SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No. 0-17443
December 31, 1999
IDS MANAGED FUTURES II, L.P.
(Exact name of registrant as specified in its charter)
Delaware 06-1207252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
233 South Wacker Drive, Suite 2300, Chicago, IL 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 460-4000
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Units of Limited Partnership Interest
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K: [X]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the Registrant as of February 29, 2000: $7,680,604
<PAGE>
See Index to Exhibits
Documents Incorporated by Reference
Incorporated by reference in Part IV, Item 14 is Post Effective Amendment No.2
to the Registration Statement declared effective on May 4, 1988.
<PAGE>
Part I
Item 1. Business
IDS Managed Futures II, L.P. (the "Partnership") is a limited partnership
organized on April 21, 1987 under the Delaware Revised Uniform Limited
Partnership Act. The Partnership was formed to speculatively trade commodity
interests, including futures contracts, forward contracts, physical commodities
and related options thereon pursuant to the trading instructions of independent
trading advisors. The General Partners of the Partnership are CIS Investments,
Inc. ("CISI") and IDS Futures Corporation ("IDS Futures") (collectively, the
"General Partners"). The General Partners are registered commodity pool
operators under the Commodity Exchange Act, as amended (the "CE Act"), and are
responsible for administering the business and affairs of the Partnership
exclusive of trading decisions. CISI is an affiliate of Cargill Investor
Services, Inc. ("CIS" or the "Clearing Broker"), the clearing broker for the
Partnership. IDS Futures is an affiliate of American Express Financial Advisors
Inc. ("AXP Advisors"), formerly IDS Financial Services Inc., which acts as the
Partnership's introducing broker and selling agent. Trading decisions for the
Partnership for the fiscal year ended December 31, 1998 were made by two
independent commodity trading advisors, John W. Henry & Company, Inc. and Welton
Investment Corporation.
CIS is a "Futures Commission Merchant," the General Partners are "Commodity Pool
Operators," AXP Advisors is an "Introducing Broker" and the trading advisors to
the Partnership are "Commodity Trading Advisors" as those terms are used in the
CE Act. As such, they are registered with and subject to regulation by the
Commodity Futures Trading Commission ("CFTC") and the National Futures
Association ("NFA"). AXP Advisors and CIS are also registered as broker-dealers
with the National Association of Securities Dealers, Inc. ("NASD") and the
Securities and Exchange Commission ("SEC").
The General Partners each contributed $77,035 (a total of $154,070) in cash to
the capital of the Partnership, which was approximately 1.05% of the total
contributions to the Partnership (less selling commissions) by all Partners. The
General Partners received in exchange for such contribution 644.4502 Units
(322.2251 Units each). Under the terms of the Limited Partnership Agreement, the
General Partners may not select Partnership transactions involving the purchase
or sale of any commodity interests, but must select one or more trading advisors
to direct the Partnership's trading with respect thereto. Initially, the General
Partners chose and caused the Partnership to enter into an Advisory Contract
with each of Commodity Monitors, Inc., John W. Henry and Company, Inc., Mint
Investment Management Company, Neims-Stoken Partnership and Sabre Fund
Management Limited (collectively, the "Advisors"). Commencing on March 1, 1988,
after the conclusion of the initial offering period with respect to the
Partnership's Limited Partnership Units, the Advisors began to provide commodity
trading instructions to CIS on behalf of the Partnership. Mint Investment
Management Company gave notice to the Partnership that they were withdrawing as
an Advisor due to a restructuring of their business. After February 28, 1989
Mint Investment Management Company no longer traded assets of the Partnership.
Further, Neims-Stoken Partnership was closed out on October 13, 1989 due to poor
trading performance. The assets remaining from both Mint Investment Management
Company and Neims-Stoken Partnership were allocated among the remaining
Advisors. The assets formerly managed by John W. Henry & Company, Inc. pursuant
to its Original Trading Method were allocated to another program operated by
John W. Henry & Company, Inc., the Financial and Metals Portfolio, as of
February 1989. Further, Commodity Monitors, Inc. ceased trading assets of the
Partnership due to poor trading performance in April 1991 and Chang Crowell
Management Corporation began trading assets in August 1991. As of November 16,
1994 Chang Crowell Management Corporation was terminated as an Advisor to the
Partnership and on December 12, 1994 the assets formerly managed by Chang
Crowell Management Corporation were allocated to Sabre Fund Management Limited.
On July 8, 1997 the General Partners entered into an agreement to add Welton
Investment Corporation as an additional independent commodity trading advisor
for the Partnership and effective August 1, 1997 the assets of the Partnership
were re-allocated among John W. Henry & Company, Inc., Sabre Fund Management
Limited and Welton Investment Corporation. The General Partners elected not to
renew the Advisory Contract of Sabre Fund Management Limited and it expired on
December 31, 1997. Effective January 1,1998, all of the assets of the
Partnership are managed by John W. Henry & Company, Inc. and Welton Investment
Corporation. Collectively, JWH and Welton are herein referred to as the
"Advisors".
The General Partners are responsible for the preparation of monthly and
annual reports to the Limited Partners; filing reports required by the CFTC, the
NFA, the SEC and any other Federal or State agencies having jurisdiction over
the Partnership's operations; calculation of the Net Asset Value (meaning the
total assets less total liabilities of the Partnership) and directing payment of
the management and incentive fees payable to the Advisors under the Advisory
Contracts. The General Partners provide suitable facilities and procedures for
handling redemptions, transfers, distributions of profits (if any) and orderly
liquidation of the Partnership. Although CIS, an affiliate of CISI (one of the
General Partners) acts as the Partnership's clearing broker, the General
Partners are responsible for selecting another clearing broker in the event CIS
is unable or unwilling to continue in that capacity. The General Partners are
further authorized, on behalf of the Partnership (i) to enter into the brokerage
clearing agreement and related customer agreements with their affiliates, CIS
and AXP Advisors, pursuant to which those firms render clearing and introducing
brokerage services to the Partnership; (ii) to cause the Partnership to pay
brokerage commissions at the rates provided for in the brokerage agreement (the
Partnership pays commissions on trades executed on its behalf by John W. Henry &
Company, Inc. at a rate of $58.75 per round turn contract to CIS which in turn
reallocates $37.25 per round turn contract to AXP Advisors, an affiliate of IDS
Futures; the Partnership pays commissions on trades executed on its behalf by
Welton Investment Corporation at a rate of $43.75 per round turn contract to CIS
which in turn reallocates $27.15 per round turn contract to AXP Advisors) and
NFA, exchange, clearing, delivery, insurance, storage, service and other fees
and charges incidental to the Partnership's trading. The Partnership shall not
pay brokerage commissions at rates higher than those established in the
Prospectus except for trades placed at certain foreign exchanges for which the
Partnership is charged a surcharge equal to the increased incremental cost to
CIS; thereafter, such brokerage commissions may be increased at rates equivalent
to increases in the Consumer Price Index or other comparable measure of
inflation.
The Advisory Contracts between the Partnership and the Advisors provides that
each Advisor shall each have sole discretion in and responsibility for the
selection of the Partnership's commodity transactions with respect to the
portion of the Partnership's assets allocated to it. The Advisory Contract with
John W. Henry & Company, Inc. ("JWH") was amended on April 30, 1996 (but made
effective back to the date of March 31, 1996) to extend the term of the Advisory
Contract through December 31, 1996 with the automatic renewal for three
additional twelve-month terms (beginning January 1 and ending December 31 of
each year) through December 1999. On December 31, 1999, the Advisory Contract
was further amended and extended until December 31, 2002, unless earlier
terminated in accordance with the termination provisions contained therein. The
Advisory Contract with Welton Investment Corporation ("Welton") commenced on
July 8, 1997 and continued until December 31, 1998, with automatic renewal for
three additional twelve-month terms (beginning January 1 and ending December 31
of each year) through December 2001, unless earlier terminated in accordance
with the termination provisions contained therein. The renewal right is
applicable irrespective of any change in trading advisors of the Partnership or
any reallocation of Partnership assets among the trading advisors or to other
trading advisors.
The Advisory Contracts shall terminate automatically in the event that the
Partnership is terminated in accordance with the Limited Partnership Agreement.
The Advisory Contracts may be terminated by the Partnership with respect to any
Advisor individually upon written notice to the Advisor in the event that (i)
the Partnership assets allocated to the Advisor has trading losses in excess of
30% of the assets originally allocated to the Advisor; (ii) the Advisor is
unable, to any material extent, to use its agreed upon trading approach; (iii)
the Advisor's registration is revoked or not renewed; (iv) there is unauthorized
assignment of the Advisory Contract by the Advisor; (v) the Advisor dissolves,
merges, consolidates with another entity, sells a substantial portion of its
assets, changes control, becomes bankrupt or insolvent or has a change in
executive officer; or (vi) the General Partners determine in good faith that
such termination is necessary for the protection of the Partnership.
