------------------
December 6.46% 1.61% (1.48)% 3.42% (1.68)% 2.03%
- -------------------------------------------------------------------------------------------
Compound
Annual Rate of (4.82)% 8.55% 8.68% 20.08% 23.03% (6.93)% 38.32%
Return
- -------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------
Month 1992 1991 1990 1989 1988 1987
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
January (13.95)% (1.55)% 24.84% 3.35% (4.36)%
- ----------------------------------------------------------------------------------
February (9.43)% 1.76% 12.64% (5.06)% 1.28%
- ----------------------------------------------------------------------------------
March 0.69% 0.59% 3.61% 2.98% (7.93)%
- ----------------------------------------------------------------------------------
April (6.30)% (1.85)% 5.79% (3.83)% (3.28)%
- ----------------------------------------------------------------------------------
May (1.74)% (2.03)% (16.81)% 19.24% (0.34)%
- ----------------------------------------------------------------------------------
June 15.58% 3.60% 2.69% (5.20)% 11.61% (8.74)%
- ----------------------------------------------------------------------------------
July 18.09% (11.27)% 8.95% 6.00% (9.41)% 0.84%
- ----------------------------------------------------------------------------------
August 7.92% 4.12% 9.90% (7.67)% (1.76)% 0.09%
- ----------------------------------------------------------------------------------
September (3.29)% 13.37% 5.64% (6.55)% 3.66% (2.35)%
- ----------------------------------------------------------------------------------
October (3.60)% (3.94)% (2.42)% (5.97)% 0.20% 15.50%
- ----------------------------------------------------------------------------------
November (2.02)% 3.51% 0.49% 12.57% (0.12)% 8.53%
- ----------------------------------------------------------------------------------
December (0.64)% 20.71% (1.62)% (0.70)% (3.99)% 4.31%
- ----------------------------------------------------------------------------------
Compound
Annual Rate of (3.43)% 26.22% 60.65% 5.61% (14.96)% 28.78%
Return
- ----------------------------------------------------------------------------------
</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.
The line appearing between 1994 and 1993 depicts the separation of the
CFTC required performance for the past five years and year to date and the
entire performance record of the Fund which is being provided as a supplement.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
-17-
<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.
GROWTH IN VALUE OF $10,000
JUNE 1987 THROUGH FEB. 1999
Actual performance of IDS Managed Futures, L.P.
[GRAPH]
<TABLE>
<CAPTION>
Futures CPI SP500 L Bond
<S> <C> <C> <C> <C>
5/31/1987 $ 10,000 $ 10,000 $ 10,000 $ 10,000
6/30/1987 $ 9,992 $ 10,035 $ 10,505 $ 10,138
7/31/1987 $ 10,075 $ 10,061 $ 11,037 $ 10,130
8/31/1987 $ 10,084 $ 10,114 $ 11,449 $ 10,075
9/30/1987 $ 9,847 $ 10,167 $ 11,198 $ 9,861
10/31/1987 $ 11,354 $ 10,193 $ 8,786 $ 10,212
11/30/1987 $ 12,322 $ 10,203 $ 8,062 $ 10,293
12/31/1987 $ 12,853 $ 10,203 $ 8,675 $ 10,433
1/31/1988 $ 12,293 $ 10,229 $ 9,040 $ 10,801
2/29/1988 $ 12,450 $ 10,256 $ 9,459 $ 10,929
3/31/1988 $ 11,463 $ 10,300 $ 9,168 $ 10,826
4/30/1988 $ 11,087 $ 10,352 $ 9,269 $ 10,768
5/31/1988 $ 11,049 $ 10,388 $ 9,348 $ 10,696
6/30/1988 $ 12,332 $ 10,432 $ 9,777 $ 10,954
7/31/1988 $ 11,172 $ 10,476 $ 9,739 $ 10,897
8/31/1988 $ 10,975 $ 10,520 $ 9,409 $ 10,925
9/30/1988 $ 11,375 $ 10,591 $ 9,810 $ 11,172
10/31/1988 $ 11,398 $ 10,625 $ 10,083 $ 11,382
11/30/1988 $ 11,385 $ 10,634 $ 9,939 $ 11,244
12/31/1988 $ 10,930 $ 10,652 $ 10,112 $ 11,256
1/31/1989 $ 11,296 $ 10,705 $ 10,850 $ 11,419
2/28/1989 $ 10,725 $ 10,749 $ 10,581 $ 11,336
3/31/1989 $ 11,044 $ 10,812 $ 10,827 $ 11,385
4/30/1989 $ 10,621 $ 10,882 $ 11,389 $ 11,623
5/31/1989 $ 12,666 $ 10,944 $ 11,848 $ 11,929
6/30/1989 $ 12,007 $ 10,970 $ 11,781 $ 12,291
7/31/1989 $ 12,728 $ 10,996 $ 12,844 $ 12,553
8/31/1989 $ 11,752 $ 11,014 $ 13,094 $ 12,367
9/30/1989 $ 10,982 $ 11,049 $ 13,041 $ 12,430
10/31/1989 $ 10,326 $ 11,102 $ 12,738 $ 12,736
11/30/1989 $ 11,624 $ 11,129 $ 12,997 $ 12,857
12/31/1989 $ 11,543 $ 11,147 $ 13,309 $ 12,892
1/31/1990 $ 14,410 $ 11,262 $ 12,416 $ 12,739
2/28/1990 $ 16,232 $ 11,315 $ 12,577 $ 12,779
3/31/1990 $ 16,818 $ 11,377 $ 12,910 $ 12,788
4/30/1990 $ 17,791 $ 11,395 $ 12,588 $ 12,671
5/31/1990 $ 14,801 $ 11,421 $ 13,813 $ 13,046
6/30/1990 $ 15,199 $ 11,483 $ 13,720 $ 13,254
7/31/1990 $ 16,559 $ 11,526 $ 13,676 $ 13,437
8/31/1990 $ 18,198 $ 11,633 $ 12,441 $ 13,257
9/30/1990 $ 19,225 $ 11,730 $ 11,837 $ 13,367
10/31/1990 $ 18,760 $ 11,801 $ 11,787 $ 13,537
11/30/1990 $ 18,852 $ 11,827 $ 12,547 $ 13,828
12/31/1990 $ 18,544 $ 11,827 $ 12,896 $ 14,044
1/31/1991 $ 18,257 $ 11,898 $ 13,457 $ 14,218
2/28/1991 $ 18,578 $ 11,915 $ 14,418 $ 14,339
3/31/1991 $ 18,688 $ 11,933 $ 14,767 $ 14,438
4/30/1991 $ 18,342 $ 11,951 $ 14,801 $ 14,594
5/31/1991 $ 17,970 $ 11,987 $ 15,438 $ 14,678
6/30/1991 $ 18,617 $ 12,023 $ 14,731 $ 14,671
7/31/1991 $ 16,519 $ 12,041 $ 15,417 $ 14,875
8/31/1991 $ 17,199 $ 12,076 $ 15,781 $ 15,196
9/30/1991 $ 19,499 $ 12,129 $ 15,517 $ 15,505
10/31/1991 $ 18,730 $ 12,147 $ 15,725 $ 15,677
11/30/1991 $ 19,388 $ 12,182 $ 15,094 $ 15,821
12/31/1991 $ 23,403 $ 12,191 $ 16,817 $ 16,291
1/31/1992 $ 20,138 $ 12,208 $ 16,504 $ 16,069
2/29/1992 $ 18,239 $ 12,252 $ 16,717 $ 16,174
3/31/1992 $ 18,365 $ 12,315 $ 16,393 $ 16,083
4/30/1992 $ 17,208 $ 12,332 $ 16,873 $ 16,199
5/31/1992 $ 16,909 $ 12,349 $ 16,956 $ 16,505
6/30/1992 $ 19,543 $ 12,393 $ 16,704 $ 16,733
7/31/1992 $ 23,078 $ 12,419 $ 17,386 $ 17,074
8/31/1992 $ 24,906 $ 12,454 $ 17,030 $ 17,247
9/30/1992 $ 24,087 $ 12,489 $ 17,231 $ 17,452
10/31/1992 $ 23,220 $ 12,533 $ 17,290 $ 17,220
11/30/1992 $ 22,748 $ 12,550 $ 17,877 $ 17,223
12/31/1992 $ 22,603 $ 12,542 $ 18,096 $ 17,497
1/31/1993 $ 22,872 $ 12,603 $ 18,247 $ 17,833
2/28/1993 $ 25,342 $ 12,647 $ 18,496 $ 18,145
3/31/1993 $ 25,134 $ 12,691 $ 18,886 $ 18,221
4/30/1993 $ 26,778 $ 12,727 $ 18,430 $ 18,349
5/31/1993 $ 27,137 $ 12,745 $ 18,921 $ 18,373
6/30/1993 $ 27,527 $ 12,763 $ 18,976 $ 18,705
7/31/1993 $ 29,826 $ 12,763 $ 18,900 $ 18,812
8/31/1993 $ 30,747 $ 12,798 $ 19,616 $ 19,141
9/30/1993 $ 30,658 $ 12,825 $ 19,461 $ 19,193
10/31/1993 $ 30,646 $ 12,878 $ 19,863 $ 19,264
11/30/1993 $ 30,637 $ 12,887 $ 19,675 $ 19,100
12/31/1993 $ 31,259 $ 12,887 $ 19,913 $ 19,203
1/31/1994 $ 29,858 $ 12,922 $ 20,589 $ 19,462
2/28/1994 $ 28,876 $ 12,966 $ 20,031 $ 19,124
3/31/1994 $ 30,539 $ 13,010 $ 19,158 $ 18,651
4/30/1994 $ 30,335 $ 13,028 $ 19,404 $ 18,502
5/31/1994 $ 31,542 $ 13,037 $ 19,722 $ 18,500
6/30/1994 $ 32,400 $ 13,081 $ 19,239 $ 18,460
7/31/1994 $ 31,470 $ 13,117 $ 19,870 $ 18,827
8/31/1994 $ 30,793 $ 13,169 $ 20,683 $ 18,850
9/30/1994 $ 30,655 $ 13,205 $ 20,178 $ 18,573
10/31/1994 $ 30,664 $ 13,214 $ 20,630 $ 18,556
11/30/1994 $ 29,588 $ 13,231 $ 19,880 $ 18,515
12/31/1994 $ 29,091 $ 13,231 $ 20,174 $ 18,643
1/31/1995 $ 28,203 $ 13,284 $ 20,697 $ 19,012
2/28/1995 $ 30,575 $ 13,337 $ 21,503 $ 19,464
3/31/1995 $ 32,991 $ 13,381 $ 22,136 $ 19,583
4/30/1995 $ 34,545 $ 13,425 $ 22,787 $ 19,857
5/31/1995 $ 35,187 $ 13,452 $ 23,696 $ 20,626
6/30/1995 $ 34,188 $ 13,479 $ 24,246 $ 20,776
7/31/1995 $ 34,280 $ 13,479 $ 25,050 $ 20,731
