<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1995
Registration No. 33-_______________
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------------
THE JONES FINANCIAL COMPANIES,
A LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
MISSOURI 43-1450818
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
12555 Manchester Road
Des Peres, MO 63131
(314) 851-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
Lawrence R. Sobol, Esq.
General Counsel
The Jones Financial Companies, a Limited Partnership
12555 Manchester Road
Des Peres, MO 63131
(314) 851-2000
(Address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
Copies of all correspondence to:
Frederick W. Scherrer, Esq.
Bryan Cave LLP
211 N. Broadway, Suite 3600
St. Louis, MO 63102
(314) 259-2000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
<PAGE> 2
If the registrant elects to deliver its latest annual report to security-
holders, or a complete and legible facsimile thereof, pursuant to
Item 11 (a)(1) of this form, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------
<TABLE>
CALCULATION OF REGISTRATION FEE
============================================================================================================
<CAPTION>
Title of Shares Amount to Proposed Maximum Proposed Maximum Amount of
to be Registered be Registered Offering Price per Unit Aggregate Offering Price Registration Fee
- ------------------------ ------------- ----------------------- ------------------------ ----------------
<S> <C> <C> <C> <C>
Units of Limited
Partnership Interests 45,000 $1,000.00 $45,000,000.00 $15,518
============================================================================================================
</TABLE>
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE> 3
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<CAPTION>
Item in Location or Heading
Form S-2 Caption in Prospectus
- -------- ---------------------------------- ---------------------------------
<S> <C> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................ Facing Page; Front Cover Page of
Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus......... Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds................... Use of Proceeds
5. Determination of Offering Price... The Offering
6. Dilution.......................... Not Applicable
7. Selling Security Holders.......... Not Applicable
8. Plan of Distribution.............. The Offering
9. Description of Securities to be
Registered........................ Description of Interests
10. Interests of Named Experts and
Counsel........................... Not Applicable
11. Information with Respect to
Registrant........................ Front Cover Page; Incorporation
of Certain Documents by
Reference; Prospectus Summary;
Risk Factors; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Description of
Interests; Index to Consolidated
Financial Statements
12. Incorporation of Certain
Information by Reference.......... Incorporation of Certain
Documents by Reference
<PAGE> 4
13. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities................... Not Applicable
</TABLE>
<PAGE> 5
- -------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
- -------------------------------------------------------------------------------
SUBJECT TO COMPLETION, DATED JULY 14, 1995
PROSPECTUS
THE JONES FINANCIAL COMPANIES,
A LIMITED PARTNERSHIP
45,000 Units of Limited Partnership Interests
($1,000 Per Unit)
Pursuant to the 1995 Employee Limited Partnership Interest Purchase
Plan of The Jones Financial Companies, a Limited Partnership ("JFC"), a
Missouri limited partnership (the "Employee Interest Purchase Plan"), JFC
hereby offers (the "Offering"), on the terms and conditions set forth below, to
certain employees (collectively, the "Offerees" and individually, an "Offeree")
of Edward D. Jones & Co., L.P., a Missouri limited partnership and an affiliate
of JFC ("EDJ"), the opportunity to purchase in the aggregate up to 45,000 units
of limited partnership interests ("Interests") in JFC and become, or increase
their capital contribution as, a limited partner of JFC ("Limited Partner").
The Offering is being made only to employees of JFC and its subsidiaries, and
not to the general investing public. An Offeree's decision whether or not to
participate in the Offering will have no effect on the Offeree's employment
with JFC or its subsidiaries.
FOR A DISCUSSION OF CERTAIN RISKS AND OTHER IMPORTANT FACTORS TO BE
CONSIDERED IN EVALUATING AN INVESTMENT IN JFC, SEE "RISK FACTORS" ON PAGE 12.
Limited Partners have no right to vote or otherwise participate in
the management of the business of JFC. The Interests are non-transferable.
Therefore, no public market in the Interests will develop. The price at which
the Interests are offered hereby has been arbitrarily determined. Any Limited
Partner must accept redemption of his or her Interest(s) and accept the return
of his or her capital contribution(s) plus accrued interest and profits and
relinquish all rights as a Limited Partner of JFC within thirty (30) days of
receipt of notice to withdraw by the Managing Partner or the holders of 50% or
more of the general partners capital of JFC, as provided in the partnership
agreement of JFC, as amended from time to time (the "Partnership Agreement").
THE CONTRIBUTIONS OF LIMITED PARTNERS ARE SUBORDINATE TO ALL EXISTING AND
FUTURE CLAIMS OF THE GENERAL CREDITORS OF JFC.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 6
<TABLE>
<CAPTION>
===============================================================================
Underwriting Discounts Proceeds to Issuer or
Price to Public and Commissions <F1> Other Persons <F2>
- --------------- --------------- ---------------------- ---------------------
<S> <C> <C> <C>
Per Unit....... $1,000.00 Not Applicable 1,000.00
Total.......... $45,000,000.00 Not Applicable $45,000,000.00
===============================================================================
<FN>
<F1> The Offering is not underwritten. There can be no assurance that the
full number of Interests offered hereby will be actually sold. There
is no minimum number of Interests required to be sold in the Offering
and no refunds will be made regardless of the amount actually sold.
See "The Offering".
<F2> Before the deduction of expenses related to the Offering payable by
JFC currently estimated at $_______. See "Use of Proceeds".
</TABLE>
------------------------------
The date of this Prospectus is July ___, 1995
<PAGE> 7
AVAILABLE INFORMATION
The Jones Financial Companies, a Limited Partnership, a Missouri limited
partnership ("JFC" or the "Partnership"), is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports and other information with the
Securities and Exchange Commission (the "Commission"). Reports and other
information filed by JFC with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the Commission's regional offices located
at Seven World Trade Center, Suite 1300, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can also be obtained from the Public Reference Section of the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
JFC furnishes its limited partners abbreviated unaudited calendar quarter
and calendar year financial data.
JFC has filed with the Commission a registration statement on Form S-2
(together with all amendments and exhibits, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus
does not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. Reference is hereby made to the Registration Statement,
copies of which are available from the Commission.
Statements made in this Prospectus as to the contents of any contract,
instrument or other document referred to are not necessarily complete, and
reference is made to the copy of such contract, instrument or other document
filed as an exhibit to the registration statement, each such statement being
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by JFC with the Commission (File
No. 0-16633) pursuant to the Exchange Act are hereby incorporated by reference
in this Prospectus: (i) JFC's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (the "1994 Form 10-K"), and (ii) JFC's Quarterly Report
on Form 10-Q for the three month period ended March 31, 1995 (the "1995
Form 10-Q").
JFC will provide without charge to each person to whom a Prospectus is
delivered, upon written or oral request of such person, a copy of any and all
of the information that has been incorporated by reference herein, other than
Exhibits thereto (unless such Exhibits are specifically incorporated by
reference therein). Requests for such information should be directed to The
Jones Financial Companies, A Limited Partnership, 12555 Manchester Road, Des
Peres, Missouri 63131, Attention Steven Novik, Telephone (314) 851-2000.
<PAGE> 8
PROSPECTUS SUMMARY
The following is a summary of certain information set forth in or
incorporated by reference into this Prospectus. The summary is qualified in
its entirety by the more detailed information and financial statements
appearing elsewhere in this Prospectus. See "Glossary of Terms" on page 56 for
a definition of certain terms used in or incorporated by reference into this
Prospectus.
JFC and EDJ
The Jones Financial Companies, a Limited Partnership ("JFC" or the
"Partnership") was organized in 1987 under the Revised Uniform Limited
Partnership Act of the State of Missouri ("RULPA") by the general partners to
act, among other things, as a holding company. JFC operates not only as the
holder of all the partnership interests in Edward D. Jones & Co., L.P. ("EDJ"),
but also as the owner or holder of interests in entities engaged in the
financial services industry. JFC, through its non-regulated affiliates,
undertakes those business activities which, by reason of the status of EDJ as a
broker-dealer, would be subject to the constraints of broker-dealer regulations
if performed directly by EDJ. See "Business -- Regulation" and "-- Uniform Net
Capital Rule." EDJ is engaged, directly and through affiliates, in business as
a broker/dealer in listed and unlisted securities, including governmental
issues, acts as an investment banker, and is a distributor/sponsor of mutual
fund products. In addition, EDJ engages in sales of various insurance products
and renders investment advisory services.
The principal executive offices of JFC and EDJ are located at 12555
Manchester Road, Des Peres, Missouri 63131, and their telephone number is (314)
851-2000.
As of March 31, 1995, JFC was comprised of 115 general partners, 1,883
limited partners and 59 subordinated limited partners. JFC employed
approximately 9,708 persons, including approximately 2,289 part-time employees.
As of March 31, 1995, JFC employed approximately 3,252 full-time investment
representatives actively engaged in sales in approximately 3,218 offices in 49
states and Canada.
Management of JFC
Under the terms of the partnership agreement of JFC, as amended from time
to time (the "Partnership Agreement"), the Managing Partner (currently John W.
Bachmann) has the right (subject to the restrictions set forth below) to manage
the business of JFC on behalf of the general partners. The Managing Partner is
specifically authorized (i) to admit to JFC any general partner, limited
partner, or subordinated limited partner; (ii) to dismiss from JFC any general
partner, limited partner or subordinated limited partner; (iii) to determine
each general partner's adjusted capital contribution which each general partner
shall be entitled to maintain, percentage and guaranteed draw; and (iv) to fix
the capital contribution that each limited partner or subordinated limited
partner shall be entitled to maintain. See "Business -- Management."
NONE OF THE LIMITED PARTNERS IN THEIR CAPACITY AS LIMITED PARTNER HAVE THE
RIGHT TO VOTE OR OTHERWISE PARTICIPATE IN THE MANAGEMENT OF JFC.
<PAGE> 9
The Offering
Pursuant to the 1995 Employee Limited Partnership Interest Purchase Plan of
JFC (the "Employee Interest Purchase Plan"), JFC is offering up to 45,000 Units
at a price of $1,000 per Unit to certain employees of JFC and its subsidiaries
selected by the Employee Interest Purchase Plan committee, in its sole
discretion. The Units represent the beneficial ownership of an equal number of
Interests. The minimum purchase is one Unit. See "The Offering."
Use of Proceeds
The proceeds received by JFC from the Offering will provide the equity
capital to support EDJ's planned expansion of its sales force after 1995 and
other Partnership objectives and will partially fund EDJ's firmwide
implementation of client/server technology. Currently, each of EDJ's branches
are linked to EDJ's home office in St. Louis via terminals which necessitate
that the mainframe system in St. Louis perform all data retrieval and
processing. By utilizing client/server technology, each of the branches will
be able to perform certain tasks previously performed in St. Louis. The
client/server technology will allow certain frequently used information to be
stored at the branch which will shorten the system's response time. Also, the
client/server technology will allow the use of software packages which cannot
be utilized with the current system. The capital expenditures to implement
client/server technology for the present sales force of approximately 3,200
investment representatives and the St. Louis headquarters are estimated at
$88 million over a several year period. JFC plans to fund the majority of the
program costs through operating lease financing as well as secured credit
facilities; however, as the operating lease financing is not yet committed, no
assurance can be given that such financing will ultimately become available.
In the absence of significant productivity benefits, the initial and ongoing
costs associated with the implementation of client/server technology would
substantially reduce net income allocable to Limited Partners. As of
March 31, 1995, the total partnership capital of JFC prior to the Offering was
approximately $190 million. See "Use of Proceeds."
Instructions for Offering
Each Offeree who elects to participate in the Offering may subscribe by
executing and delivering the Subscription Form in the form annexed hereto as
Appendix A and the Power of Attorney in the form annexed hereto as Appendix B
to JFC at:
Edward D. Jones & Co.
Attn: Anthony Crate
12555 Manchester Road
Des Peres, Missouri 63131
together with full payment (or arrangements therefor satisfactory to JFC) for
all Units subscribed for pursuant hereto for receipt no later than 3:00 p.m. on
September 29, 1995, unless such date is extended by JFC to a date no later than
December 31, 1995 (the "Offering Expiration Date"). Any checks should be made
payable to The Jones Financial Companies, a Limited Partnership.
Alternatively, an Offeree may participate in the Offering by transmitting
a notice by wire over EDJ's Branch Office Communication System to the attention
<PAGE> 10
of Anthony Crate (User I.D. JFCLP) for receipt on or before the Offering
Expiration Date as follows:
"I, [print name], hereby accept the offer to subscribe for
$______ of Interests of The Jones Financial Companies, a
Limited Partnership, in the Offering and hereby covenant that
properly completed and duly executed forms of Subscription
Form and Power of Attorney as well as full payment for the
Interests subscribed for (or arrangements therefor
satisfactory to you) will be delivered for receipt no later
than 3:00 p.m. on September 29, 1995."
The validity of such alternative method of acceptance is subject to receipt of
the properly completed and duly executed forms of Subscription Form and Power
of Attorney by JFC no later than 3:00 p.m. on September 29, 1995, together with
full payment or arrangements therefor satisfactory to JFC. See "The Offering."
Upon acceptance of the executed Subscription Form by JFC, Offerees will be
admitted to the Partnership effective as of the end of business on October 30,
1995, or on such later date as the Managing Partner shall determine in his sole
discretion.
Description of Interests
The Interests are non-voting, non-transferable limited partnership
interests in a Missouri limited partnership. There is no market for the
Interests and no Limited Partner of JFC may sell, pledge, exchange, transfer or
assign any Interest, without the consent of the Managing Partner. See
"Description of Interests."
Risk Factors
Investors should consider the risks and other important factors under "Risk
Factors" herein.
<PAGE> 11
Summary Financial Data
The following table sets forth certain summary financial data for JFC, as
of and for the periods indicated (all amounts in thousands except for per unit
information).
<TABLE>
Summary Income Statement Data
<CAPTION>
Three Months Ended
--------------------
March 31, March 25,
1995 1994 1994 1993 1992 1991 1990
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $160,439 $161,413 $658,045 $639,564 $553,970 $411,588 $316,503
Net Income 8,940 13,735 53,857 66,211 62,282 40,875 22,553
Net income per weighted average
$1,000 equivalent limited
partnership unit outstanding 21.13 32.52 127.59 194.62 238.41 185.92 130.52
Weighted average $1,000
equivalent limited partnership
units outstanding 62,024 63,854 63,165 50,381 41,160 42,616 25,874
</TABLE>
<TABLE>
Summary Balance Sheet Data
<CAPTION>
Three Months Ended
--------------------
March 31, March 25,
1995 1994 1994 1993 1992 1991 1990
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $895,477 $804,201 $953,359 $800,478 $653,253 $513,730 $422,257
========= ========= ======== ======== ======== ======== ========
Long-term debt 41,674 36,659 41,779 33,317 23,847 24,769 19,977
Other liabilities, exclusive of
subordinated liabilities 535,071 528,191 585,057 514,386 414,110 326,229 250,772
Subordinated liabilities 129,000 59,000 136,000 73,000 78,000 48,000 50,400
Total partnership capital 189,732 180,351 190,523 179,775 137,296 114,732 101,108
--------- --------- -------- -------- -------- -------- --------
Total liabilities and partnership
capital $895,477 $804,201 $953,359 $800,478 $653,253 $513,730 $422,257
========= ========= ======== ======== ======== ======== ========
</TABLE>
<PAGE> 12
RISK FACTORS
Prospective investors should carefully consider the following factors in
evaluating JFC, EDJ, the securities industry, and an investment in the
Interests:
Capital Expenditure Program
JFC, either directly, or indirectly through one or more of its affiliates,
has embarked on a substantial capital expenditure program. The net proceeds
received by JFC from the Offering will provide the equity capital to support
EDJ's planned expansion of its sales force after 1995 and other Partnership
objectives and will partially fund EDJ's firmwide implementation of
client/server technology. See "Use of Proceeds."
Management believes that the capital expenditures for client/server
technology are necessary to modernize the existing data processing system and
to meet present system demand requirements. Moreover, management believes this
new system is an appropriate technological platform from which future system
enhancements may be developed to compete in future periods. However, in light
of the magnitude of the proposed expenditures, the capital expenditure program
could result in substantial adverse financial consequences for JFC and
correspondingly to its Limited Partners, if significant productivity benefits
are not realized.
The anticipated capital expenditures to acquire and implement the
client/server technology over the next several years is expected to be
approximately $88 million (based on the present approximate 3,200 branch
offices and current headquarters personnel), or approximately one-half of the
total capital of all of the partners of JFC as of March 31, 1995. The
capital costs associated with opening new branch offices will rise from
approximately $26,000 per office to approximately $45,000 per office.
Additionally, JFC plans to expand its sales force after 1995 during the several
year period of conversion to client/server technology. Increases in the sales
force and number of branch offices will result in further increases in JFC's
capital expenditures.
The proceeds from the Offering will partially fund the cost of the
client/server program. See "Use of Proceeds." JFC plans to fund the majority
of the program costs through operating lease financing with BancBoston Leasing
Inc. as well as with secured credit facilities. However, as the operating
lease financing is not yet committed, no assurance can be given that such
financing will ultimately become available. The acquisition of client/server
technology through operating lease financing would substantially increase JFC's
ongoing lease commitments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Adequacy" and "-- Cash Flows."
In the absence of significant productivity benefits, the initial and
ongoing costs associated with the capital expenditures to replace the existing
data processing system with client/server technology could have the effect of
reducing the profitability of JFC, which would reduce the bonuses paid to
investment representatives. A reduction in bonuses to investment
representatives could lead to an increased risk of defection of investment
representatives to competitors in the securities industry. See "-- Changes in
Industry and Competition."
<PAGE> 13
It is expected that the ongoing associated costs of the client/server
technology will raise JFC's operating expenses, excluding sales compensation
expense and compensation based on JFC's net income, by approximately 13%.
Based on past increases in revenue per investment representative ("IR")
following previous technology expenditures by JFC or EDJ, management believes
productivity benefits are likely to result from the implementation of the
client/server technology. No statistical analysis of potential productivity
benefits has been undertaken, however, as management does not believe it is
feasible to project such benefits with meaningful precision. Accordingly, no
assurance can be given that any productivity benefits will be realized.
The following table summarizes the pro-forma impact of the client/server
technology program on selected financial information. Although the actual
implementation of client/server will occur over a several year period, and the
associated costs will not be fully experienced until the implementation is
complete, the pro-forma table assumes the client/server technology was
fully implemented at the beginning of 1994, and all associated costs of
operating a system which serves 3,200 branch offices and related headquarters
personnel were in place for the entire periods presented. The results
illustrated in this table assume that no productivity benefits were achieved,
although management believes productivity benefits are likely to result from
the implementation of the client/server technology.
<TABLE>
<CAPTION>
Five Months Ended Year Ended
May 26, December 31,
---------------------- ----------------------
1995 1995 1994 1994
($ in Millions) Actual Pro-forma Actual Pro-forma
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $17.1 $7.3 $53.9 $37.1
Net Income Allocated To
Limited Partners $ 2.5 $1.1 $ 8.1 $ 5.6
Annualized Return On
Limited Partner Capital 17.3% 11.8% 20.2% 16.4%
Compensation Based On
Net Income
Sales Bonuses to IRs $ 3.5 $ 0.0 $28.0 $12.9
Profit Sharing Contr. $ 4.5 $ 2.1 $13.8 $ 9.9
Bonuses to H.Q.
associates $ 0.9 $ 0.0 $ 2.7 $ 1.9
Profit Margin on Total
Revenues 6.3% 2.7% 8.2% 5.6%
</TABLE>
Cyclical Nature of Business
The securities industry, including JFC, is highly dependent upon market
prices and volumes which are highly unpredictable and volatile in nature.
<PAGE> 14
JFC's principal subsidiary, EDJ, operates as a registered broker/dealer. In
the past, JFC and EDJ have been, to some extent, less subject to this
volatility. However, as a result of narrowing operating margins, increased
fixed costs, and increased competitive forces, EDJ and JFC have also become
increasingly subject to the volatility of the industry. Accordingly,
historical returns on capital may not be achievable in the future, and reduced
returns during downswings in the securities markets may be particularly severe.
Nature of Business
Risk factors common to the securities industry as a whole include the state
of world affairs and the national economy. Furthermore, JFC, through EDJ, is
subject to the risk of customer inability to meet commitments (such as margin
obligations), customer fraud and employee misconduct and errors. The industry
is highly dependent upon the trend of security prices and the volume of
security trading, both of which are unpredictable and volatile in nature. A
material reduction in volume and lower securities prices may result in lower
commission revenues, reduced investment banking income and losses in dealer
inventory accounts and syndicate positions, all of which may reduce the
profitability of JFC's operations. On the other hand, significantly increased
volume may result in operational problems such as a higher incidence of
failures to deliver and receive securities and errors in processing
transactions and may also result in increased personnel and related processing
costs. In past periods, EDJ has, in fact, experienced adverse effects on
profitability arising from significant reductions in security sales and,
likewise, it has encountered in the past significant operations problems
arising from unanticipated high volume. EDJ is not able to control such
occurrences, and there is no assurance that it will not encounter such problems
and resulting losses in future periods. See "Business -- Customer Account
Administration and Operations."
Return on Capital
Listed below are the returns on the Interests, including the fixed 7-1/2%
distribution as set forth in Section 3.3 of the Partnership Agreement (see
"Description of Interests -- Cash Distributions and Allocations"), for the
prior five calendar years:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<C> <C> <C> <C> <C>
20.2% 26.2% 31.3% 26.0% 17.1%
</TABLE>
Because returns to Limited Partners are dependent upon the annual net
profits of JFC, which cannot be predicted, purchasers of Interests should not
rely on the above table as being indicative of returns in future periods. See
"-- Capital Expenditure Program" above.
<PAGE> 15
Underwriting, Syndicate, and Trading Position Risks
Participation as a manager or syndicate member in the underwriting of
securities subjects JFC, through EDJ, to a substantial risk of loss if EDJ is
unable to resell the securities underwritten. As an underwriter, EDJ is
subject to risk of substantial liability, expense, and adverse publicity
resulting from possible claims against the underwriters under federal and state
securities laws. Additionally, in instances of firm underwriting commitments
and maintaining trading positions, a charge is generated against net capital
under the "net capital rule". See "Business -- Uniform Net Capital Rule." In
maintaining trading positions in securities, EDJ is exposed to a substantial
risk of loss, depending upon the nature and extent of fluctuations in market
prices.
Reliance on Clearing Organizations
JFC, through EDJ, incurs obligations to its customers which are supported
by obligations to it from firms within the industry, especially those firms
with which EDJ maintains clearing relationships through which securities
transactions are executed. The inability of a clearing organization, or to a
lesser extent, any securities firm with which EDJ does a volume of business, to
meet promptly its obligations could result in substantial losses to EDJ. See
"Business -- Customer Account Administration and Operations."
Branch Office System
Most securities firms typically staff several registered representatives
and one or more managers or other supervisory personnel in each of their branch
offices. In contrast, most branch offices of EDJ are staffed by a single
registered representative with primary supervisory activity being conducted
from its St. Louis headquarters office, a method of supervision which EDJ
believes complies with all applicable industry and regulatory requirements.
See "Business." However, as a result of such method of supervision, EDJ is
potentially exposed to a greater risk of loss arising from alleged imprudent or
illegal actions of its registered representatives due to the lack of direct
supervisory oversight within each office. Furthermore, more time may elapse
for such supervisory personnel to detect problem activity than if managers were
maintained within each office, thereby exposing JFC, through EDJ, to losses.
Regulation
EDJ's business is subject to extensive regulation by federal and state
regulatory agencies and by self-regulatory organizations within the industry.
The principal purpose of such regulation is the protection of customers and the
securities markets, rather than protection of creditors or equity holders of
broker-dealers. See "Business -- Regulation" and "-- Uniform Net Capital
Rule."
Changes in Industry and Competition
All aspects of the business of JFC are highly competitive. JFC, through
EDJ, competes directly with other securities firms and increasingly with other
types of organizations and other businesses offering financial services. Many
of these entities have substantially greater capital and other resources and
<PAGE> 16
some offer a wider range of financial services. In recent years, there has
been significant consolidation of firms in the securities industry, forcing EDJ
to compete with larger firms with greater capital.
Competition among financial services firms also exists for investment
representatives and other personnel. If costs increase as they are expected to
in connection with the capital expenditure program and there is not an increase
in productivity, bonuses paid to investment representatives and other personnel
may be decreased or eliminated, increasing the risk that personnel could be
hired away by competitors. In addition, EDJ has recently faced increased
competition from larger firms in its non-urban markets, and from a broad range
of firms in the urban and suburban markets which it has entered. Merrill
Lynch, the largest securities firm in the industry, has announced plans to
increase its presence in non-urban markets and as a result, EDJ may face
increased competition in its non-urban markets. See "Business -- Competition."
Litigation
Many aspects of JFC's business (through EDJ) involve substantial risks of
liability. In recent years there has been increasing litigation involving
the securities industry generally, and EDJ, including class action suits that
generally seek substantial damages. EDJ is subject to substantial potential
liability for, among other things, material misstatements and omissions in
prospectuses and other communications with respect to underwritten offerings of
securities.
As discussed under "Branch Office System" in this section, due to its
system of home office supervision, JFC, through EDJ, may be exposed to an
enhanced risk of legal actions instituted against it by its customers resulting
from alleged imprudent or illegal actions undertaken by its registered
representatives.
There can be no assurance that material losses arising from the defense and
satisfaction of such legal actions will not occur in future periods. See
"Business -- Legal Proceedings."
Capital Limitations and Other Financing Sources
Adequacy of capital is vitally important to broker-dealers and lack of
sufficient capital may limit JFC's ability to expand its business (through
EDJ), participate in underwritings, and generally compete effectively. A
significant operating loss or any unusually large charge against net capital
could adversely affect JFC (through EDJ) in these areas. Many of JFC's
competitors have substantially greater capital and other resources than JFC.
See "Business -- Uniform Net Capital Rule."
Non-Voting Interests; Absence of Market; Price of Interests
None of the Limited Partners may vote or otherwise participate in the
management of the business of JFC. There is no market for the Interests and no
Limited Partner of JFC may sell, pledge, exchange, transfer or assign any such
Interest without the express written consent of the Managing Partner. See
"Description of Interests." The price at which the Interests are offered
hereby has been arbitrarily determined.
<PAGE> 17
Status as Partner for Tax Purposes
Limited Partners generally will be allocated their allocable share of all
tax attributes of JFC (except for net losses for tax purposes as provided in
Section 8.6A of the Partnership Agreement, a copy of which is annexed hereto as
Appendix C) and will be required to file tax returns and pay income tax in
those states in which JFC and its subsidiary partnerships operate, as well as
in the partners' state of residence or domicile. Limited Partners will be
liable for income taxes on their pro rata share of partnership income
irrespective of whether cash in an amount equal to such income is distributed.
The income tax returns of JFC may be audited by government authorities, and
such audit may result in the audit of the returns of the Limited Partners. See
"Description of Interests -- Certain Federal Income Tax Considerations."
Risk of Dilution
The general partners of JFC have the ability, in their sole discretion, to
issue additional Interests or general partners' capital. With respect to
additional Interests, to the extent additional expense is incurred by JFC in
servicing additional annual interest requirements for any such additional
Interests, holders of existing Interests may suffer decreased returns on their
investment because the amount of JFC's net income in which they participate may
be reduced as a consequence. With respect to additional capital contributions
by general partners, such contributions will reduce the percentage of
participation in net income by Limited Partners. See "Description of
Interests."