An Advisor may terminate the Advisory Contract at any time upon written notice
to the Partnership in the event that (i) its continued trading on behalf of the
Partnership would require the Advisor to become registered as an investment
advisor under the Investment Advisors Act of 1940; (ii) assets in excess of 50%
of the initially allocated assets are reallocated from the Advisor; (iii) the
registration of either General Partner is revoked, suspended, terminated or not
renewed; (iv) the General Partners elect to have the Advisor use a trading
approach which is different from that initially used; (v) the General Partners
override a trading instruction or impose additional trading limitations; (vi)
there is an unauthorized assignment of the Advisory Contract by the General
Partners; or (vii) other good cause is shown to which the written consent of the
General Partners is also obtained. An Advisor may also terminate the Advisory
Contract on 60 days written notice to the General Partners during any renewal
term.
The Advisors will continue to advise other futures trading accounts. The
Advisors and their officers, directors and employees also will be free to trade
commodity interests for their own accounts provided such trading is consistent
with the Advisors' obligations and responsibilities to the Partnership. To the
extent that the Advisors recommend similar or identical trades to the
Partnership and other accounts which they manage, the Partnership may compete
with those accounts for the execution of the same or similar trades.
The Partnership pays JWH a monthly management fee of 1/3 of 1% of the
Partnership's Net Asset Value ("NAV") under management as of the end of the
month. Pursuant to an agreement between the Partnership and Welton, the
Partnership pays Welton a monthly management fee of 1/4 of 1% of the month-end
NAV of the Partnership under its management. The Partnership pays JWH a
quarterly incentive fee of 15% and pays Welton a quarterly incentive fee of 18%
of trading profits achieved on the NAV of the Partnership allocated by the
General Partners to such Advisor's management. The calculation and payment of
such incentive fees shall not be affected by the performance of any other
Advisor.
The incentive fee is paid to an Advisor only when the cumulative trading profits
for assets allocated to that Advisor at the end of a quarter exceed the highest
previous cumulative trading profits at the end of a quarter for which an
incentive fee was paid to that Advisor.
The Limited Partnership Agreement provides that (i) funds will be invested only
in futures contracts which are traded in sufficient volume to permit, in the
opinion of each Advisor, ease of taking and liquidating positions; (ii) no
Advisor will establish futures positions in a commodity interest such that the
margin required for those positions, when added to that required for existing
positions for the same commodity interest, would exceed 15% of the Partnership
assets allocated to that Advisor; (iii) it is expected that 20% to 60% of the
Net Assets of the Partnership will normally be committed to initial margin,
however, no Advisor may commit more that 66 2/3% of the assets under its
management to initial margins; (iv) the Partnership will not generally enter
into an open position for a particular commodity interest during a delivery
month; (v) the Partnership may not trade in securities or options on securities,
commodity futures contracts, or physical commodities unless such options have
been approved for trading on a designated contract market by the CFTC; the
Partnership may trade in foreign options if permitted under the CE Act and CFTC
regulations; the Partnership may trade in futures contracts, futures contracts
on foreign currencies through foreign and domestic commodity exchanges and
forward contracts on foreign currencies; (vi) the Partnership may not engage in
pyramiding, but may employ spreads or straddles; (vii) the Partnership's assets
will not be commingled with the assets of any other person; (viii) no Advisor
will be permitted to engage in churning the assets of the Partnership; and (ix)
no rebates or no give-ups may be paid to or received by the General Partners.
The Partnership will not generally utilize borrowing except for short-term
borrowing when the Partnership takes delivery of a physical commodity. Material
changes in these trading policies must be approved by a vote of a majority of
the outstanding Limited Partnership Units.
The Partnership's Net Assets were deposited in the Partnership's account with
CIS, the Partnership's clearing broker. CIS credits the Partnership at month end
with interest income on 100% of the Partnership's average monthly cash balance
at a rate equal to 80% of the average 90-day Treasury bill rate for Treasury
bills issued during the month. The organization and offering expenses for the
Partnership were advanced by the General Partners. The General Partners began
being reimbursed for these expenses in March 1989 with payments at the end of
each month from interest income credited to the Partnership by CIS.
The Partnership currently has no salaried employees and all administrative
services performed for the Partnership are performed by the General Partners.
The General Partners have no employees other than their officers and directors,
all of whom are employees of the affiliated companies of the General Partners.
The Partnership's business constitutes only one segment for financial reporting
purposes; it is a limited partnership whose 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 Partnership does not engage in the production or sale of any goods
or services. The objective of the Partnership business is appreciation of its
assets through speculative trading in such commodity interests. Financial
information about the Partnership's business as of December 31, 1999 is set
forth under Items 6 and 7 herein.
Competition
Each Advisor and its principals, affiliates and employees are free to trade for
their own accounts and to manage other commodity accounts during the term of the
Advisory Contract and to use the same information and trading strategy which the
Advisor obtains, produces or utilizes in the performance of services for the
Partnership. To the extent that the Advisor recommends similar or identical
trades to the Partnership and other accounts which it manages, the Partnership
may compete with those accounts for the execution of the same or similar trades.
In addition, other trading advisors who are not affiliated with the Partnership
may utilize trading methods which are similar in some respects to those methods
used by the Partnership's Advisors. These other advisors could also be competing
with the Partnership for the same or similar trades as requested by the
Partnership's Advisors.
Item 2. Properties
The Partnership does not utilize any physical properties in the conduct of its
business. The General Partners use the offices of CIS and AXP Advisors, at no
additional charge to the Partnership, to perform their administrative functions
and the Partnership uses the offices of CIS, at no additional charge to the
Partnership, as its principal administrative offices.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for the Registrant's Units and Related Security Holder Matters
(a) There is no established public market for the Units and none
is expected to develop.
(b) As of December 31, 1999, there were 14,887.18 Units held by Limited
Partners and 644.45 Units held by the General Partners. A total of 1,710.24
Units had been redeemed by Limited Partners during the period from January 1,
1999 to December 31, 1999 (45,205.74 Units were redeemed prior to calendar year
1999). The Partnership's Limited Partnership Agreement (Exhibit 3.1 hereto)
contains a full description of purchase, redemptions and distribution
procedures.
(c) To date no distributions have been made to partners in the
Partnership. The Limited Partnership Agreement does not provide for regular or
periodic cash distributions, but gives the General Partners sole discretion in
determining what distributions, if any, the Partnership will make to its
partners. The General Partners have not declared any such distributions to date
and do not currently intend to declare such distributions.
Item 6. Selected Financial Data
<TABLE>
Year ended December 31, 1998
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
1. Operating Revenues (000) $3,731 $3,870 $1,742 $2,027 $(1,216)
2. Income (Loss) From
Continuing Operations(000) 2,690 2,566 657 961 (2,123)
3. Income (Loss) Per Unit 112.27 120.48 33.22 57.27 (129.58)
4. Total Assets (000) 11,190 13,360 12,558 12,350 9,012
5. Long Term Obligations 0 0 0 0 0
6. Cash Dividend Per Unit 0 0 0 0 0
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
Most United States commodity exchanges limit the amount of fluctuation in
commodity futures contract prices during a single trading day by regulations.
These regulations specify what are referred to as "daily price fluctuation
limits" or "daily limits". The daily limits establish the maximum amount the
price of a futures contract may vary either up or down from the previous day's
settlement price at the end of a trading session. Once the daily limit has been
reached in a particular commodity, no trades may be made at a price beyond the
limit. Positions in the commodity could then be taken or liquidated only if
traders are willing to effect trades at or within the limit during the period
for trading on such day. Because the "daily limit" rule only governs price
movement for a particular trading day, it does not limit losses. In the past,
futures prices have reached the daily limit for numerous consecutive trading
days and thereby prevented prompt liquidation of futures positions on one side
of the market, subjecting commodity futures traders holding such positions to
substantial losses for those days.
It is also possible for an exchange or the CFTC to suspend trading in a
particular contract, order immediate settlement of a particular contract, or
direct that trading in a particular contract be for liquidation only.
The Partnership's Net Assets are deposited in cash with CIS and as long as CIS
acts as the Partnership's clearing broker, the Partnership will earn interest on
100% of the Partnership's average monthly cash balance at a rate equal to 80% of
the average yield on the 90-day U.S. Treasury Bills issued during that month.
For the calendar year ended December 31, 1999, CIS had paid or accrued to pay
interest of $389,415 to the Partnership. Similarly, for the calendar year ended
December 31, 1998, CIS had paid or accrued to pay interest of $438,352 to the
Partnership.
The General Partners did not contribute any money for the purchase of Units of
Partnership interest. The purchase of Units was set forth in the Prospectus to
meet the 1% minimum investment by the General Partners. The total amount
subscribed was contributed to the capital of the Partnership.
Likewise, the Limited Partners did not contribute any money for the purchase of
Units of Partnership interest.
For the year ended December 31, 1999, investors redeemed a total of 1,710.24
Units for $1,087,111. In 1998 investors redeemed a total of 1,959.02 Units for
$1,232,450.