8/31/1995 $ 34,263 $ 13,514 $ 25,113 $ 20,981
9/30/1995 $ 33,872 $ 13,541 $ 26,172 $ 21,185
10/31/1995 $ 33,784 $ 13,586 $ 26,078 $ 21,460
11/30/1995 $ 34,605 $ 13,576 $ 27,222 $ 21,782
12/31/1995 $ 35,789 $ 13,567 $ 27,747 $ 22,087
1/31/1996 $ 37,245 $ 13,647 $ 28,690 $ 22,233
2/29/1996 $ 35,949 $ 13,691 $ 28,956 $ 21,846
3/31/1996 $ 35,892 $ 13,762 $ 29,235 $ 21,693
4/30/1996 $ 37,148 $ 13,815 $ 29,666 $ 21,572
5/31/1996 $ 36,242 $ 13,842 $ 30,430 $ 21,529
6/30/1996 $ 36,426 $ 13,850 $ 30,546 $ 21,817
7/31/1996 $ 36,029 $ 13,876 $ 29,197 $ 21,876
8/31/1996 $ 36,199 $ 13,903 $ 29,814 $ 21,839
9/30/1996 $ 37,408 $ 13,947 $ 31,490 $ 22,219
10/31/1996 $ 40,872 $ 13,992 $ 32,358 $ 22,712
11/30/1996 $ 43,614 $ 14,018 $ 34,802 $ 23,100
12/31/1996 $ 42,969 $ 14,018 $ 34,113 $ 22,886
1/31/1997 $ 44,550 $ 14,063 $ 36,243 $ 22,957
2/28/1997 $ 44,586 $ 14,107 $ 36,527 $ 23,014
3/31/1997 $ 44,505 $ 14,142 $ 35,029 $ 22,759
4/30/1997 $ 43,615 $ 14,159 $ 37,119 $ 23,100
5/31/1997 $ 41,212 $ 14,151 $ 39,377 $ 23,319
6/30/1997 $ 42,341 $ 14,168 $ 41,140 $ 23,597
7/31/1997 $ 47,020 $ 14,185 $ 44,413 $ 24,234
8/31/1997 $ 44,961 $ 14,211 $ 41,926 $ 24,028
9/30/1997 $ 45,738 $ 14,247 $ 44,221 $ 24,384
10/31/1997 $ 45,203 $ 14,283 $ 42,746 $ 24,737
11/30/1997 $ 45,958 $ 14,274 $ 44,723 $ 24,851
12/31/1997 $ 46,698 $ 14,257 $ 45,491 $ 25,102
1/31/1998 $ 45,353 $ 14,284 $ 45,993 $ 25,423
2/28/1998 $ 45,190 $ 14,311 $ 49,309 $ 25,403
3/31/1998 $ 45,615 $ 14,338 $ 51,832 $ 25,489
4/30/1998 $ 42,777 $ 14,364 $ 52,353 $ 25,622
5/31/1998 $ 43,843 $ 14,390 $ 51,454 $ 25,865
6/30/1998 $ 42,291 $ 14,407 $ 53,542 $ 26,085
7/31/1998 $ 41,880 $ 14,425 $ 52,974 $ 26,140
8/31/1998 $ 47,207 $ 14,442 $ 45,324 $ 26,566
9/30/1998 $ 51,787 $ 14,459 $ 48,228 $ 27,188
10/31/1998 $ 50,254 $ 14,494 $ 52,148 $ 27,043
11/30/1998 $ 47,620 $ 14,494 $ 55,307 $ 27,198
12/31/1998 $ 50,697 $ 14,485 $ 58,492 $ 27,279
1/31/1999 $ 48,567 $ 14,520 $ 60,937 $ 27,473
2/28/1999 $ 48,252 $ 14,520 $ 59,044 $ 26,992
</TABLE>
Sources:
S&P 500:
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.
Bond Index:
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., historical performance of 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.
-18-
<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
-19-
<PAGE>
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.
The following performance summary outlines certain major price trends
which at least one of 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
-20-
<PAGE>
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.
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 20.08% 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.
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<PAGE>
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 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 assets is not materially affected by
inflation. Changes in interest rates, which are often associated with
inflation, will affect the interest rate applied to the Fund's cash deposits.
More important, however, 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. 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, 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
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<PAGE>
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.
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 OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934). ALL QUANTITATIVE DISCLOSURES IN THIS SECTION ARE DEEMED TO BE
FORWARD-LOOKING STATEMENTS FOR PURPOSES OF THE SAFE HARBOR, EXCEPT FOR
STATEMENTS OF HISTORICAL FACT.
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 included in
calculating the figures set forth below. As of December 31, 1998, the Fund's
total capitalization was approximately $57.7 million.
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<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------
% OF TOTAL
MARKET SECTOR VALUE AT RISK CAPITALIZATION
- ------------- ------------- --------------
<S> <C> <C>
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.
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
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<PAGE>
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 (U.S.), 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.
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.
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<PAGE>
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. 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.
WELTON. 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
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<PAGE>
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 over time; 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.
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 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
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<PAGE>
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, Virginia; Winnipeg, Manitoba; and Vancouver, British
Columbia. 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.
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
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<PAGE>
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. 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.
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<PAGE>
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 methodologies 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.
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.
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<PAGE>
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.
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
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<PAGE>
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 generally will 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 the size of a position in relation to account equity
include: ongoing research; program volatility; current market volatility;
risk exposure; and subjective judgment and evaluation of these and other
general market conditions. Such decisions to change the size of a position
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
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<PAGE>
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.
LEGAL CONCERNS
There neither now exists nor has there previously ever been any material
administrative, civil or criminal action against JWH or its principals.
FINANCIAL AND METALS PORTFOLIO
JWH currently uses its Financial and Metals Portfolio for the Fund. 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 as 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.
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 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
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<PAGE>
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, 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 a 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. 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.
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<PAGE>
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; 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.