Limitation of Liability; Indemnification
The Partnership Agreement provides that neither the Managing Partner nor
any of the general partners will be liable to any of the Partners for any acts
or omissions made in good faith and in a manner reasonably believed by him to
be within the scope of his authority and in the best interests of JFC, provided
such partner was not guilty of gross negligence or gross misconduct. JFC also
is required to indemnify the Managing Partner and the general partners against
any loss or damage incurred by any such partner by reason of any action
performed by any of them on behalf of JFC or in furtherance of its interest,
other than actions for which such partner would be liable as described above.
See "Description of Interests -- Liability for Acts and Omissions;
Indemnification; Dealing With An Affiliate." As a result of these provisions,
Limited Partners have more limited rights against such persons than they would
have absent the limitations in the Partnership Agreement. Indemnification of
the Managing Partner and the general partners would deplete JFC assets unless
JFC's indemnification obligation is covered by insurance. While JFC may
attempt to purchase liability insurance to provide for its indemnification
obligation, such insurance may not be available at a reasonable price or at
all.
THE OFFERING
Employee Interest Purchase Plan
Pursuant to the 1995 Employee Limited Partnership Interest Purchase Plan
(previously defined as the "Employee Interest Purchase Plan"), JFC is hereby
offering up to 45,000 Interests ($1,000 per Unit) (previously defined as the
<PAGE> 18
"Offering"). The Offering will only be made to certain employees of JFC and
its subsidiaries which may include employees who have previously purchased
Interests through previous offerings by JFC (previously defined, individually,
as an "Offeree" and collectively, as the "Offerees"). The Offering will expire
at 3:00 p.m., St. Louis time, on September 29, 1995, unless such date is
extended by the Managing Partner to a date not later than December 31, 1995.
The Managing Partner may extend such date for any or all Offerees, in his sole
discretion. The price at which the Interests are offered hereby has been
arbitrarily determined.
This Offering is being made only to employees of JFC and its subsidiaries,
and not to the general investing public. An Offeree's decision whether or not
to participate in the Offering will have no effect on the Offeree's employment
with JFC or its subsidiaries.
The purpose of the Employee Interest Purchase Plan is to provide certain
employees of EDJ (the "Participants") an opportunity to acquire limited
partnership interests in JFC. Participants in the Employee Interest Purchase
Plan will be selected by the Employee Interest Purchase Plan committee (the
"Committee"), in its discretion, to be personnel important to the growth of JFC
and its subsidiaries. The total number of Interests covered by the Employee
Interest Purchase Plan is 45,000. The number of Interests will be adjusted to
reflect any subsequent Interest splits, reverse Interest splits or similar
matters affecting the number of outstanding Interests of JFC.
The Committee may, in its discretion, award all or any part of the
Interests covered by the Employee Interest Purchase Plan to a Participant
pursuant to a performance award ("Performance Award"). Interests will not be
issued at the time of the granting of the Performance Award, rather the
Performance Award represents the right of the Participant to purchase the
number of Interests of JFC described therein. The purchase price of each full
Interest is $1,000. Performance Awards may be conditioned on the Participant's
continued employment by JFC or it subsidiaries or in any manner the Committee
may determine. Prior to the exercise of a Performance Award by a Participant,
such Performance Award may be cancelled by the Committee, in its sole
discretion.
The Committee will establish the Participants and the amount, duration and
other terms, if any, of the Performance Awards. In making its determination of
who will be Participants and the amount, duration and other terms of each
Performance Award, the Committee will take into account such factors as the
Participant's level of responsibility, job performance, potential for growth,
level and types of compensation and such other factors as the Committee deems
relevant.
The Committee will consist of one or more general partners of JFC, which
may include the Managing Partner, appointed to the Committee by the Managing
Partner. The Committee may consist of only one general partner of JFC. The
Committee has the authority to interpret the Employee Interest Purchase Plan,
to establish any rules or regulations relating to the Employee Interest
Purchase Plan which it deems appropriate and to make other determinations which
it believes necessary and advisable for the proper administration of the
Employee Interest Purchase Plan. Decisions of the Committee in matters
relating to the Employee Interest Purchase Plan are final and conclusive on JFC
and the Participants. The Committee's determinations under the Employee
Interest Purchase Plan, including, without limitation, determinations as to
employees to receive Performance Awards, the amount, duration and other terms
and provisions of such awards and the agreements evidencing the same, need not
<PAGE> 19
be uniform. Members of the Committee are not eligible to participate in the
Employee Interest Purchase Plan. A member of the Committee is liable only for
any action taken or determination made in bad faith.
JFC has the right to amend the Employee Interest Purchase Plan at any time
either retroactively or prospectively and to terminate or suspend the Employee
Interest Purchase Plan or any Performance Award at any time for any reason.
Performance Awards under the Employee Interest Purchase Plan are non-
transferable and may not be assigned or pledged by any Participant at any time
and no recognition will be given by JFC to any attempt to assign any rights
under the Employee Interest Purchase Plan.
All costs and expenses of administering the Employee Interest Purchase Plan
will be paid by JFC.
Terms of the Offering
Each Offeree who elects to participate in the Offering may subscribe by
executing and delivering the Subscription Form in the form annexed hereto as
Appendix A and the Power of Attorney in the form annexed hereto as Appendix B
to JFC at:
Edward D. Jones & Co.
Attn: Anthony Crate
12555 Manchester Road
Des Peres, Missouri 63131
together with full payment (or arrangements therefor satisfactory to JFC) for
all Units subscribed for pursuant hereto for receipt no later than 3:00 p.m. on
September 29, 1995, unless such date is extended by JFC (the "Offer Expiration
Date"). Any checks should be made payable to The Jones Financial Companies, a
Limited Partnership.
Alternatively, an Offeree may participate in the Offering by transmitting a
notice by wire over EDJ's Branch Office Communication System to the attention
of Anthony Crate (User I.D. JFCLP) for receipt on or before the Offer
Expiration Date as follows:
"I, [print name], hereby accept the Offer to subscribe for
$______ of Interests of The Jones Financial Companies, a
Limited Partnership, in the Offering and hereby covenant that
properly completed and duly executed forms of Subscription
Form and Power of Attorney as well as full payment for the
Interests subscribed for (or arrangements therefor
satisfactory to you) will be delivered for receipt no later
than 3:00 p.m. on September 29, 1995."
The validity of such alternative method of acceptance is subject to receipt of
the properly completed and duly executed forms of Subscription Form and Power
of Attorney by JFC no later than 3:00 p.m. on September 29, 1995, together with
full payment or arrangements therefor satisfactory to JFC.
Upon acceptance of the executed Subscription Form by JFC, Offerees will be
admitted to the Partnership effective as of the end of business on October 30,
1995, or on such later date as the Managing Partner shall determine in his sole
discretion.
<PAGE> 20
JFC has the unconditional right to accept or reject any subscription, in
whole or in part. In addition, even if JFC accepts a subscription, and/or
accepts payment therefor, JFC may (at any time on or prior to the Offer
Expiration Date), for any reason whatsoever, including without limitation, the
unavailability of regulatory approval of the sale of said units to the Offeree,
reject the subscription by returning to the Offeree payment in an amount equal
to the subscription payment originally delivered by the Offeree to JFC. An
Offeree shall have no right as a limited partner of JFC until JFC has accepted
the subscription and notified the Offeree of such acceptance.
The Offering is made solely by JFC, without the participation of any
dealer, underwriter, or selling agent (other than EDJ). JFC will neither allow
nor pay any discount, commission, or sales fee in connection with the Offering.
JFC will use its best efforts to sell all of the Interests offered in the
Offering. There is no minimum number of Interests which must be sold before
any individual subscription will be accepted.
USE OF PROCEEDS
The net proceeds estimated at $__________, after deduction of estimated
expenses, received by JFC from the Offering will provide the equity capital to
support EDJ's planned expansion of its sales force and other Partnership
objectives and will partially fund EDJ's firmwide implementation of
client/server technology. The current technology used by EDJ was designed in
the late 1970's and is a mainframe based architecture. Each of EDJ's branches
are linked to EDJ's home office in St. Louis via terminals and a printer which
interface with mainframe applications. The branches do not have office
productivity tools such as word processing, spreadsheets or graphics
capabilities. Although EDJ has developed branch applications which replicate
workstation functions, the current uses have reached the design limits of this
technology. In the home office in St. Louis, existing equipment provides a
non-integrated suite of office productivity tools; however, the architecture of
this equipment limits EDJ's ability to service the branches.
By utilizing client/server technology, each of the branches will be able to
perform certain tasks previously performed in St. Louis. The new technology is
expected to improve customer service by providing faster access to more
information and services for customers and branch personnel and is expected to
reduce end-user response time by storing branch data locally. Also, the
client/server technology will allow the use of software packages which cannot
be utilized with the current system. The new technology may in the future
allow customers to access market information, balance information, perform
hypothetical calculations on potential investment decisions and potentially
enter their own orders.
The client/server technology will be designed with an open architecture
based on industry standards to eliminate ties to any proprietary hardware or
software vendor. Each branch will be equipped with servers and terminals by
which to communicate with a data center in St. Louis over a satellite network.
The branch server equipment will reside in a custom-built cabinet that provides
a centralized, environmentally controlled climate for all of the branch office
communications systems components. The "look and feel" of the existing
terminals has been incorporated into the new technology in order to ease
transition for the users. The hardware and software configuration of the new
system is expected to meet not only the needs of the branch users, but provide
an internal monitoring and control system allowing technicians in the home
<PAGE> 21
office to provide remote, proactive management and administration of branch
components.
The anticipated capital expenditures to acquire and implement the
client/server technology over the next several years is expected to be
approximately $88 million (based on the present approximate 3,200 branch
offices and current headquarters personnel), or approximately one-half of the
total capital of all of the partners of JFC as of March 31, 1995. The capital
costs associated with opening new branch offices will rise from approximately
$26,000 per office to approximately $45,000 per office. JFC plans to expand
its sales force during the several year period of conversion to client/server
technology. Increases in the sales force and number of branch offices will
result in further increases in JFC's capital expenditures. Failure to achieve
significant productivity benefits or reductions in other information systems
costs will substantially reduce net income allocable to Limited Partners.
The hardware and software associated with the client/server system would be
acquired from various vendors, including Tektronix, Inc., Tri-Tek Information
Systems and Services, Inc., Sun Microsystems, Inc. and Oracle Corporation.
None of these vendors is affiliated with JFC or EDJ.
The proceeds from the Offering will partially fund the cost of the
client/server program. JFC plans to fund the majority of the program costs
through operating lease financing with BancBoston Leasing Inc. as well as with
secured credit facilities. However, as the operating lease financing is not
yet committed, no assurance can be given that such financing will ultimately
become available. The acquisition of client/server technology through
operating lease financing would substantially increase JFC's ongoing lease
commitments. See "Management's Discussions and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Adequacy."
RECENT DEVELOPMENTS
The Partnership has entered into an agreement to acquire Boone National
Savings and Loan Association, F.A. ("Boone National") for a purchase price of
approximately $8.6 million and is expected to complete the transaction by
July 21, 1995. Boone National is a $64 million-asset thrift based in Columbia,
Missouri. The acquisition will allow the Partnership to enter the personal
trust business. The Partnership is financing the acquisition of Boone National
through a $3.6 million installment note to be held by the sellers of Boone
National and a $5 million loan from Norwest Bank of Minneapolis, N.A.
JFC's Chief Financial Officer submitted his resignation as a general
partner in June, 1995 and has become a Subordinated Limited Partner of JFC.
The head of JFC's Investment Banking Department submitted his resignation in
May, 1995 to accept a position with another investment banking firm.
<PAGE> 22
CAPITALIZATION
Set forth below is the capitalization of JFC as of March 31, 1995 and as
adjusted to give effect to the Offering, assuming all Interests are sold, and
to certain planned transactions that have or are expected to occur (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Adequacy") (all amounts in thousands):
<TABLE>
<CAPTION>
March 31, 1995
--------------------------
As Reported As Adjusted
------------ ------------
<S> <C> <C>
LONG-TERM DEBT AND SUBORDINATED LIABILITIES: . . .
Long-Term Debt. . . . . . . . . . . . . . . . $ 41,674 $ 82,226<F1>
Subordinated Liabilities. . . . . . . . . . . 129,000 122,000<F2>
----------- ------------
TOTAL LONG-TERM DEBT AND SUBORDINATED
LIABILITIES. . . . . . . . . . . . . . . 170,674 204,226
PARTNERSHIP EQUITY CAPITAL:. . . . . . . . . . . .
Limited Partner Interests -- Cash
Subordination Agreements (including
undistributed profits of $1,313 which are
subject to withdrawal). . . . . . . . . . . . 63,068 108,068<F3>
Subordinated Limited Partner Interests
(including undistributed profits of $1,027
which are subject to withdrawal). . . . . . . 27,652 27,652
General Partners' Cash Capital (including
undistributed profits of $5,723 which are
subject to withdrawal). . . . . . . . . . . . 99,012 99,012
TOTAL PARTNERSHIP EQUITY CAPITAL . . . . 189,732 234,732
------------ ------------
TOTAL CAPITALIZATION . . . . . . . . . . $360,406 $438,958
============ ============
- ---------------
<FN>
<F1> Assumes (i) the use of $15 million of non-recourse debt obtained from
Nationwide Insurance Company, secured by the headquarters facility,
and (ii) the use of the remaining $17 million of secured credit
obtained from SouthTrust Bank of Alabama, N.A. and Enterprise Bank,
and (iii) the funding of the acquisition of Boone National (expected
to be complete by July 21, 1995) with a $5 million loan from Norwest
Bank of Minneapolis, N.A. and a $3.6 million installment note to be
held by the sellers. See "Recent Developments" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Adequacy."
<PAGE> 23
<F2> Assumes $7 million of subordinated notes, paying interest at 10.6
percent, will be called.
<F3> Assumes all $45 million of Interests being offered are sold.
</TABLE>
SELECTED FINANCIAL DATA
The following information sets forth, for the past five years, selected
financial data (all amounts in thousands, except per unit information). See
also "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
<TABLE>
Selected Income Statement Data:
<CAPTION>
Three Months Ended
--------------------
March 31, March 25,
1995 1994 1994 1993 1992 1991 1990
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $160,439 $161,413 $658,045 $639,564 $553,970 $411,588 $316,503
Net Income 8,940 13,735 53,857 66,211 62,282 40,875 22,553
Net income per weighted average
$1,000 equivalent limited
partnership unit outstanding 21.13 32.52 127.59 194.62 238.41 185.92 130.52
Weighted average $1,000 equivalent
limited partnership units
outstanding 62,024 63,854 63,165 50,381 41,160 42,616 25,874
Net income per weighted average
$1,000 equivalent subordinated
limited partnership unit
outstanding 36.32 63.36 237.83 350.32 418.21 322.38 212.86
Weighted average $1,000 equivalent
subordinated limited partnership
units outstanding 26,625 21,469 21,789 16,936 12,941 10,624 10,190
</TABLE>
<PAGE> 24
<TABLE>
Selected Balance Sheet Data:
<CAPTION>
Three Months Ended
--------------------
March 31, March 25,
1995 1994 1994 1993 1992 1991 1990
--------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $895,477 $804,201 $953,359 $800,478 $653,253 $513,730 $422,257
========= ========= ======== ======== ======== ======== ========
Long-term debt 41,674 36,659 41,779 33,317 23,847 24,769 19,977
Other liabilities, exclusive of
subordinated liabilities 535,071 528,191 585,057 514,386 414,110 326,229 250,772
Subordinated liabilities 129,000 59,000 136,000 73,000 78,000 48,000 50,400
Total partnership capital 189,732 180,351 190,523 179,775 137,296 114,732 101,108
--------- --------- -------- -------- -------- -------- --------
Total liabilities and
partnership capital $895,477 $804,201 $953,359 $800,478 $653,253 $513,730 $422,257
========= ========= ======== ======== ======== ======== ========
</TABLE>
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table summarizes the changes in major categories of revenues
and expenses for the three month periods ending March 31, 1995 and March 25,
1994 and for the last two years (dollar amounts in thousands):
<TABLE>
<CAPTION>
Three Months Ended
---------------------
March 31, 1995 vs.
March 25, 1994 1994 vs. 1993 1993 vs. 1992
---------------------- ---------------------- ----------------------
Increase - (Decrease)
Amount Percentage Amount Percentage Amount Percentage
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Commissions $(25,063) (22%) $(62,445) (14%) $126,496 41%
Principal transactions 16,307 67 70,579 76 (38,895) (30 )
Investment banking 2,693 38 (8,642) (19 ) (15,634) (26 )
Interest and dividends 4,456 49 14,059 37 7,564 25
Other 633 8 4,930 17 6,063 26
---------- ---------- ---------- ---------- ---------- ----------
Total (974) (.06) 18,481 3 85,594 15
---------- ---------- ---------- ---------- ---------- ----------
Expenses
Employee and partner
compensation and benefits (6,353) (7 ) (6,997) (2 ) 57,613 17
Occupancy and equipment 2,298 13 9,916 17 10,069 20
Communications and
data processing 2,941 29 13,724 40 4,898 17
Interest 2,593 49 9,616 50 3,632 23
Payroll and other taxes 667 10 3,108 17 1,767 11
Floor brokerage and
clearance fees 22 2 (371) (6 ) 781 15
Other operating expenses 1,653 15 1,839 4 2,905 7
---------- ---------- ---------- ---------- ---------- ----------
Total 3,821 3 30,835 5 81,665 17
---------- ---------- ---------- ---------- ---------- ----------
Net income $(4,795) (35%) $(12,354) (19%) $ 3,929 6%
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE> 26
Results of Operations
Three Months Ended March 31, 1995 versus Three Months Ended March 25, 1994
The Partnership has experienced significant growth in its sales force,
averaging 23% over the last three years. The Partnership anticipates no growth
or a slight decrease in the size of its sales force by the end of 1995 compared
to the prior year end. The number of investment representatives increased 14%
to 3,252 as of March 31, 1995, from 2,856 as of March 25, 1994, but decreased
4% from the 3,378 investment representatives as of December 31, 1994.
With the flattening of the yield curve during the past year, the product
mix has shifted away from mutual funds and to shorter term fixed income
products including corporate bonds, government bonds, municipal bonds, and
certificates of deposit which carry lower margins compared with longer term
investments and equities. Lower margins have not been offset by the growth in
the salesforce. Overall revenues decreased slightly from the level attained in
the first quarter of 1994.
Total revenues decreased 1% ($1.0 million) to $160.4 million compared to
the quarter ended March 25, 1994. Expenses increased 3% ($3.8 million) to $151
million. As a result, net income decreased by $4.8 million to $8.9 million.
Commission revenues decreased 22% ($25.1 million). Mutual fund commissions
declined 36% ($24.2 million) and were the major contributor to the decrease.
Annuity revenues decreased 9% ($1.6 million). Listed and over-the-counter
(O-T-C) agency equity commission revenues increased 4% ($.9 million). As the
yield curve flattened, investors were attracted to shorter term fixed income
products rather than to mutual funds.
Principal transaction revenues increased 67% ($16.3 million) to $40.7
million for the period. Government bond principal revenue increased 330% ($6.1
million) and municipal bond principal revenue increased 27% ($2.9 million).
Corporate bond principal revenues increased 54% ($2.2 million).
Investment banking revenues increased 38% ($2.7 million) to $9.8 million
for the period. Certificate of deposit revenues increased substantially 185%
($3.9 million). With uncertainty as to the direction of interest rates,
investors were attracted to certificates of deposit. Higher interest rates
throughout the quarter reduced debt and equity origination revenues 42% ($1.5
million).
Interest and dividend income increased 49% ($4.5 million) to $13.5 million
due to a 41% ($2.9 million) increase in interest income earned on margin
balances as a result of higher interest rates. U.S. Government and agency
interest income increased 85% ($1.2 million) from larger investment security
positions purchased by the Partnership with subordinated debt proceeds from the
second quarter of 1994.
Compensation costs decreased 7% ($6.4 million) compared to the same period
last year. Commissions decreased due to lower revenues. Sales bonuses, sales
incentives and profit sharing provisions were lower due to lower profit margins
and net income. Salaries and wages earned by non-sales personnel were higher
during the period due to increases in personnel necessary to support an
increased sales force.
<PAGE> 27
Of the Partnership's remaining expenses, the most significant changes were
seen in occupancy, equipment, communications and data processing expenses in
order to support an expanding number of offices and branch network.
1994 versus 1993
Revenues increased 3% ($18.5 million) over 1993 to $658 million. Expenses
increased by 5% ($31 million) resulting in net income of $54 million, a
decrease of 19% ($12 million) over 1993.
In 1994, the Partnership increased its salesforce by 23% to 3,378
investment representatives compared with 2,745 at the end of 1993. The growth
in the salesforce contributed to a 7% increase in dollars invested by EDJ
customers which grew from $17.8 billion in 1993 to $19.1 billion in 1994.
Productivity measured on an individual investment representative basis,
however, has decreased as EDJ has increased its investment representatives.
Many of the new investment representatives are beginners in the industry who
generally achieve profitability after about 30 months. In addition, the
product mix of the firm has shifted away from mutual funds and into
Certificates of Deposit, Corporate, Government and Municipal bonds, which has
reduced the margin on customer dollars invested compared with 1993. As the
yield curve has flattened, customers were inclined to purchase shorter term
investments, which carry lower margins compared with longer term investments
and equities. These factors combined caused an overall increase in revenues of
3% ($18.5 million) over 1993 to $658 million.
Commission revenues decreased $62 million primarily from a $79 million
(35%) decrease in mutual fund commissions offset by a $10 million increase in
mutual fund service fees. Listed and over-the-counter agency commissions
decreased $8.5 million or 10% over 1993. Insurance commissions increased 18%,
with variable and fixed annuities increasing by $12.8 million. With rising
interest rates over the year, customers increased their investments in short
and intermediate term fixed income securities.
Principal transaction revenues increased 76% ($71 million) with government
and municipal bond revenues increasing $46 million. Revenues from
collateralized mortgage obligations (CMOs) increased 123% ($15.5 million) and
corporate bonds increased 38% ($6.3 million). At the same time, O-T-C
principal stock sales decreased by $1 million.
Investment banking revenues declined 19% ($8.6 million) from substantial
decreases in equity originations and syndicate equity participations ($7.2
million). Syndicate CMOs decreased 89% ($5.5 million) with the decrease
partially offset by certificate of deposit revenue increasing 110% ($9.1
million).
Interest and dividend revenues increased 37% or $14 million. Customers'
margin loan balances increased 4% in 1994 ($17 million) ending the year at $468
million. Customer margin loan revenue increased 38% ($11.1 million) primarily
due to the increase in interest rates during the year. U.S. Government and
agency interest income increased 42% ($2.8 million) from $6.5 million as the
Partnership increased Investment Securities by approximately $60 million during
the year.
Other revenues increased $5 million (17%) over 1993. Revenues from self-
directed IRA accounts resulted in an increase of $1.2 million in 1994.
<PAGE> 28
Overall expenses increased 5% ($31 million) as the Partnership continued to
incur significant costs related to the growth of its salesforce, which has
increased approximately 23% for each of the last three years. The Partnership
incurred approximately $28 million of training, salary and other costs in order
to support the growth in the salesforce compared with $21 million in 1993.
The Partnership's compensation structure for its investment representatives
and non-sales personnel is designed to expand or contract substantially as a
result of changes in revenues, net income and profit margins. As a result of
decreased revenues and net income in 1994, variable compensation, including
bonuses and profit sharing contributions, declined by $35 million or 44% from
1993 levels. This was offset by increases in headquarter, branch and trainee
compensation which increased to support the 23% growth in the salesforce.
Overall, compensation decreased by $7 million.
Other operating expenses are less influenced by decreasing revenues and net
income. In total, these expenses increased by $38 million, or 21%, and were
primarily related to the headquarters and increased branch expenses necessary
to support a rapidly growing salesforce.
1993 versus 1992
Revenues increased 15% ($86 million) over 1992 to $640 million. Expenses
increased by 17% ($82 million) resulting in net income of $66 million, an
increase of 6% ($4 million) over 1992. These results were significantly
influenced by the Partnership's activities in connection with the expansion of
its salesforce. The number of investment representatives increased 24% in 1993
to 2,745. By comparison, 1992's growth in investment representatives was 22%.
The Partnership incurred significant training, salary and other costs in
support of new investment representatives. The net impact of these direct
expenses amounted to nearly $21 million during 1993 ($14 million in 1992).
Additionally, the Partnership made significant increases in home office
overhead to support the increased salesforce.
Commission revenues increased $126 million fueled by a $82 million (44%)
increase in mutual fund commissions and service fees. Listed and
over-the-counter agency commissions increased $18 million or 24% over 1992.
Insurance commissions increased 56%, with variable and fixed annuity
commissions increasing $26 million. The increasing level of securities prices
along with lower interest rates turned individual investors to equity markets
and equity based investments in search of more attractive returns. The
continued strength of the securities markets led to solid increases in
commission generated from the sales of securities products.
Principal transaction revenues decreased 30% ($39 million). CMO revenues
decreased $11.3 million, government and municipal bond revenues decreased by
$9.7 million and $3.7 million, respectively. Prior to 1993, municipal bond
syndicate revenues were included in principal transaction revenues. In 1993,
these revenues, totalling $10.3 million, were included in investment banking
revenues. The majority of the principal transaction revenue decreases largely
resulted from historically low interest rates and the resulting popularity of
equity based investments.
Investment banking revenues declined $15.6 million resulting from decreases
in certificate of deposit revenues ($8 million), CMO revenues ($11 million),
and equity and debt originations.
<PAGE> 29
Interest and dividend revenues increased 25% or $7.6 million. Customers'
margin loan balances increased 36% in 1993 ($120 million) ending the year at
$451 million. The increase in customers' loan balances was attributable to
higher securities prices, continuation of marketing efforts targeting
individuals to view their securities as access to a personal line of credit and
lower interest rates. The increase in loan balances more than offset the
decline in short term interest rates during the year resulting in increased
interest earnings.
Other revenues increased $6 million (26%) over 1992. Revenues from self-
directed IRA accounts resulted in an increase of $1 million in 1993.
Overall expenses increased 17% ($82 million). The Partnership's
compensation structure for its investment representatives is designed to expand
or contract substantially as a result of changes in revenues, net income and
profit margins. Similarly, non-sales personnel compensation from bonuses and
profit sharing contributions expands and contracts in relation to net income.
The Partnership's non-compensation related expenses are less responsive to
changes in revenues and net income. Rather, these expenses are influenced by
the number of salespeople, growth of the salesforce, the number of customer
accounts and, to a lesser extent, the volume of transactions. As a result of
its expense structure, the Partnership's compensation expense increased 17% .
The Partnership's expenses other than compensation increased 15%. Increased
expense levels related to supporting a larger number of investment
representatives and branch offices were primarily responsible for the increase
in operating expenses.
The Effects of Inflation
The Partnership's net assets are primarily monetary, consisting of cash,
securities inventories and receivables less liabilities. Monetary net assets
are primarily liquid in nature and would not be significantly affected by
inflation. Inflation and future expectations of inflation influence securities
prices, as well as activity levels in the securities markets. As a result,
profitability and capital may be impacted by inflation and inflationary
expectations. Additionally, inflation's impact on the Partnership's operating
expenses may affect profitability to the extent that additional costs are not
recoverable through increased prices of services offered by the Partnership.
Liquidity and Capital Adequacy
The Partnership's equity capital at March 31, 1995, was $189.7 million
compared to $180.4 million as of March 25, 1994. General partnership capital
increased $7.4 million due to retention of earnings and to an increase in
distributable profits. Subordinated limited partnership capital increased $4.8
million due to capital contributions. Limited partnership capital decreased
$2.8 million primarily due to withdrawals and distributions of earnings. The
Partnership's equity capital at December 31, 1994, was $190.5 million compared
to $179.8 million at December 31, 1993. Overall, equity capital increased 6%,
primarily due to the retention of earnings and issuance of partnership
interests. The Partnership issued additional limited partnership interests in
August 1993 of $24.8 million and additional subordinated limited partnership
interest of $4.4 and $5.2 million in 1993 and 1994, respectively.