On December 31, 1999, the Partnership had unrealized profits of $446,557 and
cash on deposit at CIS of $8,533,968. These positions required margin deposits
at CIS of $1,039,488. The total balance of the Partnership's account was
$8,980,525. On December 31, 1998, the Partnership had unrealized profits of
$1,255,115 and cash on deposit at CIS of $11,060,948. These positions required
margin deposits at CIS of $1,341,752. The total balance of the Partnership's
account was $12,316,063. These figures compare to unrealized profits of
$636,775, cash on deposit of $11,875,917, margin requirement of $1,289,365 and
total balance of the Partnership's account of $12,512,692 as of December 31,
1997.
During the fiscal year ended December 31, 1999, the Partnership had no credit
exposure to a counterparty which is a foreign commodities exchange which was
material.
The Partnership currently only trades on recognized global futures exchanges. In
the event the Partnership begins trading over the counter contracts, any credit
exposure to a counterparty which exceeds 10% of the Partnership's total assets
will be disclosed.
See Footnote 5 of the Financial Statements for procedures established by
the General Partners to monitor and minimize market and credit risks for the
Partnership. In addition to the procedures set out in Footnote 5, the General
Partners review on a daily basis reports of the Partnership's performance,
including monitoring of the daily NAV of the Partnership. The General Partners
also review the financial situation of the Partnership's Clearing Broker on a
monthly basis. The General Partners rely on the policies of the Clearing Broker
to monitor specific market risks. The Clearing Broker does not engage in
proprietary trading.
Results of Operations
The Partnership posted a loss for 1999 and experienced positive returns for 1998
and 1997.
1999
The IDS Managed Futures II, L.P. experienced a disappointing year in 1999. Both
John W. Henry & Company, Inc (JWH) and Welton Investment Company (Welton), the
trading advisors to the Partnership, experienced the most difficult performance
year in their history. A lack of sustained price movements coupled with abrupt
trend reversals in many market sectors resulted in a very difficult trading
environment. The forces that supported strong returns in the equity markets such
as strong consumer confidence and the perception of economic equilibrium caused
volatile, sideways price patterns in the futures markets. This type of price
movement is extremely difficult for long-term trend followers such as JWH and
Welton.
The first quarter was marked by the advent of the newly formed Euro currency. In
March, the conflict in Kosovo led to the U.S. dollar gaining dramatically on the
Euro and Swiss franc. As the conflict in Kosovo escalated, the crisis-related
selling of these two currencies continued, resulting in profits for the
Partnership. Short crude oil positions in January and February gave way to long
crude oil positions that were sustained throughout the year. Crude oil began its
sharp ascent from just under $12/barrel to $25.60/barrel at year-end. This
sustained trend proved profitable for the Partnership. However, erratic markets
in interest rates in Europe and the Far East along with agricultural markets
created losses.
The second quarter was the most profitable for the Partnership. Highlights
included the rising Nikkei and S&P 500 stock indices and the continued rise of
the dollar relative to the Euro and Swiss franc. During May, the U.K. rendered
its decision to sell over 50% of its gold reserves. This drove gold prices lower
and the Fund's short positions accrued profits. Short U.S. and European interest
rate positions performed well as the Federal Reserve increased the discount rate
a 1/4 point in June.
The third quarter was the most difficult quarter for the Partnership. As the
crisis in Kosovo began to abate, the Partnership's currency positions in the
Euro and Swiss franc quickly reversed and open trade profits were reduced
dramatically. Despite another 1/4 point interest rate increase in August, short
positions in the U.S. interest rate sector suffered. In the final week of
September, 15 European Central Banks announced that they had decided to stop
selling gold for the next five years. Subsequently, gold prices rose a
staggering $50/ounce and handed gold sellers such as the Partnership a
significant loss.
After the final interest rate increase in October, yields on the U.S. 30 year
bond moved from 6.4% to 6.1% and up to 6.5% in the fourth quarter further
emphasizing the difficult trading year. Similar trading patterns occurred in
offshore interest rates which in turn led to negative performance. The Japanese
yen and crude oil helped offset these losses as their positive trends continued.
The Partnership ended the year with a loss of $2,122,584.
1998
The year 1998 was marked by declining global interest rates and commodity prices
and extremely volatile currency fluctuations. The Partnership 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 Partnership.
Additionally, coffee prices fell 28% during the year and the Partnership
benefited 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 Partnership. 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 Partnership.
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 Partnership 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 and the
Partnership lost on its positions in these currencies. Precious metals, namely
silver, reversed as prices slumped. Gold prices seesawed up and down never
settling on direction. The volatility in these markets was unprofitable to the
Partnership.
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 Partnership
was well positioned to take advantage of rising bonds. The Partnership 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
Partnership was short the Nikkei and FTSE equity indices. Gold and silverprices
fell to 1998 lows, as 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. The long Japanese yen position
that provided the only profit for the Partnership in October was the largest
losing position in November, yet by December, long Japanese yen positions were
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 in the market. Global stock indices rebounded
beginning in October and long positions in the S&P and German DAX proved
rewarding. The Partnership ended the year with a profit of $961,031.
1997
In 1997 the global futures markets showed a great deal of volatility and the
Advisors were well positioned to profit from several of these moves. The
Partnership produced a net gain of 5.45% 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 Partnership. 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 Partnership 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 Partnership ended
the year with a profit of $657,271.
Inflation
Inflation does have an effect on commodity prices and the volatility of
commodity markets; however, continued inflation is not expected to have a
material adverse effect on the Partnership's operations or assets.
Item 7(A). Quantitative and Qualitative Disclosures
About Market Risk
Introduction
Past Results Are Not Necessarily Indicative of Future Performance
The Partnership 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 Partnership'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 Partnership's main line of business.
Market movements result in frequent changes in the fair market value of the
Partnership's open positions and, consequently, in its earnings and cash flow.
The Partnership'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 Partnership's open positions and the
liquidity of the markets in which it trades.
The Partnership 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
Partnership's past performance is not necessarily indicative of its future
results.
Value at Risk is a measure of the maximum amount which the Partnership could
reasonably be expected to lose in a givenmarket sector. However, the inherent
uncertainty of the Partnership's speculative trading and the recurrence in the
markets traded by the Partnership of market movements far exceeding expectations
could result in actual trading or non-trading losses far beyond the indicated
Value at Risk or the Partnership'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
Partnership's losses in any market sector will be limited to Value at Risk or by
the Partnership's attempts to manage its market risk.
Standard of Materiality
Materiality as used in this section, "Quantitative and Qualitative 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 Partnership's market
sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
Quantitative Forward-Looking Statements
The following quantitative disclosures regarding the Partnership's market risk
exposures contain "forward-looking statements" within the meaning of the safe
harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934). All
quantitative disclosures in this section are deemed to be forward-looking
statements for purposes of the safe harbor, except for statements of historical
fact.
The Partnership's risk exposure in the various market sectors traded by the
Advisors is quantified below in terms of Value at Risk. Due to the Partnership's
mark-to-market accounting, any loss in the fair value of the Partnership's open
positions is directly reflected in the Partnership'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 Partnership 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.
In the case of market sensitive instruments which are not exchange traded (which
will be forward currencies should the Partnership begin trading them), the
margin requirements for the equivalent futures positions have been used as Value
at Risk. In those rare cases in which a futures-equivalent margin is not
available, dealers' margins have been used.
The fair value of the Partnership's futures and forward positions does not have
any optionality component. However, Welton also trades commodity options on
behalf of the Partnership. 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 Partnership in all cases
fluctuate to a lesser extent than those of the underlying instruments.
In quantifying the Partnership'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 Partnership's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
The Partnership's Trading Value at Risk in Different Market Sectors
The following table indicates the average, highest and lowest amounts of
trading Value at Risk associated with the Fund's open positions by market
category for fiscal year 1999 and the actual trading Value at Risk as of
December 31, 1998. All open position trading risk exposures of the Fund have
been included in calculating the figures set forth below. During fiscal year
1999, the Fund's average total capitalization was approximately $10.2 million.
As of December 31, 1998, the Fund's total capitalization was approximately $12.1
million.
<TABLE>
Fiscal Year 1999
- ----------------------------------------------------------------
<CAPTION>
Highest Lowest Average % of
Market Value Value Value Average
Sector at Risk* at Risk* at Risk* Capitalization**
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rates $0.9 $0.2 $0.6 5.7%
Currencies $0.3 $0.3 $0.3 2.9%
Stock Indices $0.6 $0.5 $0.4 3.6%
Precious Metals $0.4 $0.2 $0.3 3.0%
Commodities $0.2 $.05 $0.1 1.3%
Energy $.05 $.04 $.06 0.6%
---- ---- ----- -----
Total $2.4 $1.3 $1.7 17.0%
<FN>
* Average, highest and lowest Value at Risk amounts relate to the
quarter-end amounts for each calendar quarter-end during the fiscal year. All
amounts represent millions of dollars.
** Average Capitalization is the average of the Fund's capitali-zation at
the end of each fiscal quarter for fiscal year 1999.