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<PAGE>
PERFORMANCE OF THE JWH FINANCIAL AND METALS PORTFOLIO
PROGRAM COMPOSITION
Global Interest Rates Foreign Exchange
Global Stock Indices Precious Metals
INCEPTION OF CLIENT ACCOUNT TRADING BY JWH: OCTOBER 1982
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: OCTOBER 1984
ASSETS MANAGED BY JWH ON FEBRUARY 28, 1999: $2.2 BILLION
ASSETS MANAGED PURSUANT TO THE PROGRAM ON FEBRUARY 28, 1999: $1.0 BILLION
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 FROM JANUARY 1994 THROUGH
FEBRUARY 1999: 14.5%
AVERAGE COMPOUNDED ANNUALIZED RATE OF RETURN FROM INCEPTION IN OCTOBER 1984
THROUGH FEBRUARY 1999: 35.9%
<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 0.9% (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 (4.0)% 7.2% 15.2% 29.7% 38.5% (5.3)%
- ----------------------------------------------------------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
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<PAGE>
EXCLUSIVE FUND ACCOUNTS
Pursuant to a special JWH multi-program trading strategy that is
currently the subject of an exclusivity arrangement with one client operating
two funds (the "Exclusive Fund Accounts"), JWH can make various discretionary
trading adjustments for the accounts of those funds, including ongoing
allocations and reallocations of fund assets among the investment programs
and periodic position size in relation to account equity adjustments. As a
result of a change made to these accounts on May 8, 1998, these accounts have
traded differently than the other accounts in the respective JWH investment
program. Set forth below is a capsule performance record for the Financial
and Metals Portfolio Exclusive Fund Account. Because of the exclusivity
agreement related to this trading strategy, this modified program is not
currently available for investment by other clients.
FINANCIAL AND METALS PORTFOLIO
EXCLUSIVE FUND ACCOUNT
<TABLE>
<S> <C>
Inception of Client Account
Trading in Program May 1998
Assets Managed Pursuant to
the Program on February 28, 1999 $62 million
Worst Monthly Decline (8.6)%
on an Individual Account Basis (11/98)
Worst Peak-to-Valley Decline (11.7)%
on an Individual Account Basis (10/98-11/98)
Average Compounded
Annualized Rate of Return N/A
1999 Rate of Return (2 mos.) (3.3)%
1999 Rate of Return (8 mos.) 33.5%
</TABLE>
For more information about the Financial and Metals Portfolio, see
Page 36.
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
-37-
<PAGE>
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 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 "John W. Henry & Company, Inc. -- 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 Metals 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
-38-
<PAGE>
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
Assets managed pursuant to the program is the aggregate amount of total
equity, excluding "notional" equity, under management of JWH in the Financial
and Metals Portfolio as of February 28, 1999.
Number of open accounts is the number of accounts directed by JWH
pursuant to the Financial and Metals Portfolio as of February 28, 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 Financial and Metals Portfolio 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.
Worst peak-to-valley decline on an individual account basis is the
largest percentage decline by any single account in the Financial and Metals
Portfolio (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.
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
-39-
<PAGE>
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 diversification; of all potential
strategic approaches to various market conditions with the goal of increasing
strategic diversification, and hence, effective diversification; of trading
costs and execution methods; and of portfolio management models and
techniques to best integrate all of the above. This process implicitly
recognizes that adaptation is essential in approaching the global markets and
that adaptation is best implemented at even the most primary model levels.
To implement models, Welton has developed an advanced decision support
platform capable of real-time analyzation of markets and combinations of
markets around the world. This tool allows the implementation of Welton'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
-40-
<PAGE>
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 M.D. 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 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 NFA. 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 master's 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
-41-
<PAGE>
markets in which performance records were achieved have been and are
changing. A trading method that was successful in a particular set of market
conditions might not be successful in other market conditions. The
performance of particular accounts managed by 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 restrictions 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.
-42-
<PAGE>
PERFORMANCE OF THE WELTON TRADING PROGRAM
DIVERSIFIED PORTFOLIO
INCEPTION OF CLIENT ACCOUNT TRADING: FEBRUARY 1989
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: APRIL 1992
ASSETS MANAGED (EXCLUDING NOTIONAL FUNDS) ON FEBRUARY 28, 1999: $177,000,000
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 FROM JANUARY 1994 THROUGH FEBRUARY
1999: 19.19%
AVERAGE COMPOUNDED ANNUALIZED RATE OF RETURN FROM INCEPTION IN APRIL 1992
THROUGH FEBRUARY 1999: 16.77%
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
MONTHLY
PERFORMANCE 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 (0.86)% 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
-43-
<PAGE>
COMPARATIVE PERFORMANCE OF THE TRADING ADVISORS
TRADING ADVISORS
JOHN W. HENRY & COMPANY, INC. WELTON INVESTMENT CORPORATION
JAN. 1, 1994 THROUGH FEB. 28, 1999 JAN. 1, 1994 THROUGH FEB. 28, 1999
FINANCIAL AND METALS PORTFOLIO THE DIVERSIFIED PORTFOLIO
HISTORICAL PERFORMANCE BASED ON $10,000 INVESTMENT
[GRAPH]
<TABLE>
<CAPTION>
JWH Welton
<S> <C> <C>
12/31/93
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 $ 10,337 $ 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 $ 10,114
12/31/94 $ 9,477 $ 10,238
1/31/95 $ 9,117 $ 9,835
2/28/95 $ 10,548 $ 10,710
3/31/95 $ 12,162 $ 11,793
4/30/95 $ 12,904 $ 12,214
5/31/95 $ 13,059 $ 13,644
6/30/95 $ 12,837 $ 13,456
7/31/95 $ 12,542 $ 13,110
8/31/95 $ 12,805 $ 12,946
9/30/95 $ 12,536 $ 13,147
10/31/95 $ 12,574 $ 12,176
11/30/95 $ 12,901 $ 12,756
12/31/95 $ 13,120 $ 13,960
1/31/96 $ 13,907 $ 14,790
2/29/96 $ 13,142 $ 12,432
3/31/96 $ 13,234 $ 12,201
4/30/96 $ 13,539 $ 12,770
5/31/96 $ 13,309 $ 11,785
6/30/96 $ 13,601 $ 11,582
7/31/96 $ 13,452 $ 11,255
8/31/96 $ 13,344 $ 10,951
9/30/96 $ 13,771 $ 11,770
10/31/96 $ 15,740 $ 13,319
11/30/96 $ 17,456 $ 14,647
12/31/96 $ 17,002 $ 14,961
1/31/97 $ 17,750 $ 15,324
2/28/97 $ 17,360 $ 16,275
3/31/97 $ 17,238 $ 16,020
4/30/97 $ 16,738 $ 16,064
5/31/97 $ 15,349 $ 16,672
6/30/97 $ 15,978 $ 17,665
7/31/97 $ 18,503 $ 19,932
8/31/97 $ 17,818 $ 18,704
9/30/97 $ 18,210 $ 18,938
10/31/97 $ 18,575 $ 17,775
11/30/97 $ 19,039 $ 18,271
12/31/97 $ 19,591 $ 18,496
1/31/98 $ 18,905 $ 18,178
2/28/98 $ 18,149 $ 19,415
3/31/98 $ 17,859 $ 20,615
4/30/98 $ 16,448 $ 19,894
5/31/98 $ 16,974 $ 20,351
6/30/98 $ 16,159 $ 20,176
7/31/98 $ 16,014 $ 20,126
8/31/98 $ 18,817 $ 21,259
9/30/98 $ 21,695 $ 21,754
10/31/98 $ 20,871 $ 20,758
11/30/98 $ 19,306 $ 21,300
12/31/98 $ 21,024 $ 21,677
1/31/99 $ 20,015 $ 21,241
2/28/99 $ 19,835 $ 20,642
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Other
trading advisors may be used, and have been used in the past, 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 currently used for the Fund; however,
actual results for the Fund will vary due to the amount of fees charged.
-44-
<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.
-45-
<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.
JWH 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.
Welton 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 Sales Charge 6% of the first $50,000 subscribed, 4% of the
Financial Advisors second $50,000, 2% of the subsequent
Inc. $400,000, and 1% of any amount of the
subscription exceeding $500,000.
American Express Brokerage Commissions $20 per round turn trade of the total $35 per
Financial Advisors round turn trade commission.
Inc.
IDS Futures Annual administrative fee 1.125% of Net Asset Value on the first day of
the Fund's fiscal year.
CISI Annual administrative fee 0.25% of Net Asset Value on the first day of the
Fund's fiscal year.
CIS Brokerage Commissions $15 per round turn trade of the total $35 per
round turn trade commission.