At March 31, 1995 and December 31, 1994, the Partnership had $33.4 million
and $36.7 million, respectively, in cash and cash equivalents.
<PAGE> 30
The Partnership borrows from banks on a short-term basis to finance
customer margin balances and inventory securities. Currently, the Partnership
has bank lines of credit from ten banks aggregating $580 million of which $555
million were through uncommitted facilities. Actual borrowing availability is
primarily based on securities owned and customers' margin securities.
Subordinated debt decreased by $7 million during the three months ended
March 31, 1995 due to the maturity of one of the Partnership's issues, and
increased by approximately $63 million (net of maturities and voluntary
prepayments) during 1994 due to the issuance of additional subordinated debt.
The net proceeds were primarily invested in U.S. Government Obligations.
As a result of its activities as a broker/dealer, EDJ, the Partnership's
principal subsidiary, is subject to the Net Capital provisions of Rule 15c3-1
of the Exchange Act and the capital rules of the New York Stock Exchange.
Under the alternative method permitted by the rules, EDJ must maintain minimum
Net Capital, as defined, equal to the greater of $250,000 or 2% of aggregate
debit items arising from customer transactions. The Net Capital rule also
provides that partnership capital may not be withdrawn if resulting Net Capital
would be less than 5% of aggregate debit items. Additionally, certain
withdrawals require the consent of the Commission to the extent they exceed
defined levels even though such withdrawals would not cause Net Capital to be
less than 5% of aggregate debit items. See "Business--Uniform Net Capital
Rules. At March 31, 1995, EDJ's total net capital of $157.8 million was 34% of
aggregate debit items and its total net capital in excess of the minimum
required was $148.7 million. At December 31, 1994, EDJ's Net Capital of $153.2
million was 31% of aggregate debit items and its net capital in excess of the
minimum required was $143.4 million. Net Capital and the related capital
percentage may fluctuate on a daily basis.
The Partnership plans to make approximately $64 million in capital
expenditures in 1995 versus $68 million in 1994 and $52 million in 1993. It
is anticipated that approximately $14 million of 1995 estimated capital
expenditures will be related to the client/server technology conversion.
Based on the present approximate 3,200 branch offices and current
headquarters personnel, the implementation of the client/server technology is
anticipated to cost approximately $88 million over the next several years. The
Partnership plans to expand its sales force after 1995 during the several year
period of conversion to client/server technology. Increases in the sales force
and number of branch offices will result in further increases in the
Partnership's capital expenditures.
JFC, through EDJ, has obtained a proposal to provide operating lease
financing from BancBoston Leasing Inc. ("BancBoston"), an affiliate of The
First National Bank of Boston, in order to acquire the computer equipment and
software needed to convert up to 4,500 branch offices to client/server
technology. The BancBoston proposal is subject to a number of conditions,
including, among other things, necessary approvals by BancBoston, equipment
approval, execution of mutually acceptable documentation, and no material
adverse change in JFC's financial condition. No assurance can be
given that the proposed financing will be consummated. BancBoston's
commitment for the period ending June 30, 1996 is approximately $25 million;
with future amounts subject to BancBoston's approval on an annual basis. The
base term rent payment is indexed to the three year Treasury Note.
Accordingly, no assurance can be given that the financing will be available for
<PAGE> 31
the balance of the program on terms reasonably acceptable to JFC. Upon
conclusion of the lease term, JFC has the option to purchase all of the
equipment, return all of the equipment to BancBoston, or renew the lease at
the then fair market rental value of the equipment as determined in good faith
by BancBoston.
JFC, through EDJ Leasing Co., has also secured financing from two national
banks to provide the capital needed to purchase certain furniture and equipment
to be used in the St. Louis headquarters. The first loan is from SouthTrust
Bank of Alabama, N.A. in the form of an $8 million revolving line of credit
with annual step-downs maturing on July 30, 2000, of which as of July 3, 1995
$1.9 million has been drawn. The loan bears interest at LIBOR plus 1.45%. The
second loan is from Enterprise Bank in the form of a $10 million line of credit
with repayment beginning November 30, 1995 and final maturity on October 31,
2000, of which as of July 3, 1995 $2 million has been drawn. The loan bears
interest at prime (which, as of July 3, 1995, was 9.00%). Both loans are
collateralized by office furniture and equipment, and computer and
communications equipment and are guaranteed by JFC. JFC intends to utilize the
available balance on these loans to fund the headquarters portion of the
client/server capital expenditure program.
The Partnership, through EDJ Leasing Co., has obtained a commitment for a
$15 million non-recourse mortgage loan to be secured by its headquarters
facility from Nationwide Insurance Co., of which approximately $7 million will
be used to finance the construction of a parking garage and the balance to fund
the acquisition of equipment and building improvements. A total of $4 million
will mature in 2003 and the balance will mature in 2008. The loan will
initially bear interest at 7.59% and will reset every three years based on
Nationwide's rate for similar loans, at which time the Partnership may elect to
repay the loan or incur interest at the new rate.
Cash Flows
Cash and cash equivalents decreased $3.3 million from December 31, 1994 to
March 25, 1995. Cash flows provided were primarily from net income,
depreciation, decreases in securities owned, decrease in other assets and the
issuance of partnership interests. Cash was primarily used to fund increased
receivables from brokers and dealers, reduce accounts payable, purchase fixed
assets, repay bank loans, long-term debt, and subordinated debt, and to fund
withdrawals and distributions.
Cash and cash equivalents increased $7.9 million from December 31, 1993, to
December 31, 1994. Cash flows were primarily provided from net income,
depreciation, a decrease in net receivables from customers, brokers, dealers or
clearing organizations, increases in short term bank loans, issuance of
subordinated debt, the issuance of long term debt, and the issuance of
partnership interests. Cash flows were primarily used to decrease accounts
payable and accrued expenses, increase securities owned, increase other assets,
purchase equipment, property and improvements, repay long-term debt, repay
subordinated liabilities and fund capital withdrawals and distributions.
Cash and cash equivalents decreased $8.9 million from December 31, 1992, to
December 31, 1993. Cash flows were primarily provided from net income,
depreciation, a decrease in securities owned, an increase in accounts payable
and accrued expenses, an increase in short and long term bank loans and the
issuance of partnership interests. Cash flows were primarily used to increase
net receivables from customers and brokers, increase other assets, purchase
<PAGE> 32
equipment, property and improvements, repay long-term debt, repay subordinated
liabilities and fund capital withdrawals and distributions.
Cash and cash equivalents increased $5.3 million from December 31, 1991, to
December 31, 1992. Cash flows were primarily provided from net income,
depreciation, a decrease in net receivables from brokers or dealers and
clearing organizations, a decrease in securities owned, an increase in short
term bank loans, the issuance of subordinated debt and the issuance of
partnership interests. Cash flows were primarily used to increase net
receivables from customers, increase other assets, purchase equipment, property
and improvements, and fund capital withdrawals and distributions.
There were no material changes in the partnership's overall financial
condition during the three months ended March 31, 1995, compared with the three
months ended March 25, 1994, or during the year ended December 31, 1994,
compared with the year ended December 31, 1993. The Partnership's balance
sheet is comprised primarily of cash and assets readily convertible into cash.
Securities inventories are carried at market values and are readily marketable.
The firm carried higher trading inventory levels in 1994 as compared to 1993.
Customer margin accounts are collateralized by marketable securities. Other
customer receivables and receivables and payables with other broker/dealers
normally settle on a current basis. Liabilities, including amounts payable to
customers, accounts payable and accrued expenses are non-interest bearing
sources of funds to the Partnership. These liabilities, to the extent not
utilized to finance assets, are available to meet liquidity needs and provide
funds for short term investments, which favorably impacts profitability.
The Partnership's growth in recent years has been financed through the
issuance of limited partnership interests to its employees, additions to
subordinated limited partnership capital, retention of earnings and private
placements of long-term and subordinated debt. As a result of the proposed
client/server capital expenditure program, the Partnership's cash needs will
significantly increase. Increases in JFC's sales force and the number of
branch offices will result in further increases in JFC's cash needs.
<PAGE> 33
BUSINESS
General
The Jones Financial Companies, a Limited Partnership (previously defined as
"JFC" or the "Partnership") is organized under the Revised Uniform Limited
Partnership Act of the State of Missouri. The terms "JFC" and "Partnership"
used throughout this section, refer to The Jones Financial Companies, a
Limited Partnership and any or all of its consolidated subsidiaries, including
EDJ. The Partnership is the successor to Whitaker & Co., which was established
in 1871 and dissolved on October 1, 1943, said date representing the
organization date of Edward D. Jones & Co., L.P. (previously defined as "EDJ"),
the Partnership's principal subsidiary. EDJ was reorganized on August 28,
1987, which date represents the organization date of The Jones Financial
Companies, a Limited Partnership.
The Partnership is engaged in business as a broker/dealer in listed and
unlisted securities, including governmental issues, acts as an investment
banker, and is a distributor of mutual fund shares. In addition, the
Partnership engages in sales of various insurance products and renders
investment advisory services. The Partnership is heavily oriented towards
serving individual retail customers.
The Partnership is a member firm of the New York, American and Chicago
exchanges (hereinafter referred to as the "NYSE," the "ASE" and the "CSE,"
respectively), and is a registered broker/dealer with the National Association
of Securities Dealers, Inc. (the "NASD"). The Partnership is also a member
firm of the Toronto and Montreal exchanges.
As of March 31, 1995, the Partnership was comprised of 115 general
partners, 1,883 limited partners and 59 subordinated limited partners. The
Partnership employed approximately 9,708 persons, including approximately 2,289
part-time employees. As of said date, the Partnership employed approximately
3,252 full-time investment representatives actively engaged in sales in
approximately 3,218 offices in 49 states and Canada.
The Partnership owns 100 percent of the outstanding common stock of EDJ
Holding Company, Inc., a Missouri corporation and 100 percent of the
outstanding common stock of LHC, Inc., a Missouri corporation. The Partnership
also holds all of the partnership equity of Edward D. Jones & Co., L.P., a
Missouri limited partnership and EDJ Leasing Co., L.P., a Missouri limited
partnership. EDJ Holding Company, Inc. and LHC, Inc. are the general partners
of Edward D. Jones & Co., L.P. and EDJ Leasing Co., L.P., respectively. In
addition, the Partnership owns 100 percent of the outstanding common stock of
Conestoga Securities, Inc., a Missouri corporation and also owns, as a limited
partner, 49.5 percent of Passport Research Ltd., a Pennsylvania limited
partnership, which acts as an investment advisor to a money market mutual fund.
The Partnership owns 100% of the equity of Edward D. Jones & Co., an Ontario
limited partnership and the general partner is Edward D. Jones & Co. Canada
Holding Co. Inc., which is wholly owned by the Partnership. The Partnership
has an equity position in several entities formed to act as general partners of
various direct participation programs sponsored by the Nooney Corporation as
follows: Nooney Capital Corp. (a Missouri corporation), 50% of outstanding
Class B non-voting stock; Nooney Income Investments, Inc. (a Missouri
corporation), 100% of outstanding Class B non-voting stock; Nooney Income
Investments Two, Inc. (a Missouri corporation), 100% of outstanding Class B
non-voting stock; Nooney Income Investment Three, Inc., (a Missouri
corporation), 100% of outstanding Class B non-voting stock. The Partnership
holds all of the partnership equity in a Missouri limited partnership, EDJ
<PAGE> 34
Ventures, Ltd. Conestoga Securities, Inc. is the general partner of EDJ
Ventures, Ltd. The Partnership is the sole shareholder of Tempus Corporation,
a Missouri corporation, which was formed strictly to facilitate the issuance of
certain debt securities of the Partnership in a private transaction.
The Partnership is a limited partner of EDJ Insurance Agency of New Jersey,
L.P., a New Jersey limited partnership; EDJ Insurance Agency of Arkansas, an
Arkansas limited partnership; EDJ Insurance Agency of Montana, a Montana
limited partnership; EDJ Insurance Agency of New Mexico, a New Mexico limited
partnership; EDJ Insurance Agency of Utah, a Utah limited partnership; and is a
general partner in EDJ Insurance Agency of California, a California general
partnership; each of which engage in general insurance brokerage activities.
The Partnership owns all of the outstanding stock of EDJ Insurance Agency of
Ohio, Inc., which is also engaged in insurance brokerage activities.
Affiliates of the Partnership include EDJ Insurance Agency of Nevada, EDJ
Insurance Agency of Texas, EDJ Insurance Agency of Alabama, EDJ Insurance
Agency of Florida, EDJ Insurance Agency of Wyoming, EDJ Insurance Agency of
Arizona and EDJ Insurance Agency of Massachusetts. The Partnership holds all
of the Partnership equity of Unison Investment Trusts, L.P., d/b/a Unison
Investment Trusts, Ltd., a Missouri limited partnership, which sponsors unit
investment trust programs. The general partner of Unison Investment Trusts,
L.P. is Unison Capital Corp., Inc., a Missouri corporation wholly owned by the
Partnership. The Partnership owns 100% of the outstanding common stock of
Cornerstone Mortgage Investment Group, Inc., a Delaware limited purpose
corporation which has issued and sold collateralized mortgage obligation bonds,
and Cornerstone Mortgage Investment Group II, Inc., a Delaware limited purpose
corporation which has structured and sold secured mortgage bonds. The
Partnership owns 100% of the outstanding stock of CIP Management, Inc., which
is the managing general partner of CIP Management, L.P. CIP Management, L.P.
is the managing general partner of Community Investment Partners, L.P. and
Community Investment Partners II, L.P., business development companies. Other
affiliates of the Partnership include Patronus, Inc. and EDJ Investment
Advisory Services. Neither has conducted an active business.
The Partnership owns as a general partner, 1/3 of Commonwealth Pacific
Limited Partnership, a Washington limited partnership, which formerly operated
as a syndicator of various real estate limited partnership programs, for which
the Partnership had served as an underwriter and distributor.
<PAGE> 35
Revenues by Source
The following table sets forth, for the past three years the sources of the
Partnership's revenues by dollar amounts, (all amounts in thousands):
<TABLE>
<CAPTION>
March 31, March 25,
1995 1994 1994 1993 1992
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commissions
Listed $ 17,881 $ 17,102 $ 63,903 $ 70,634 $ 59,256
Mutual Funds 43,133 67,375 202,698 269,818 187,411
O-T-C 5,412 5,351 18,985 20,786 14,424
Insurance 21,028 22,815 85,759 72,536 46,509
Other 201 75 580 596 274
Principal Transactions 40,713 24,406 163,050 92,471 131,366
Investment Banking 9,822 7,129 36,359 45,001 60,635
Interest & Dividends 13,521 9,065 52,143 38,084 30,520
Money-Market Fees 2,384 2,486 10,110 10,048 10,751
IRA Custodial Service Fees 1,678 1,268 5,614 4,387 3,310
Other Revenues 4,666 4,341 18,844 15,203 9,514
--------- --------- -------- -------- --------
Total Revenues $160,439 $161,413 $658,045 $639,564 $553,970
</TABLE>
Because of the interdependence of the activities and departments of the
Partnership's investment business and the arbitrary assumptions involved in
allocating overhead, it is impractical to identify and specify expenses
applicable to each aspect of the Partnership's operations. Furthermore, the
net income of firms principally engaged in the securities business, including
the Partnership's, is effected by interest savings as a result of customer and
other credit balances and interest earned on customer margin accounts.
Listed Brokerage Transactions. A large portion of the Partnership's
revenue is derived from customers' transactions in which the Partnership acts
as agent in the purchase and sale of listed corporate securities. These
securities include common and preferred stocks and corporate debt securities
traded on and off the securities exchanges. Revenue from brokerage
transactions is highly influenced by the volume of business and securities
prices.
Customers' transactions in securities are effected on either a cash or a
margin basis. In a margin account, the Partnership lends the customer a
portion of the purchase price up to the limits imposed by the margin
regulations of the Federal Reserve Board (Regulation T), NYSE margin
requirements, or the Partnership's internal policies, which may be more
stringent than the regulatory minimum requirements. Such loans are secured by
the securities held in customers' margin accounts. These loans provide a
source of income to the Partnership since it is able to lend to customers at
rates which are higher than the rates at which it is able to borrow on a
secured basis. The Partnership is permitted to use as collateral for the
borrowings, securities owned by margin customers having an aggregate market
value generally up to 140 percent of the debit balance in margin accounts. The
Partnership may also use the interest-free funds provided by free credit
<PAGE> 36
balances in customers' accounts to finance customers' margin account
borrowings.
In permitting customers to purchase securities on margin, the Partnership
assumes the risk of a market decline which could reduce the value of its
collateral below a customer's indebtedness before the collateral is sold.
Under the NYSE rules, the Partnership is required in the event of a decline in
the market value of the securities in a margin account to require the customer
to deposit additional securities or cash so that at all times the loan to the
customer is no greater than 75 percent of the value of the securities in the
account (or to sell a sufficient amount of securities in order to maintain this
percentage). The Partnership, however, imposes a more stringent maintenance
requirement.
Variations in revenues from listed brokerage commissions between periods is
largely a function of market conditions; however, some portion of the overall
increases in recent years is due to the growth in the number of registered
representatives over these periods.
Mutual Funds. The Partnership distributes mutual fund shares in continuous
offerings and new underwritings. As a dealer in mutual fund shares, the
Partnership receives a dealers' discount which generally ranges from 1 percent
to 5 3/4 percent of the purchase price of the shares, depending on the terms of
the dealer agreement and the amount of the purchase. The Partnership also
earns service fees which are generally based on 15 to 25 basis points of its
customers' assets which are held by the mutual funds. The Partnership does not
manage any mutual fund, although it is a limited partner of Passport Research,
Ltd., an advisor to a money market mutual fund.
Over-the-Counter and Principal Transactions. Partnership activities in
unlisted (over-the-counter) transactions are essentially similar to its
activities as a broker in listed securities. In connection with customers'
orders to buy or sell securities on an agency basis, the Partnership charges a
commission. In dealing on a principal basis, the Partnership charges its
customers a net price approximately equal to the current inter-dealer market
price plus or minus a mark-up or mark-down from such market price. The NASD
Rules of Fair Practice require that such mark-up (or mark-down) be fair and
reasonable.
Insurance. The Partnership has executed several agency agreements with
various national insurance companies. Through its 2,848 investment
representatives who hold insurance sales licenses as of June 30, 1995, EDJ is
able to offer term life insurance, health insurance, and fixed and variable
annuities to its customers. Revenues from the sale of insurance products,
primarily annuities, approximated 13% of total revenues in 1994, and the
overall Insurance area has experienced growth in recent years largely as a
result of the growth in the number of representatives licensed to engage in
insurance sales.
The Partnership makes a market in over-the-counter corporate securities,
municipal obligations, including general obligations and revenue bonds, unit
investment trusts and mortgage-backed securities. The Partnership's
market-making activities are conducted with other dealers in the "wholesale"
market and "retail" market wherein the Partnership acts as a dealer buying from
and selling to its customers. In making markets in over-the-counter securities,
the Partnership exposes its capital to the risk of fluctuation in the market
value of its security positions. It is the Partnership's policy not to trade
for its own account.
<PAGE> 37
As in the case of listed brokerage transactions, revenue from
over-the-counter and principal transactions is highly influenced by the volume
of business and securities prices, as well as by the varying number of
registered representatives employed by the Partnership over the periods
indicated.
Investment Banking. The Partnership's investment banking activities are
carried on through its Syndicate and Underwriting Departments. The principal
service which the Partnership renders as an investment banker is the
underwriting and distribution of securities either in a primary distribution on
behalf of the issuer of such securities or in a secondary distribution on
behalf of a holder of such securities. The distributions of corporate and
municipal securities are, in most cases, underwritten by a group or syndicate
of underwriters. Each underwriter has a participation in the offering.
Unlike many larger firms against which the Partnership competes, the
Partnership does not presently engage in other investment banking activities
such as assisting in mergers and acquisitions, arranging private placement of
securities issues with institutions or providing consulting and financial
advisory services to corporations.
The Syndicate and Underwriting Departments are responsible for the largest
portion of the Partnership's investment banking business. In the case of an
underwritten offering managed by the Partnership, these departments may form
underwriting syndicates and work closely with the branch office system for
sales of the Partnership's own participation and with other members of the
syndicate in the pricing and negotiation of other terms. In offerings managed
by others in which the Partnership participates as a syndicate member, these
departments serve as active coordinators between the managing underwriter and
the Partnership's branch office system.
The underwriting activity of the Partnership involves substantial risks.
An underwriter may incur losses if it is unable to resell the securities it is
committed to purchase or if it is forced to liquidate all or part of its
commitment at less than the agreed upon purchase price. Furthermore, the
commitment of capital to underwriting may adversely affect the Partnership's
capital position and, as such, its participation in an underwriting may be
limited by the requirement that it must at all times be in compliance with the
Net Capital rule.
The Securities Act and other applicable laws and regulations impose
substantial potential liabilities on underwriters for material misstatements or
omissions in the prospectus used to describe the offered securities. In
addition, there exists a potential for possible conflict of interest between an
underwriter's desire to sell its securities and its obligation to its customers
not to recommend unsuitable securities. In recent years there has been an
increasing incidence of litigation in these areas. These lawsuits are
frequently brought for the benefit of large classes of purchasers of
underwritten securities. Such lawsuits often name underwriters as defendants
and typically seek substantial amounts in damages.
Interest and Dividends. Interest and dividend income is earned on
securities held and margin account balances.
Money Market Fees, IRA Custodial Service Fees and Other Revenues. Other
revenue sources include money market management fees and IRA custodial services
fees, accommodation transfer fees, gains from sales of certain assets, revenue
from management fees charged by mutual funds, and other product and service
<PAGE> 38
fees. The Partnership has an interest in the investment advisor to its money
market fund, Daily Passport Cash Trust. Revenue from this source has increased
over the periods due to growth in the fund, both in dollars invested and number
of accounts. In 1991 EDJ became the custodian for its IRA accounts. Each
account is charged an annual service fee for services rendered to it by the
Partnership.
The Partnership has registered an investment advisory program with the
Commission under the Investment Advisers Act of 1940. This service is offered
firmwide and involves income and estate tax planning and analysis for clients.
Revenues from this source are insignificant and included under "Other
Revenues."
Research Department
The Partnership maintains a Research Department to provide specific
investment recommendations and market information for retail customers. The
Department supplements its own research with the services of various
independent research services. The Partnership competes with many other
securities firms with substantially larger research staffs in its research
activities.
Customer Account Administration and Operations
Operations employees are responsible for activities relating to customers'
securities and the processing of transactions with other broker/dealers. These
activities include receipt, identification, and delivery of funds and
securities, internal financial controls, accounting and personnel functions,
office services, storage of customer securities and the handling of margin
accounts. The Partnership processes substantially all of its own transactions.
It is important that the Partnership maintains current and accurate books and
records from both a profit viewpoint as well as for regulatory compliance.
To expedite the processing of orders, the Partnership's branch office
system is linked to the St. Louis headquarters office through an extensive
communications network. Orders for all securities are centralized and executed
in St. Louis. The Partnership's processing of paperwork following the
execution of a security transaction is automated, and operations are generally
on a current basis. There is considerable fluctuation during any one year and
from year to year in the volume of transactions the Partnership processes. The
Partnership records transactions and posts its books on a daily basis.
Operations' personnel monitor day-to-day operations to determine compliance
with applicable laws, rules and regulations. Failure to keep current and
accurate books and records can render the Partnership liable to disciplinary
action by governmental and self-regulatory organizations.
The Partnership has a computerized branch office communication system which
is principally utilized for entry of security orders, quotations, messages
between offices and cash receipts functions.
The Partnership clears and settles virtually all of its listed transactions
through the National Securities Clearing Corporation (the "NSCC"), New York,
New York. NSCC effects clearing of securities on the NYSE, ASE and the CSE.
<PAGE> 39
In conjunction with clearing and settling transactions with NSCC the
Partnership holds customers' securities on deposit with Depository Trust
Company ("DTC") in lieu of maintaining physical custody of the certificates.
The Partnership is substantially dependent upon the operational capacity
and ability of NSCC/DTC. Any serious delays in the processing of securities
transactions encountered by NSCC/DTC may result in delays of delivery of cash
or securities to the Partnership's customers. These services are performed for
the Partnership under contracts which may be changed or terminated at will by
either party.
Automated Data Processing, Inc., ("ADP") provides automated data processing
services for customer account activity and records.
The Partnership does not employ its own floor broker for transactions on
exchanges. The Partnership has arrangements with other brokers to execute the
Partnership's transactions in return for a commission based on the size and
type of trade. If for any reason any of the Partnership's clearing, settling
or executing agents were to fail, the Partnership and its customers would be
subject to possible loss. While the coverages provided by the Securities
Investors Protection Corporation ("SIPC") and protection in excess of SIPC
limits would be available to customers of the Partnership, to the extent that
the Partnership would not be able to meet the obligations of the customers,
such customers might experience delays in obtaining the protections afforded
them by the SIPC and the Partnership's insurance carrier.
The Partnership believes that its internal controls and safeguards
concerning the risks of securities thefts are adequate. Although the
possibility of securities thefts is a risk of the industry, the Partnership has
not had, to date, a significant problem with such thefts. The Partnership
maintains fidelity bonding insurance which, in the opinion of management,
provides adequate coverage.
Employees
Including its general partners, the Partnership has approximately 9,708
full and part-time employees, including approximately 3,252 who are registered
salespeople as of March 31, 1995. The Partnership's salespersons are
compensated on a commission basis and may, in addition, be entitled to bonus
compensation based on their respective branch office profitability and the
profitability of the Partnership. The Partnership has no formal bonus plan for
its non-registered employees. The Partnership has, however, in the past paid
bonuses to its non-registered employees on an informal basis, but there can be
no assurance that such bonuses will be paid for any given period or will be
within any specific range of amounts.
Employees of the Partnership are bonded under a blanket policy as required
by NYSE rules. The annual aggregate amount of coverage is $40,000,000 subject
to a $2,000,000 deductible provision, per occurrence.
The Partnership recently redesigned its training program for new investment
representatives ("IRs"), the first graduates of which entered the sales force
in June 1995. At this time, the effectiveness of the new training program
cannot be measured.
The Partnership's initial training program for new IRs is a combination of
self-study, classroom, and on the job training. The program begins with two
<PAGE> 40
months of self-study and various proficiency tests in preparation for
completion of the Series 7 examination. The next phase involves one week of
classroom interaction which focuses on customers, investments, and selling
techniques. New IRs then spend three weeks in two or three branch offices
where they receive on-the-job training and are required to complete various
training modules. The next phase of training requires that new IRs spend three
weeks conducting market research and formulating business plans in their
targeted locations while studying for insurance licensing examinations. To
conclude the initial training program, new IRs spend two weeks in the
headquarters training facility for additional classroom training. In addition
to the initial training program, EDJ has developed a continuing education
program and offers advanced training to IRs throughout their careers. Although
the Partnership pays the IRs during the training program, the IRs must fulfill
special tasks before being awarded full branch status. EDJ's basic
compensation to new IRs is similar to its competitors. A bonus may also be
paid based on the profitability of the branch and the profitability of the
Partnership.
The Partnership considers its employee relations to be good and believes
that its compensation and employee benefits which include medical, life, and
disability insurance plans and profit sharing and deferred compensation
retirement plans, are competitive with those offered by other firms principally
engaged in the securities business.