</FN>
</TABLE>
<TABLE>
December 31, 1998
<CAPTION>
% of Total
Market Sector Value at Risk (000 omitted) Capitalization
<S> <C> <C>
Interest Rates $ 854 7.1%
Currencies $ 163 1.3%
Stock Indices $ 123 1.0%
Precious Metals $ 96 0.8%
Commodities $ 26 0.2%
Energies 20 0.2%
Total $1,281 10.6%
</TABLE>
Material Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership 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
Partnership. The magnitude of the Partnership'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 Partnership to incur severe losses
over a short period of time. The foregoing Value at Risk table as well as the
past performance of the Partnership give no indication of this "risk of ruin."
Non-Trading Risk
The Partnership 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 Partnership holds substantially all of its assets
in cash on deposit with CIS and CISFS. The Partnership has cash flow risk on
these cash deposits because if interest rates decline, so will the interest paid
out by CIS and CISFS at 80% of the 90-day Treasury bill rate. As of December 31,
1999, the Partnership had approximately $9.0 million in cash on deposit with CIS
and CISFS.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's market
risk exposures except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Partnership and the
Advisors manage the Partnership'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 Partnership's primary
market risk exposures as well as the strategies used and to be used by the
Advisors for managing such exposures are subject to numerous uncertainties,
contingencies and risks, any one of which could cause the actual results of the
Partnership'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 Partnership. There can be no assurance that the Partnership'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 Partnership.
The following were the primary trading risk exposures of the Partnership as of
December 31, 1999, by market sector.
Interest Rates. Interest rate risk is a major market exposure of the
Partnership. Interest rate movements directly affect the price of the sovereign
bond positions held by the Partnership 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
Partnership's profitability. The Partnership's primary interest rate exposure is
to interest rate fluctuations in the United States and the other G-7 countries.
However, the Partnership also takes positions in the government debt of smaller
nations e.g., Australia and New Zealand. The General Partners anticipate that
G-7 interest rates will remain the primary market exposure of the Partnership
for the foreseeable future. The changes in interest rates which have the most
effect on the Partnership are changes in long-term, as opposed to short-term,
rates. Most of the speculative positions held by the Partnership are in medium-
to long-term instruments. Consequently, even a material change in short-term
rates would have little effect on the Partnership were the medium- to long-term
rates to remain steady.
Currencies. The Partnership'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 Partnership trades in a large number of
currencies, including cross-rates - i.e., positions between two currencies other
than the U.S. dollar. However, the Partnership's major exposures have typically
been in the dollar/yen, dollar/Euro, dollar/Swiss franc and dollar/pound
positions. The General Partners do not anticipate that the risk profile of the
Partnership's currency sector will change significantly in the future. 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 Partnership in expressing Value at Risk in a
functional currency other than dollars.
Stock Indices. The Partnership's primary equity exposure is to equity price
risk in the G-7 countries. The stock index futures traded by the Partnership are
by law limited to futures on broadly based indices. As of December 31, 1999, the
Partnership's primary exposures were in the S&P and NASDAQ (US), Nikkei (Japan)
and IBX35 (Spain) stock indices. The General Partners anticipate little trading
in non-G-7 stock indices. The Partnership 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 Partnership to avoid being "whipsawed" into numerous small
losses.)
Metals. The Partnership's metals market exposure is to fluctuations in the
price of gold and silver as well as various of the industrial metals. The
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 Partnership's primary commodities exposure is to agricultural
price movements which are often directly affected by severe or unexpected
weather conditions. Coffee, wheat and hogs accounted for the substantial bulk of
the Partnership's commodities exposure as of December 31, 1999. In the past, the
Partnership also has had material market exposure to grains, rubber, cotton,
cattle, sugar and cocoa and may do so again in the future. Welton and the
Partnership will continue to trade a wide variety of commodity contracts.
Energy. The Partnership's primary energy market exposure is to gas and oil
price movements, often resulting from political developments in the Middle East.
Although the Advisors trade natural gas to a limited extent, oil and oil
products are by far the dominant energy market exposure of the Partnership. Oil
prices can be volatile and substantial profits and losses have been and are
expected to continue to be experienced in this market.
<PAGE>
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following were the only non-trading risk exposures of the Partnership as of
December 31, 1999.
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, Euros, British pounds and Australian dollars. The
Partnership 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 Partnership holds substantially all its assets in cash at CIS
and CISFS, earning interest at 80% of the average 90-day Treasury bill rate for
Treasury bills issued during each month.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The General Partners monitor the Partnership's performance and the
concentration of its open positions, and consult with the Advisors concerning
the Partnership's overall risk profile. If the General Partners felt it
necessary to do so, the General Partners could require the Advisors to close out
individual positions as well as entire programs traded on behalf of the
Partnership. However, any such intervention would be a highly unusual event. The
General Partners primarily rely on the Advisors own risk control policies while
maintaining a general supervisory overview of the Partnership's market risk
exposures.
Risk Management
JWH attempts to control risk in all aspects of the investment process from
confirmation of a trend to determining the optimal exposure in a given market,
and to money management issues such as the startup or upgrade of investor
accounts. JWH double checks the accuracy of market data, and will not trade a
market without multiple price sources for analytical input. In constructing a
portfolio, JWH seeks to control overall risk as well as the risk of any one
position, and JWH trades only markets that have been identified as having
positive performance characteristics. Trading discipline requires plans for the
exit of a market as well as for entry. JWH factors the point of exit into the
decision to enter (stop loss). The size of JWH's positions in a particular
market is not a matter of how large a return can be generated but of how much
risk it is willing to take relative to that expected return.
To attempt to reduce the risk of volatility while maintaining the potential for
excellent performance, proprietary research is conducted on an ongoing basis to
refine the JWH investment strategies. Research may suggest substitution of
alternative investment methodologies with respect to particular contracts; this
may occur, for example, when the testing of a new methodology has indicated that
its use might have resulted in different historical performance. In addition,
risk management research and analysis may suggest modifications regarding the
relative weighting among various contracts, the addition or deletion of
particular contracts from a program, or a change in position size in relation to
account equity. The weighting of capital committed to various markets in the
investment programs is dynamic, and JWH may vary the weighting at its discretion
as market conditions, liquidity, position limit considerations and other factors
warrant.
JWH may determine that risks arise when markets are illiquid or erratic, such as
may occur cyclically during holiday seasons, or on the basis of irregularly
occurring market events. In such cases, JWH at its sole discretion may override
computer-generated signals and may at times use discretion in the application of
its quantitative models, which may affect performance positively or negatively.
Adjustments in position size in relation to account equity have been and
continue to be an integral part of JWH's investment strategy. At its discretion,
JWH may adjust the size of a position in relation to equity in certain markets
or entire programs. Such adjustments may be made at certain times for some
programs but not for others. Factors which may affect the decision to adjust the
size of a position in relation to account equity include ongoing research,
program volatility, assessments of current market volatility and risk exposure,
subjective judgment, and evaluation of these and other general market
conditions.
Welton's portfolios are subject to an on-going process of monitoring and review.
Risk is managed at all levels in the investment process. In advance of entering
a position, the risk of each trade is determined in relationship to the
potential exposure and volatility impact of that open position in an account
proportionate to its size. Multiple indicators of risk exposure are calculated
including initial risk, volatility, intra-period volatility, open equity risk,
and margin exposure. Various risk measures for each trade are determined before
trade entry and monitored throughout the life span of the trade.
The factors used to assess risk exposure and performance risks more generally
include (i) initial risk per trade (by model and market); (ii) volatility
(standard deviation of returns) per trade throughout the holding period; (iii)
open equity risk (by market, market group and portfolio); (iv) margin to equity
ratio (by market and portfolio); (v) judgment of extraordinary event or report
risk; (vi) portfolio level volatility (standard deviation and negative
semi-variant standard deviation); (vii) slippage (model efficiency and market
liquidity) monitoring 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.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements and the notes thereto appearing in
this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The Partnership is managed by its General Partners, IDS Futures Corporation and
CIS Investments, Inc. The officers and directors of the General Partners as of
December 31, 1999 were as follows:
IDS Futures Corporation
John C. Boeder (born December 1941) is President and a director of IDS Futures
Corporation. Mr. Boeder was elected as a director and President of IDS Futures
in December 1999. Mr. Boeder has been employed by American Express Financial
Corporation since 1964. Since January 1999, he has held the title Vice President
and General Manager of the Non-Proprietary Products Group for American Express
Financial Corporation. He has overall responsibility for the non-proprietary
products offered through American Express Financial Advisors' distribution
channels. In addition, he oversees American Express Financial Advisors' direct
investment and limited partnership business. From 1994 to 1999, he was Vice
President and General Manager of Segment Marketing. From 1989 to 1994, he was
President of IDS Life Insurance Company of New York. He has held numerous
marketing positions in the insurance, annuity, and mutual fund departments of
American Express Financial Corporation. He graduated from the University of
Minnesota with a B.A. degree in business.