CIS Reimbursement of delivery, Actual payments to third parties in connection
insurance, storage, NFA, with the Fund's trading.
clearing, give-up,
electronic trading, EFP
and exchange transaction fees,
and any other charges paid to
third parties
</TABLE>
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<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
- --------- ----------------- -----------------
<S> <C> <C>
CIS Financial benefit from Interest earned on Fund assets in excess of
interest income 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, Actual expenses incurred, estimated at
auditing, printing, recording approximately 0.50% of the Fund's Net Asset
and filing fees, and Value annually.
postage charges
Third Parties Extraordinary expenses Not subject to estimate.
The General Offering Expense Charge 3% of the subscription proceeds to cover
Partners 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 Expense 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.
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
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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 $1,000,000 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, JWH 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 capacity as
Introducing Broker for the Fund. American Express Financial Advisors Inc.
receives its portion of such commissions for its ongoing services
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<PAGE>
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 pay all of 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 reimburse
them for the offering expenses. 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 offering expenses exceed the total
Offering Expense Charge, the General
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<PAGE>
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. Subscribers who are
representatives or employees of the Selling Agent or certain of its corporate
affiliates ("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 0.50% 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
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<PAGE>
generally implemented by employees of Cargill, Incorporated and the Clearing
Broker generally executes or clears those transactions. The volume of trading
by Cargill, Incorporated and its affiliates is likely to result in their
competing with the Fund for futures market positions. Thus, in certain
instances, the Clearing Broker may have orders for trades from the Fund and
from Cargill, Incorporated or its affiliates, and the Clearing Broker might
be deemed to have a conflict of interest between the sequence in which such
orders will be transmitted to the trading floors of futures exchanges. In
order to assure impartial treatment for such orders, the Clearing Broker has
an operating policy of transmitting orders to the trading floors in the
sequence received regardless of which entity has placed the order. The Fund
might enter into trades in which the other party is Cargill, Incorporated or
one of its affiliates. It is possible that the hedging and cash operations of
Cargill, Incorporated or trading by its affiliates may adversely affect the
Fund. Records of such trading will not be made available to Limited Partners.
It is possible that these entities may take positions either similar or
opposite to positions taken by the Fund and that the Fund and these entities
may compete for similar positions in the futures markets.
NO OFFICERS, DIRECTORS OR EMPLOYEES OF THE CLEARING BROKER OR ITS
AFFILIATES 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.
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<PAGE>
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-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 transactions. In these
transactions, the Fund will act as a principal in each transaction entered
into with a bank, and CISFS will act only as the Fund's agent in brokering
these transactions.
To date, the Fund has not 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
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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 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 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
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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 interests 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 trading 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 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.
-55-
<PAGE>
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.
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.
Records of proprietary trading will not be available for inspection by
Limited Partners.
Proprietary trading by JWH, Mr. Henry or Welton and its principals
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.
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 American 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."
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.
-56-
<PAGE>
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 Partners 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 per
Unit 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.
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.
-57-
<PAGE>
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), electing 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.
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.
-58-
<PAGE>
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.
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
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<PAGE>
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.
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.
--------------------
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<PAGE>
PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR TAX
ADVISERS BEFORE DECIDING
WHETHER TO INVEST.
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.
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<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 balance sheet of IDS Futures Corporation as of December 31, 1998
included herein has been audited by Ernst & Young LLP.
The financial statements of CISI as of May 31, 1998 and 1997 included
herein have been audited by KPMG LLP.
-62-
<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............................................................64
Statements of Financial Condition as of December 31, 1998 and 1997......................65
Statements of Operations for the years ended December 31, 1998, 1997 and 1996...........66
Statements of Partners' Capital for the years ended December 31, 1998,
1997 and 1996.........................................................................67
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996...........68
Notes to Financial Statements...........................................................69
IDS FUTURES CORPORATION
Report of Independent Auditors..........................................................74
Balance Sheet as of December 31, 1998...................................................75
Notes to Balance Sheet..................................................................76
CIS INVESTMENTS, INC.
Balance Sheet (unaudited) as of December 31, 1998.......................................79
Independent Auditors' Report............................................................80
Statements of Financial Condition as of May 31, 1998 and 1997...........................81
Statements of Income for the years ended May 31, 1998 and 1997..........................82
Statements of Changes in Stockholder's Equity for the years ended
May 31, 1998 and 1997.................................................................83
Statements of Cash Flows for the years ended May 31, 1998 and 1997......................84
Notes to Financial Statements .........................................................85
</TABLE>
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<PAGE>
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
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<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
- -----------------------------------------------------------------------------------------------
Partners' 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.
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<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.
-66-
<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.
-67-
<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.
-68-
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998, 1997 and 1996
- ------------------------------------------------------------------------------
(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
-69-
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998, 1997 and 1996
- ------------------------------------------------------------------------------
gains and losses reflected in the statements of financial condition
represent the difference between original contract amount and market value
(as determined by exchange settlement prices for futures contracts and
related options and cash dealer prices at a predetermined time for forward
contracts, physical commodities, and their related options) as of the last
business day of the 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 the Clearing Broker in commodity futures trading accounts.
-70-
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998, 1997 and 1996
- ------------------------------------------------------------------------------
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.
(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.
-71-
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998, 1997 and 1996
- ------------------------------------------------------------------------------
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Partnership was formed to speculatively trade commodity interests. The
Partnership's commodity interest transactions and its related cash balance
are on deposit with the Clearing Broker at all times. In the event that
volatility of trading of other customers of the Clearing Broker impaired the
ability of the Clearing Broker to satisfy its obligations to the Partnership,
the Partnership would be exposed to off- balance sheet risk. Such risk is
defined in Statement of Financial Accounting Standards No. 105 (SFAS 105) as
a credit risk. To mitigate this risk, the Clearing Broker, pursuant to the
mandates of the Commodity Exchange Act, is required to maintain funds
deposited by customers relating to futures contracts in regulated commodities
in separate bank accounts which are designated as segregated customers'
accounts. In addition, the Clearing Broker has set aside funds deposited by
customers relating to foreign futures and options in separate bank accounts
which are designated as customer secured accounts. Lastly, the Clearing
Broker is subject to the Securities and Exchange Commission's Uniform Net
Capital Rule which requires the maintenance of minimum net capital at least
equal to 4% of the funds required to be segregated pursuant to the Commodity
Exchange Act. The Clearing Broker has controls in place to make certain that
all customers maintain adequate margin deposits for the positions which they
maintain at the Clearing Broker. Such procedures should protect the
Partnership from the off-balance sheet risk as 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
-72-
<PAGE>
IDS MANAGED FUTURES, L.P.
Notes to Financial Statements
December 31, 1998, 1997 and 1996
- ------------------------------------------------------------------------------
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.
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.
-73-
<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.
-74-
<PAGE>
IDS FUTURES CORPORATION
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
ASSETS 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) 354,500
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.
-75-
<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.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
-76-
<PAGE>
IDS FUTURES CORPORATION
Notes to Balance Sheet
December 31, 1998
- ------------------------------------------------------------------------------
(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 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.
PURCHASERS OF UNITS WILL NOT RECEIVE AN INTEREST IN THIS ENTITY.
-77-
<PAGE>
IDS FUTURES CORPORATION
Notes to Balance Sheet
December 31, 1998
- ------------------------------------------------------------------------------
(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.
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.
-78-
<PAGE>
CIS INVESTMENTS, INC.
Balance Sheet (unaudited)
December 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
ASSETS 1998
- -------------------------------------------------------------------------------
<S> <C>
Accounts Receivable $ 428,605
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 - subscriptions 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>
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
-80-
<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 in registered commodity pools 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 shares
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.
-81-
<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.
-82-
<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
Contribution
of Capital
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.
-83-
<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)
- --------------------------------------------------------------------------------------------
Cash flows from financing activity -
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.
-84-
<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
-85-
<PAGE>
CIS INVESTMENTS, INC.
Notes to Financial Statements
May 31, 1998 and 1997
- ------------------------------------------------------------------------------
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.
(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.
-86-
<PAGE>
CIS INVESTMENTS, INC.
Notes to Financial Statements
May 31, 1998 and 1997
- ------------------------------------------------------------------------------
(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.
(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.
-87-
<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.
------------------------------------------------------
CIS INVESTMENTS, INC.
AMERICAN EXPRESS FINANCIAL ADVISORS INC. IDS FUTURES CORPORATION
SELLING AGENT CO-GENERAL PARTNERS
------------------------
<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
-------------------
EXHIBITS
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>
-i-
<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.
Most United States exchanges limit the maximum change in futures prices
during any single
-1-
<PAGE>
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 PART TWO 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.