Competition
The Partnership is subject to intensive competition in all phases of its
business from other securities firms, many of which are substantially larger
than the Partnership in terms of capital, brokerage volume and underwriting
activities. In addition, the Partnership encounters competition from other
financially oriented organizations such as banks, insurance companies, and
others offering financial services and advice. In recent periods, many
regulatory requirements prohibiting non-securities firms from engaging in
certain aspects of brokerage firms' business have been eliminated and further
removal of such prohibitions is anticipated. With minor exceptions, customers
are free to transfer their business to competing organizations at any time.
There is intense competition among securities firms for salespeople with
good sales production records. In recent periods, the Partnership has
experienced increasing efforts by competing firms to hire away its registered
representatives although the Partnership believes that its rate of turnover of
investment representatives is not higher than that of other firms comparable to
the Partnership. However, Merrill Lynch, the largest securities firm in the
industry, has announced plans to increase its presence in non-urban markets and
as a result, the Partnership may face increased competition in such markets.
Regulation
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. The Commission is the federal
agency responsible for the administration of the federal securities laws. The
Partnership's principal subsidiary is registered as a broker-dealer and
investment advisor with the Commission. Much of the regulation of
broker-dealers has been delegated to self-regulatory organizations, principally
the NASD and national securities exchanges such as the NYSE, which has been
designated by the Commission as the Partnership's primary regulator. These
<PAGE> 41
self-regulatory organizations adopt rules (which are subject to approval by the
Commission) that govern the industry and conduct periodic examinations of the
Partnership's operations. Securities firms are also subject to regulation by
state securities administrators in those states in which they conduct business.
EDJ or an affiliate is registered as a broker-dealer in 50 states, Puerto Rico
and Canada.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure of securities firms, record-keeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated
by the Commission and self-regulatory organizations, or changes in the
interpretation or enforcement of existing laws and rules, may directly affect
the mode of operation and profitability of broker-dealers. The Commission,
self-regulatory organizations and state securities commissions may conduct
administrative proceedings which can result in censure, fine, suspension or
expulsion of a broker-dealer, its officers or employees. The principal purpose
of regulation and discipline of broker-dealers is the protection of customers
and the securities markets, rather than protection of the creditors and
stockholders of broker-dealers.
Uniform Net Capital Rule
Every registered broker-dealer doing business with the public is subject to
the Uniform Net Capital Rule (Rule 15c3-1), promulgated by the Commission and
incorporated into the rules of the NYSE, which is designed to ensure financial
soundness and liquidity through minimum net capital requirements. JFC (through
EDJ) has elected to use the Rule's alternative method of computation, which
requires that "net capital" be not less than 2% of its "aggregate debit items",
computed in accordance with the Formula for Determination of Reserve
Requirements for Brokers and Dealers (Rule 15c3-3) (primarily receivables from
customers and other broker-dealers). Rule 15c3-3 prohibits withdrawal of
equity capital whether by distribution, loan, repurchase or otherwise if net
capital would thereafter be less than 5% of aggregate debit items.
Additionally, certain withdrawals require the consent of the Commission to the
extent they exceed certain defined levels even though such withdrawals would
not cause net capital to be less than 5% of aggregate debit items. Rule 15c3-3
also provides that the total outstanding principal amount of a broker-dealer's
indebtedness under certain subordination agreements, the proceeds of which are
includible in its net capital, may not exceed 70% of the sum of the total
outstanding principal amounts of all subordinated indebtedness included in net
capital and capital accounts for a period in excess of 90 days. In computing
"net capital", various deductions are made from net worth and qualifying
subordinated debt which exclude assets not readily convertible into cash and
which conservatively reduce the value of certain other assets (such as
securities owned by EDJ) to reflect the possibility of a market decline pending
their disposition. As a member of the NYSE, EDJ may be required to reduce its
business and restrict withdrawal of subordinated debt and equity capital if its
net capital becomes less than 4% of its aggregate debit items, or may be
prohibited from expanding its business if its net capital becomes less than 5%
of its aggregate debit items. Failure to maintain the required net capital may
subject a firm to suspension or expulsion by the Commission, the NYSE and other
regulatory bodies and may ultimately require its liquidation.
Compliance with applicable net capital rules could limit EDJ's commitment
to certain securities activities such as underwriting and trading, which use
<PAGE> 42
significant amounts of capital, its ability to expand margin account balances,
as well as its commitment to new activities requiring an infusion of capital.
Further, a significant operating loss or an extraordinary charge against net
capital could adversely affect EDJ's ability to expand or even maintain its
present levels of business. At March 31, 1995, EDJ's total net capital of
$157.8 million was 34% of aggregate debit items and its total net capital in
excess of the minimum required was $148.7 million. Net capital and the related
capital percentage may fluctuate on a daily basis.
Most of the JFC and EDJ capital can be withdrawn at any time upon the
request of its partners. Accordingly, a large number of withdrawal requests,
such as is likely to occur in difficult times, could significantly impair the
capital of EDJ. The Partnership Agreement provides that no partner shall have
his capital returned to him if such withdrawal would, if made directly by EDJ,
cause JFC, EDJ, or any other affiliate or JFC to violate any net capital
requirements to which they are subject.
Properties
The Partnership conducts its headquarters operations from 19 separate
buildings in St. Louis County, Missouri. The headquarters facilities are
comprised of 18 separate buildings containing approximately 750,000 usable
square feet which it owns and one building which it leases. The Partnership
also maintains facilities in approximately 3,200 branch locations which (as of
March 31, 1995) are predominantly rented under cancellable leases. Furniture,
fixtures, computer and communication equipment are rented under various
operating leases. Additionally, branch offices are leased on a three to five
year basis and are cancellable at the option of the Partnership. The
Partnership's lease commitments are summarized in the Notes to the Consolidated
Financial Statements appearing elsewhere herein.
Legal Proceedings
In recent years there has been an increasing incidence of litigation
involving the securities industry. Such suits often seek to benefit large
classes of industry customers; many name securities dealers as defendants and
seek large sums as damages or rescission under, among other things, federal and
state securities laws, and common law. Various legal actions, primarily
relating to the distribution or sale of securities, are pending against the
Partnership. Certain cases are class actions (or purported class actions)
claiming substantial damages. These actions are in various stages and the
results of such actions cannot be predicted with certainty. In the opinion of
management, after consultation with legal counsel, the ultimate resolution of
these actions will not have a material adverse impact on the Partnership's
financial condition.
Management
Under the terms of the partnership agreement of JFC, as amended from time
to time (the "Partnership Agreement"), the Managing Partner (currently John W.
Bachmann) has the right (subject to the restrictions set forth below) to manage
the business of JFC on behalf of the general partners. The Managing Partner is
specifically authorized (i) to admit to JFC any general partner, limited
partner, or subordinated limited partner; (ii) to dismiss from JFC any general
partner, limited partner or subordinated limited partner; (iii) to determine
<PAGE> 43
each general partner's adjusted capital contribution which each general partner
shall be entitled to maintain, percentage and guaranteed draw; and (iv) to fix
the capital contribution that each limited partner or subordinated limited
partner shall be entitled to maintain.
The Managing Partner may be removed from such office and any general
partner may be dismissed as a general partner by a vote of general partners
holding a majority of the general partner percentage interests.
Under the terms of the Partnership Agreement, the Executive Committee is
composed of the Managing Partner and nine other general partners appointed by
the Managing Partner. Among the purposes of the Executive Committee is to
provide counsel and advice to the Managing Partner.
Upon the majority vote of the Executive Committee, the Executive Committee
may override any determination made by the Managing Partner as to a general
partner's percentage or the admission or dismissal of a general partner. Upon
the majority vote of the Executive Committee, the Managing Partner may be
removed from his office and a new Managing Partner elected. At any time during
which there is no Managing Partner, the Executive Committee shall succeed to
the powers and duties of the Managing Partner. By a vote of the general
partners holding a majority of the general partner percentages in JFC, the
general partners may remove any Executive Committee member from his position as
an Executive Committee member and elect a new Executive Committee member.
NONE OF THE LIMITED PARTNERS IN THEIR CAPACITY AS LIMITED PARTNERS HAVE THE
RIGHT TO VOTE OR OTHERWISE PARTICIPATE IN THE MANAGEMENT OF JFC.
DESCRIPTION OF INTERESTS
The rights and obligations of Limited Partners in the Partnership are
governed by the Limited Partnership Agreement of JFC, a copy of which is
annexed hereto as Appendix C (the "Partnership Agreement").
The statements set forth herein concerning significant provisions of the
Partnership Agreement do not purport to be complete and are qualified in their
entirety by express reference to the Partnership Agreement. Capitalized terms
used under this section "Description of Interests" have the meanings set forth
in the Partnership Agreement and in the Glossary of Terms on page 56.
Responsibilities of Limited Partners; Non-Assignability of Interests; Dilution
NONE OF THE LIMITED PARTNERS MAY VOTE OR OTHERWISE PARTICIPATE IN THE
MANAGEMENT OF THE BUSINESS OF THE PARTNERSHIP. (Section 3.7). No Limited
Partner may sell, pledge, exchange, transfer or assign his or her interest in
the Partnership to any Person without the express written consent of the
Managing Partner. The death or withdrawal of a Limited Partner shall terminate
(as of such date) all his interest in the Partnership and neither the estate of
a deceased Limited Partner nor any other third party shall become or have any
rights as a Limited Partner. No Limited Partner shall have the power to grant
the right to become a substituted partner to any assignee. (Section 7.1).
It should be noted that Limited Partners do not have certain of the rights
which are possessed by stockholders in corporate forms of business
organizations. For example, corporate shareholders may indirectly participate
in management through exercise of their voting rights on such matters as
<PAGE> 44
electing directors, approving amendments in the corporate charter, and
approving fundamental actions of the corporation. The stock of corporate
shareholders may be readily transferable, and the shareholders may have
pre-emptive rights to purchase pro rata portions of any additional stock issued
in the corporation. By contrast, the Interests herein are non-voting and
non-transferable; there are no restrictions on the ability of the Partnership
to offer additional Interests or admit additional general partners in future
periods, and the Limited Partners are afforded no pre-emptive rights.
The Managing Partner is authorized to admit to the Partnership additional
Limited Partners who may be admitted as Limited Partners or as Subordinated
Limited Partners, at the discretion of the Managing Partner. (Section 3.4).
To the extent additional expense is incurred by the Partnership in servicing
additional annual interest requirements for any further Interests issued in
future periods, then holders of outstanding Interests may suffer decreased
return on their investment because the amount of the Partnership net profits in
which they participate may be reduced as a consequence. Furthermore, if
additional Interests are issued in subsequent periods, thereby increasing total
the Partnership obligations and the Partnership were to be subsequently
liquidated, there could conceivably be an expanded number of Limited Partners
holding claims against the capital of the general partners. See "--
Partnership Capital; Liability of Limited Partners; Liquidation."
Admission of Additional General Partners
The Managing Partner may at any time designate additional General Partners
with such interests in the Partnership as the Managing Partner and such
additional General Partners may agree upon. The Managing Partner may admit
additional General Partners to the Partnership at any time without the consent
of any current General Partner, Limited Partner or Subordinated Limited
Partner. (Section 3.2). Any additional cash contribution by General Partners in
future periods may reduce the percentage of participation in Net Income by
limited and subordinated limited partners.
Cash Distributions and Allocations
Each of the Limited Partners shall be paid 7-1/2% per annum on the
principal amount of his or her contribution, which is charged as an expense to
the Partnership. (Section 3.3). This interest sum shall be payable whether or
not the Partnership earns any net profits during any given period. However, no
reserve fund has been set aside to enable the Partnership to make such interest
payments and therefore each Limited Partner is dependent on the Partnership's
ability to maintain sufficient working capital to service this annual interest
requirement, of which there is no assurance. Thereafter, each of the Limited
Partners annually receives a percentage of the remaining Net Income of the
Partnership in accordance with the following formula:
Distribution of Net Income. A. All Net Income of the Partnership for each
calendar year (except for Net Income generated in any transaction in connection
with the dissolution and liquidation of the Partnership) shall be distributed
in the following order of priority:
(i) Each Limited Partner shall be paid at least annually (with
respect to such Limited Partner's Capital Contribution), from time to time,
a total amount of cash equal to the product of Net Income times a
percentage, calculated annually, which shall equal the product of the
<PAGE> 45
following three factors: (a) one-fourth of one percent (.0025) multiplied
by (b) the quotient of $1,900,000 divided by the sum of the general
partners' Adjusted Capital Contributions multiplied by (c) the quotient of
the total Capital Contribution of the respective Limited Partner divided by
$25,000. This calculation of percentage of participation shall be made at
the end of each calendar year and used in distributing Net Income earned
during the following year.
(ii) Each Subordinated Limited Partner shall be paid, from time to
time, a total amount of cash in each year equal to the product of (a) the
then remaining Net Income times (b) a percentage derived by the following
formula: (x) 50% of the Capital Contribution of the Subordinated Limited
Partner (excluding any undistributed Net Income allocated to the
Subordinated Limited Partner) divided by (y) the sum of (aa) 50% of the
Capital Contributions of all the Subordinated Limited Partners plus (bb)
the Adjusted Capital Contributions of the general partners (less any Net
Income allocated to the general partners which is not scheduled to be
retained by the Partnership). In the event the Capital Contribution of a
Subordinated Limited Partner has been reduced by the operation of paragraph
B below (the "Reduced Amount"), then each Subordinated Limited Partner
shall have right to make additional cash Capital Contributions to the
Partnership from any cash to be distributed to such Subordinated Limited
Partner pursuant hereto up to the Reduced Amount.
(iii) There shall be set apart a sum equal up to 8% of the remaining
Net Income. Of such 8%, if any is set apart, there shall be distributed
62.5% thereof among the general partners on the basis of individual merit
as determined by the Managing Partner. Of such 8%, if any is set apart,
there shall be distributed 37.5% thereof among the general partners on the
basis of individual need as determined by the Managing Partner.
(iv) It is intended that a sum equal to 30% of the remaining Net
Income will be retained by the Partnership as capital and will be credited
to the Adjusted Capital Contributions of the general partners in a
proportion equal to their then respective general partner Percentages.
Such amount will not be withdrawn by the general partners. Notwithstanding
the foregoing, the decision of whether to make this retention of capital in
accordance with this paragraph or whether to vary the amount of capital to
be retained in any given year, is vested in the Managing Partner, and his
decision in this matter is final.
(v) The balance of the Net Income remaining, if any, shall be
distributed among the general partners in proportion to their general
partner Percentages.
(Section 8.1).
B. In any year in which there is a Net Loss and the Partnership is not
dissolved and liquidated, such Net Loss, on the books of the Partnership, shall
be borne by the Subordinated Limited Partners to the extent as set forth in the
formula described in paragraph A(ii) above and the balance shall be borne by
the general partners in proportion to their respective general partner
Percentages. Any such Net Losses borne by the Subordinated Limited Partners
shall only be applied against and reduce their respective Capital
Contributions. (Section 8.1). The total amount of all such Net Losses to be
borne by the Subordinated Limited Partners may never exceed the total amount of
the Capital Contributions of the Subordinated Limited Partners as shown on the
books of the Partnership.
<PAGE> 46
As of December 31, 1994, the amount of additional capital contributed since
January 1, 1977 was approximately $90 million, although it is generally
anticipated that, in accordance with prior practice, the general partners will
also contribute approximately 28% of the profits allocated to the general
partners for the calendar year at the end of 1995 as additional general
partners capital. The net income or loss of the Partnership will be determined
as of December 31 of each year and payment of the respective participation in
net income, if any, of the Limited Partners and Subordinated Limited Partners
will be distributed within a reasonable time not exceeding forty-five (45) days
after said annual distribution determination, although limited distributions of
net income may be paid during the course of each year based upon projection of
income for the entire year.
Distributions Upon Dissolution. Upon the dissolution of the Partnership
the proceeds of liquidation shall be applied and distributed in the following
order of priority:
(i) To the payment of debts and liabilities of the Partnership,
including any expenses of liquidation.
(ii) To the payment of any accrued but unpaid amounts due under
paragraph A above under the subheading "Distribution of Net Income".
(iii) To the repayment of the Capital Contributions of the Limited
Partners.
(iv) To the repayment of the Capital Contributions of the
Subordinated Limited Partners.
(v) To the repayment of the General Partners' Adjusted Capital
Contributions.
(vi) To the general partners in proportion to their respective
general partner Percentages.
(Section 8.2).
Distribution of Frozen Appreciation Amount. In the event any tract of that
certain real estate owned by EDJ at the time of the organization of JFC in 1987
("Real Estate") or any stock exchange seats owned by EDJ at the time of the
organization of JFC in 1987 ("Stock Exchange Seat") is sold, then there shall
be distributed from the net proceeds of such sale (prior to making any
distributions described under the subheadings "Distribution of Net Income" or
"Distributions Upon Dissolution") to each general partner an amount equal to
his Frozen Appreciation Amount (approximately $6.1 million in the aggregate)
with respect to such tract of Real Estate or Stock Exchange Seat. (Section
8.3).
Sale of Assets to Third Party. In the event the Partnership shall sell or
otherwise dispose of, at one time, all, or substantially all, of its assets (a
"Sale") to any one person or to any one person and its affiliates and the
Partnership is thereafter liquidated within 180 days, then prior to making any
payments to the general partners pursuant to subparagraph (vi) described under
the subheading "Distributions Upon Dissolution" above, the Partnership shall
distribute (i) to the Limited Partners a percentage of the Premium (as defined
below) equal to the same percentage of the Net Income of the Partnership which
the Limited Partners shall receive (pursuant to paragraph A(i) under the
subheading "Distribution of Net Income") from the Partnership for the current
<PAGE> 47
fiscal year of the Partnership and (ii) to the subordinated limited partners an
amount equal to the product of the Premium (remaining after the payment
required by clause (i) above) times a fraction the numerator of which is the
total Capital Contributions of the Subordinated Limited Partners and the
denominator of which is (X) the total Capital Contributions of the Subordinated
Limited Partners (on the date of the Sale) plus (Y) the total of the Adjusted
Capital Contributions of the general partners (on the date of the Sale).
(Section 8.4).
"Premium" means the proceeds of liquidation remaining after the payment of
the items set forth in subparagraphs (i), (ii), (iii), (iv) and (v) above under
the subheading "Distributions Upon Dissolution".
Neither the Partnership nor the general partners shall have any obligation
to cause a Sale to occur.
Other Sales or Dispositions to Third Party. In the event the Partnership,
in a transaction (dealing with all or substantially all of the business of the
Partnership) not described under the subheading "Sale of Assets to Third Party"
above (but similar in scope to such a transaction), sells assets, merges or has
a public offering, it is therein stated that it is the intention of the general
partners that the Limited Partners and the Subordinated Limited Partners shall
share in any "profit" or "premium" recognized from such transaction in such
amount, if any, as determined in the sole and absolute discretion of the
Managing Partner at the time of such transaction. No Limited Partner or
Subordinated Limited Partner shall have any right to bring any cause of action
against the Partnership or its general partners by reason of such provision.
(Section 8.5).
Allocation of Profits and Losses for Tax Purposes (Section 8.6)
Generally, in any calendar year in which the Partnership has a net profit
for tax purposes, all profits and losses for tax purposes will be allocated
among all the Partners with each Partner sharing therein in the proportion that
Net Income distributed to the Partner and/or credited to the Partner's Adjusted
Capital Contribution bears to all Net Income of the Partnership for the
calendar year.
Generally, in any calendar year in which the Partnership has a net loss for
tax purposes, profits and losses for tax purposes will be allocated first to
the Subordinated Limited Partners with each Subordinated Limited Partner
bearing the amount of loss to the extent set forth in the formula described in
paragraph A under the subheading "Distribution of Net Income" above; provided,
however, that the total amount of losses allocated to a Subordinated Limited
Partner shall not reduce such Partner's Capital Account below zero (determined
after taking into account all prior or contemporaneous cash distributions and
all prior or contemporaneous allocations of income, gain, loss, deduction or
credit and as determined at the close of the taxable year in respect of which
such loss or deduction is to be allocated); and any remaining losses shall be
allocated to the general partners in proportion to their respective general
partner percentages.
The Managing Partner is authorized to allocate Profits and Losses For Tax
Purposes arising in any calendar year differently than otherwise described
hereunder to the extent that he determines, in his discretion, that such
modifications are appropriate to cause the allocations to comply with the
<PAGE> 48
principles of Section 704 of the Internal Revenue Code and such modifications
are in the overall best interests of the partners.
If and to the extent upon dissolution of the Partnership the allocations
described hereunder are inconsistent with the following provision, then such
allocations shall be adjusted to conform to the following provision: income and
gain (whether ordinary income, gain under Section 1231 of the Internal Revenue
Code or capital gain) from disposition of all remaining Partnership assets
shall be allocated among the partners so that the positive balance of each
partner's capital account for income tax purposes, is equal to the cash to be
distributed to such partner upon dissolution determined after all capital
accounts for federal income tax purposes have been adjusted to reflect the
allocations of Profits and Losses For Tax Purposes and cash distributions
described above under the subheading "Distribution of Net Income".
Partnership Capital; Liability of Limited Partners; Liquidation
Except as otherwise described herein, or as otherwise determined by the
Managing Partner, no Limited Partner shall be paid interest on any Capital
Contribution to the Partnership. Except as otherwise provided in the
Partnership Agreement, prior to dissolution of the Partnership, no Limited
Partner shall have the right to demand the return of his Capital Contribution.
No Limited Partner shall have the right to demand and receive property other
than cash in return for his Capital Contribution. The general partners shall
have no personal liability for the repayment of the Capital Contribution of any
Limited Partner. (Section 3.5).
A Limited Partner shall only be liable to make the payment of his Capital
Contribution (except a Limited or Subordinated Limited Partner in his capacity
as a general partner). Except as provided in RULPA, no Limited Partner shall
be liable for any obligations of the Partnership (except a Limited or
Subordinated Limited Partner in his capacity as a general partner). (Section
3.6). THE CONTRIBUTIONS OF THE LIMITED PARTNERS ARE SUBORDINATE TO ALL
EXISTING AND FUTURE CLAIMS OF THE GENERAL CREDITORS OF THE PARTNERSHIP.
In the event of a partial or total liquidation of the Partnership, the
capital contributions of the general partners would be subject first to satisfy
the claims of general creditors, in the event there were insufficient the
Partnership assets to satisfy such claims. The liability of the Limited
Partners (who are not also general partners) for the Partnership obligations is
limited to the extent of their capital contributions, and their individual
assets would not be subject to the unsatisfied claims of the general creditors.
The Partnership, in its discretion, may in the future issue securities which
are senior in right of repayment to the claims of the Limited Partners. If the
Partnership suffers losses in any year but liquidation procedures described
above are not undertaken and the Partnership continued, the amounts of such
losses are absorbed in the capital accounts of the general partners and
Subordinated Limited Partners. Limited Partners' accounts are not charged with
such losses, and each Limited Partner remains entitled to receive 7-1/2% annual
interest upon their capital contributed. However, as there would be no net
profits in such a year, Limited Partners would not receive any sums
representing participation in net income of the Partnership.
<PAGE> 49
Termination and Withdrawal of Partners; Return of Capital
Any general partner shall have the right to retire or voluntarily withdraw
from the Partnership upon 30 days' prior written notice to the Managing
Partner. Any Limited Partner shall have the right to retire or voluntarily
withdraw from the Partnership upon six months' prior written notice to the
Managing Partner. (Section 6.1).
The Managing Partner or any number of general partners holding in the
aggregate a majority of the general partner Percentages, may request in writing
that any Limited Partner withdraw from the Partnership, and each Limited
Partner agrees that he will so withdraw within 30 days of the receipt of such
request. (Section 6.2).
In the event of any withdrawal by a Limited Partner from the Partnership,
there shall be returned to the withdrawing Limited Partner, within six months
after the actual date of his withdrawal, his Capital Contribution to the
Partnership. In addition, such Limited Partner shall receive his pro rata
share of any cash distributions to which he was entitled. (Section 6.3).
In the event of any withdrawal by a general partner from the Partnership,
the remaining general partners, or any of them shall have the option to
purchase the general partner Interest of the withdrawing general partner,
subject to the approval of the Managing Partner. Any general partner Interest
not purchased by the remaining general partners shall be converted to that of a
Subordinated Limited Partner interest and shall be redeemed by the Partnership
within one year. (Section 6.3).
A LIMITED PARTNER MUST WITHDRAW FROM THE PARTNERSHIP AND ACCEPT THE RETURN
OF HIS CAPITAL AND PRO RATA PROFITS INTEREST IN THE EVENT HE IS REQUESTED TO
WITHDRAW FROM THE PARTNERSHIP IN WRITING BY THE MANAGING PARTNER, OR BY ANY
NUMBER OF THE GENERAL PARTNERS HOLDING IN THE AGGREGATE MORE THAN 50% OF THE
PERCENTAGE INTERESTS OF THE GENERAL PARTNERS UNDER THE PARTNERSHIP AGREEMENT.
It is understood and agreed that the Capital Contributions of the Partners
to the Partnership will be used, in part, by the Partnership as part of the
Partnership's capital contribution to EDJ (which is regulated by the Commission
and the NYSE and other regulatory agencies), and that in order for the
Partnership to return to any Partner his or her Capital Contribution (or any
part thereof), the Partnership will have to obtain such funds from EDJ.
Therefore, notwithstanding any other provision contained in the Partnership
Agreement to the contrary, without the written consent of the Managing Partner,
no Partner may have returned to him or her his or her Capital Contribution, if
after giving effect thereto, the Partnership or any affiliate thereof
(including, but not limited to, EDJ) would, if such payment had been made
directly by EDJ, be in violation of (i) any rule of the NYSE, (ii) any rule
issued under the Exchange Act, (iii) any agreement (cash subordination or
otherwise) which has been entered into by the Partnership or any affiliate
thereof (including, but not limited to, EDJ) or (iv) any other law, rule or
regulation to which the Partnership or any affiliate thereof (including, but
not limited to, EDJ) is subject.
In the event there is returned to any Partner all or any portion of his or
her Capital Contribution and because of such return the Partnership or any
affiliate thereof (including, but not limited to, EDJ) violated any of the
aforementioned rules, agreements or regulations, then such Partner shall be
required (whether or not such Partner had any knowledge or notice of such
facts at the time of such return) to repay to the Partnership, its successors
<PAGE> 50
or assigns, the sum so returned to such Partner to be held by the Partnership
pursuant to the provisions thereof as if such return had never been made;
provided, however, that any suit for the recovery of any such return must be
commenced within two years of the date of such return. (Section 6.7).
Death of Limited Partners
In the event of the death of any Limited Partner, the Capital Contribution
of such deceased Limited Partner shall be returned to his or her estate within
six months after the actual date of death of such Limited Partner. In addition
such Limited Partner's estate shall receive the Limited Partner's pro rata
share of any cash distributions to which such deceased Limited Partner was
entitled. (Section 6.4).
Liability for Acts and Omissions; Indemnification; Dealing With an Affiliate
Neither the Managing Partner nor any general partner shall be liable,
responsible or accountable in damages to any of the Limited Partners for, and
the Partnership shall indemnify and save harmless the Managing Partner and any
general partner from any loss or damage incurred by reason of, any act or
omission performed or omitted by him or her in good faith on behalf of the
Partnership and in a manner reasonably believed by him or her to be within the
scope of the authority granted to him or her by the Partnership Agreement and
in the best interests of the Partnership, provided that the Managing Partner or
the general partner shall not have been guilty of gross negligence or gross
misconduct with respect to such acts or omissions and, further, provided that
the satisfaction of any indemnification and any saving harmless shall be paid
out of and limited to the Limited Partnership assets and no Limited Partner
shall have any personal liability on account thereof. (Section 4.7).