Michael L. Weiner (born in July 1946), Vice President, Secretary and
Treasurer. Mr. Weiner is the Vice President-Corporate Tax Operations of American
Express Financial 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 is also an officer of AXP Advisors. 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.
Peter J. Anderson (born in March 1942), Director. Mr. Anderson is Chairman
and Chief Investment Officer of IDS Advisory Group Inc., as well as Senior Vice
President - Investments and a member of the board of directors of American
Express Financial Advisors Inc. Mr. Anderson joined IDS Advisory Group Inc. in
April 1982 as Senior Vice President - IDS Equity Advisors, a division of IDS
Advisory Group Inc. He became President of IDS Advisory Group in January 1985.
In July 1987 Mr. Anderson was named Senior Vice President of American Express
Financial Advisors Inc. and at that point assumed responsibility for common
stock mutual funds. In January 1993 Mr. Anderson assumed responsibility for the
portfolio management, research and economic functions of American Express
Financial Advisors Inc. Mr. Anderson has a B.A. from Yale University and an
M.B.A. with a major in finance from Wharton Graduate School.
Patty L. Moren (born in June 1960) is Vice President of IDS Futures. Since
June 1999, Ms. Moren has been Vice President Controller of Variable Assets &
Services for American Express Financial Corporation. In this role, she is
charged with the overall finance responsibilities for mutual funds, wealth
management services, variable annuities, limited partnerships and brokered
mutual funds at American Express Financial Corporation, an indirect parent
company of IDS Futures. From 1995 to 1999, she was Director of Field
Compensation for American Express Financial Corporation where she led the
development of product compensation schedules and incentive programs for the
independent contractor sales force. From 1990 to 1995, Ms. Moren was Manager of
Sales Compensation for American Express Financial Corporation. Ms. Moren started
at American Express Financial Corporation in 1985 as Audit Manager. Prior to
joining American Express Financial Corporation, she was a senior financial
auditor for Cargill, Inc. She has a B.A. in Accounting from the University of
St. Thomas and a M.B.A. in Finance from Carlson School of Management.
CIS Investments, Inc.
Bernard W. Dan (born in December 1960), President and Director. Mr. Dan has
served as President and Director of CISI since June 1, 1998. He received a B.S.
degree in accounting from St. John's University, Collegeville, Minnesota. He
joined Cargill Investor Services, Inc. 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 was named President of Cargill Investor Services, Inc.
on June 1, 1998. Mr. Dan actively serves within the futures industry on exchange
committees and industry user groups.
Shaun D. O'Brien (born November 1964) is Vice President -
Controller/Treasurer and a director. Mr. O'Brien became a Vice President and a
director of CISI on July 1, 1999. Mr. O'Brien graduated from Northeastern
University in 1987 and he received a master's degree from the University of
Minnesota's Carlson School of Management in 1999. Mr. O'Brien began working for
Cargill, Incorporated in 1988 and joined CIS in 1999.
Barbara A. Pfendler (born in May 1953), Vice President and Director. Ms.
Pfendler was appointed Vice President of CISI in May 1990 and Director of CISI
in June 1998. Ms. Pfendler graduated from the University of Colorado in 1975.
She began her career with Cargill, Incorporated in 1975, holding various
merchandising and management positions within Cargill Incorporated's Oilseed
Processing Division before transferring to Cargill Investor Services, Inc. in
1986. She is currently the manager responsible for all activities of the Fund
Services Group at Cargill Investor Services, Inc. She was appointed Vice
President of Cargill Investor Services, Inc. in June 1996 and Director of
Cargill Investor Services, Inc. in June 1998.
Jan R. Waye (born in June 1948), Vice President. Mr. Waye was appointed
Vice President of CISI in June 1997. Mr. Waye graduated from Concordia College,
Moorhead, MN, with a B.A. degree in Communications and Economics in 1970. Mr.
Waye assumed the position of Senior Vice President of Cargill Investor Services,
Inc. in September 1996, after returning from London where he held various
management positions for Cargill Investor Services, Ltd. including most recently
Managing Director for CIS Europe. Mr. Waye joined Cargill, Incorporated in 1970
and served in various commodity trading and management positions in Chesapeake,
VA; Winnipeg, Manitoba; and Vancouver, BC. In 1978 he moved to New York and
shortly thereafter Minneapolis as head of Foreign Exchange for Cargill's metals
trading business. Mr. Waye served in various management positions in the
Financial Markets Group until 1988 when he assisted in the management and sale
of Cargill's life insurance business in Akron, Ohio. He moved to London in late
1988. Mr. Waye has served as a member of the Board of LIFFE, the London
International Financial Futures and Options Exchange, and as Vice Chairman of
its Membership and Rules Committee. He also served on the Board of the London
Commodity Exchange up to its merger with LIFFE.
Christopher Malo (born in August 1956), Vice President. Mr. Malo graduated
from Indiana University in 1976 with a B.S. in Accounting and further completed
the University of Minnesota Executive Program in 1993. He started working at
Cargill, Incorporated in June 1978 as an internal auditor. He transferred to
Cargill Investor Services, Inc. in August 1979 and served as Secretary/Treasurer
and Controller from November 1983 until July 1991. He was elected Vice
President, Administration and Operations in July 1991. Mr. Malo 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), Vice President. Mr. Davis was
elected Vice President of CISI in June 1998. Mr. Davis graduated from Illinois
Institute of Technology, Chicago, Illinois with a B.S. in 1975 and with an M.B.A
in 1977. He began his career in the futures industry with A.G. Becker,
Incorporated in 1980 and joined Cargill Investor Services, Inc. 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), Secretary. Ms. Steindel was
elected Secretary of CISI in September 1997. Ms. Steindel graduated from the
University of Illinois in 1987. She began working at Cargill Investor Services,
Inc. in August 1987. She has held various financial and risk management
positions at Cargill Investor Services, Inc. and was elected Risk and Compliance
Officer and Secretary of Cargill Investor Services, Inc. in August 1997. She
currently serves on the Board of Directors and Executive Committee of the FIA
Financial Management Division.
Patrice H. Halbach (born in August 1953), Assistant Secretary. Ms. Halbach
became Assistant Secretary of CISI in June 1996. Ms. Halbach graduated Phi Beta
Kappa from the University of Minnesota with a bachelor of arts degree in
history. In 1980 she received a J.D. degree cum laude from the University of
Minnesota. She is a member of the Tax Executives Institute, the American Bar
Association and the Minnesota Bar Association. Ms. Halbach joined the Law
Department of Cargill, Incorporated in February 1983. She had previously been an
attorney with Fredrikson & Byron, Minneapolis, Minnesota. In December 1990 she
was named Senior Tax Manager for Cargill, Incorporated's Tax Department and
became Assistant Tax Director in March 1993. She was named Assistant Vice
President of Cargill, Incorporated's Administrative Division in April 1994. In
January 1999 she was named Vice President, Tax, of Cargill, Incorporated. In her
current position as Vice President, Tax, Ms. Halbach oversees Cargill,
Incorporated's global tax function.
Barbara A. Walenga (born in February 1960) is an Assistant Secretary. Ms.
Walenga graduated from Fayetteville Technical Institute in 1981. She began
working at CIS in August 1981. She has held various compliance management
positions at CIS and is currently the Legal Compliance Manager. She is currently
a member of the FIA Law and Compliance Division and the SIA Compliance and Legal
Division.
Additional CISI officers include James Clemens as Assistant Secretary and
Lillian Lundeen as Assistant Secretary
Each officer and director holds such office until the election and
qualification of his or her successor or until his or her earlier death,
resignation or removal.
Item 11. Executive Compensation
The Partnership has no officers or directors. The General Partners, IDS Futures
and CISI administer the business and affairs of the Partnership (exclusive of
Partnership trading decisions which are made by independent commodity trading
advisors). The officers and directors of the General Partners receive no
compensation from the Partnership for acting in their respective capacities with
the General Partners.
All operating and administrative expenses attributable to the Partnership are
paid by the General Partners except for brokerage commissions, NFA, clearing and
exchange fees, advisory fees, legal, accounting, auditing, printing, recording
and filing fees and postage charges which are paid directly by the Partnership.
All expenses other than brokerage commissions incurred by the Partnership will
be paid to persons not affiliated with the Partnership.
CIS, an affiliate of CISI, is the Partnership's clearing broker. During the
year ended December 31, 1999, the Partnership accrued and paid $481,143 in
brokerage commissions and exchange fees to CIS. For JWH, $37.25 per round-turn
trade is paid to AXP Advisors as the Partnership's Introducing Broker and $21.50
is retained by CIS as Clearing Broker. For Welton, $27.15 per round-turn trade
is paid to AXP Advisors and $16.60 is retained by CIS.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) As of December 31, 1999, no person was known to the Partnership to own
beneficially more than 5% of the outstanding Units.
(b) As of December 31, 1999, the General Partners beneficially owned 644.45
Units or approximately 4.15% of the Units outstanding as of that date. In
addition, Michael L. Weiner, Vice President, Secretary and Treasurer of IDS
Futures, beneficially owned 1 of the outstanding Units.