-3-
<PAGE>
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 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
----
STRUCTURE OF PARTNERSHIP
<S> <C>
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-4
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-5
(c) Allocation of Profit and Loss for Federal Income Tax Purposes A-5
(d) Deficit Balances . . . . . . . . . . . . . . . . . . . . . . A-6
(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 Partners . . . . . . . . . . . . . . A-8
11. Return of Limited Partner's Capital Contribution. . . . . . . . . A-8
CONDUCT OF THE PARTNERSHIP'S BUSINESS
12. Trading Policies. . . . . . . . . . . . . . . . . . . . . . . . . A-8
13. Reports and Statements. . . . . . . . . . . . . . . . . . . . . . A-9
14. Partnership Records . . . . . . . . . . . . . . . . . . . . . . . A-10
ADMISSION AND WITHDRAWAL OF PARTNERS
15. Transfer of Units . . . . . . . . . . . . . . . . . . . . . . . . A-10
16. Redemption of Units . . . . . . . . . . . . . . . . . . . . . . . A-10
17. Offering of Units of Limited Partnership Interest . . . . . . . . A-12
18. Admission of Additional Partners. . . . . . . . . . . . . . . . . A-12
19. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . A-13
20. Withdrawal of a Partner . . . . . . . . . . . . . . . . . . . . . A-13
INDEMNIFICATION
21. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . A-14
A-i
<PAGE>
<CAPTION>
GOVERNANCE OF THE PARTNERSHIP
PAGE
----
<S> <C>
22. Amendments and Meetings . . . . . . . . . . . . . . . . . . . . . A-14
(a) Amendments Proposed by the General Partners. . . . . . . . . A-14
(b) Meetings; Amendments Proposed by the Limited Partners. . . . A-15
(c) Proxy Rules. . . . . . . . . . . . . . . . . . . . . . . . . A-15
23. Governing Laws. . . . . . . . . . . . . . . . . . . . . . . . . . A-15
24. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
(a) Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
(b) Binding Effect . . . . . . . . . . . . . . . . . . . . . . . A-16
(c) Headings . . . . . . . . . . . . . . . . . . . . . . . . . . A-16
(d) Counterparts . . . . . . . . . . . . . . . . . . . . . . . . A-16
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 $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
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<PAGE>
basis of generally accepted accounting principles, consistently applied,
unless otherwise specified below. As of the close of business on February 28,
1995, regardless of whether Units are then being offered, each Unit shall be
divided into three Units, each of which shall have Net Asset Value per Unit
equal to one-third the Net Asset Value per Unit on that date prior to such
division. The resulting Net Asset Value per Unit will constitute the Net
Asset Value per Unit thereafter.
"NET ASSET VALUE PER UNIT" means the Net Asset Value divided by the number
of Units outstanding on the date of calculation. For purposes of these
calculations:
(a) Net Asset Value shall include any unrealized profit or loss on
securities and open commodity positions and any other credit or debit accruing
to the Partnership but unpaid or not received by the Partnership.
(b) All securities and open commodity positions shall be valued at their
then market value which means, with respect to open commodity positions, the
settlement price as determined by the exchange on which the transaction is
effected or the most recent appropriate quotation as supplied by the clearing
broker or banks through which the transaction is effected. If there are no
trades on the date of the calculation due to the operation of the daily price
fluctuation limits or due to a closing of the exchange on which the transaction
is executed, the contract will be valued at fair market value as determined by
the General Partners. Interest, if any, shall accrue monthly.
(c) Brokerage commissions on open commodity positions shall be accrued in
full upon the initiation of such open positions as a liability of the
Partnership. Management fees shall be paid monthly and deducted prior to the
calculation of the quarterly incentive fee.
"NET WORTH" means the excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles.
"TRADING PROFITS" means Trading Profits (for purposes of calculating each
Advisor's incentive fees only) is defined as the excess (if any) of (A) the Net
Asset Value of the Partnership's assets under management of an Advisor as of the
last day of any calendar quarter (before deduction of incentive fees payable for
such 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.
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<PAGE>
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;
(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 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.
A-3
<PAGE>
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.
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
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<PAGE>
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 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
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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.
(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 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
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Asset Value available for trading. Should these expenses total more than 14%
of the Net Asset Value available for trading, the General Partners will pay
and will not be reimbursed by the Partnership for such excess.
10. LIMITED LIABILITY OF LIMITED PARTNERS.
Each Unit, when purchased in accordance with this Agreement, shall be fully
paid and nonassessable. Any provisions of this Agreement to the contrary
notwithstanding, no Limited Partner shall be liable for the Partnership
obligations in excess of the capital contributed by him and profits attributable
thereto, if any, and such other amounts as he may be liable for pursuant to the
Act. If the Partnership were unable otherwise to meet its obligations, the
Limited Partners might be required to repay to the Partnership for a period of
one year after the return of a Limited Partner's capital contribution or any
part thereof such returned capital contribution, including profits, if any, any
distributions and amounts received upon redemption, and interest thereon, but
only to the extent necessary to discharge the Partnership's liabilities to
creditors who extended credit to the Partnership during the period such capital
contribution was held by the Partnership.
11. RETURN OF LIMITED PARTNER'S CAPITAL CONTRIBUTION.
Except to the extent that a Limited Partner shall have the right to
withdraw capital in accordance with paragraph 16 below, no Limited Partner shall
have any right to demand the return of his capital contribution or any profits
added thereto, except upon termination and dissolution of the Partnership. In no
event shall a Limited Partner be entitled to demand or receive property other
than cash.
The General Partners shall not be personally liable for the return or
repayment of all or any portion of the capital or profits of any Partner (or
assignee), it being expressly agreed that any such return of capital or profits
made pursuant to this Agreement shall be made solely from the assets (which
shall not include any right of contribution from the General Partners) of the
Partnership.
CONDUCT OF THE PARTNERSHIP'S BUSINESS
12. TRADING POLICIES.
The Partnership shall adhere to the following trading policies:
(a) Funds will be invested only in futures contracts which are traded in
sufficient volume to permit, in the opinion of the Advisors to the Partnership,
ease of taking and liquidating positions. The Advisors may at any time determine
to expand or reduce the number of commodity interests traded by that portion of
assets under their respective control.
(b) No Advisor will acquire on behalf of the Partnership additional
positions in any commodity interest if such additional positions, when added to
the existing open positions initiated by the 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
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physical commodities unless such options have been approved for trading on a
designated contract market by the CFTC. The Partnership may trade in foreign
options if permitted under the Commodity Exchange Act, as amended, and CFTC
regulations, but only when and to the extent authorized in writing by the
General Partners to the Advisors. The Partnership may trade in futures
contracts on securities.
(h) The Partnership will not generally utilize borrowings, except for
short-term borrowings where the Partnership takes delivery of any cash commodity
or to the extent that Cargill Investor Services, Inc., as the Partnership's
clearing broker, obtains lines of credit for the trading of forward contracts
with banks. The Partnership will not make any loans.
(i) The Advisors may, from time to time, employ trading techniques such as
spreads or straddles on behalf of the Partnership. The term "spread" or
"straddle" describes a transaction involving the simultaneous buying and selling
of commodity interests dealing with the same or different commodity interests
but involving different delivery dates or markets, and in which the trader
expects to earn profits from a widening or narrowing movement of the two prices
of the commodity interests.
(j) The Partnership may trade in futures contracts on foreign currencies
through foreign and domestic commodity exchanges, including the International
Monetary Market Division of the Chicago Mercantile Exchange. The Partnership may
also establish positions in foreign currencies through banks or in the interbank
market. Forward contracts on foreign currencies will be transacted only with
banks having in excess of $100,000,000 in combined capital and surplus. No
specific limitation on the percentage or amount of forward contracts, if any,
engaged in by the Partnership has been imposed.
(k) The Partnership's assets will not be commingled with the assets of any
other person; funds used to satisfy margin requirements will not be considered
commingled.
(l) No Advisor to the Partnership will be permitted to engage in churning
the assets of the Partnership.
(m) No rebates or give ups may be paid to or received by the General
Partners, nor may the General Partners participate in any reciprocal business
arrangements which could circumvent this prohibition, but retention of Cargill
Investor Services, Inc. to act as the Partnership's clearing broker and
retention of American Express Financial Advisors Inc. to act as the
Partnership's introducing broker shall not be deemed to violate this
prohibition. The General Partners and their affiliates shall not establish or
participate in any reciprocal business arrangements which would circumvent the
restrictions against dealing with affiliates or other interested parties, but
this prohibition shall not be deemed to prevent the Partnership from using the
services of Cargill Investor Services, Inc. as clearing broker or American
Express Financial Advisors Inc. as introducing broker.