The Managing Partner may on behalf of the Partnership enter into agreements
with any affiliate of any general partner or with any general partner, in an
independent capacity, as distinguished from his capacity as a Partner, to
undertake and carry out the business of the Partnership. (Section 4.8).
Term and Dissolution (Section 2.4)
The Partnership will dissolve on December 31, 2087, or prior thereto upon
the happening of any of the following events:
(i) The sale of all of the assets of the Partnership;
(ii) An Event of Withdrawal of a general partner if no general
partner remains; or
(iii) The dissolution of the Partnership by the general partners.
Books, Records and Reports; Appointment of Attorneys-in-Fact; Amendment
The books and records shall at all times be maintained at the principal
office of the Partnership and shall be open for examination and inspection by
the Limited Partners or by their duly authorized representatives during
reasonable business hours. (Section 9.1).
<PAGE> 51
The Managing Partner shall have prepared financial statements for the
Partnership. Copies of such statements shall be made available to the Limited
Partners. (Section 9.1).
Each Limited Partner, by the execution of the Partnership Agreement,
irrevocably constitutes and appoints John W. Bachmann, Lawrence R. Sobol and
the then Managing Partner (at any time the Managing Partner is not John W.
Bachmann), his or her true and lawful attorney-in-fact, and each of them, with
full power and authority to execute such documents as may be necessary or
appropriate to carry out the provisions of the Partnership Agreement. (Section
10.1).
The Partnership Agreement may be amended without the consent or approval of
(and without prior notice to) any Limited Partner by the Managing Partner or by
the affirmative vote of general partners holding an aggregate of at least a
majority of the total general partner Percentages. In particular, but without
limiting the foregoing, the interests of the Limited Partners in the Net Income
or the proceeds of liquidation of the Partnership or in any other allocation or
distribution to be received by them from the Partnership pursuant to Article
Eight of the Partnership Agreement or otherwise may be so reduced or increased
or otherwise modified without the consent or approval of (and without prior
notice to) any Limited Partner. (Section 10.10).
Certain Federal Income Tax Considerations
General. The following is a general summary of the material federal income
tax consequences affecting a Limited Partner of the Partnership. This
discussion is directed primarily to individuals who are citizens of the United
States. Persons who are not U. S. citizens may have federal income tax
consequences substantially different than the tax consequences discussed below.
This summary is based on, and qualified in its entirety by, the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations, positions
of the Internal Revenue Service ("IRS") contained in published Revenue Rulings
and Revenue Procedures, other administrative interpretations of the IRS and
judicial decisions, all of which are subject to change at any time. Any such
change could be retroactive with respect to transactions occurring prior to
such change.
No rulings have been sought by the Partnership from the IRS with respect to
any of the tax matters described in this Prospectus. There can be no assurance
that a position taken by the Partnership will not be challenged by the IRS.
Any adjustment by the IRS would likely result in an unfavorable adjustment to
the income tax returns of limited partners and the assessment of a deficiency.
Partnership Status. Under current tax law, the Partnership and EDJ are
classified as partnerships and not as associations taxable as corporations. If
at any time either the Partnership or EDJ is determined to be an association
for tax purposes rather than a partnership, income would be taxable to the
Partnership or EDJ at corporate rates and distributions to its partners could
be taxable as dividends. Taxing income to the Partnership or EDJ at corporate
rates could result in a substantial reduction in cash available for
distribution to Limited Partners. The continued classification of EDJ as a
partnership will depend, in part, on its general partner maintaining
"substantial assets" as that term is defined in Treasury Regulations.
Allocation of the Partnership's Income, Gain, Etc. Each owner of an
Interest herein who thereby becomes a Limited Partner, must report on his
<PAGE> 52
federal income tax return for each year his allocable share of the Partnership
income, gain, loss, deduction, and items of tax preference (regardless of
whether there is distributable cash). Such allocable share must be included in
the taxable income of a Limited Partner in the taxable year with or within
which the taxable year of the Partnership ends. The Partnership will furnish
to each Limited Partner in each year the information necessary for preparation
of this aspect of his income tax return.
The Partnership Agreement's allocation of a Limited Partner's allocable
share of income, gain, etc. will be respected for tax purposes if the
allocation has "substantial economic effect" or is in accordance with such
Limited Partner's interest in the Partnership (determined by taking into
account all the facts and circumstances). Treasury Regulations provide safe-
harbors tests under which allocations are deemed to have "substantial economic
effect" or deemed to be made in accordance with a "partner's interest in the
partnership". The Partnership Agreement's allocations would not meet the safe-
harbor tests set forth in the Regulations. Nevertheless, the general partners
believe that the Partnership Agreement's allocations of profits and losses for
tax purposes should be deemed to be made in accordance with the "partner's
interest in the partnership".
If an allocation of an item of profits and losses for tax purposes were
found to lack "substantial economic effect" and found not to be in accordance
with a "partner's interest in the partnership", the item would be reallocated
in accordance with a "partner's interest in the partnership." The effect of
such a reallocation could be adverse to a Limited Partner.
The 7-1/2% Distribution. Under Section 3.3 of the Partnership Agreement, a
Limited Partner will be paid 7-1/2% per annum on the amount of his capital
contribution to the Partnership (the "7-1/2% Distribution"). For tax purposes,
the 7-1/2% Distribution will be treated as a guaranteed payment and not as a
distribution by the Partnership of a Limited Partner's distributable share of
the Partnership's cash available for distribution. As a guaranteed payment,
the 7-1/2% Distribution (i) will be deductible in computing the Partnership's
income, (ii) will be taxable income to a Limited Partner when received
regardless of the amount, if any, of the Partnership's taxable income, and
(iii) will not decrease a Limited Partner's adjusted basis in his Interests
(see "Adjusted Basis" below).
Adjusted Basis. A Limited Partner's initial basis in his Interests is
equal to the price paid for his Interests plus, subject to the discussion
below, his proportionate share of the liabilities of the Partnership as to
which no partner is personally liable ("Nonrecourse Debt"), if any. In
general, liabilities of the Partnership as to which a partner is personally
liable ("Recourse Debt") can only be included in the basis of such partner. A
Limited Partner's proportionate share of the Partnership's Nonrecourse Debt, if
any, will be based on such Limited Partner's share of the Partnership's profits
as determined in accordance with the Partnership Agreement.
A Limited Partner's initial adjusted basis for his Interests will be
increased from time to time by (i) his distributive share of the Partnership's
taxable income and tax-exempt income and (ii) his proportionate share of
increases in the Partnership's Nonrecourse Debt, if any. A Limited Partner's
adjusted basis in his Interests in the Partnership will be decreased from time
to time, but not below zero, by (i) the Partnership's distributions to him
(including, for this purpose, his proportionate share of decreases in the
Partnerships Nonrecourse Debt), (ii) his allocable share of the Partnership's
losses, if any, and (iii) his distributive share of the Partnership's
<PAGE> 53
nondeductible expenditures which are not properly chargeable to a capital
account for tax purposes (which are not expected to be significant).
Partnership Distributions and Repurchase of Interests. Gain will be
recognized upon a cash distribution from the Partnership to the extent that the
cash distributed (including reductions in a Limited Partner's allocable share
of the Partnership's Nonrecourse Debt) exceeds the Limited Partner's adjusted
basis in his Interests. Once such adjusted basis is reduced to zero,
additional cash distributions will be taxable income to a Limited Partner.
Similarly, taxable income will be recognized by a Limited Partner upon the
repurchase of his Interests to the extent the amount realized (including
reductions in his allocable share of the Partnership's Nonrecourse Debt)
exceeds the adjusted basis in his Interests. A taxable loss will be recognized
by a Limited Partner upon the repurchase of his Interests to the extent the
amount realized (including reductions in his allocable share of the
Partnership's Nonrecourse Debt) is less than the adjusted basis in his
Interests.
Alternative Minimum Tax. Each Limited Partner must include his allocable
share of the Partnership's items of tax preference in the computation of his
own alternative minimum tax liability. It is not anticipated that the
Partnership will generate any significant items of tax preference. However, if
a Limited Partner is otherwise subject to the alternative minimum tax, such tax
would also be applied against items of tax preference from the Partnership.
Prospective investors are urged to consult their tax advisors with regard to
the specific effect of the alternative minimum tax on an investment in the
Partnership.
Passive Loss Rules. Under the passive loss rules enacted by the Tax Reform
Act of 1986, an interest in a limited partnership engaged in a trade or
business generally is considered an interest in a passive activity subject to
the passive loss rules. However, it is anticipated that a Limited Partner will
"materially participate" in the trade or business of the Partnership.
Accordingly, a Limited Partner's allocable share of the Partnership's income
generally will not be treated as passive income and, therefore, generally will
not be available to offset passive losses from a Limited Partner's passive
activities. Under certain circumstances, however, certain income of the
Partnership may be classified as portfolio income or passive income for
purposes of the passive loss rules. In addition, under certain circumstances,
a Limited Partner may be allocated a share of the Partnership's passive losses,
the deductibility of which will be limited by the passive loss rules.
Investment Interest. In general, a taxpayer's annual deduction for
"investment interest" is limited to the amount of his "net investment income".
Interest incurred by a Limited Partner to purchase his Interests in the
Partnership may be treated as "investment interest". In addition, in computing
limitations on the deductibility of investment interest, a Limited Partner must
include his allocable share of the Partnership's investment interest. It is
not anticipated, however, that the Partnership will generate significant
amounts of investment interest allocable to Limited Partners. A portion of a
Limited Partner's allocable share of the Partnership's income may be treated as
investment income.
Interest Relating to Tax-Exempts. The Code disallows interest deductions
to the extent that the interest is paid in respect of indebtedness incurred or
continued to purchase or carry obligations the interest on which is wholly
exempt from federal income taxes. It is possible that the IRS could seek to
deny the deductibility by a Limited Partner of (i) all or a portion of his pro
<PAGE> 54
rata share of the interest paid by the Partnership and its subsidiary
partnerships to the extent the limited partner, the Partnership or the
subsidiary partnerships hold tax-exempt investments, or (ii) interest on
indebtedness incurred by such Limited Partner to purchase his Interests to the
extent such indebtedness incurred permitted such Limited Partner to carry tax-
exempt investments.
State Income Taxes. While a partnership is not generally subject to state
taxes, its partners may be subject to state income taxes, if any, on their
respective shares of partnership income, gain, loss and deductions in the
state or states in which they reside. In addition, the Partnership transacts
business all over the United States and the Limited Partners and/or the
Partnership may be required to file certain state tax returns and pay certain
state taxes on the Partnership's activities. However, in lieu of Limited
Partners individually filing income tax returns and paying taxes in those
states even though they may be non-residents of such states, as a matter of
administrative convenience to the Limited Partners, the Partnership intends to
file combined income tax returns and pay combined taxes on behalf of the
Limited Partners with respect to their share of Partnership items. For the
Partnership to file combined income tax returns on behalf of a Limited Partner
in any particular state, such Limited Partner must consent to the filing of a
combined return. The Partnership does not intend to file combined income tax
returns in any state which does not impose an individual income tax. There is
no assurance that the Partnership will be permitted to file combined income tax
returns on behalf of the Limited Partners or what conditions might be imposed
on the Partnership if it is permitted to file combined income tax returns. In
that regard, filing a combined tax return in any state may, in effect, result
in greater combined tax liability than if Limited Partners individually filed
income tax returns and paid taxes in such state. Also, the income of the
Partnership derived from sources within such states, may be taxable, regardless
of whether the Partnership sustains losses from property located outside that
particular state or that the total operations of the Partnership may result in
a net loss. Tax losses derived through the Partnership from property in such
states may or may not be available to offset income from other sources within
the same state. To the extent that the Partnership pays tax to a state on
behalf of a Limited Partner by virtue of Partnership business within that
state, such Limited Partner may be entitled to a deduction or credit against
taxes owed to his state of residence with respect to the same income.
Each prospective investor is urged to consult his tax advisor for advice as
to state and local taxes which may be payable by reason of an investment in the
Partnership.
Audits and Adjustments. The income tax returns of the Partnership may be
audited by government authorities, and such audit may result in the audit of
the returns of Limited Partners. Changes made to the Partnership's return
would result in corresponding changes to Limited Partners' returns.
Prospective investors are cautioned that if the IRS were to propose any
adjustments in the treatment of a tax item of the Partnership, the unified
procedures may cause Limited Partners to be bound by proceedings, both
administrative and judicial, conducted by the Partnership. Thus, Limited
Partners may be precluded from consenting to any such adjustments individually.
Possible Tax Law Changes. Recently, several members of Congress have
introduced bills which, if enacted, would substantially alter the existing
federal income tax system. In addition, legislative proposals are under
consideration which would generally lower the income tax rates and broaden the
income tax base by eliminating or reducing many types of deductions (e.g., a
<PAGE> 55
so-called "flat tax"). Any change in the existing federal income tax system
could adversely affect the tax consequences of investing in the Partnership.
At the present time, it cannot be determined which legislation or
legislative proposals, if any, will ultimately be enacted into law and to what
extent any such changes would affect an investment in the Partnership.
Investors should consult with their professional tax advisors concerning the
potential impact of these possible tax law changes on an investment in the
Partnership.
Necessity of Obtaining Professional Advice. The tax matters relating to an
investment in the Partnership are complex and are subject to varying
interpretations. The effects of the existing tax laws and proposed changes in
tax laws on prospective Limited Partners are of particular importance to each
Limited Partner. It should be emphasized that the foregoing is only a summary
of certain important federal tax consequences of, or relating to, the
Partnership; furthermore, no tax rulings from the IRS will be requested or
obtained. In view of the foregoing, each prospective Limited Partner should
consult with his own tax advisor and counsel with regard to all tax aspects, as
they pertain to such prospective Limited Partner's particular situation.
LEGAL OPINIONS
The legality of the Interests to be issued pursuant to the Offering has
been passed upon for the Partnership by Bryan Cave LLP, St. Louis, Missouri.
In addition, the description of federal income tax considerations contained in
the section of the Prospectus captioned "Description of Interests -- Certain
Federal Income Tax Considerations" is set forth herein in reliance upon the
opinion of Bryan Cave LLP.
EXPERTS
The financial statements and schedules incorporated by reference in this
Prospectus and elsewhere in the Registration Statement to the extent and for
the periods indicated in their reports have been examined by Arthur Andersen
LLP, independent public accountants, and are incorporated herein in reliance
upon the authority of said firm as experts in giving said reports.
<PAGE> 56
GLOSSARY OF TERMS
The following is a summary of certain terms used herein and in the JFC
Partnership Agreement (Appendix C hereto) to which reference is made for a more
complete description of all such terms.
"Adjusted Capital Contribution" means the Capital Contribution of the
general partner plus all Net Income thereafter allocated to the account of the
general partner minus (a) all Net Loss thereafter allocated to the account of
the general partner, and (b) any cash or property thereafter distributed to (or
for the benefit of) the general partner.
"Capital Contribution" means the total amount of cash or property
contributed to JFC by each Partner.
"Event of Withdrawal" means, as to a general partner, the occurrence of
death, adjudication of mental incompetence, bankruptcy, dissolution, or
voluntary or involuntary withdrawal or removal from JFC or any other event of
withdrawal set forth in RULPA.
"Frozen Appreciation Amount" means each general partner's share of the
unrealized appreciation of certain real estate owned by EDJ Leasing Co. on the
date such general partner contributes his general partnership interest in EDJ
Leasing Co. to JFC plus such general partner's share of the unrealized
appreciation of all stock exchange seats owned by or for the benefit of Edward
D. Jones & Co., on the date such general partner contributes his general
partnership interest in Edward D. Jones & Co. to JFC.
"General Partner Interest" means a general partner's entire ownership
interest in JFC.
"General Partner Percentage" means a percentage determined by dividing a
general partner's Adjusted Capital Contribution by the Adjusted Capital
Contributions of all of the general partners.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"IRs" means investment representatives employed by EDJ.
"Limited Partner" means any limited partner of JFC.
"Net Income" or "Net Loss" means, with respect to any fiscal period, the
net income or the net low of JFC, determined in accordance with generally
accepted accounting principles.
"Profits and Losses For Tax Purposes" means, for JFC accounting and tax
purposes, the various items set forth in Section 702(a) of the Internal Revenue
Code and all applicable regulations or any successor law, and shall include,
but not be limited to, each item or income, gain, deduction, loss, preference
or credit.
"RULPA" means the Missouri Revised Uniform Limited Partnership Act, as
amended from time to time.
<PAGE> 57
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Page
Report of Independent Public Accounts. . . . . . . . . . . . . . . . . . . F-1
Consolidated Statements of Financial Condition as of December 31, 1994
and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income for the years ended December 31, 1994,
1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flow for the years ended December 31,
1994, 1993 and 1992. . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Change in Partnership Capital for the years
ended December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-8
Condensed Consolidated Statements of Financial Condition as of March 31,
1995 (unaudited) and March 25, 1994. . . . . . . . . . . . . . . . . . F-16
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 1995 and March 25, 1994. . . . . . . . . . . . . . . . . . . F-18
Condensed Consolidated Statements of Cash Flow for the Three Months Ended
March 31, 1995 and March 25, 1994. . . . . . . . . . . . . . . . . . . F-20
Condensed Consolidated Statements of Changes in Partnership Capital for
the Three Months Ended March 31, 1995 and March 25, 1994 . . . . . . . F-22
Condensed Notes to Condensed Financial Statements. . . . . . . . . . . . . F-23
<PAGE> 58
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Jones Financial Companies, a Limited Partnership:
We have audited the accompanying consolidated statements of financial condition
of The Jones Financial Companies, a Limited Partnership (a Missouri limited
partnership) and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, cash flows and changes in partnership
capital for each of the three years in the period ended December 31, 1994.
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 The Jones Financial Companies,
a Limited Partnership and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations, their cash flows and the changes in their
partnership capital for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 21, 1995
F-1
<PAGE> 59
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<CAPTION>
December 31, December 31,
(Amounts in thousands) 1994 1993
------------ ------------
<S> <C> <C>
Cash and cash equivalents.......................... $ 36,682 $ 28,798
Receivable from:
Customers (Note 2)............................ 497,961 464,760
Brokers or dealers and clearing
organizations (Note 3)...................... 16,604 32,550
Securities owned, at market value (Note 4):
Inventory securities.......................... 91,308 60,371
Investment securities......................... 137,066 73,575
Office equipment, property and improvements,
net (Note 5)..................................... 125,764 102,434
Other assets....................................... 47,974 37,990
------------ ------------
$ 953,359 $ 800,478
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F-2
<PAGE> 60
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
LIABILITIES AND PARTNERSHIP CAPITAL
<CAPTION>
December 31, December 31,
(Amounts in thousands) 1994 1993
------------ ------------
<S> <C> <C>
Bank loans (Note 6)................................ $ 165,000 $ 139,261
Payable to:
Customers (Note 2)............................ 293,324 242,584
Brokers or dealers and clearing
organizations (Note 3)...................... 13,225 8,092
Securities sold but not yet purchased, at market
value (Note 4)................................... 16,037 17,766
Accounts payable and accrued expenses.............. 39,425 37,419
Accrued compensation and employee benefits......... 58,046 69,264
Long-term debt (Note 7)............................ 41,779 33,317
------------ ------------
626,836 547,703
Liabilities subordinated to claims of general
creditors (Note 8) .............................. 136,000 73,000
Partnership capital (Notes 9 and 10):
Limited partners.............................. 67,461 71,222
Subordinated limited partners................. 23,722 19,163
General partners.............................. 99,340 89,390
------------ ------------
190,523 179,775
------------ ------------
$ 953,359 $ 800,478
============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F-3
<PAGE> 61
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years Ended
-------------------------------------
(Amounts in thousands, December 31 December 31 December 31
except per unit information) 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Commissions. . . . . . . . . . . . $ 371,925 $ 434,370 $ 307,874
Principal transactions . . . . . . 163,050 92,471 131,366
Investment banking . . . . . . . . 36,359 45,001 60,635
Interest and dividends . . . . . . 52,143 38,084 30,520
Other. . . . . . . . . . . . . . . 34,568 29,638 23,575
----------- ----------- -----------
658,045 639,564 553,970
----------- ----------- -----------
Expenses:
Employee and partner compensation
and benefits (Note 11) . . . . . 382,920 389,917 332,304
Occupancy and equipment
(Notes 5 & 12) . . . . . . . . . 69,465 59,549 49,480
Communications and data
processing . . . . . . . . . . . 47,891 34,167 29,269
Interest (Notes 6, 7 and 8). . . . 28,744 19,128 15,496
Payroll and other taxes. . . . . . 21,288 18,180 16,413
Floor brokerage and clearance
fees . . . . . . . . . . . . . . 5,770 6,141 5,360
Other operating expenses . . . . . 48,110 46,271 43,366
----------- ----------- -----------
604,188 573,353 491,688
----------- ----------- -----------
Net income. . . . . . . . . . . . . . . $ 53,857 $ 66,211 $ 62,282
=========== =========== ===========
Net income allocated to:
Limited partners . . . . . . . . . $ 8,059 $ 9,805 $ 9,813
Subordinated limited partners. . . 5,182 5,933 5,412
General partners . . . . . . . . . 40,616 50,473 47,057
----------- ----------- -----------
$ 53,857 $ 66,211 $ 62,282
=========== =========== ===========
(Continued)
F-4
<PAGE> 62
(Continued From Previous Page)
<CAPTION>
Years Ended
-------------------------------------
(Amounts in thousands, December 31 December 31 December 31
except per unit information) 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net income per weighted average $1,000
equivalent partnership units
outstanding:
Limited partners . . . . . . . . . $ 127.59 $ 194.62 $ 238.41
=========== =========== ===========
Subordinated limited partners. . . $ 237.83 $ 350.32 $ 418.21
=========== =========== ===========
Weighted average $1,000 equivalent
partnership units outstanding:
Limited partners . . . . . . . . . 63,165 50,381 41,160
=========== =========== ===========
Subordinated limited partners. . . 21,789 16,936 12,941
=========== =========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F-5
<PAGE> 63
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years Ended
-------------------------------------
December 31 December 31 December 31
(Amounts in thousands) 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS (USED) PROVIDED BY OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 53,857 $ 66,211 $ 62,282
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . 19,236 16,800 14,728
Decrease (increase) in net receivable from/payable
to customers. . . . . . . . . . . . . . . . . . . . . . . . 17,539 (37,374) (90,526)
Decrease (increase) in net receivable from/payable
to brokers or dealers and clearing organizations. . . . . . 21,079 (24,493) 13,401
(Increase) decrease in securities owned, net . . . . . . . . . . (96,157) 20,902 2,573
(Decrease) increase in accounts payable and other accrued
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . (9,212) 6,960 106
Increase in other assets . . . . . . . . . . . . . . . . . . . . (9,984) (7,828) (7,744)
----------- ----------- -----------
Net cash (used) provided by operating activities. . . . . . . . (3,642) 41,178 (5,180)
----------- ----------- -----------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchase of office equipment, property and improvements, net. . . . . (42,566) (47,109) (28,872)
----------- ----------- -----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Increase in bank loans. . . . . . . . . . . . . . . . . . . . . . . . 25,739 16,261 50,000
Issuance of long-term debt. . . . . . . . . . . . . . . . . . . . . . 44,859 11,700 --
Repayment of long-term debt . . . . . . . . . . . . . . . . . . . . . (36,397) (2,230) (922)
Issuance of subordinated liabilities. . . . . . . . . . . . . . . . . 92,000 -- 30,000
Repayment of subordinated liabilities . . . . . . . . . . . . . . . . (29,000) (5,000) --
Issuance of partnership interests . . . . . . . . . . . . . . . . . . 5,167 29,195 2,396
Redemption of partnership interests . . . . . . . . . . . . . . . . . (2,343) (1,193) (1,326)
Withdrawals and distributions from partnership capital. . . . . . . . (45,933) (51,734) (40,788)
----------- ----------- -----------
Net cash provided (used) by financing activities . . . . . . . . 54,092 (3,001) 39,360
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents . . . . . . 7,884 (8,932) 5,308
CASH AND CASH EQUIVALENTS,
beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . 28,798 37,730 32,422
----------- ----------- -----------
end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 36,682 $ 28,798 $ 37,730
=========== =========== ===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F-6
<PAGE> 64
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERSHIP CAPITAL
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
Subordinated
Limited Limited General
Partnership Partnership Partnership
Capital Capital Capital Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1991. . . . . . . . . . . . . $ 46,687 $ 11,788 $ 56,257 $114,732
Issuance of partnership interests . . . . . . . . . -- 2,396 -- 2,396
Redemption of partnership interests . . . . . . . . (1,175) (151) -- (1,326)
Net income. . . . . . . . . . . . . . . . . . . . . 9,813 5,412 47,057 62,282
Withdrawals and distributions . . . . . . . . . . . (7,997) (4,729) (28,062) (40,788)
------------ ------------ ------------ ------------
Balance, December 31, 1992. . . . . . . . . . . . . $ 47,328 $ 14,716 $75,252 $137,296
Issuance of partnership interests . . . . . . . . . 24,763 4,432 -- 29,195
Redemption of partnership interests . . . . . . . . (1,193) -- -- (1,193)
Net income. . . . . . . . . . . . . . . . . . . . . 9,805 5,933 50,473 66,211
Withdrawals and distributions . . . . . . . . . . . (9,481) (5,918) (36,335) (51,734)
------------ ------------ ------------ ------------
Balance, December 31, 1993. . . . . . . . . . . . . $ 71,222 $ 19,163 $ 89,390 $179,775
Issuance of partnership interests . . . . . . . . . -- 5,167 -- 5,167
Redemption of partnership interests . . . . . . . . (1,905) (438) -- (2,343)
Net income. . . . . . . . . . . . . . . . . . . . . 8,059 5,182 40,616 53,857
Withdrawals and distributions . . . . . . . . . . . (9,915) (5,352) (30,666) (45,933)
------------ ------------ ------------ ------------
Balance, December 31, 1994. . . . . . . . . . . . . $ 67,461 $ 23,722 $ 99,340 $190,523
============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F-7
<PAGE> 65
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
The Partnership's Business and Basis of Accounting. The accompanying
consolidated financial statements include the accounts of The Jones Financial
Companies, a Limited Partnership, and all wholly owned subsidiaries (the
"Partnership"). All material intercompany balances and transactions have been
eliminated.
The Partnership conducts business throughout the United States and in Canada
with its customers, various brokers and dealers, clearing organizations,
depositories and banks. The Partnership's principal operating subsidiary is
Edward D. Jones & Co., L.P. ("EDJ"), a registered broker/dealer.
Cash and Cash Equivalents. The Partnership considers all short-term
investments with original maturities of three months or less, that are not held
for sale to customers, to be cash equivalents.
Securities Transactions. The Partnership's securities activities involve
execution, settlement and financing of various securities transactions for
customers. These transactions (and related revenue and expense) are recorded
on a settlement date basis, generally representing the fifth business day
following the transaction date, which is not materially different than a trade
date basis. The Partnership may be exposed to risk of loss in the event
customers, other brokers and dealers, banks, depositories or clearing
organizations are unable to fulfill contractual obligations. For transactions
in which it extends credit to customers, the Partnership seeks to control the
risks associated with these activities by requiring customers to maintain
margin collateral in compliance with various regulatory and internal
guidelines.
Securities Owned. Securities owned are valued at current market prices.
Unrealized gains or losses are reflected in principal transactions revenue.