(c) As of December 31, 1999, no arrangements were known to the registrant,
including any pledges by any person of Units of the Partnership or shares of its
General Partners or the parents of the General Partners, such that a change in
control of the Partnership may occur at a subsequent date.
Item 13. Certain Relationships and Related Transactions
(a) None other than the compensation arrangements described herein.
(b) None.
(c) None.
(d) Not Applicable.
<PAGE>
Part IV
Item 14. Exhibits, Financial Statements Schedules and Reports on Form 8-K
(a) The following documents are included herein:
(1) Financial Statements:
a. Report of Independent Public Accountants
b. Statements of Financial Condition as of December 31, 1999 and 1998
c. For the years ended December 31, 1999, 1998 and 1997: Statements
of Operations, Statements of Changes in Partners' Capital, and
Statements of Cash Flows
d. Notes to Financial Statements
(2) All financial statement schedules have been omitted either because the
information required by the schedules is not applicable or because the
information required is contained in the financial statements included herein or
the notes thereto.
(3) Exhibits:
See the Index to Exhibits annexed hereto.
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 27, 2000 IDS Managed Futures II, L.P.
By: IDS Futures Corporation By: CIS Investments, Inc.
(General Partner) (General Partner)
By: /s/ John C. Boeder By: /s/ Bernard W. Dan
John C. Boeder Bernard W. Dan
President President
By: /s/ Michael L. Weiner By: /s/ Shaun D. O'Brien
Michael L. Weiner Shaun D. O'Brien
Vice President, Secretary and Vice President
Treasurer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Date: March 27, 2000
/s/ John C. Boeder /s/ Bernard W. Dan
John C. Boeder Bernard W. Dan
Director and President Director and President
/s/ Peter J. Anderson /s/ Barbara A. Pfendler
Peter J. Anderson Barbara A. Pfendler
Director Director and Vice
President
/s/ Michael L. Weiner /s/ Shaun D. O'Brien
Michael L. Weiner Shaun D. O'Brien
Vice President, Secretary and Vice President and
Treasurer Treasurer
<PAGE>
Index to Exhibits
Number Exhibit
3.1 Limited Partnership Agreement dated July 14, 1987. (Incorporated by
reference to the Post-Effective Amendment No. 2 to the Registration Statement
No. 33-13939 declared effective on May 4, 1988).
10.1 Advisory Contract dated as of July 14, 1987 between CIS Investments,
Inc., IDS Futures Corporation, IDS Managed Futures II, L.P., John W. Henry &
Company, Inc. and Sabre Fund Management Limited. (Incorporated by reference to
the Post- Effective Amendment No. 2 to the Registration Statement No. 33-13939
declared effective on May 4, 1988).
10.2 Amended Advisory Contract dated December 31, 1999 between CIS
Investments, Inc., IDS Futures Corporation, IDS Managed Futures II, L.P. and
John W. Henry & Company, Inc.
10.3 Guarantee dated March 21, 2000 between IDS Managed Futures II, L.P. and
Cargill Incorporated.
<PAGE>
Index to Financial Statements
IDS Managed Futures II, L.P.
Report of Independent Public Accountants
Statements of Financial Condition as of
December 31, 1999 and 1998
Statements of Operations for the years ended
December 31, 1999, 1998, and 1997
Statements of Changes in Partners' Capital for the
years ended December 31, 1999, 1998 and 1997
Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997
Notes to Financial Statements
Acknowledgement
<PAGE>
Independent Auditors' Report
The Partners
IDS Managed Futures II, L.P.:
We have audited the accompanying statements of financial condition of IDS
Managed Futures II, L.P. (the Partnership) as of December 31, 1999 and
1998, and the related statements of operations, changes in partners'
capital, and cash flows for each of the years in the three-year period
ended December 31, 1999. 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 II,
L.P. as of December 31, 1999 and 1998, and the results of operations,
changes in partners' capital, and cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally
accepted accounting principles.
KPMG LLP
Chicago, IL
January 24, 2000
<PAGE>
<TABLE>
IDS MANAGED FUTURES II, L.P.
Statements of Financial Condition
December 31, 1999 and 1998
<CAPTION>
Assets 1999 1998
------------- ----------
<S> <C> <C>
Equity in commodity futures trading accounts:
Cash on deposit with Clearing Broker $8,533,968 11,060,948
Unrealized gain on open contracts 446,557 1,255,115
------------- ----------
8,980,525 12,316,063
Interest receivable 31,072 34,361
------------- ----------
$9,011,597 12,350,424
============= ==========
Liabilities and Partners Capital
Liabilities:
Accrued commissions on open contracts
due to AXP Advisors and CIS $ 12,243 47,870
Accrued exchange, clearing and NFA fees 381 459
Accrued management fees 27,236 37,278
Accrued operating expenses 32,000 53,140
Redemptions payable 81,245 143,490
------------- ----------
Total liabilities 153,105 282,237
------------- ----------
Partners capital:
Limited partners (14,887.18 and 16,597.42 units outstanding
at December 31, 1999 and 1998, respectively) 8,490,927 11,617,111
General partners (644.45 units outstanding at December 31,
1999 and 1998) 367,565 451,076
------------ ----------
Total partners capital 8,858,492 12,068,187
------------ ----------
$9,011,597 12,350,424
============ ==========
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
IDS MANAGED FUTURES II, L.P.
Statements of Operations
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues (losses):
Gain (loss) on trading of commodity contracts:
Realized gain (loss) on closed positions $ (792,802) 1,015,551 1,170,528
Increase (decrease) in unrealized gain on
open contracts (808,558) 618,340 270,816
Interest income 389,415 438,352 505,885
Foreign currency transaction loss (3,985) (44,816) (205,540)
----------- ------------ ------------
Total revenues (losses) (1,215,930) 2,027,427 1,741,689
----------- ------------ ------------
Expenses:
Commission paid to AXP Advisors and CIS 481,143 487,291 496,134
Exchange, clearing and NFA fees 13,077 9,945 11,108
Management fees 385,430 425,915 455,236
Incentive fees - 102,439 101,866
Operating expenses 27,004 40,806 20,074
----------- ------------- -------------
Total expenses 906,654 1,066,396 1,084,418
----------- ------------- -------------
Net profit (loss) $ (2,122,584) 961,031 657,271
=========== ============= =============
Profit (loss) per unit of limited partnership interest $ (129.58) 57.27 33.22
Profit (loss) per unit of general partnership interest (129.58) 57.27 33.22
=========== ============= =============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
IDS MANAGED FUTURES II, L.P.
Statements of Changes in Partners Capital
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
Total
Limited General partners
Units* partners partners capital
----------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 20,173.69 $ 12,294,671 392,762 12,687,433
Net profit - 635,869 21,402 657,271
Redemptions (1,617.25) (1,005,098) - (1,005,098)
----------- ------------- ----------- -----------
Balance at December 31, 1997 18,556.44 11,925,442 414,164 12,339,606
Net profit - 924,119 36,912 961,031
Redemptions (1,959.02) (1,232,450) - (1,232,450)
----------- ------------- ----------- -----------
Balance at December 31, 1998 16,597.42 11,617,111 451,076 12,068,187
Net loss - (2,039,073) (83,511) (2,122,584)
Redemptions (1,710.24) (1,087,111) - (1,087,111)
---------- ------------- ----------- -----------
Balance at December 31, 1999 14,887.18 $ 8,490,927 367,565 8,858,492
========== ============= =========== ===========
Net asset value per unit at December 31, 1999 $ 570.35 570.35
============= ===========
Net asset value per unit at December 31, 1998 $ 699.93 699.93
============= ===========
Net asset value per unit at December 31, 1997 $ 642.66 642.66
============= ===========
*Units of limited partners.
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
IDS MANAGED FUTURES II, L.P.
Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
<CAPTION>
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net profit (loss) $ (2,122,584) 961,031 657,271
Adjustments to reconcile net profit (loss) to net cash
provided by (used in) operating activities
change in assets and liabilities:
Decrease (increase) in unrealized
gain on open contracts 808,558 (618,340) (270,816)
Decrease (increase) in interest receivable 3,289 10,998 (1,391)
Decrease in accrued liabilities (66,887) (41,092) (331,285)
----------- ----------- ------------
Net cash provided by
(used in) operating activities (1,377,624) 312,597 53,779
Cash flows used in financing activities
partner redemptions (1,149,356) (1,127,566) (1,128,060)
----------- ----------- ------------
Net decrease in cash (2,526,980) (814,969) (1,074,281)
Cash at beginning of year 11,060,948 11,875,917 12,950,198
----------- ----------- ------------
Cash at end of year $ 8,533,968 11,060,948 11,875,917
=========== =========== ============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
IDS MANAGED FUTURES II, L.P.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
(1) General Information and Summary
IDS Managed Futures II, L.P. (the Partnership), a limited partnership
organized in April 1987 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 General
Partners are IDS Futures Corporation and CIS Investments, Inc. The
clearing broker is Cargill Investor Services, Inc. (Clearing Broker or
CIS), the parent company of CIS Investments, Inc.