Material changes in the trading policies described above must be approved
by a vote of a majority of the outstanding Units (not including Units held by
the General Partners or their corporate affiliates). A change in commodity
interests traded shall not be deemed to be a material change in the trading
policies. If the General Partners determine, in their sole discretion, using
prudent business judgment, that any trading instructions issued by the
Partnership's Advisors violate one of the Partnership's trading policies, the
General Partners may negate such trading instructions.
13. REPORTS AND STATEMENTS.
The General Partners, in their sole discretion, may cause the
Partnership to make, refrain from making or, once having made, revoke, the
election referred to in Section 754 of the Internal Revenue Code of 1986, as
amended, and any similar election provided by state or local law or any
similar provision enacted in lieu thereof. Each Limited Partner shall be
furnished as of the end of each month and as of the end of each fiscal year
with (i) such reports (in such detail) as are required to be given to Limited
Partners by the rules of the Commodity Futures Trading Commission, (ii) any
other reports (in such detail) as are required by any other governmental
authority which has jurisdiction over the activities of the Partnership; and
(iii) any other reports or information which the General Partners, in their
discretion, determine to be necessary or appropriate. Each Limited Partner
shall be furnished an annual report containing audited financial statements
examined by an independent public accountant within 90 days after the close
of each fiscal year, setting forth, among other matters:
(a) The Net Asset Value of the Partnership and the Net Asset Value per
Unit at the end of the fiscal year or the total value of a Partner's interest in
the Partnership;
(b) the total amount of (i) management, administrative, and advisory fees,
(ii) brokerage commissions and fees for commodity and other investment
transactions during the fiscal year and (iii) all other expenses incurred or
accrued by the Partnership during the fiscal year;
(c) any change in the Partnership's commodity trading advisors or any
material change in the management of the Partnership's commodity trading
advisors;
(d) any other material business dealings between the Partnership, the
General Partners, the commodity trading advisors, its commodity broker or any
principal of any of the foregoing;
(e) the actual performance of the Partnership during prescribed time
periods;
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(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 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
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undistributed profits, if any, effective as of the last trading day of any
month. Redemption amounts may be designated either in terms of a number of
Units or an amount in dollars. The minimum redemption amount, whether
requested in terms of dollars or Units, is the lesser of $500 or the Net
Asset Value of two Units, unless the Limited Partner is redeeming his entire
interest in the Partnership. Redemptions may be obtained by a Limited Partner
by requiring the Partnership to redeem any or all of his Units based on Net
Asset Value per Unit, calculated as of the close of business (as determined
by the General Partners) on the effective date of redemption; PROVIDED, that
(1) there remains property of the Partnership sufficient to pay all
liabilities, contingent or otherwise, of the Partnership (except any
liability to Partners on account of their capital contributions) and (2) the
General Partners shall have timely received a Request for Redemption as
hereinafter defined. As used herein, Request for Redemption shall mean a
letter in the form specified by the General Partners sent by a Limited
Partner (or any assignee of whom the General Partners have received written
notice as described in paragraph 15 above) and received by the General
Partners ten days prior to the end of the month of the requested redemption.
A form of Request for Redemption may be obtained by written request to the
General Partners. The General Partners may declare additional redemption
dates upon notice to the Limited Partners. Upon redemption, a Partner (or any
assignee of whom the General Partners have received written notice as
described above) shall receive from the Partnership for each Unit redeemed an
amount based on the Net Asset Value per Unit, less any amount owing by such
Partner (and assignees, if any) to the Partnership. If redemption is
requested by an assignee, all amounts owed by the Partner to whom such Units
was sold by the Partnership as well as all amounts owed by all assignees who
owned such Unit shall be deducted from the amount paid to such assignee upon
redemption of his Units. An assignee shall not be entitled to redemption
until the General Partners have received written notice (as described in
Paragraph 15 above) of the assignment, transfer or disposition under which
the assignee claims an interest in the Units to be redeemed and shall have no
claim against the Partnership or the General Partners with respect to
distributions or amounts paid on redemption of Units prior to the receipt by
the General Partners or such notice. Profits and losses shall be allocated to
Partners in proportion to their respective units and to their respective
dates of redemption in accordance with Section 8(b) hereof. The Partnership's
commodity positions will be liquidated to the extent necessary to effect
redemptions. Redemptions are contingent upon the Partnership having property
sufficient to discharge its liabilities (contingent or otherwise) on the
effective date of redemption. If the General Partners determine that
permitting the number of redemptions sought would be detrimental to the tax
status of the Partnership, they may restrict the number of redemptions to be
permitted, and shall select by lot so many redemptions as will not, in their
judgment, impair the Partnership's tax status.
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
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its Units if such withdrawal, in the General Partners' sole good faith
judgment, is necessary to avoid violation by the Partnership and/or Limited
Partners which are employee benefit plans of applicable provisions of such
statute.
17. OFFERING OF UNITS OF LIMITED PARTNERSHIP INTEREST.
The General Partners on behalf of the Partnership shall (i) cause to be
filed a registration statement or registration statements, and such amendments
thereto as the General Partners deem advisable, with the Securities and Exchange
Commission for the registration and public offering of Units, (ii) qualify Units
for sale under the securities laws of such States of the United States or other
jurisdictions as the General Partners shall deem advisable and (iii) take such
action with respect to the matters described in (i) and (ii) as it shall deem
advisable or necessary. The expenses of the Partnership in connection with such
filings, qualifications and offerings, other than selling commissions, shall be
advanced by the General Partners, but the Partnership will subsequently
reimburse the General Partners for such expenses out of the proceeds of the
offering. The terms and provisions of this Section 17 that pertain to the
Partnership's original offering to the public shall be superseded by the terms
and provisions of the prospectus given to investors in connection with any
subsequent offering.
The General Partners are authorized to take such action and make such
arrangements for the sale of the Units as they deem appropriate, including
without limitation (i) the execution on behalf of the Partnership of a
selling agreement appointing American Express Financial Advisors Inc. as
agent of the Partnership for the offer and sale of the Units during the
offering period as contemplated in a prospectus and appointing American
Express Financial Advisors Inc. as the Fund's introducing broker, and (ii)
the indemnification of American Express Financial Advisors Inc. and John W.
Henry & Company, Inc. and Sabre Fund Management Limited (the Partnership's
initial Advisors) and each person controlling them against certain
liabilities incurred in connection with the issuance and sale of the Units.
The General Partners will keep copies of all subscription agreements
(including suitability records) signed by Limited Partners in connection with
public offerings of Units for a period of six years.
If the Partnership shall not have obtained during the period of its initial
public offering of the Units subscriptions representing an aggregate offering
price of $1,000,000 this Agreement shall terminate, and all capital contributed
to the Partnership shall be promptly returned to the contributors thereof. In
addition, any interest which shall have accrued (from the time of deposit of
each subscription to the time such funds are released by the Escrow Agent
referred to below) shall be promptly distributed to such contributors. The
General Partners and officers, directors, shareholders and employees of Cargill
Investor Services, Inc. and American Express Financial Advisors Inc., may
subscribe for Units and any such subscriptions shall be included in determining
whether the minimum subscription requirement is met. All initial subscriptions
will be held in escrow by the Marquette Bank Minneapolis, N.A. (the "ESCROW
AGENT"). The Partnership shall not commence trading operations unless and until
the General Partners have accepted subscriptions for Units representing an
aggregate offering price of $1,000,000 pursuant to the Partnership's initial
public offering of Units. The allocable portion of any interest earned on each
subscription shall be distributed to each subscriber. The General Partners may
terminate any offering of Units at any time. The aggregate of all capital
contributions shall be available to the Partnership to carry on its business,
and no interest shall be paid by the Partnership on any such contributions after
such contributions are released by the Escrow Agent.
All Units subscribed for upon receipt of a check or draft of the subscriber
are issued subject to the collection of the funds represented by such check or
draft. In the event a check or draft of a subscriber for Units representing
payment for Units is returned unpaid, the Partnership shall cancel the Units
issued to such subscriber represented by such returned check or draft and the
General Partners shall file an amendment, if required, to the Partnership's
Certificate of Limited Partnership reflecting such cancellation. Any losses or
profits sustained by the Partnership in connection with the Partnership's
commodity trading allocable to such canceled Units shall be deemed an increase
or decrease in Net Asset Value and allocated among the remaining partners as
described in paragraph 8 above. Each subscriber agrees to reimburse the
Partnership for any expenses or losses incurred in connection with any such
cancellation of Units issued to him.
As of the close of business on February 28, 1995, regardless of whether
Units are then being offered, each Unit shall be divided into three Units, each
of which shall have Net Asset Value per Unit equal to one-third the Net Asset
Value per Unit on that date prior to such division. The resulting Net Asset
Value per Unit will constitute the Net Asset Value per Unit thereafter.