Office Equipment, Property and Improvements. Office equipment is depreciated
using straight-line and accelerated methods over estimated useful lives of five
to ten years. Buildings are depreciated using the straight-line method over
estimated useful lives approximating thirty years. Amortization of property
improvements is computed based on the remaining life of the property or
economic useful life of the improvement, whichever is less. When assets are
retired or otherwise disposed of, the cost and related accumulated depreciation
or amortization are removed from the accounts, and any resulting gain or loss
is reflected in income for the period. The cost of maintenance and repairs is
charged against income as incurred, whereas significant renewals and
betterments are capitalized.
Segregated Cash Equivalents and Securities Owned. Rule 15c3-3 of the
Securities and Exchange Commission requires deposits of cash or securities to a
special reserve bank account for the benefit of customers if total customer
related credits exceed total customer related debits, as defined. No deposits
of cash or securities were required as of December 31, 1994 or 1993.
F-8
<PAGE> 66
Income Taxes. Income taxes have not been provided for in the consolidated
financial statements since The Jones Financial Companies, a Limited
Partnership, is organized as a partnership, and each partner is liable for its
own tax payments.
Reclassifications. Certain 1993 and 1992 amounts have been reclassified to
conform to the 1994 financial statement presentation.
NOTE 2 - RECEIVABLE FROM AND PAYABLE TO CUSTOMERS
Accounts receivable from and payable to customers include margin balances and
amounts due on uncompleted transactions. Values of securities owned by
customers and held as collateral for these receivables are not reflected in the
financial statements. Substantially all amounts payable to customers are
subject to withdrawal upon customer request.
NOTE 3 - RECEIVABLE FROM AND PAYABLE TO BROKERS OR DEALERS AND CLEARING
ORGANIZATIONS
The components of receivable from and payable to brokers or dealers and
clearing organizations are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1994 1993
-------- --------
<S> <C> <C>
Securities failed to deliver. . . . . . . . . . . . . . . . $ 3,864 $ 7,030
Deposits paid for securities borrowed . . . . . . . . . . . 8,604 22,048
Deposits with clearing organizations. . . . . . . . . . . . 2,448 2,446
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,688 1,026
-------- --------
Total receivable from brokers or dealers and clearing
organizations . . . . . . . . . . . . . . . . . . . . . . $ 16,604 $ 32,550
======== ========
Securities failed to receive. . . . . . . . . . . . . . . . $ 10,064 $ 6,580
Deposits received for securities loaned . . . . . . . . . . 2,735 1,239
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 426 273
-------- --------
Total payable to brokers or dealers and clearing
organizations . . . . . . . . . . . . . . . . . . . . . . $ 13,225 $ 8,092
======== ========
</TABLE>
"Fails" represent the contract value of securities that have not been received
or delivered by settlement date.
F-9
<PAGE> 67
NOTE 4 - SECURITIES OWNED
Securities owned are summarized as follows (at market value):
<TABLE>
<CAPTION>
1994 1993
---------------------- ----------------------
Securities Securities
Sold but Sold but
Securities not yet Securities not yet
(Amounts in thousands) Owned Purchased Owned Purchased
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Inventory Securities:
Certificates of deposit. . $ 3,113 $ 246 $ 3,691 $ 49
U.S. and Canadian
government and agency
obligations . . . . . . 18,501 11,201 4,123 15,070
State and municipal
obligations. . . . . . . 42,860 726 34,306 839
Corporate bonds and notes. 16,342 3,145 10,045 818
Corporate stocks . . . . . 10,492 719 8,206 990
---------- ---------- ---------- ----------
$ 91,308 $ 16,037 $ 60,371 $ 17,766
========== ========== ========== ==========
Investment Securities:
U.S. government and agency
obligations . . . . . . $ 137,066 -- $ 73,575 --
========== ========== ========== ==========
</TABLE>
The Partnership attempts to reduce its exposure to market price fluctuations of
its inventory securities through the sale of futures contracts and U.S.
government securities. The amount of the securities purchased or sold will
fluctuate on a daily basis due to changes in interest rates and market
conditions. Any gain or loss on the hedging activities is recognized in
principal transactions revenue.
F-10
<PAGE> 68
NOTE 5 - OFFICE EQUIPMENT, PROPERTY AND IMPROVEMENTS
Office equipment, property and improvements are summarized as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1994 1993
--------- ---------
<S> <C> <C>
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,705 $ 13,705
Buildings and improvements. . . . . . . . . . . . . . . . 76,142 62,035
Office equipment. . . . . . . . . . . . . . . . . . . . . 78,902 70,213
Furniture and fixtures. . . . . . . . . . . . . . . . . . 51,557 36,383
--------- ---------
Total office equipment, property and improvements. . 220,306 182,336
Accumulated depreciation and amortization . . . . . . . . (94,542) (79,902)
--------- ---------
Office equipment, property and improvements, net. . $125,764 $102,434
========= =========
</TABLE>
NOTE 6 - BANK LOANS
The Partnership borrows from banks on a short-term basis primarily to finance
customer margin balances and inventory securities. As of December 31, 1994,
the Partnership had bank lines of credit aggregating $615,000,000 of which
$570,000,000 were through uncommitted facilities. Actual borrowing availability
is primarily based on securities owned and customers' margin securities.
Short-term bank loans outstanding at December 31, 1994 and 1993, are
collateralized by securities owned by the Partnership and customers' margin
securities with a market value of $475,594,000 and $363,740,000, respectively.
Bank loans outstanding approximate their fair value.
Interest is at a fluctuating rate (weighted average rate of 6.98% and 4.17% at
December 31, 1994, and 1993, respectively) based on short-term lending rates.
The average of the aggregate short-term bank loans outstanding was
$159,600,000, $99,100,000 and $57,794,000 and the average interest rate
(computed on the basis of the average aggregate loans outstanding) was 5.22%,
4.04% and 4.40% for the years ended December 31, 1994, 1993 and 1992,
respectively.
Cash paid for interest on bank loans, long-term debt, capital notes and other
liabilities was $22,550,000, $14,059,000 and $10,956,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
F-11
<PAGE> 69
NOTE 7 - LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
(Amounts in thousands) 1994 1993
--------- ---------
<S> <C> <C>
Note payable, 9%, retired during 1994.. . . . . . . . . . $ -- $ 9,600
Note payable, 9.875%, retired during 1994.. . . . . . . . -- 12,282
Note payable, 8.5%, retired during 1994.. . . . . . . . . -- 11,435
Note payable, secured by equipment, interest at the prime
rate, due in variable monthly installments of $194,444
plus interest with the final payment of $1,200,000 due
on May 1, 1997. . . . . . . . . . . . . . . . . . . . . 6,450 --
Note payable, secured by property, interest at 8.72% per
annum, principal and interest due in monthly
installments of $289,700 with the final installment
due on June 5, 2003.. . . . . . . . . . . . . . . . . . 20,818 --
Note payable, secured by property, interest at 8.23% per
annum, principal and interest due in monthly
installments of $149,659 due on April 5, 2008.. . . . . 14,511 --
--------- ---------
$ 41,779 $ 33,317
</TABLE>
Required annual principal payments, as of December 31, 1994, are as follows:
<TABLE>
<CAPTION>
Principal Payment
Year (Amounts in thousands)
- ------------------------------------------------------- ----------------------
<S> <C>
1995. . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,687
1996. . . . . . . . . . . . . . . . . . . . . . . . . . 4,898
1997. . . . . . . . . . . . . . . . . . . . . . . . . . 4,577
1998. . . . . . . . . . . . . . . . . . . . . . . . . . 3,043
1999. . . . . . . . . . . . . . . . . . . . . . . . . . 3,315
Thereafter. . . . . . . . . . . . . . . . . . . . . . . 21,259
----------------------
$ 41,779
======================
</TABLE>
The Partnership has land, buildings and equipment with a carrying value of
$51,457,000 at December 31, 1994, which are subject to security agreements that
collateralize various notes payable. The Partnership has estimated the fair
value of the long-term debt to be approximately $38,199,000 and $36,493,000 as
of December 31, 1994 and 1993, respectively.
F-12
<PAGE> 70
NOTE 8 - LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS
Liabilities subordinated to the claims of general creditors consist of:
<TABLE>
<CAPTION>
(Amounts in thousands) 1994 1993
---------- ----------
<S> <C> <C>
Capital notes, 9.375%, retired during 1994. . . . . . . $ -- $ 15,000
Capital notes, 10.6%, due in installments of $7,000,000
on March 15, 1995 and 1996. . . . . . . . . . . . . . 14,000 28,000
Capital notes, 8.96%, due in annual installments of
$6,000,000 commencing on May 1, 1998, with a final
installment on May 1, 2002. . . . . . . . . . . . . . 30,000 30,000
Capital notes, 7.95%, due in annual installments of
$10,225,000 commencing on April 15, 1998, with a
final installment of $10,200,000 due on
April 15, 2006. . . . . . . . . . . . . . . . . . . . 92,000 --
---------- ----------
$ 136,000 $ 73,000
</TABLE>
The capital note agreements contain restrictions that among other things,
require maintenance of certain financial ratios, restrict encumbrance of assets
and creation of indebtedness and limit the withdrawal of partnership capital.
As of December 31, 1994, the Partnership was required, under the note
agreements, to maintain minimum partnership capital of $110,000,000 and Net
Capital as computed in accordance with the uniform Net Capital rule of 7.5% of
aggregate debit items (See Note 10).
The subordinated liabilities are subject to cash subordination agreements
approved by the New York Stock Exchange and, therefore, are included in the
Partnership's computation of Net Capital under the Securities and Exchange
Commission's uniform Net Capital rule. The Partnership has estimated the fair
value of the subordinated capital notes to be approximately $130,520,000 and
$76,726,000 as of December 31, 1994 and 1993, respectively.
NOTE 9 - PARTNERSHIP CAPITAL
The limited partnership capital, consisting of 62,375 and 64,280 $1,000 units
at December 31, 1994 and 1993, respectively, is held by current and former
employees and general partners of the Partnership. Each limited partner
receives interest at seven and one-half percent on the principal amount of
capital contributed and a varying percentage of the net income of the
Partnership. Interest expense includes $4,741,000, $3,781,000, and $3,090,000
for the years ended December 31, 1994, 1993 and 1992, respectively, paid to
limited partners on capital contributed.
The subordinated limited partnership capital, consisting of 22,020 and 17,290
$1,000 units at December 31, 1994 and 1993, respectively, is held by current
F-13
<PAGE> 71
and former general partners of the Partnership. Each subordinated limited
partner receives a varying percentage of the net income of the Partnership.
The subordinated limited partner capital is subordinated to the limited
partnership capital.
Included in partnership capital at December 31, 1994 and 1993, are
undistributed profits of $14,679,000 and $17,964,000, respectively, that will
be withdrawn by the partners.
NOTE 10 - NET CAPITAL REQUIREMENTS
As a result of its activities as a broker/dealer, EDJ, is subject to the Net
Capital provisions of Rule 15c3-1 of the Securities Exchange Act of 1934 and
the capital rules of the New York Stock Exchange. Under the alternative method
permitted by the rules, EDJ must maintain minimum Net Capital, as defined,
equal to the greater of $250,000 or 2% of aggregate debit items arising from
customer transactions. The Net Capital rule also provides that partnership
capital may not be withdrawn if resulting Net Capital would be less than 5% of
aggregate debit items. Additionally, certain withdrawals require the consent
of the SEC to the extent they exceed defined levels even though such
withdrawals would not cause Net Capital to be less than 5% of aggregate debit
items. At December 31, 1994, EDJ's Net Capital of $153,163,000 was 31% of
aggregate debit items and its Net Capital in excess of the minimum required was
$143,423,000. Net Capital as a percentage of aggregate debits after
anticipated capital withdrawals was 30%. Net Capital and the related capital
percentage may fluctuate on a daily basis. EDJ's Net Capital excludes
$15,130,000 of undistributed profits that will be withdrawn by the partners.
NOTE 11 - EMPLOYEE BENEFIT PLAN
The Partnership maintains a profit sharing plan covering all eligible
employees. Contributions to the plan are at the discretion of the Partnership.
However, participants may contribute on a voluntary basis. Approximately
$13,835,000, $16,716,000, and $15,625,000 were provided by the Partnership for
its contributions to the plan for the years ended December 31, 1994, 1993 and
1992, respectively. No post retirement benefits are provided.
F-14
<PAGE> 72
NOTE 12 - COMMITMENTS
Furniture, fixtures, computer and communication equipment are rented under
various operating leases. Additionally, branch offices are leased on a three
to five year basis and are cancelable at the option of the Partnership. The
Partnership's lease commitments are:
<TABLE>
<CAPTION>
(Amounts in thousands)
<S> <C>
1995. . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,155
1996. . . . . . . . . . . . . . . . . . . . . . . . . . 11,289
1997. . . . . . . . . . . . . . . . . . . . . . . . . . 11,586
1998. . . . . . . . . . . . . . . . . . . . . . . . . . 6,076
1999. . . . . . . . . . . . . . . . . . . . . . . . . . 2,122
</TABLE>
Rent expense was $35,558,000, $28,385,000, and $24,837,000 for the years ended
December 31, 1994, 1993 and 1992, respectively.
On October 25, 1994, the Partnership entered into an Agreement and Plan of
Acquisition with Boone National Savings and Loan Association, F.A. to acquire
the Association for a purchase price of approximately $8.6 million. The
Partnership is in the process of obtaining regulatory approval for this
transaction.
NOTE 13 - CONTINGENCIES
Various legal actions, primarily relating to the distribution of securities,
are pending against the Partnership. Certain cases are class actions (or
purported class actions) claiming substantial damages. These actions are in
various stages and the results of such actions cannot be predicted with
certainty. In the opinion of management, after consultation with legal
counsel, the ultimate resolution of these actions will not have a material
adverse impact on the Partnership's financial condition.
F-15
<PAGE> 73
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
ASSETS
<CAPTION>
March 31, December 31,
(Amounts in thousands) 1995 1994
(Unaudited)
------------ ------------
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . $ 33,420 $ 36,682
Receivable from:
Customers. . . . . . . . . . . . . . . . . . . 459,236 497,961
Brokers or dealers and clearing organization
deposits . . . . . . . . . . . . . . . . . . 23,045 16,604
Securities owned, at market value:
Trading securities . . . . . . . . . . . . . . 74,685 91,308
Investment securities. . . . . . . . . . . . . 130,058 137,066
Office equipment, property and improvements, at
cost, net of accumulated depreciation and
amortization of $99,574 in 1995 and $81,895
in 1994 . . . . . . . . . . . . . . . . . . . . . 130,378 125,764
Other assets. . . . . . . . . . . . . . . . . . . . 44,655 47,974
------------ ------------
$ 895,477 $ 953,359
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-16
<PAGE> 74
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
LIABILITIES AND PARTNERSHIP CAPITAL
<CAPTION>
March 31, December 31,
(Amounts in thousands) 1995 1994
(Unaudited)
------------ ------------
<S> <C> <C>
Bank loans. . . . . . . . . . . . . . . . . . . . . $ 160,800 $ 165,000
Payable to:
Customers. . . . . . . . . . . . . . . . . . . 254,234 293,324
Brokers or dealers and clearing organizations. 8,457 13,225
Securities sold but not yet purchased, at market
value . . . . . . . . . . . . . . . . . . . . . . 21,028 16,037
Accounts payable and accrued expenses . . . . . . . 44,759 39,425
Accrued compensation and employee benefits. . . . . 45,793 58,046
Long-term debt. . . . . . . . . . . . . . . . . . . 41,674 41,779
------------ ------------
576,745 626,836
Liabilities subordinated to claims of general
creditors . . . . . . . . . . . . . . . . . . . . 129,000 136,000
Partnership capital . . . . . . . . . . . . . . . . 189,732 190,523
------------ ------------
$ 895,477 $ 953,359
============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-17
<PAGE> 75
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended
March 31, March 25,
(Amounts in thousands, except per unit information) 1995 1994
---------- ----------
<S> <C> <C>
Revenues:
Commissions. . . . . . . . . . . . . . . . . . . . $ 87,655 $ 112,718
Principal transactions . . . . . . . . . . . . . . 40,713 24,406
Investment banking . . . . . . . . . . . . . . . . 9,822 7,129
Interest and dividends . . . . . . . . . . . . . . 13,521 9,065
Other. . . . . . . . . . . . . . . . . . . . . . . 8,728 8,095
---------- ----------
160,439 161,413
Expenses:
Employee and partner compensation and benefits . . 90,254 96,607
Occupancy and equipment. . . . . . . . . . . . . . 19,326 17,028
Communications and data processing . . . . . . . . 13,063 10,122
Interest . . . . . . . . . . . . . . . . . . . . . 7,928 5,335
Payroll and other taxes. . . . . . . . . . . . . . 7,186 6,519
Floor brokerage and clearance fees . . . . . . . . 1,407 1,385
Other operating expenses . . . . . . . . . . . . . 12,335 10,682
---------- ----------
151,499 147,678
---------- ----------
Net income. . . . . . . . . . . . . . . . . . . . . . . $ 8,940 $ 13,735
========== ==========
Net income allocated to:
Limited partners . . . . . . . . . . . . . . . . . $ 1,311 $ 2,077
Subordinated limited partners. . . . . . . . . . . 967 1,360
General partners . . . . . . . . . . . . . . . . . 6,662 10,298
---------- ----------
$ 8,940 $ 13,735
========== ==========
Net income per weighted average $1,000 equivalent
partnership unit outstanding:
Limited partners . . . . . . . . . . . . . . . . . $ 21.13 $ 32.52
========== ==========
Subordinated limited partners. . . . . . . . . . . $ 36.32 $ 63.36
========== ==========
(Continued)
F-18
<PAGE> 76
(Continued From Previous Page)
<CAPTION>
Three Months Ended
March 31, March 25,
(Amounts in thousands, except per unit information) 1995 1994
---------- ----------
<S> <C> <C>
Weighted average $1,000 equivalent partnership units
outstanding:
Limited partners . . . . . . . . . . . . . . . . . $ 62,024 $ 63,854
========== ==========
Subordinated limited partners. . . . . . . . . . . $ 26,625 $ 21,469
========== ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-19
<PAGE> 77
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended
March 31, March 25,
(Amounts in thousands) 1995 1994
---------- ----------
<S> <C> <C>
Cash Flows Provided (Used) by Operating Activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 8,940 $ 13,735
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization. . . . . . . . . . 5,000 4,862
Increase in net receivable from/payable to
customers . . . . . . . . . . . . . . . . . . (365) (38,762)
(Increase) decrease in net receivable
from/payable to brokers or dealers
and clearing organizations. . . . . . . . . . (11,209) 9,544
Decrease in securities owned, net. . . . . . . . 28,622 10,952
Decrease in accounts payable, and other accrued
expenses . . . . . . . . . . . . . . . . . . . (6,919) (15,009)
Decrease in other assets . . . . . . . . . . . . 3,319 1,579
---------- ----------
Net cash provided (used) by operating
activities . . . . . . . . . . . . . . . . . . 27,388 (13,099)
Cash Flows Used by Investing Activities:
Purchase of equipment, property and improvements . (9,614) (16,655)
---------- ----------
Cash Flows (Used) Provided by Financing Activities:
(Decrease) increase in bank loans. . . . . . . . . (4,200) 56,553
Issuance of long-term debt . . . . . . . . . . . . -- 3,569
Repayment of long-term debt. . . . . . . . . . . . (105) (227)
Repayment of subordinated debt . . . . . . . . . . (7,000) (14,000)
Issuance of partnership interests. . . . . . . . . 4,651 4,436
Redemption of partnership interests. . . . . . . . (621) (813)
Withdrawals and distributions from partnership
capital . . . . . . . . . . . . . . . . . . . . (13,761) (16,782)
---------- ----------
Net cash (used) provided by financing activities . (21,036) 32,736
---------- ----------
Net (decrease) increase in cash and cash
equivalents . . . . . . . . . . . . . . . . . . (3,262) 2,982
---------- ----------
Cash and Cash Equivalents, beginning of period. . . . . 36,682 28,798
---------- ----------
Cash and Cash Equivalents, end of period. . . . . . . . $ 33,420 $ 31,780
========== ==========
</TABLE>
F-20
<PAGE> 78
Interest payments for the periods were $4,907 and $2,877. The accompanying
notes are an integral part of these financial statements.
F-21
<PAGE> 79
<TABLE>
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERSHIP CAPITAL
THREE MONTHS ENDED MARCH 31, 1995, AND MARCH 25, 1994
(Unaudited)
<CAPTION>
Subordinated
Limited limited General
partnership partnership partnership
(Amounts in thousands) capital capital capital Total
------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1993.. $ 71,222 $ 19,163 $ 89,390 $179,775
Issuance of partnership
interests ................ -- 4,349 -- 4,349
Redemption of partnership
interests ................ (526) (200) -- (726)
Net income.................. 2,077 1,360 10,298 13,735
Withdrawals and
distributions ............ (6,941) (1,812) (8,029) (16,782)
------------ ----------- ----------- ---------
Balance, March 25, 1994 .... $ 65,832 $ 22,860 $ 91,659 $180,351
============ =========== =========== =========
Balance, December 31, 1994.. $ 67,461 $ 23,722 $ 99,340 $190,523
Issuance of partnership
interests ................ -- 4,651 -- 4,651
Redemption of partnership
interests ................ (621) -- -- (621)
Net income.................. 1,311 967 6,662 8,940
Withdrawals and
distributions ............ (5,083) (1,688) (6,990) (13,761)
------------ ----------- ----------- ---------
Balance, March 31, 1995 .... $ 63,068 $ 27,652 $ 99,012 $189,732
============ =========== =========== =========
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-22
<PAGE> 80
THE JONES FINANCIAL COMPANIES, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of The
Jones Financial Companies, A Limited Partnership and all wholly owned
subsidiaries (The "Partnership"), including the Partnership's principal
subsidiary, Edward D. Jones & Co., L.P., ("EDJ"), a registered broker/dealer.
The financial information included herein is unaudited. However, in the
opinion of management, such information includes all adjustments, consisting
solely of normal recurring accruals, which are necessary for a fair
presentation of the results of interim operations.
Certain 1994 amounts have been reclassified to conform to 1995 financial
statement presentation.
The results of operations for the three months ended March 31, 1995, are not
necessarily indicative of the results to be expected for the full year.
NET CAPITAL REQUIREMENTS
As a result of its activities as a registered broker/dealer, EDJ is subject to
the Net Capital requirements of the Securities and Exchange Commission and the
New York Stock Exchange. Under the alternative method permitted by the rules,
EDJ is required to maintain minimum Net Capital of 2% of aggregate debit items
arising from customer transactions. The Net Capital rules also provide that
EDJ may not expand its business nor may partnership capital be withdrawn if
resulting Net Capital would be less than 5% of aggregate debit items. At
March 31, 1995, EDJ's Net Capital of $157.8 million was 34% of aggregate debit
items and its Net Capital in excess of the minimum required was $148.7 million.
F-23
<PAGE> 81
APPENDIX A
SUBSCRIPTION FORM
The Jones Financial Companies, a Limited Partnership
c/o Edward D. Jones & Co.
12555 Manchester Road
Des Peres, MO 63131
Attention: Anthony Crate
THIS SUBSCRIPTION FORM EXPIRES AT 3:00 P.M. ON
SEPTEMBER 29, 1995 AND HAS NO VALUE OR VALIDITY THEREAFTER
LADIES AND GENTLEMEN:
The undersigned acknowledges receipt of the Prospectus of The Jones
Financial Companies, a Limited Partnership, dated July ___, 1995 with respect
to its offering of Limited Partnership Interests. I understand that my Limited
Partnership Interest will be governed by the terms of the Agreement of Limited
Partnership of The Jones Financial Companies, a Limited Partnership, as the
same may be amended and restated from time to time in accordance with its
terms.
[ ] I hereby subscribe for the investment of Limited Partnership
Interest(s) ($1000 per unit) by making a total capital
contribution of $_________________.
I have enclosed herewith full payment in the form of a check payable to The
Jones Financial Companies, a Limited Partnership (or I have made arrangements
satisfactory to you for such payment). The exercise of the subscription right
is invalid unless payment is received by you (or arrangements therefor
satisfactory to you are made) by the date stated herein.
I have enclosed herein an executed Power of Attorney form.
- ---------------------- ------------------------------------------------------
Date Signature
------------------------------------------------------
Printed Name
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
Printed Address
------------------------------------------------------
Taxpayer I.D. or Social Security No.
This Subscription Form is Non-Transferable.
To be completed by JFC:
Received on:_______________________
By:________________________________
<PAGE> 82
APPENDIX B
POWER OF ATTORNEY
THE JONES FINANCIAL COMPANIES,
A LIMITED PARTNERSHIP
POWER OF ATTORNEY
The undersigned Limited Partner of The Jones Financial Companies, a Limited
Partnership ("Partnership"), a Missouri limited partnership established
pursuant to an Amended and Restated Agreement and Certificate of Limited
Partnership dated July 15, 1987, as amended and presently governed by the Sixth
Amendment and Restated Agreement of Limited Partnership dated as of October 1,
1993 ("Agreement"), by his (or her) execution hereof, hereby irrevocably
constitutes and appoints John W. Bachmann, Lawrence R. Sobol, and the then
Managing Partner (at any time the Managing Partner is not John W. Bachmann),
his (or her) true and lawful attorney-in-fact, and each of them, with full
power and authority in his (or her) name, place and stead, to execute or
acknowledge under oath, deliver, file and record at the appropriate public
offices (a) an amendment or amendments to the Agreement for the purpose of
adding the undersigned as a Limited Partner in the Partnership, (b) any
document necessary to withdraw the undersigned as a Limited Partner and
transfer the undersigned's interest in the Partnership to another person or
entity in accordance with the Agreement, and (c) as contemplated by Section
10.1 of the Agreement, such documents as may be necessary or appropriate to
carry out the provisions of the Agreement including:
(i) All certificates and other instruments (including the Agreement
or any certificate of limited partnership and any amendment thereof) which
the Managing Partner deems appropriate to qualify or continue the
Partnership as a limited partnership under the Missouri Act (or a
partnership in which the Limited Partners will have limited liability
comparable to that provided by the Missouri Act) or under the laws of any
other jurisdiction in which the Partnership may conduct business;
(ii) All amendments to the Agreement or any certificate of limited
partnership which are required to be filed or which the Managing Partner
deems to be advisable to file;
(iii) All instruments which the Managing Partner deems appropriate to
reflect a change or modification of the Partnership in accordance with the
terms of the Agreement;
(iv) All conveyances and other instruments which the Managing Partner
deems appropriate to reflect the dissolution and termination of the
Partnership; and
(v) All other instruments, documents or contracts (including, without
limiting the foregoing, any deed, lease, mortgage, note, bill of sale,
contract, trust agreement, guarantee, partnership agreement, indenture,
underwriting agreement or any instrument or documentation which may be
required to be filed (or which the Managing Partner deems advisable to
file) by the Partnership under the laws of any state or by any governmental
agency) requisite to carrying out the intent and purpose of the Agreement
and the business of the Partnership and its Affiliates.
The appointment by the undersigned of John W. Bachmann, Lawrence R. Sobol,
and the then Managing partner (at any time the Managing Partner is not John W.
<PAGE> 83
Bachmann), as attorney-in-fact, and each of them, shall be deemed to be a power
coupled with an interest in recognition of the fact that the undersigned will
be relying upon the power of John W. Bachmann, Lawrence R. Sobol, and the then
Managing Partner (at any time the Managing Partner is not John W. Bachmann),
and each of them, to act as contemplated by the Agreement in any filing and
other action by them on behalf of the Partnership. The foregoing power of
attorney shall survive the death, disability or incompetency of the undersigned
or the assignment by the undersigned of the whole or any part of his (or her)
interest hereunder.
The undersigned has executed this Power of Attorney as of the date set
forth below.