The Partnership shall be terminated on December 31, 2007 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 $1,500,000; (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 that 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 recorded on the identified cost basis
and marked to market daily. Unrealized gains and losses on open
contracts 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 80% of the average 91-day treasury bill rate
for U.S. Treasury bills issued during that month.
Redemptions
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. Redemptions are based on the Net Asset Value per
unit as of the last day of the month and require ten days' written
notice to the General Partners. Payment will be made within ten
business days of the effective date of the redemption. The
Partnership's Limited Partnership Agreement contains a full
description of redemption and distribution procedures.
<PAGE>
IDS MANAGED FUTURES II, L.P.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
Commissions
Effective January 18, 1999, brokerage commissions and National
Futures Association (NFA) clearing and exchange fees are accrued
on a half-turn basis on open commodity futures contracts, as
opposed to a round-turn basis prior to this date. The Partnership
pays CIS commissions on trades executed on its behalf at a rate of
$29.375 per half-turn contract (previously $58.75 per round-turn
contract). For trades executed by Welton Investment Corporation,
the Partnership pays $21.875 per half-turn contract (previously
$43.75 per round-turn contract). The Partnership pays these
commissions directly to CIS and CIS then reallocates the
appropriate portion to American Express Financial Advisors Inc.
(AXP Advisors).
Foreign Currency Transactions
Trading accounts in foreign currency denominations are susceptible
to both movements in underlying contract markets as well as
fluctuations in currency rates. Translation of foreign currencies
into U.S. dollars for closed positions is 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 represents cash
and cash on deposit in commodity trading accounts with the
Clearing Broker.
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 and incentive fees are accrued
monthly and paid quarterly. Trading decisions for the periods of these financial
statements were made by the following Commodity Trading Advisors (CTAs): Sabre
Fund Management Limited (Sabre); John W. Henry & Company, Inc. (JWH); and Welton
Investment Corporation (Welton).
Under signed agreement for the periods presented prior to January 1,
1996, Sabre received a monthly management fee of 1/3 of 1% of the
month-end net asset value of the Partnership under their management and
15% of the Partnership's net trading profits, if any, 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 1/6
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.
<PAGE>
IDS MANAGED FUTURES II, L.P.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
Under signed agreement dated July 8, 1997, 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.
(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 $0, $15,141, and $9,828
for the years ended December 31, 1999, 1998 and 1997, respectively, and
is included in operating expenses in the statements of operations.
(5) Financial Instruments with Off-balance Sheet Risk
The Partnership was formed to trade commodity interests speculatively.
The Partnership's commodity interest transactions and related cash
balances 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 that 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 that 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 $17,753,470 and $30,101,172,
respectively, on December 31, 1999 and $187,152,308 and $177,725,114,
respectively, on December 31, 1998. 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 nonperformance. 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.
<PAGE>
IDS MANAGED FUTURES II, L.P.
Notes to Financial Statements
December 31, 1999, 1998 and 1997
The average fair value of commodity interests was $577,453, $917,156 and
$720,402 during 1999, 1998 and 1997, respectively. Fair value as of
December 31, 1999 and 1998 was $446,557 and $1,255,115, respectively.
The net gains or losses arising from the trading of commodity interests
are presented in the statement of operations.
The Partnership holds futures and futures options positions on the
various exchanges throughout the world. The Partnership does not trade
over-the-counter contracts. As defined by SFAS 105, futures positions
are classified as financial instruments. SFAS 105 requires that the
Partnership disclose the market risk of loss from all of its financial
instruments. Market risk is defined as the possibility that future
changes in market prices may make a financial instrument less valuable
or more onerous. If the markets should move against all of the futures
positions held by the Partnership at the same time, and if the markets
moved such that the CTAs were unable to offset the futures positions of
the Partnership, the Partnership could lose all of its assets and the
partners would realize a 100% loss. As of December 31, 1998, the
Partnership has contracts with two CTAs who make the trading decisions.
One of the CTAs trades a program that is diversified among all commodity
groups, while the other is diversified among the various futures
contracts in the financial and metals group. Both traders trade on U.S.
and non-U.S. exchanges. Such diversification should greatly reduce this
market risk.
At December 31, 1999, the cash requirement of the commodity interests of
the Partnership was $1,039,488. This cash requirement is met by
$8,025,083 held in segregated funds and $955,442 held in secured funds.
At December 31, 1998, the cash requirement of the commodity interests of
the Partnership was $1,341,752. This cash requirement was met by
$10,740,220 held in segregated funds and $1,575,843 held in secured
funds. At December 31, 1999 and 1998, cash was on deposit with the
Clearing Broker that 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, 1999 and 1998:
<TABLE>
Commodity Group 1999 1998
<CAPTION>
<S> <C> <C>
Agricultural $ 13,490 19,755
Currency 85,422 82,163
Stock Indices 195,221 116,185
Energies 3,698 25,324
Metals 29,004 (10)
Interest 119,722 1,011,698
Total $ 446,557 1,255,115
======= =========
</TABLE>
The range of expiration dates of these exchange traded open contracts is
January 2000 to December 2000.
<PAGE>
IDS MANAGED FUTURES II, L.P.
Acknowledgement
December 31, 1999, 1998 and 1997
Acknowledgment
To the best of my knowledge and belief, the information contained herein is
accurate and complete.
/s/ Shaun O'Brien
Shaun O'Brien
Treasurer, CIS Investments, Inc.,
One of the General Partners and Commodity Pool Operators of
IDS Managed Futures II, L.P.
AMENDMENT TO THE IDS MANAGED FUTURES II, L.P.
ADVISORY CONTRACT DATED JULY 14, 1987
John W. Henry & Company, Inc., a Florida corporation ("JWH"), IDS
Managed Futures II, L.P, a Delaware limited partnership ("the Partnership"), IDS
Futures Corporation, a Minnesota corporation ("IDS Futures"), and CIS
Investments, Inc. a Delaware corporation ("CISI"), hereby agree to the following
amendments (collectively, the "Amendment") to that certain Advisory Contract
dated July 14, 1987, by and among the parties hereto ("the Advisory Contract"),
as amended (the Advisory Contract and the aforesaid amendments thereto are
hereinafter referred to collectively as the "Agreement"). All terms and
conditions of the Agreement shall remain in full force and effect after adoption
of this Amendment unless expressly and specifically amended hereby, and all
references to the Agreement shall be deemed references to the Agreement as
amended hereby. The purpose of this Amendment is to extend the term of the
Agreement. Any capitalized terms used herein and not specifically defined herein
shall have the meanings ascribed to such terms in the Agreement.
1. Under Section 6, Terms and Termination, the first paragraph shall be deleted
and a new first paragraph shall be inserted to replace the deleted paragraph and
shall read as follows:
The term of the Agreement as hereby amended shall be deemed to
have commenced on the date that the Agreement would have expired had
this Amendment not been executed, and unless sooner terminated, shall
continue in effect until December 31, 2002. This Agreement shall
automatically renew with respect to JWH on the same terms as set forth
herein for three additional twelve-month terms beginning January 1 and
ending December 31 unless the Partnership shall give to JWH written
notice that it does not elect to renew the Agreement with respect to
JWH at least 45 days prior to the termination of the then current
twelve-month period. This renewal right shall be applicable
irrespective of any change in Advisors or any reallocation of
Partnership assets among Advisors or to other trading advisors by the
Partnership.
2. This Amendment may be signed in multiple counterparts, all of
which, when taken together shall constitute one document.
3. The parties restate and confirm the accuracy as of the date hereof of
the representations made by each of them in Section 11 and Section 12
of the Agreement.
4. This Amendment and the applicable provisions of the Agreement not
expressly and specifically amended hereby together constitute the
entire agreement among the parties with respect to the matters referred
to herein and therein, and no other agreement, verbal or otherwise,
shall be binding upon the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the 31st day of December, 1999.
IDS MANAGED FUTURES II, L.P. JOHN W. HENRY & COMPANY, INC.
CIS INVESTMENTS, INC.
General Partner By: /s/ Verne O. Sedlacek
Its: President
By: /s/ Barbara A. Pfendler
Its: Vice President
IDS FUTURES CORPORATION
General Partner
By: /s/ John M. Knight
Its: Vice President
CIS INVESTMENTS, INC.
By: /s/ Barbara A. Pfendler
Its: Vice President
IDS FUTURES CORPORATION
By: /s/ John M. Knight
Its: Vice President
March 21, 2000
IDS Managed Futures, L.P.
c/o CIS Investments, Inc.