18. ADMISSION OF ADDITIONAL PARTNERS.
At any time the General Partners may, in their sole discretion and subject
to applicable law, admit additional Limited Partners, each of which newly
admitted Limited Partner shall contribute cash to the capital of the Partnership
for each Unit of Limited Partnership Interest to be acquired in at least the
minimum amount specified in paragraph 7. Pursuant to paragraph 15, the General
Partners may consent to and admit any assignee of Units as a substituted Limited
Partner. There is no limit on the total number of Units which may be
outstanding.
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19. POWER OF ATTORNEY.
Each Limited Partner, by the execution of this Agreement, whether by
counterpart or separate instrument, does irrevocably constitute and appoint the
General Partners his true and lawful attorneys and agents, with full power of
substitution and with full power and authority in his name, place and stead, to
admit additional Limited Partners, to file, prosecute, defend, settle or
compromise any and all actions at law or suits in equity for or on behalf of the
Partnership with respect to any claim, demand or liability asserted or
threatened by or against the Partnership, and to execute, acknowledge, swear to,
deliver, file and record in the appropriate public offices and publish (i) all
certificates and other instruments (including counterparts of this Agreement)
which the General Partners deem appropriate to qualify or continue the
Partnership as a limited partnership in the jurisdictions in which the
Partnership may conduct business or which may be required to be filed by the
Partnership under the laws of any jurisdiction; (ii) all instruments which the
General Partners deem appropriate to reflect a change or modification of the
Partnership in accordance with the terms of this Agreement relating to the
Partnership or any amendment thereto; (iii) all conveyances and other
instruments which the General Partners deem appropriate to reflect the
dissolution and termination of the Partnership; and (iv) certificates of assumed
name. The Power of Attorney granted herein shall be irrevocable and deemed to be
a power coupled with an interest and shall survive the incapacity or death of a
Limited Partner. Each Limited Partner hereby agrees to be bound by any
representation made by the General Partners and by any successor thereto, acting
in good faith pursuant to such Power of Attorney. Each Limited Partner agrees to
execute a special Power of Attorney on a document separate from this Agreement.
In the event of any conflict between this Agreement and any instruments filed by
the General Partners pursuant to the Power of Attorney granted in this paragraph
19, this Agreement shall control.
20. WITHDRAWAL OF A PARTNER.
The Partnership shall terminate and be dissolved upon the withdrawal of the
General Partners. A General Partner may withdraw from the Partnership at any
time on 120 days' written notice by first class mail, postage prepaid to each
Limited Partner. If the Limited Partners or the remaining General Partner elect
to continue the Partnership, the withdrawing General Partner shall pay all
expenses incurred as a result of its withdrawal. The withdrawing General Partner
shall cease to be a General Partner as of the day of such withdrawal, and shall
then receive a return of its capital plus any portion of compensation as a
General Partner accrued and owing to it at such time.
If any of the events specified below occurs in regard to a General Partner,
the General Partner shall be considered to have submitted a notice of withdrawal
from the Partnership as of the date of the occurrence of such event:
(a) any levy or attachment by a creditor on or by any person claiming a
lien on any material interest of the General Partner if such levy or attachment
is not cured within 10 days;
(b) any assignment by the General Partner of any interest for the benefit
of creditors;
(c) any voluntary filing by the General Partner, or filing by another
against the General Partner, of any petition for adjudication of such General
Partner as insolvent or bankrupt;
(d) any use of any insolvency or similar act by the General Partner;
(e) any filing by the General Partner of a petition for reorganization or
arrangement under any provision of state or federal bankruptcy laws then in
force and effect;
(f) any appointment in any insolvency proceeding of any receiver or
trustee for the General Partner or any material portion of the General Partner's
property;
(g) any adjudgment of bankruptcy or insolvency, or entry of an order for
relief in any bankruptcy or insolvency proceeding; and
(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
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<PAGE>
interested therein to waive, the furnishing of any inventory, accounting or
appraisal of the assets of the Partnership and any right to an audit of the
Partnership other than those expressly granted or established in paragraph 13.
INDEMNIFICATION
21. INDEMNIFICATION.
(a) A General Partner and its Affiliates, shall bear no liability to the
Partnership or to any Limited Partner for any loss suffered by the Partnership
which arises out of any action or inaction of the General Partner or its
Affiliates if such action or inaction did not constitute negligence or
misconduct of the General Partner or its Affiliate and if the General Partner or
its Affiliate, in good faith, determined that its course of conduct for which
exculpation is sought was in the best interest of the Partnership, and if the
General Partner or its Affiliate was acting on behalf of or performing services
for the Partnership and wholly within the scope of authority of the General
Partner.
(b) A General Partner and its Affiliates, may be indemnified by the
Partnership, but only out of the assets of the Partnership and not from the
assets of the Limited Partners, against expenses, including attorney's fees,
judgments and amounts paid in settlement, actually and reasonably incurred by
the General Partner or such Affiliates in connection with the Partnership
PROVIDED that such expense were not the result of negligence or misconduct on
the part of the General Partner or its Affiliate, the General Partner or its
Affiliate determined in good faith that its course of conduct was in the best
interests of the Partnership, and the General Partner or its Affiliate was
acting on behalf of or performing services for the Partnership and wholly within
the scope of authority of the General Partner. The Partnership shall not advance
Partnership funds to a General Partner or any of its Affiliates for legal
expenses and other costs incurred as a result of any legal action brought
against the General Partner or its Affiliate.
(c) Notwithstanding subparagraph (a) and subparagraph (b) of this
paragraph 21, the General Partner and its Affiliates and any person acting as a
broker-dealer shall not be indemnified for any losses, liabilities or expenses
arising from or out of an alleged violation of federal or state securities laws
unless (1) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, or
(2) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (3) a court of
competent 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
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<PAGE>
add to the representations, duties or obligations of the General Partners or
surrender any right or power of the General Partners for the benefit of the
Limited Partners; (iii) to delete or add any provision of this Agreement
required to be deleted or added by the staff of the Securities and Exchange
Commission or other federal agency or any state securities official or
similar official or in order to opt to be governed by any amendment or
successor statute to the Act; (iv) change the name of the Partnership or the
location of the principal place of business of the Partnership; (v) change
this Agreement in any manner that is appropriate or necessary to qualify or
maintain the qualification of the Partnership as a limited partnership or a
partnership in which the Limited Partners have limited liability under the
laws of any state or that is appropriate or necessary to ensure that the
Partnership will not be treated as an association taxable as a corporation
for federal income tax purposes; (vi) change this Agreement in any manner
that does not adversely affect the Limited Partners in any material respect
or that is required or contemplated by other provisions of this Agreement;
(vii) make any amendment that is appropriate or necessary, in the opinion of
the General Partners, to prevent the Partnership or the General Partners or
their directors or officers from in any manner being subjected to the
provisions of the Investment Company Act of 1940, as amended, the Investment
Advisers Act of 1940, as amended, or "plan asset" regulations adopted under
ERISA, regardless of whether substantially similar to plan asset regulations
currently applied or proposed by the United States Department of Labor; or
(viii) make any other amendment similar to the foregoing; PROVIDED, that no
such amendment will be adverse to the interests of the Limited Partners.