----------------------------------------------------------
Signature
----------------------------------------------------------
Print Name
Date Executed:
__________, 1995
<PAGE> 84
APPENDIX C
LIMITED PARTNERSHIP AGREEMENT
THE JONES FINANCIAL COMPANIES,
a Limited Partnership
SIXTH
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of October 1, 1993
<PAGE> 85
INDEX
ARTICLE ONE
DEFINED TERMS
Defined Terms ............................................................. 88
ARTICLE TWO
CONTINUATION, NAME AND OFFICE, PURPOSES,
TERM AND DISSOLUTION,
REGISTERED AGENT, PARTNER LIST
2.1 Continuation ........................................................ 91
2.2 Name, Place of Business and Office................................... 91
2.3 Purposes............................................................. 92
2.4 Term and Dissolution................................................. 92
2.5 Registered Office and Agent.......................................... 92
2.6 Amendment to Certificate of Limited Partnership...................... 92
ARTICLE THREE
PARTNERS AND CAPITAL
3.1 General Partners..................................................... 92
3.2 Admission of Additional General Partners............................. 93
3.3 Limiteds............................................................. 93
3.4 Admission of Limiteds................................................ 93
3.5 Partnership Capital.................................................. 94
3.6 Liability of Limiteds................................................ 94
3.7 Participation in Partnership Business by Limiteds.................... 94
3.8 Priority Among Limiteds.............................................. 94
ARTICLE FOUR
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNERS
4.1 Authorized Acts; Management and Control.............................. 94
4.2 Restrictions on Authority of the Managing Partner and Executive
Committee............................................................ 96
4.3 Removal or Dismissal of Certain Partners............................. 96
4.4 Executive Committee.................................................. 96
4.5 Guaranteed Draw; Time and Effort; Independent Activities............. 97
4.6 Duties and Obligations of the Managing Partner....................... 98
4.7 Liability for Acts and Omissions; Indemnification.................... 98
4.8 Dealing with an Affiliate............................................ 98
ARTICLE FIVE
MEETINGS AND VOTING OF PARTNERS
5.1 Meetings of General Partners; Voting at Such Meetings................ 99
5.2 Percentage of Voting Power for Partnership Decisions................. 99
5.3 Robert's Rules to Govern............................................. 99
5.4 Consent of General Partners in Lieu of a Meeting..................... 99
ARTICLE SIX
EVENT OF WITHDRAWAL OF A PARTNER
6.1 Voluntary Event of Withdrawal........................................ 100
6.2 Withdrawal Upon Request.............................................. 100
6.3 Return of Capital and Purchase of Interest........................... 100
6.4 Death of a Limited................................................... 101
<PAGE> 86
6.5 Death or Disability of a General Partner............................. 101
6.6 General Partner Interest - 56th Birthday............................. 102
6.7 Restriction on Capital Contribution Return........................... 102
6.8 Liability of a Withdrawn General Partner............................. 102
6.9 Effect of Event of Withdrawal........................................ 103
ARTICLE SEVEN
TRANSFERABILITY OF PARTNER INTERESTS
7.1 Restrictions on Transfer............................................. 103
7.2 Substituted Limited Partners......................................... 103
ARTICLE EIGHT
DISTRIBUTIONS AND ALLOCATIONS
8.1 Distribution of Net Income........................................... 104
8.2 Distributions Upon Dissolution....................................... 105
8.3 Distribution of Frozen Appreciation Amount .......................... 106
8.4 Sale of Assets to Third Party ...................................... 106
8.5 Other Sales or Dispositions to Third Party .......................... 107
8.6 Allocation of Profits and Losses for Tax Purposes.................... 107
ARTICLE NINE
BOOKS, RECORDS AND REPORTS,
ACCOUNTING, TAX ELECTIONS, ETC.
9.1 Books, Records and Reports .......................................... 109
9.2 Bank Accounts........................................................ 110
9.4 Fiscal Year.......................................................... 110
ARTICLE TEN
GENERAL PROVISIONS
10.1 Appointment of Attorneys-in-Fact..................................... 110
10.2 Word Meanings ....................................................... 111
10.3 Binding Provisions................................................... 111
10.4 Applicable Law....................................................... 111
10.5 Counterparts......................................................... 111
10.6 Entire Agreement..................................................... 112
10.7 Separability of Provisions........................................... 112
10.8 Representations...................................................... 112
10.9 Section Titles....................................................... 112
10.10 Partition ........................................................... 112
10.11 No Third Party Beneficiaries......................................... 112
10.12 Arbitration ......................................................... 112
10.13 Amendments........................................................... 113
10.14 Revocable Trusts..................................................... 113
<PAGE> 87
THE JONES FINANCIAL COMPANIES,
a Limited Partnership
(a Missouri Limited Partnership)
SIXTH
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
THIS SIXTH AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP entered
into as of this first day of October, 1993, by and among John W. Bachmann as
General Partner, and John W. Bachmann as the Attorney-In-Fact for all of the
other General Partners, all of the Limited Partners and all of the Subordinated
Limited Partners.
W I T N E S S E T H:
WHEREAS, the Partnership was formed as a limited partnership under the
Missouri Revised Uniform Limited Partnership Act pursuant to an Agreement and
Certificate of Limited Partnership dated June 5, 1987;
WHEREAS, the Partnership filed on July 15, 1987 its Amended and Restated
Agreement and Certificate of Limited Partnership dated July 15, 1987 (the
"Restated Agreement");
WHEREAS, the Partnership filed on August 28, 1987, November 16, 1987,
August 5, 1988, August 29, 1988, January 31, 1989, March 21, 1989 and August
10, 1989 its Amendments No. 1, 2, 3, 4, 5, 6 and 7 respectively, to its
Restated Agreement;
WHEREAS, the Partnership filed on June 22, 1989 its Partner List as of
May 31, 1989;
WHEREAS, the Restated Agreement as amended is hereinafter referred to as
the "First Restated Agreement";
WHEREAS, the First Restated Agreement was amended and restated in its
entirety pursuant to a Second Amended and Restated Agreement and Certificate of
Limited Partnership dated as of January 31, 1990 (the "Second Restated
Agreement");
WHEREAS, the Missouri Revised Uniform Limited Partnership Act was amended
in August of 1990 and no longer requires certain information in certificates of
limited partnership (filed with the Secretary of State) and now requires
corresponding amendments to be made to agreements of limited partnership;
WHEREAS, the Partnership desired that the aforesaid Second Restated
Agreement become two separate documents, namely a Third Amended and Restated
Agreement of Limited Partnership (the "Third Restated Agreement") and a
separate restated Certificate of Limited Partnership;
WHEREAS, the Second Restated Agreement was amended and restated in its
entirety pursuant to said Third Restated Agreement dated as of January 31,
1991; and
WHEREAS, the Third Restated Agreement was amended and restated in its
entirety pursuant to the Fourth Amended and Restated Agreement of Limited
Partnership (the "Fourth Restated Agreement") dated as of January 1, 1993; and
<PAGE> 88
WHEREAS, the Fourth Restated Agreement was amended and restated in its
entirety pursuant to the Fifth Amended and Restated Agreement of Limited
Partnership (the "Fifth Restated Agreement") dated as of May 24, 1993; and
WHEREAS, the parties now desire to amend and restate said Fifth Restated
Agreement pursuant to this Sixth Amended and Restated Agreement of Limited
Partnership;
NOW, THEREFORE, pursuant to the terms, covenants and conditions set forth
herein and the mutual promises contained herein, the parties hereto agree as
follows:
ARTICLE ONE
DEFINED TERMS
The defined terms used in this Agreement shall have the meanings specified
below:
"Affiliate" means (1) any Person directly or indirectly controlling,
controlled by or under common control with another Person, (2) any Person
owning or controlling ten percent (10%) or more of the outstanding voting
securities of such other Person, (3) any officer, director or partner of such
Person, or (4) if such other Person is an officer, director or partner, any
company for which such Person acts in any such capacity.
"Agreement" means this Sixth Amended and Restated Agreement of Limited
Partnership, as amended from time to time.
"Capital Account" means an account established by the Partnership and
maintained for each Partner, for federal income tax purposes, which account
shall be credited with:
(i) the amount of the Partner's Capital Contributions; and
(ii) the amount of Partnership income (including income exempt from
federal income tax) and gain (or items thereof) allocated to the Partner
pursuant to Article Eight hereof;
and which shall be debited by:
(iii) the amount of Partnership losses and deductions (or items
thereof) allocated to the Partner pursuant to Article Eight hereof;
(iv) the amount of Partnership expenditures described in Treasury
Regulations Section 1.704-1(b)(2)(iv)(i) allocable to the Partner in the
same proportion as that in which the Partner bears the economic burden of
those expenditures; and
(v) the amount of all distributions to the Partner pursuant to Article
Eight hereof.
In addition, the Capital Account of each Partner shall be adjusted as
necessary to comply with Treasury Regulations Section 1.704-1(b)(2)(iv). In
the event the Managing Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts or any debits or credits thereto are
completed in order to comply with such regulations, the Managing Partner may
<PAGE> 89
amend this Agreement to reflect such modification, provided that it is not
likely to have a material effect on the amounts distributable to the Partners
pursuant to Article Eight upon dissolution of the Partnership.
If any Partner would otherwise have a negative balance in his Capital
Account, the amount of any such negative balance shall be reduced (but not in
excess of such negative balance) by the amount of such Partner's share of
Partnership Minimum Gain (determined in accordance with Treasury Regulations
Section 1.704-1(b)(4)(iv)(f)) after taking into account all increases and
decreases to such Partnership Minimum Gain during the taxable year.
In the event that the Partnership is deemed to be terminated for federal
income tax purposes due to the sale or exchange of fifty percent (50%) or more
of the Partnership interests within a twelve (12) month period, appropriate
adjustment shall be made to the Capital Accounts to reflect the constructive
liquidation and reformation deemed to occur upon a termination.
In the event that interests in the Partnership are sold, exchanged or
otherwise transferred, and the transfer is recognized under Article Six or
Article Seven hereof, or by operation of law, the Capital Account of the
transferee will equal the Capital Account of the transferor immediately before
the transfer. However, if such a sale or exchange, either alone or in
combination with other sales or exchanges within a twelve-month period results
in a transfer of fifty percent (50%) or more of the Partnership interests
causing a termination of the Partnership for federal income tax purposes, the
adjustment required by the immediately preceding paragraph shall be made.
"Capital Contribution" means the total amount of cash or property
contributed to the Partnership by each Partner pursuant to the terms of this
Agreement. The Capital Contributions of the Partners have been previously set
forth on exhibits to this Agreement. From the date hereof, the Capital
Contributions of the Partners shall be reflected in the books and records of
the Partnership.
"Certificate of Limited Partnership" means the document, as amended or
restated from time to time, filed as a certificate of limited partnership under
the Missouri Act.
"Event of Withdrawal" means, as to a General Partner, the occurrence of
death, adjudication of mental incompetence, bankruptcy, dissolution, or
voluntary or involuntary withdrawal or removal from the Partnership or any
other event of withdrawal set forth in the Missouri Act.
"Frozen Appreciation Amount" means each General Partner's share of the
unrealized appreciation of certain real estate (the "Real Estate") owned by EDJ
Leasing Co. on the date such General Partner contributes his general
partnership interest in EDJ Leasing Co. to the Partnership plus such General
Partner's share of the unrealized appreciation of all stock exchange seats (the
"Exchange Seats") owned by or for the benefit of Edward D. Jones & Co. on the
date such General Partner contributes his general partnership interest in
Edward D. Jones & Co. to the Partnership., The Frozen Appreciation Amount
shall be maintained in the books and the records of Partnership. The Real
Estate currently consists of the land and improvements located at 201 Progress
Parkway, 141 Progress Parkway, 158 Progress Parkway, 115 Progress Parkway, 135
Progress Parkway, 9 American Industrial Dr. and 20 American Industrial Dr., all
in St. Louis County, Missouri. The Exchange Seats consists of one (1) seat on
the New York Stock Exchange, one (1) seat on the American Stock Exchange, one
(1) seat on the Midwest Stock Exchange and two (2) seats on the New York
<PAGE> 90
Futures Exchange. Each year, as of December 31, the Partnership shall appraise
(to the extent not previously sold) the Real Estate and the shares of
unrealized appreciation shall be appropriately and proportionately adjusted for
each General Partner on the books of the Partnership. on the each Valuation
Date, if needed for the purpose of making a calculation for purposes of this
Agreement, the Partnership shall appraise (to the extent not previously sold)
the Exchange Seats and the shares of unrealized appreciation shall be
appropriately and proportionately adjusted for each General Partner on the
books of the Partnership. The unrealized appreciation per each separate tract
of Real Estate and per each separate Exchange Seat as set forth on the books of
the Partnership may never exceed the amount used in making the original
calculation even if a given appraised value later exceeds such amount. When,
as and if a given tract of Real Estate or Exchange Seat is sold, the unrealized
appreciation then attributable to such tract of Real Estate or Exchange Seat
shall no longer be included in the calculation of the Frozen Appreciation
Amount on the books of the Partnership.
"General Partners" means those persons who have executed this Agreement and
whose names are set forth in the books and records of the Partnership as being
General Partners, and any other Person who becomes a successor or additional
General Partner of the Partnership as provided herein.
"General Partner's Adjusted Capital Contribution" means the Capital
Contribution of the General Partner plus all Net Income thereafter allocated to
the account of the General Partner minus (a) all Net Loss thereafter allocated
to the account of the General Partner, and (b) any cash or property thereafter
distributed to (or for the benefit of) the General Partner. Payments of
salaries, bonuses or expenses to a General Partner by the Partnership shall not
affect such General Partner's Adjusted Capital Contribution.
"General Partner Interest" means a General Partner's entire ownership
interest in the Partnership.
"General Partner Percentage" means a percentage determined by dividing a
General Partner's Adjusted Capital Contribution by the Adjusted Capital
Contributions of all of the General Partners.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Limited Partners" means those persons who have executed this Agreement and
whose names are set forth in the books and records of the Partnership as being
Limited Partners, and any other person who becomes a Limited Partner of the
Partnership as provided herein.
"Limiteds" means those persons whose names are set forth in the books and
records of the Partnership as being the Limited Partners and the Subordinated
Limited Partners, and any other person who becomes a Limited of the Partnership
as provided herein.
"Missouri Act" means the Missouri Revised Uniform Limited Partnership Act,
as amended from time to time.
"Net Income or Net Loss" means, with respect to any fiscal period, the net
income or the net loss of the Partnership, determined in accordance with
generally accepted accounting principles; provided, however, there shall be
excluded from such net income or net loss any unrealized gains or losses on
securities held (whether at the discretion of the Partnership or otherwise) by
<PAGE> 91
the Partnership (or by any entity whose financial statements are consolidated
with the financial statements of the Partnership) as a hedge against fixed rate
borrowings (as opposed to other securities held by the Partnership [or by any
entity whose financial statements are consolidated with the financial
statements of the Partnership] as inventory for resale in the ordinary course
of business).
"Notice" means a writing, containing the information required by this
Agreement to be communicated to a party, delivered personally or sent by U.S.
mail, postage prepaid, to such party at the last known address of such party as
shown on the records of the Partnership, the date of personal delivery or the
date of mailing thereof being deemed the date of receipt thereof.
"Partner" means any General Partner or Limited.
"Partnership" means the limited partnership formed by this Agreement by the
parties hereto, as said limited partnership may from time to time be
constituted.
"Partnership Minimum Gain" means, for Partnership tax purposes, as set
forth in Treasury Regulations Section 1.704-1(b)(4)(iv)(c), the amount of gain,
if any, that would be realized by the Partnership if it were to sell or dispose
of (in a taxable transaction) property subject to a non-recourse liability of
the Partnership, in full satisfaction of such liability.
"Person" means a natural person, partnership, limited partnership (domestic
or foreign), trust, estate, association or corporation.
"Profits and Losses For Tax Purposes" means, for Partnership accounting and
tax purposes, the various items set forth in Section 702(a) of the Internal
Revenue Code and all applicable regulations or any successor law, and shall
include, but not be limited to, each item of income, gain, deduction, loss,
preference or credit.
"Subordinated Limited Partners" means those persons who have executed this
Agreement and whose names are set forth in the books and records of the
Partnership as Subordinated Limited Partners, and any other person who becomes
a Subordinated Limited Partner of the Partnership as provided herein.
"Valuation Date" means as of the last Friday of each month except for the
month of December in which case it means as of the last day of the month.
ARTICLE TWO
CONTINUATION, NAME AND OFFICE, PURPOSES,
TERM AND DISSOLUTION,
REGISTERED AGENT, PARTNER LIST
2.1 Continuation.
The parties hereto hereby continue the Partnership as a limited partnership
pursuant to the provisions of the Missouri Act.
2.2 Name, Place of Business and Office.
The Partnership shall be conducted under the name of "The Jones Financial
Companies, a Limited Partnership". The principal office and place of business
shall be 201 Progress Parkway, Maryland Heights, Missouri 63043. The
<PAGE> 92
General Partners may at any time change the location of such principal office.
Notice of any such change shall be given to the Partners on or before the date
of any such change.
2.3 Purposes.
The purposes of the Partnership shall be to act as a limited partner in
Edward D. Jones & Co., L.P., ("EDJ") to act as a general partner, limited
partner, guarantor, stockholder or holding partnership for any other limited
partnership, general partnership, corporation or other entity and to engage in
such other activities as may be approved by the General Partners.
2.4 Term and Dissolution.
A. The Partnership shall continue in full force and effect until
December 31, 2087, or until dissolution prior thereto upon the happening of any
of the following events:
(i) The sale of all of the assets of the Partnership;
(ii) An Event of Withdrawal of a General Partner if no General
Partner remains; or
(iii) The dissolution of the Partnership by the General Partners.
B. Upon dissolution of the Partnership, the General Partners shall cause
the cancellation of the Partnership's Certificate of Limited Partnership,
liquidate the Partnership's assets and apply and distribute the proceeds
thereof in accordance with Section 8.2 hereof.
2.5 Registered Office and Agent.
The name and address of the Registered Agent and Registered Office for
service of process on the Partnership are as set forth in the Certificate of
Limited Partnership.
2.6 Amendment to Certificate of Limited Partnership.
The Certificate of Limited Partnership shall be amended within thirty days
of the admission or withdrawal of a General Partner.
ARTICLE THREE
PARTNERS AND CAPITAL
3.1 General Partners.
A. The name, last known mailing address and current Capital Contribution
of each General Partner are reflected in the books and records of the
Partnership.
B. Any General Partner, in addition to being a General Partner, may also
become a Limited by complying with the provisions of Section 3.4 hereof. In
such event, said General Partner shall have all the rights and powers and be
subject to all the restrictions of a General Partner, except that, in respect
to its Capital Contribution as a Limited, he shall have the
<PAGE> 93
rights against the other Partners which he would have had if he were not also a
General Partner.
C. Any General Partner may, with the consent of the Managing Partner,
increase his Capital Contribution from time to time. Such increased Capital
Contribution shall be made in such manner and at such time as determined by the
Managing Partner and the General Partner Percentages shall be appropriately
adjusted and transferred. All such changes shall be reflected in the books and
records of the Partnership.
3.2 Admission of Additional General Partners.
A. The Managing Partner may at any time designate additional General
Partners with such interest in the Partnership as the Managing Partner and such
additional General Partners may agree upon. The additional General Partner
shall make his Capital Contribution to the Partnership in such manner and at
such time as determined by the Managing General Partner and the General Partner
Percentages shall be appropriately adjusted and transferred. All such changes
shall be reflected in the books and records of the Partnership. The Managing
Partner may admit additional General Partners to the Partnership at any time
without the consent of any current General Partner or Limited.
B. Each additional General Partner shall agree, as a condition to
becoming an additional General Partner, to be bound by the terms and provisions
of this Agreement and any other agreement (including cash subordination
agreements) as deemed appropriate by the Managing Partner.
3.3 Limiteds.
A. There shall be two classes of Limiteds, namely, Limited Partners and
Subordinated Limited Partners. The name, last known mailing address and
current Capital Contribution of each Limited Partner are reflected in the books
and records of the Partnership. The name, last known mailing address and
current Capital Contribution of each Subordinated Limited Partner are reflected
in the books and records of the Partnership.
B. Each Limited Partner shall be paid 7-1/2% per annum, on the principal
amount of his Capital Contribution. Such payments shall be made yearly or more
frequently, as determined by the Managing Partner. All such payments shall be
treated as guaranteed payments.
3.4 Admission of Limiteds.
A. The Managing Partner is authorized to admit to the Partnership
Limiteds who may be admitted as Limited Partners or as Subordinated Limited
Partners, at the discretion of the Managing Partner.
B. The Capital Contributions of the Limiteds shall be made in such manner
and at such time as determined by the Managing Partner. All such changes shall
be reflected in the books and records of the Partnership.
C. Each Limited shall agree, as a condition to becoming a Limited, to be
bound by the terms and provisions of this Agreement and any other agreements
(including cash subordination agreements) as deemed appropriate by the Managing
Partner.
<PAGE> 94
3.5 Partnership Capital.
A. The total capital of the Partnership shall be the aggregate amount of
the Capital Contributions of the Partners as provided for herein.
B. Except as provided herein, or as otherwise determined by the Managing
Partner, no Partner shall be paid interest on any Capital Contribution to the
Partnership.
C. Except as otherwise provided herein, prior to dissolution of the
Partnership, no Partner shall have the right to demand the return of his
Capital Contribution. No Partner shall have the right to demand and receive
property other than cash in return for his Capital Contribution.
D. The General Partners shall have no personal liability for the
repayment of the Capital Contribution of any Limited.
3.6 Liability of Limiteds.
A Limited shall only be liable to make the payment of his Capital
Contribution. Except as provided in the Missouri Act, no Limited shall be
liable for any obligations of the Partnership. After his Capital Contributions
shall be paid to the Partnership, no Limited shall be required to make any
further Capital Contribution or lend any funds to the Partnership, except as
otherwise expressly provided in this Agreement..
3.7 Participation in Partnership Business by Limiteds.
No Limited (except one who may also be a General Partner, and then only in
his capacity as a General Partner) shall participate in or have any control
over the Partnership business (except as required by law) or shall have any
authority or right to act for or bind the Partnership. The Limiteds hereby
consent to the exercise by the Managing Partner and the General Partners of the
powers conferred on them by this Agreement.
3.8 Priority Among Limiteds.
Priorities as between classes of Limiteds as to distributions are set forth
in Article Eight hereof.
ARTICLE FOUR
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNERS
4.1 Authorized Acts; Management and Control.
A. Subject to the other provisions set forth below, the General Partners
have the exclusive right to manage the business of the Partnership and are
hereby authorized to take any action (including, but not limited to, the acts
authorized by Section 4.1C below) of any kind and to do anything and everything
in accordance with the provisions of this Agreement.
B. John W. Bachmann is hereby designated by the General Partners as the
Managing Partner of the Partnership. As the Managing Partner he shall serve as
Chairman of the Executive Committee. As Managing Partner, he shall have the
absolute right (subject to Section 4.4C hereof) to manage the business of the
Partnership on behalf of the General Partners and is hereby authorized to take
on behalf of the Partnership and the General Partners any action
<PAGE> 95
(including, but not limited to, the acts authorized by Section 4.1C below) of
any kind and to do anything and everything in accordance with the provisions of
this Agreement. The Managing Partner shall have all the rights, powers and
duties usually vested in the managing partner of a partnership including the
administration of this Partnership's business and the determination of its
business policies and he shall control the management and conduct of all of the
business transacted by the Partnership. In particular, but not in limitation
of the foregoing, the Managing Partner for, in the name and on behalf of, the
Partnership and the General Partners is hereby specifically authorized (i) to
admit to the Partnership any General Partner or Limited; (ii) to dismiss (in
accordance with Section 6.2 hereof) from the Partnership any General Partner or
Limited; (iii) to determine the General Partner's Adjusted Capital Contribution
(and the related General Partner Percentage) that each General Partner
(including the Managing Partner) shall be entitled to maintain; (iv) to
determine the guaranteed draw (described in Section 4.5A hereof) to be paid to
each General partner (which guaranteed draw shall be set forth on a list to be
maintained in the Managing Partner's office which list shall be available for
inspection by the General Partners; (v) to fix the Capital Contribution that
each Limited shall be entitled to maintain; (vi) to determine all amounts, if
any, to be distributed to the Limiteds pursuant to Section 8.5 hereof; (vii) to
convey title to any assets of the Partnership; and (viii) to execute all
documents (including, but not limited to, any loan documents or guarantees) on
behalf of the Partnership.
C. The General Partners for, in the name and on behalf of, the
Partnership are hereby authorized to take any and all actions, and to engage in
any kind of activity and to perform and carry out all functions of any kind
necessary to, or in connection with, the business of the Partnership (including
but not limited to): (i) executing any instruments on behalf of the
Partnership; (ii) acquiring or selling assets of the Partnership;
(iii) entering into loans, guarantees in connection with the business of the
Partnership; (iv) acting as a partner or shareholder of, or adviser to, any
other organization; (v) contributing capital, as a limited partner or as a
general partner, or purchasing other securities in or otherwise investing in
EDJ or any other limited partnership, general partnership, corporation or other
entity and taking all actions required as a partner, shareholder or investor in
any such entity.
D. The special authority granted herein to the Managing Partner shall not
be construed to restrict the authority of any General Partner to act as the
agent of the Partnership and to execute instruments in the Partnership name for
the purpose of carrying on the ordinary business of the Partnership.
E. The Managing Partner may delegate to any General Partner the authority
from time to time to execute documents or otherwise exercise the authority of
the Managing Partner, but such authority shall not include the authority to
increase the capital or change the business policies of the Partnership unless
such authority is expressly and specifically granted in writing to such General
Partner.
F. Whenever authority is herein conferred upon the Managing Partner or
the General Partners, any person, other than a General Partner, dealing with
the Partnership may rely conclusively upon the authority and signature of the
Managing Partner or any one other General Partner to exercise such authority
without determining that such Managing Partner or such General Partner is
acting with the approval of the other General Partners. In addition, third
parties dealing with the Partnership may rely upon the certification of the
Managing Partner or any other General Partner as to the
<PAGE> 96
continued existence of the Partnership, the identity of its current Partners
and the authority of any Partner to execute any document.
4.2 Restrictions on Authority of the Managing Partner and Executive
Committee.
In the event that a meeting of General Partners is called by the General
Partners in accordance with Section 5.1 hereof to vote upon the removal of the
Managing Partner or an Executive Committee member, neither the Managing Partner
nor the Executive Committee shall from the time of notice of such meeting
until after adjournment thereof: (i) change the General Partner Percentage of
any General Partner or (ii) admit or dismiss any General Partner as a Partner.
4.3 Removal or Dismissal of Certain Partners.
The Managing Partner may be removed from such office and any General
Partner may be dismissed as a General Partner (in accordance with Section 6.2
hereof) by a vote of General Partners holding a majority of the General Partner
Percentages in the Partnership.
4.4 Executive Committee.
A. An Executive Committee is hereby created consisting of the Managing
Partner and nine (9) additional General Partners. Among the purposes of the
Executive Committee is to provide counsel and advice to the Managing Partner in
discharging his functions.
B. Each member of the Executive Committee shall have one vote.
C. Upon the majority vote of the Executive Committee, the Executive
Committee may override any determination made by the Managing Partner as to
(i) the General Partner's Adjusted Capital Contribution (and the related
General Partner Percentage) that each General Partner (including the Managing
Partner) shall be entitled to maintain, (ii) the admission of a new General
Partner and (iii) the dismissal of a General Partner.
D. Upon the majority vote of the Executive Committee, the Managing
Partner may be removed from his office as the Managing Partner. Upon the
majority vote of the Executive Committee a new Managing Partner may be elected
whenever the office of Managing Partner is vacant.