233 South Wacker Drive
Suite 2300
Chicago, IL 60606
Attn: Barbara A. Pflender
1. In consideration of your carrying accounts with, and
entering into foreign exchange transactions with and/or through, our subsidiary,
CIS Financial Services, Inc. (the "Subsidiary") for other good and valuable
consideration, the receipt of which is hereby acknowledged, effective as of the
date of this guarantee, Cargill, Incorporated (the "Guarantor"), does hereby
unconditionally guarantee that it will make to you (the "Counterparty") any due
but unpaid payments within ten (10) New York business days after receipt of the
Counterparty's written demand upon the Subsidiary and the Guarantor, unless the
Counterparty shall otherwise agree in writing. All reference herein to "you" or
the "Counterparty" are references to you and your successors and permitted
assigns. However, in no event shall the Guarantor's liability under this
guarantee exceed the maximum aggregate amount of U.S. $1,000,000 (One Million
United States Dollars), plus accrued interest and the reasonable costs of
enforcing the obligations of the Guarantor hereunder, including reasonable
attorneys' fees.
2. If any obligation of the Subsidiary for which the Guarantor
shall become responsible pursuant to this guarantee shall be payable in a
currency other than U.S. Dollars, and in a place other than the United States of
America, the Guarantor shall have the right to discharge such obligation by
payment to the Counterparty of U.S. Dollars. Such payment shall be in an amount
converted into U.S. Dollars at the spot rate of exchange quoted by The Chase
Manhattan Bank, New York in the New York interbank market at 11:00 a.m. New York
time on the day of payment for the sale by the Guarantor of U.S. Dollars against
a purchase by the Guarantor of the currency of the obligation.
3. The Guarantor further agrees that all payments made by the
Subsidiary to the Counterparty on any obligation hereby guaranteed will, when
made, be final and agrees that if any such payment is recovered from, or repaid
by, the Counterparty in whole or in part as a result of any final court order in
any bankruptcy, insolvency, or similar proceeding instituted by or against the
Subsidiary, or if any such payment is rescinded or otherwise required to be
restored by any final court order, this guarantee shall continue to be fully
applicable to such obligation to the same extent as though the payment so
recovered or repaid had never been originally made on such obligation. However,
after taking into account any such recovery from or repayment by the
Counterparty, or any such rescission or restoration, in no event shall the
guarantee be interpreted to allow the Counterparty to recover more from the
Guarantor, the Subsidiary, through any combination of the payments from either
or both such parties, than the Subsidiary's total outstanding obligations hereby
guaranteed, plus accrued interest and the reasonable costs of enforcement as
provided in paragraph 1 hereinabove.
4. All sums payable by the Guarantor hereunder shall be made
in freely transferable, cleared, and immediately available funds without any
set-off, deduction, or withholding (unless such set-off, deduction, or
withholding is required by an applicable law, judicial, or administration
decision, or practice of any relevant governmental authority, or by any
combination thereof) to such account as the Counterparty shall indicate in
writing to the Guarantor. If the Guarantor is so required to set-off, deduct, or
withhold, then the Guarantor shall pay to the Counterparty, in addition to the
payment to which the Counterparty is otherwise entitled, such additional amount
as is necessary to ensure that the net amount actually received by the
Counterparty (free and clear of any set-off, deduction, or withholding) will
equal the full amount which the Counterparty would have received had no such
set-off, deduction, or withholding been required.
5. The Guarantor hereby waives (i) promptness, diligence,
presentment, demand of payment (except as specified herein), protest, or order
and (ii) any requirements that the Counterparty exhaust any right or take any
action against the Subsidiary (except as specified herein) or any other person
or entity before proceeding to exercise any right or remedy against the
Guarantor.
6. The Guarantor hereby agrees that its obligations under this
guarantee shall be unconditional, irrespective of the validity, regularity, or
enforceability of the obligations with respect to the Subsidiary, the absence of
any action to enforce the Subsidiary's obligations , any waiver or consent by
the Counterparty with respect to any provisions thereof, or any other
circumstances which might otherwise constitute a legal or equitable discharge or
defense of the Guarantor, except payment. This guarantee is a guarantee of
payment and not a guarantee of collection.
7. No amendment or waiver of any provision of this guarantee
nor consent to any departure by the Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by the Counterparty,
and then such amendment, waiver or departure shall be effective only in the
specific instance and for the specific purpose for which given.
8. No failure on the Counterparty's part to exercise, and no
delay in exercising any right hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
9. This guarantee constitutes a direct, unsecured, and
unsubordinated obligation of the Guarantor, ranking equally with all other
unsecured and unsubordinated obligations of the Guarantor.
10. The Guarantor shall be subrogated to all the
Counterparty's rights against the Subsidiary with respect to any amounts paid by
the Guarantor pursuant to the provisions of this guarantee; provided, however,
that the Guarantor shall not be entitled to enforce or to receive any payments
arising out of, or based upon, such right of subrogation until all amounts due
and payable by the Subsidiary shall have been paid in full.
11. The Guarantor hereby represents and warrants that (i) this
guarantee constitutes the legally valid and binding obligation of the Guarantor,
enforceable against the Guarantor in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws or equitable principles relating to or
limiting creditor's rights generally; and (ii) the execution, delivery, and
performance of this guarantee will not violate any provision of any existing law
or regulation binding on the Guarantor, the violation of which would have a
material adverse effect on the business, operations, assets, or financial
condition of the Guarantor.
12. This guarantee shall expire on March 21, 2000 or may be
terminated by the Guarantor at any time by the Guarantor sending the
Counterparty a written notice of such termination by courier or facsimile, such
written notice to be effective three (3) New York business days after receipt by
the Counterparty; however, this guarantee and the Guarantor's liability
hereunder shall survive and continue in full force and effect with respect to
any obligation of the Subsidiary arising in connection with any transaction
entered into, or committed to, between the Counterparty and the Subsidiary prior
to the effective date of such expiration or termination, whether or not such
transaction has a settlement date beyond the effective date of such expiration
or termination.
13. All notices and communications to the Counterparty
respective of this guarantee, including notices of revocation, shall be sent by
facsimile or couriered to the Counterparty at:
Counterparty Address: CIS Investments, Inc. IDS Futures Corporation
Co-General Partner Co-General Partner
233 South Wacker Drive 200 AXP Financial Center
Suite 2300 Minneapolis, MN 55424
Chicago, IL 60606
Contact Name: Barbara A. Pflender Marilyn Saxton T22/570
Phone Number: 312/460-4926 612/671-8821
Fax Number: 312/460-4939 612/671-7801
Counterparty may, at any time, modify the contact information
in this paragraph 13 by providing the Guarantor with advance written notice of
such modification.
14. All notices and communications to the Guarantor
respective of this guarantee shall be sent by facsimile or couriered to the
Guarantor at:
Cargill, Incorporated
15407 McGinty Road West
Wayzata, MN 55391-2399
Contact Name: Carol A. Haydter, Corporate Treasury #3
Phone Number: 952/742-2309
Fax Number: 952/742-4027
Guarantor may, at any time, modify the contact information in
this paragraph 14 by providing the Counterparty with advance written notice of
such modification.
15. Any notice or communication shall be deemed received, if
by facsimile, upon receipt of relevant transmission, as confirmed by sender's
transmission report and a follow-up phone call to the addressee confirming
receipt of the facsimile. If by courier, such notice shall be deemed received
upon receipt of signed confirmation by courier company.
16. This guarantee shall be governed by and construed in
accordance with the laws of the State of New York, United States of America. The
Guarantor and Counterparty hereby agree that any United States Federal court
sitting in the City of New York, Borough of Manhattan shall have jurisdiction to
settle any disputes which may arise in connection with this guarantee. The
Guarantor and Counterparty hereby agree to waive any right to trial by jury in
any cause of action arising in connection with, or relating to, this guarantee.
17. The Counterparty shall not assign its rights under the
guarantee, unless it shall first have given the Guarantor five (5) days prior
written notice of such assignment, such notice to be effective upon receipt. Any
additional costs, including without limitation taxes and fees, associated or
incurred in connection with such assignment shall be borne by the Counterparty.
The Guarantor shall not assign its obligations under this guarantee, unless it
shall first have obtained the Counterparty's prior written consent to such
assignment. Any additional costs, including without limitation taxes and fees,
associated or incurred in connection with such assignment shall be borne by the
Guarantor.
CARGILL, INCORPORATED
By: /s/ William W. Veazey By: /s/ Daryl L. Wikstrom
William W. Veazey Daryl L. Wikstrom
Corporate Vice President Assistant Treasurer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from IDS
Managed "Futures II, L.P. for the year ended December 31, 1999 and is qualified
in its entirety by" reference to such 10-K.
</LEGEND>
<CIK> 0000813831
<NAME> IDS Managed Futures II, L.P.
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 8980525
<SECURITIES> 0
<RECEIVABLES> 31072
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9011597
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9011597
<CURRENT-LIABILITIES> 153105
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8828492
<TOTAL-LIABILITY-AND-EQUITY> 9011597
<SALES> 0
<TOTAL-REVENUES> (1215930)
<CGS> 0
<TOTAL-COSTS> 906654
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2122584)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2122584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2122584)
<EPS-BASIC> (129.58)
<EPS-DILUTED> (129.58)
</TABLE>