(b) MEETINGS; AMENDMENTS PROPOSED BY THE LIMITED PARTNERS. Upon payment of
the costs of reproduction and mailing, any Limited Partner upon written request
addressed to the General Partners shall be entitled to obtain from the General
Partners a list of the names and addresses of record of all Limited Partners and
the number of Units held by each; PROVIDED, HOWEVER, that any Limited Partner
requesting such list shall give written assurance that the list will not in any
event be used for commercial purposes. In addition, such list will be made
available at the Partnership's principal office for the review of any Limited
Partner or his representative at reasonable times. Upon receipt of a written
request, signed by Limited Partners owning at least 10% of the Units then owned
by Limited Partners, that a meeting of the Partnership be called to vote upon
any matter which the Limited Partners may vote upon pursuant to this Agreement,
the General Partners shall, by written notice to each Limited Partner of record
delivered in person or by certified mail, within fifteen days after such
receipt, call a meeting of the Partnership. Such meeting shall be held at least
thirty but not more than fifty days after the mailing of such notice, and such
notice shall specify the date, a reasonable place and time, and the purpose of
such meeting. Partners may vote in person or by proxy at any such meeting. At
any meeting called pursuant to this subparagraph 22(b), upon affirmative vote
(which may be in person or by proxy) of Limited Partners owning more than 50% of
the Units then owned by the Limited Partners (not including any Units held by
the General Partners or their corporate affiliates), the following actions may
be taken: (i) this Amended and Restated Limited Partnership Agreement may be
amended in accordance with and only to the extent permissible under the Act;
PROVIDED, HOWEVER, that no amendment shall alter this paragraph 22, extend the
term of the Partnership, change the Partnership to a general partnership, change
the liability or reduce the capital account of any Partner or modify the
percentage of profits, losses or distributions to which any Partner is entitled
(in addition, reduction of the capital account of any assignee or modification
of the percentage of profits, losses or distributions to which an assignee is
entitled hereunder shall not be effected by amendment or supplement to this
Agreement without such assignee's consent); (ii) the Partnership may be
dissolved; (iii) the General Partners may be removed; (iv) a successor (or
successors) general partner may be elected as long as the Partnership continues
to have one General Partner, PROVIDED that the election of a general partner at
a time when there is no remaining General Partner, after an event of withdrawal
or removal of the last remaining General Partner, may only be conducted in
accordance with the Act; (v) a new general partner or general partners may be
elected if the General Partners elect to withdraw from the Partnership,
PROVIDED, that the appointment of the new general partner(s) is effective as of
the date of any such withdrawal; (vi) any contracts with the General Partners or
any of their affiliates may be terminated on sixty days notice without penalty;
and (vii) the sale of all the assets of the Partnership may be approved.
(c) PROXY RULES. In the event the Partnership is required to comply with
Regulation 14A under the Securities Exchange Act of 1934 (the "PROXY RULES") or
any successor regulation, the foregoing time periods specified in this paragraph
22 may be altered by the General Partners so as not to conflict therewith.
23. GOVERNING LAWS.
The validity and construction of this Agreement shall be governed by and
construed by the laws of the State of Delaware without regard to principles of
conflicts of law; PROVIDED, that the foregoing choice of law shall not restrict
the application of any state's securities laws to the sale of Units to its
residents or within such state.
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
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<PAGE>
Partner's signature on the signature page annexed hereto. Any Limited Partner
may change his address by giving notice in writing to the General Partners
stating his new address, and the General Partners may change their address by
giving such notice to all Partners. Commencing on the tenth day after the
giving of such notice by any Limited Partner or the General Partners, such
newly designated address shall be such Partner's address for the purpose of
all notices or other communications required or permitted to be given
pursuant to this Agreement.
(b) BINDING EFFECT. This Agreement shall inure to and be binding upon all
of the parties, their successors and assigns, custodians, estates, heirs and
personal representatives. For purposes of determining the rights of any Partner
or assignee hereunder, the Partnership and the General Partners may rely upon
the Partnership records as to who are Partners and assignees and all Partners
and assignees agree that their rights shall be determined and that they shall be
bound thereby.
(c) HEADINGS. Paragraph headings in no way define, extend or describe the
scope of this Agreement or the effect of any of its provisions.
(d) COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original but all of which shall
constitute one instrument.
CIS INVESTMENTS, INC.
GENERAL PARTNER
BY: /S/ HAL T. HANSEN
- -----------------------------------
PRESIDENT
IDS FUTURES CORPORATION
GENERAL PARTNER
BY: /S/ JANIS E. MILLER
- -----------------------------------
PRESIDENT
FOR THE LIMITED PARTNERS:
CIS INVESTMENTS, INC.
AS ATTORNEY-IN-FACT
BY: /S/ HAL T. HANSEN
- -----------------------------------
PRESIDENT
IDS FUTURES CORPORATION
AS ATTORNEY-IN-FACT
BY: /S/ JANIS E. MILLER
- -----------------------------------
PRESIDENT
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<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
April 30, 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 Amended and Restated 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 Amended and Restated 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 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, Welton, 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
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the risk of large losses, (ii) is independent of the General Partners, JWH,
Welton, 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, furnishings, automobiles and
investment in the Fund).
Pennsylvania: Net worth of at least $275,000 (exclusive of home,
furnishings and automobiles). Additionally, if subscriber's net worth, as
described above, is less than $1,000,000, then subscriber's investment in the
Fund may not exceed 10% of his/her net worth.
Tennessee: A gross income of at least $65,000 in the most recent past tax
year and in the current tax year and a net worth of $65,000 (exclusive of home,
furnishings and automobile) or, in the alternative, a net worth (exclusive of
home, furnishings and automobile) of at least $250,000.
Oregon and Texas: Net worth of at least $60,000 (exclusive of home,
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 260.141.10 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
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<PAGE>
to a transferee by a trustee or custodian for the account of the
transferee or the transferee's ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign
state, territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal transaction,
or as an underwriter or member of an underwriting syndicate or selling
group;
(9) if the interest sold or transferred is a pledge or other lien given by
the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or 25121
of the Code, of the securities to be transferred, PROVIDED that no
order under Section 25140 or subdivision (a) of Section 25143 is in
effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation, or
by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113 of
the Code, PROVIDED that no order under Section 25140 or subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who are
neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed property law of another state, if,
in either such case, such person (i) discloses to potential purchasers
at the sale that transfer of the securities is restricted under this
rule, (ii) delivers to each purchaser a copy of this rule, and
(iii) advises the Commissioner of the name of each purchaser;
(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.
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<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.
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IDS MANAGED FUTURES, L.P. [LOGO]
SUBSCRIPTION AGREEMENT FINANCIAL
ADVISORS
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COMPLETE AFTER READING REVERSE SIDE OF AGREEMENT. FOR USE AFTER MAY 1, 1999
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Complete if Nonqualified Investment Complete if Qualified Investment
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Name in Which Units Are to Be Registered Name in Which IRA, Keogh or Qualified Plan
(unless form on the right is applicable) Units Are to Be Registered
Name of Subscribing Individual or Entity AMERICAN EXPRESS TRUST COMPANY
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- ------------------------------------------------------ FBO
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Investor's Taxpayer ID Tax Year End* Custodial Tax ID (for IRS Reporting) Tax Year End*
51-6041053
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*If other than December 31.
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Investor's Residence Address (Required) Investment Information
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Street Make Checks Payable to
US BANK NATIONAL ASSOCIATION
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City State Zip Investment Amount
$
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Mailing Address (If Different than Above)
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Street
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City State Zip
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Phone Account Number (Corporate Office Use Only)
( )
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Ownership Type
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/ / Individual / / JTRS / / UGMA (indicate state) / / IRA / / Pension Plan / / Other (specify)
/ / Partnership / / Tenants-in-Common _____________________ / / KEOGH / / Profit Sharing Plan _______________
/ / Corporation / / Community Property / / Trust (Trust paperwork required) / / Money Purchase Plan
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Acknowledgements
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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 for the Partnership.
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Signatures
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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)
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Date City State Date City State
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Name of Subscribing Individual or Entity -- Printed Name of Authorized Fiduciary, Trustee, Partner or
Corporate Officer (if applicable) - Printed
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Signature of Authorized Fiduciary, Trustee, Partner or Corporate Officer (Specify Title)
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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.
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For Use By American Express Financial Advisor
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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 (signature) Print Name Date
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12035-7 K (4/99) SEND ALL THREE PARTS TO YOUR GEOGRAPHIC SERVICE TEAM
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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 Inc. by the tenth calendar day of the
month if they are to be considered for acceptance by the Fund in that month.
American Express Financial Advisors Inc. will promptly send a confirmation of
the investment and a copy of the Fund's most recent monthly account statement
to the potential investor. The 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 Inc. by mail or telephone (pursuant to instructions in the
notice from American Express Financial Advisors Inc.) of his or her decision
NOT to invest. No further action is required in response to the notification
from American Express Financial Advisors Inc. if the investor elects to
subscribe. The investor's negative response must be received by American
Express Financial Advisors Inc. 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 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.
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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 Inc. 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)
Advisor/Employee Number _____________________________________________________
Unit/DO Number ___________________ Advisor/Employee Name _____________________
Partnership Name _________________ Partnership Account Number ________________
(Entered by New Business)
Investment Amount $_______________
Signature _________________________ Date ____________________________________
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EXHIBIT D
IDS MANAGED FUTURES
REQUEST FOR REDEMPTION
IDS MANAGED FUTURES, L.P. __________________________
c/o American Express Financial Advisors Inc. Date
Geographic Service Team
P.O. Box 74
Minneapolis, Minnesota 55440
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 he/she has been first admitted to the Fund. Further, the
undersigned acknowledges that if he/she redeems all 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. 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.
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SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS OF
LIMITED PARTNERSHIP INTEREST ARE REGISTERED
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