E. At any time during which there is no Managing Partner the Executive
Committee shall succeed to all of the powers and duties of the Managing
Partner.
F. The Managing Partner shall have the right to appoint and dismiss any
member of the Executive Committee; provided however that the Managing Partner
shall not have the right to dismiss any member of the Executive Committee from
the time Notice is given of a meeting of the Executive Committee until the
adjournment thereof if the purpose of such meeting is to vote upon one or more
of the matters set forth in Sections 4.4C or 4.4D hereof.
G. By a vote of the General Partners holding a majority of the General
Partner Percentages in the Partnership, the General Partners may remove any
Executive Committee member from his position as an Executive Committee member
and elect in his place a new Executive Committee member.
<PAGE> 97
H. If the General Partners remove any Executive Committee member from his
position as an Executive Committee member, the Managing Partner may not appoint
such removed Executive Committee member to the Executive Committee for a period
of six (6) months thereafter. Any Executive Committee member elected to the
Executive Committee by a vote of the General Partners may not be dismissed as
an Executive Committee member by the Managing Partner.
I. A meeting of the Executive Committee shall be held (i) at any time on
call of the Managing Partner after one (1) day's Notice has been delivered to
the Executive Committee members or (ii) on at least ten (10) day's Notice in
advance to the Executive Committee members, jointly signed by any two (2)
Executive Committee members, specifying the date, place, hour and purpose of
the meeting.
4.5 Guaranteed Draw; Time and Effort; Independent Activities.
A. Each General Partner shall receive a guaranteed draw for his services
as determined by the Managing Partner in his sole discretion. Such guaranteed
draw shall be treated by the Partnership as a guaranteed payment. Such
guaranteed draw shall be reduced by any net commissions earned by any such
General partner (and paid to such General Partner by EDJ) who is principally
engaged in the sale of securities to the public. If any such General Partner
who is principally engaged in the sale of securities to the public at EDJ
incurs any reasonable expenses through usual and ordinary means of generating
the sales upon which such General Partner is entitled to receive commissions
from EDJ, then such General Partner must personally and individually pay,
without reimbursement from the Partnership or from EDJ, such expense but such
General Partner shall be entitled to deduct such expenses on his personal
income tax return.
B. Each General Partner shall devote his entire time, energy, skill and
ability to the duties of operating the Partnership and the entities it owns.
General Partners shall not engage in outside business activities without the
prior written consent of the Managing Partner. Each General Partner agrees not
to use the name or property of the Partnership or any entity it owns for his
own private business, nor for any purpose whatsoever except those that may be
incidental to the conduct and management of the Partnership, nor shall any
General Partner use the name of the Partnership or any entity it owns for the
use or accommodation of any other person. No General Partner shall incur any
obligation in the name of the Partnership or transfer Partnership property
except in connection with Partnership business.
C. Each General Partner agrees that he will not, without the written
consent of the Managing Partner (i) become a guarantor or surety for any
person, firm or corporation; (ii) in the name of the Partnership or any entity
it owns or in his own name buy or sell stocks, securities or commodities on
margin, either for the account of the Partnership or for his own account; or
(iii) pledge or hypothecate any of the property of the Partnership or any
entity it owns for any purpose whatsoever.
D. Each General Partner shall submit annually for inspection a copy of
his personal federal income tax return to the independent accountants selected
by the Managing Partner.
E. Each Partner is expected, and it is regarded as such Partner's duty,
to supplement expenses reimbursable to such Partner by the Partnership by
additional expenditures of such Partner's personal funds in the furtherance of
the Partnership's business which expenditures such Partner shall be entitled to
<PAGE> 98
deduct on his personal income tax return; in this connection, as deemed
appropriate under the circumstances, such additional expenditures have included
in the past and shall include in the future, but shall not be limited to
(a) subscribing to professional journals, (b) maintaining active memberships in
professional associations, other associations, luncheon clubs and other clubs
where the Partner will have an opportunity to further the development of, and
to maintain the Partnership's relationship with, its customers, (c) providing
space and facilities in the Partner's home in order that the Partner may work
on the Partnership's business while at home, (e) providing for transportation
to customers' offices, (f) entertaining customers and prospective customers and
(g) continuing the Partner's business-related education, including attendance
at seminars and obtaining advanced educational degrees.
4.6 Duties and Obligations of the Managing Partner.
A. The Managing Partner shall prepare (or cause to be prepared) and file
such amendments to this Agreement or any certificate of limited partnership as
are required by law or as he deems necessary to cause this Agreement or any
certificate of limited partnership to reflect accurately the agreement of the
Partners, the identity of the Limiteds or the General Partners and the amounts
of their respective Capital Contributions.
B. The Managing Partner shall prepare (or cause to be prepared) and file
such tax returns and other documents, as are required by law or as he deems
necessary, for the operation of the Partnership.
4.7 Liability for Acts and Omissions; Indemnification.
Neither the Managing Partner nor any General Partner shall be liable,
responsible or accountable in damages or otherwise to any of the Partners for,
and the Partnership shall indemnify and save harmless the Managing Partner and
any General Partner from any loss or damage incurred by reason of, any act or
omission performed or omitted by him in good faith on behalf of the Partnership
and in a manner reasonably believed by him to be within the scope of the
authority granted to him by this Agreement and in the best interests of the
Partnership, provided that the Managing Partner or the General Partner shall
not have been guilty of gross negligence or gross misconduct with respect to
such acts or omissions and, further, provided that the satisfaction of any
indemnification and any saving harmless shall be paid out of and limited to
Partnership assets and no Partner shall have any personal liability on account
thereof.
4.8 Dealing with an Affiliate.
The Managing Partner may for, in the name of and on behalf of, the
Partnership enter into such agreements, contracts or the like with any
Affiliate of any General Partner or with any General Partner, in an independent
capacity, as distinguished from his capacity (if any) as a Partner, to
undertake and carry out the business of the Partnership as if such Affiliate or
General Partner were an independent contractor; and the Managing Partner may
obligate the Partnership to pay reasonable compensation for and on account of
any such services.
<PAGE> 99
ARTICLE FIVE
MEETINGS AND VOTING OF PARTNERS
5.1 Meetings of General Partners; Voting at Such Meetings.
A. A meeting of General Partners shall be held (i) on the call of the
Managing Partner after five (5) days Notice thereof has been delivered to the
General Partners, or (ii) on at least 10 days Notice in advance to the General
Partners, jointly signed by any five (5) General Partners, specifying the date,
place, hour and purposes of the meeting.
B. Except as otherwise expressly provided, at any meeting of the General
Partners, each General Partner shall have voting power equal to his General
Partner Percentage at the time of the meeting. A quorum for any purpose at any
meeting of the General Partners shall exist if General Partners then holding
more than 50% of the voting power of all General Partners are present or voting
by proxy. Any General Partner may vote on any matter if not present in person,
by general or specific written proxy given to another General Partner. No
proxy shall be valid after two (2) months from the date of its execution.
General Partners may participate in any meeting by means of conference
telephone or similar communications equipment whereby all persons participating
in such meeting can hear each other. Participation in a meeting in this manner
shall constitute presence in person at the meeting.
C. Unless otherwise permitted by the Managing Partner, the only matters
to be voted upon by the General Partners at any meeting of the General Partners
shall be those matters set forth in Sections 4.3 and 4.4 hereof.
5.2 Percentage of Voting Power for Partnership Decisions.
A. Except as otherwise specifically provided in this Agreement, the
affirmative vote of more than 50% of the voting power of all General Partners
shall determine all issues at any meeting of the General Partners.
B. Any percentage of voting power of the General Partners required by
this Agreement shall relate to the percentage of the total voting power of all
General Partners entitled to vote on the issue and not to a percentage of the
voting power of the General Partners present at a meeting.
5.3 Robert's Rules to Govern.
Except as otherwise specifically provided in this Agreement, all matters of
parliamentary procedure at meetings of the General Partners shall be governed
by Robert's Rule of order Revised. The Managing Partner may appoint a
parliamentarian.
5.4 Consent of General Partners in Lieu of a Meeting.
A. Notwithstanding anything to the contrary contained in this Agreement,
any action required or permitted by this Agreement to be taken at any meeting
of the General Partners may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by Partners having not less than the minimum voting power that
would be necessary to authorize or take such action at a meeting of the
Partners.
B. Prompt Notice of the taking of any action pursuant to this Section 5.4
by less than unanimous written consent of the General Partners shall be given
to those General Partners who have not consented in writing.
<PAGE> 100
ARTICLE SIX
EVENT OF WITHDRAWAL OF A PARTNER
6.1 Voluntary Event of Withdrawal.
Any General Partner shall have the right to retire or voluntarily withdraw
from the Partnership upon 30 days prior written notice to the Managing Partner.
In the event that there is only one General Partner, he shall give notice to
the Limiteds of his intent to withdraw from the Partnership at least 30 days
prior to the date of withdrawal. Any Limited shall have the right to retire or
voluntarily withdraw from the Partnership upon six (6) months prior written
notice to the Managing Partner.
6.2 Withdrawal Upon Request.
The Managing Partner or any number of General Partners holding in the
aggregate a majority of the General Partner Percentages, may request in writing
that any Partner withdraw from the Partnership, and each Partner agrees that he
will so withdraw within 30 days of the receipt of such request.
6.3 Return of Capital and Purchase of Interest.
A. In the event of any withdrawal by a Limited from the Partnership,
pursuant to Sections 6.1 or 6.2 hereof, there shall be returned (subject to the
provisions of Section 6.7 hereof) to the withdrawing Limited, within six (6)
months after the actual date of his withdrawal, his Capital Contribution to the
Partnership. In addition, such Limited shall receive (within 75 days after the
actual date of his withdrawal) his pro rata share of any cash distributions to
which he was entitled as set forth in Section 8.1 hereof, calculated as of the
previous Valuation Date if such withdrawal takes place on or prior to the 15th
day of a month or calculated as of the next Valuation Date if such withdrawal
takes place on or after the 16th day of a month. Until a Limited Partner's
Capital Contribution is returned to him, he shall continue to receive all sums
due him pursuant to Section 3.3B hereof.
B. In the event of any withdrawal by a General Partner from the
Partnership, pursuant to Section 6.1 or 6.2 hereof (and subject to the
provisions of Section 6.7 hereof), the remaining General Partners, or any of
them shall have the option to purchase the General Partner Interest (including
his Frozen Appreciation Amount) of the withdrawing General Partner, subject to
the approval of the Managing Partner. Such purchases shall be consummated
within 60 days after the actual date of such withdrawal. The price of the
General Partner Interest of the withdrawing General Partner shall be the value
(as shown on the books of the Partnership) of his Frozen Appreciation Amount
plus the value of such General Partner's Adjusted Capital Contribution,
calculated as of the previous Valuation Date if such withdrawal takes place on
or prior to the 15th day of a month or calculated as of the next Valuation Date
if such withdrawal takes place on or after the 16th day of a month. Goodwill,
if any, and the Partnership name shall not be deemed assets or as having any
property value in making the foregoing calculation. In addition, any
withdrawing General Partner shall receive (within 75 days after the actual date
of his withdrawal) his pro rata share of any cash distributions to which he is
entitled as set forth in Section 8.1 hereof, calculated as of the previous
Valuation Date if such withdrawal takes place on or prior to the 15th day of a
month or calculated as of the next Valuation Date if such withdrawal takes
place on or after the 16th day of a month. Any General Partner Interest
(including his Frozen Appreciation Amount) not purchased by the remaining
General Partners within such 60 day period shall be converted (as of the actual
<PAGE> 101
date of his withdrawal) to that of a Subordinated Limited Partner interest and
shall be redeemed by the Partnership within one (1) year, the specific date to
be determined by the Managing Partner. Upon the conversion of a General
Partner's Interest to that of a Subordinated Limited Partner, the General
Partner Percentages of the remaining General Partners shall be recalculated (as
of the actual date of withdrawal) on the same relative basis so as to aggregate
100% (and the related General Partner Adjusted Capital Contributions shall also
be appropriately adjusted).
6.4 Death of a Limited.
In the event of the death of any Limited, the Capital Contribution of such
deceased Limited shall be returned (subject to the provisions of Section 6.7
hereof) to his estate within six (6) months after the actual date of death of
the Limited. In addition such Limited's estate shall receive (within 75 days
after the actual date of death of the Limited) the Limited's pro rata share of
any cash distributions to which such deceased Limited was entitled as set forth
in Section 8.1 hereof, calculated as of the previous Valuation Date if such
withdrawal takes place on or prior to the 15th day of a month or calculated as
of the next Valuation Date if such withdrawal takes place on or after the 16th
day of a month. Until a deceased Limited's Capital Contribution is returned to
his estate, his estate shall continue to receive all sums which would have been
due to such Limited pursuant to Section 3.3B hereof. As stated herein, all
such payments shall be made to the estate of the deceased Limited unless the
Partnership has received evidence, satisfactory to the Partnership, in its sole
discretion, that such payments should be made to some other entity or person.
6.5 Death or Disability of a General Partner.
A. In the event of the death of a General Partner, the interest of the
deceased General Partner in the Partnership shall terminate as of such date.
The General Partner Interest (including his Frozen Appreciation Amount) of the
deceased General Partner shall be treated in the same manner as that of a
withdrawing General Partner pursuant to Section 6.3B hereof and subject to the
provisions of 6.7 hereof with payment therefor being made, however, to the
estate of the deceased General Partner. As stated herein, all such payments
shall be made to the estate of the deceased General Partner unless the
Partnership has received evidence, satisfactory to the Partnership, in its
sole discretion, that such payments should be made to some other entity or
person.
B. In the event of full or partial disability (as determined in the
absolute discretion of the Managing Partner) of a General Partner under age 65
due to illness, accident, or injury, such General Partner shall be entitled to
receive his normal share of Partnership Net Income notwithstanding his
inability to perform his normal work functions, for a period of up to six (6)
full months following the date he suffered the disability. If the disability
shall continue for a period greater than six (6) months but less than one (1)
year, then during such period of time the disabled General Partner shall be
entitled to receive one-half (1/2) of his normal share of Partnership Net
Income. If the disability shall continue for a period greater than one (1)
year in length, then the disabled General Partner must terminate his status as
a General Partner, unless otherwise directed by the Managing Partner. In event
of termination, the General Partner Interest (including his Frozen Appreciation
Amount) of the disabled General Partner shall be treated in the same manner as
that of a withdrawing General Partner pursuant to Section 6.3B hereof.
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6.6 General Partner Interest - 56th Birthday.
A General Partner shall not acquire any additional General Partner Interest
after he reaches his 56th birthday. His General Partner Interest (including
his Frozen Appreciation Amount) as it exists on his 56th birthday is his
"Retiring Interest." On the first day of the calendar year following the year
in which a General Partner's 56th birthday falls and on the first day of each
subsequent calendar year, the General Partner shall sell 1/10th of this
Retiring Interest to such other General Partners who have not attained 56 years
of age, who are willing to purchase such additional interest, and who have
received approval from the Managing Partner to make such purchase. The sale
price of the Retiring Interest shall be determined in the same manner as set
forth in Section 6.3B hereof. Upon payment of the sales price to the selling
General Partner by the purchasing General Partner, the books of the Partnership
shall be adjusted as of the effective date of sale to show the appropriate
reductions and increases in the General Partner Adjusted Capital Contributions
(and related General Partner Percentages) of the selling and purchasing General
Partners. Notwithstanding any other provisions of this Section to the contrary,
the Managing Partner may exempt any General Partner from the application of
this Section or modify the terms of the sale of any Retiring Interest as he
deems advisable.
6.7 Restriction on Capital Contribution Return.
It is understood and agreed that the Capital Contributions of the Partners
to the Partnership will be used, in part, by the Partnership as part of the
Partnership's capital contribution to EDJ, a brokerage firm (which is regulated
by the Securities and Exchange Commission and the New York Stock Exchange and
other regulatory agencies), and that in order for the Partnership to return to
any Partner his Capital Contribution (or any part thereof), the Partnership
will have to obtain such funds from EDJ. Therefore, notwithstanding any other
provision contained in this Agreement to the contrary, without the written
consent of the Managing Partner, no Partner shall have returned to him (under
any provision of this Agreement) his Capital Contribution or his General
Partner's Adjusted Capital Contribution, if after giving effect thereto, the
Partnership or any Affiliate thereof (including, but not limited to, EDJ)
would, if such payment had been made directly by EDJ, be in violation of (i)
any rule of the New York Stock Exchange Inc., (ii) any rule issued under the
Securities Exchange Act of 1934, any agreement (cash subordination or
otherwise) which has been entered into by the Partnership or any Affiliate
thereof (including, but not limited to, EDJ) or (iv) any other law, rule or
regulation to which the Partnership or any Affiliate thereof (including, but
not limited to, EDJ) is subject. In the event there is returned to any Partner
all or any portion of his Capital Contribution or his General Partner's
Adjusted Capital Contribution and because of such return the Partnership or any
Affiliate thereof (including, but not limited to, EDJ) violated any of the
aforementioned rules, agreements or regulations, then such Partner hereby
irrevocably agrees (whether or not such Partner had any knowledge or notice of
such facts at the time of such return) to repay to the Partnership, its
successors or assigns, the sum so returned to such Partner to be held by the
Partnership pursuant to the provisions hereof as if such return had never been
made; provided, however, that any suit for the recovery of any such return must
be commenced within two years of the date of such return.
6.8 Liability of a Withdrawn General Partner.
If on the Event of Withdrawal of a General Partner the business of the
Partnership shall continue, the General Partner who shall have withdrawn shall
<PAGE> 103
be and remain liable for all obligations and liabilities incurred by him as
General Partner prior to such Event of Withdrawal, but he shall be free of any
obligation or liability incurred on account of the activities of the
Partnership from and after the time of such Event of Withdrawal.
6.9 Effect of Event of Withdrawal.
Upon the withdrawal (by reason of death or otherwise) of a Partner the
Partnership shall not dissolve and the business of the Partnership shall be
continued by the remaining General Partners.
ARTICLE SEVEN
TRANSFERABILITY OF PARTNER INTERESTS
7.1 Restrictions on Transfer.
A. Each Partner agrees that he will not sell, pledge exchange, transfer
or assign his interest in the Partnership to any Person without the express
written consent of the Managing Partner.
B. Each Partner agrees that he will not sell or exchange any of his
interest in the Partnership if the interest sought to be sold or exchanged,
when added to the total of all other Partner interests sold or exchanged within
the period of 12 consecutive months prior thereto, would, in the opinion of
counsel for the Partnership, result in the Partnership being considered to have
been terminated within the meaning of Section 708 of the Internal Revenue Code
(or any successor statute).
C. Each Limited agrees that he will not sell, exchange, transfer or
assign any of his interest in the Partnership unless, if required by the
Partnership, the Partnership has received an opinion of counsel, satisfactory
to the Partnership, that such transfer or assignment may be effected without
registration of the Limited's interest under the Securities Act of 1933 or
under any applicable state securities law.
D. Except as otherwise expressly provided in this Agreement, the death or
withdrawal of a Partner shall terminate (as of such date) all his interest in
the Partnership and neither the estate of a deceased Partner nor any other
third party shall become or have any rights as a Partner.
E. Any sale, exchange, assignment or other transfer in contravention of
any of the provisions of this Section 7.1 shall be void and ineffectual and
shall not bind or be recognized by the Partnership.
7.2 Substituted Limited Partners.
No Limited shall have a power to grant the right to become a substituted
Limited to an assignee of any part of such Limited's Partnership Interest.
<PAGE> 104
ARTICLE EIGHT
DISTRIBUTIONS AND ALLOCATIONS
8.1 Distribution of Net Income.
A. All Net Income, if any, of the Partnership for each calendar year
(except for Net Income generated in any transaction in connection with the
dissolution and liquidation of the Partnership) shall be distributed in the
following order of priority:
(i) Each Limited Partner shall be paid at least annually (with respect
to such Limited Partner's Capital Contribution), from time to time, a total
amount of cash equal to the product of Net Income times a percentage,
calculated annually, which shall equal the product of the following three
factors: (a) one-fourth of one percent (.0025) multiplied by (b) the
quotient of $1,900,000 divided by the sum of the General Partners' Adjusted
Capital Contributions multiplied by (c) the quotient of the total Capital
Contribution of the respective Limited Partner divided by $25,000. This
calculation of percentage of participation shall be made at the end of each
calendar year and used in distributing Net Income earned during the
following year. Notwithstanding the foregoing, for the year 1987 each
Limited Partner shall be paid (with respect to such Limited Partner's
Capital Contribution) a total amount of cash equal to the product of Net
Income times a percentage which shall equal the product of the following
three factors: (a) one-fourth of one percent (.0025) multiplied by (b) the
quotient of $1,900,000 divided by $24,251,182 multiplied by (c) the
quotient of the total Capital Contribution of the respective Limited
Partner divided by $25,000.
(ii) Each Subordinated Limited Partner shall be paid, from time to
time, a total amount of cash in each year equal to the product of (a) the
then remaining Net Income times (b) a percentage derived by the following
formula: (x) 50% of the Capital Contribution of the Subordinated Limited
Partner (excluding any undistributed Net Income allocated to the
Subordinated Limited Partner) divided by (y) the sum of (aa) 50% of the
Capital Contributions of all the Subordinated Limited Partners plus (bb)
the Adjusted Capital Contributions of the General Partners (less any Net
Income allocated to the General Partners which is not scheduled to be
retained by the Partnership). In the event the Capital Contribution of a
Subordinated Limited Partner has been reduced by the operation of Section
8.1B hereof (the "Reduced Amount"), then each Subordinated Limited Partner
shall have right to make additional cash Capital Contributions to the
Partnership from any cash to be distributed to such Subordinated Limited
Partner pursuant to this Section 8.lA(ii) up to the Reduced Amount.
(iii) There shall be set apart a sum equal up to 8% of the remaining
Net Income. Of such 8%, if any is set apart, there shall be distributed
62.5% thereof among the General Partners on the basis of individual merit
as determined by the Managing Partner. Of such 8%, if any is set apart,
there shall be distributed 37.5% thereof among the General Partners on the
basis of individual need as determined by the Managing Partner.
<PAGE> 105
(iv) It is intended that a sum equal to 30% of the remaining Net
Income will be retained by the Partnership as capital and shall be credited
to the Adjusted Capital Contributions of the General Partners in a
proportion equal to their then respective General Partner Percentages.
Such amount shall not be withdrawn by the General Partners.
Notwithstanding the foregoing, the decision of whether to make this
retention of capital in accordance with this Section or whether to vary the
amount of capital to be retained in any given year, is vested in the
Managing Partner, and it is agreed that his decision in this matter shall
be final.
(v) The balance of the Net Income remaining, if any, shall be
distributed among the General Partners in proportions to their General
Partner Percentages.
B. In any year in which there is a Net Loss and the Partnership is not
dissolved and liquidated in accordance with Section 8.2 hereof, such Net Loss,
on the books of the Partnership, shall be borne by the Subordinated Limited
Partners to the extent as set forth in the formula described in Section
8.lA(ii) hereof and the balance shall be borne by the General Partners in
proportion to their respective General Partner Percentages. Any such Net
Losses borne by the Subordinated Limited Partners shall only be applied against
and reduce their respective Capital Contributions. The total amount of all
such Net Losses to be borne by the Subordinated Limited Partners may never
exceed the total amount of the Capital Contributions of the Subordinated
Limited Partners as shown on the books of the Partnership.
C. Notwithstanding the foregoing, where losses are caused by the willful
neglect or default, the gross negligent conduct, or the intentional negligent
conduct of any Partner, those net cash losses shall be borne solely and made
good by the Partner so causing the net cash loss.
D. Notwithstanding any other provision of this Agreement to the contrary,
the aggregate interest of the General Partners in each material item of
Partnership income, gain, loss, deduction, preference or credit shall be equal
to at least one percent (1%) of each such item at all times during the
existence of the Partnership.
8.2 Distributions Upon Dissolution.
A. Upon the dissolution of the Partnership as a result of the occurrence
of any of the events set forth in Section 2.4 hereof, the Managing Partner
shall proceed to liquidate the Partnership, and the proceeds of liquidation
(the "Proceeds of Liquidation") shall be applied and distributed in the
following order of priority:
(i) To the payment of debts and liabilities of the Partnership,
including the expenses of liquidation.
(ii) To the payment of any accrued but unpaid amounts due under
Section 8.1 hereof.
(iii) To the repayment of the Capital Contributions of the Limited
Partners.
(iv) To the repayment of the Capital Contributions of the
Subordinated Limited Partners.
<PAGE> 106
(v) To the repayment of the General Partners' Adjusted Capital
Contributions.
(vi) The balance of the Proceeds of Liquidation, if any, shall be
distributed to the General Partners in proportion to their respective
General Partner Percentages.
B. Notwithstanding the foregoing, in the event the Managing Partner shall
determine that an immediate sale of part or all of the Partnership assets would
cause undue loss to the Partners, the Managing Partner, in order to avoid such
loss, may, after having given Notice to all the Limiteds, either defer
liquidation of, and withhold from distribution for a reasonable time, any
assets of the Partnership except those necessary to satisfy the Partnership
debts and obligations, or distribute the assets to the Partners in kind.
C. Net Income generated by transactions in connection with the
dissolution and liquidation of the Partnership shall be allocated in accordance
with Section 8.2A hereof.
8.3 Distribution of Frozen Appreciation Amount.
Notwithstanding the provisions of Section 8.1 or 8.2 hereof, in the event
any tract of Real Estate or any Exchange Seat is sold, then there shall be
distributed from the net proceeds of such sale (prior to making any
distributions pursuant to the provisions of Section 8.1 or 8.2 hereof) to each
General Partner an amount equal to his Frozen Appreciation Amount with respect
to such tract of Real Estate or Exchange Seat. The balance of any proceeds
resulting from any such sale shall then be distributed in accordance with
Sections 8.1 or 8.2 hereof or shall otherwise be used or retained by the
Partnership as provided herein.
8.4 Sale of Assets to Third Party.
A. In the event the Partnership shall sell or otherwise dispose of, at
one time, all, or substantially all, of its assets (a "Sale") to any one Person
or to any one Person and its Affiliates and the Partnership is thereafter
liquidated within 180 days, then the provisions of this Section 8.4 shall be
applicable with respect to the order of priority of distribution of the
Proceeds of Liquidation.
B. For the purposes of this Section 8.4 the term "substantially all"
shall be deemed to mean assets of the. Partnership representing 80% or more of
the net book value of all of the Partnership's assets determined as of the end
of the most recently completed fiscal year.
C. Prior to making any payments to the General Partners pursuant to
Section 8.2A(vi) hereof (but after making all other payments required by
Section 8.2A and all payments required by Section 8.3 hereof) the Partnership
shall distribute: (i) to the Limited Partners a percentage of the Premium (as
hereinafter defined) equal to the same percentage of the Net Income of the
Partnership which the Limited Partners shall receive (pursuant to Section 8.lA
hereof) from the Partnership for the current fiscal year of the Partnership;
and (ii) to the Subordinated Limited Partners an amount equal to the product of
the Premium (remaining after the payment required by Section 8.4C(i) hereof)
times a fraction the numerator of which is the total Capital Contributions of
the Subordinated Limited Partners (on the date of the Sale) and the denominator
of which is (X) the total Capital Contributions of the Subordinated Limited
<PAGE> 107
Partners (on the date of the Sale) plus (Y) the total of the Adjusted Capital
Contributions of the General Partners (on the date of the Sale).
D. "Premium" means the Proceeds of Liquidation remaining after the
payment of the items set forth in Sections 8.2A(i), (ii), (iii), (iv) and (v)
hereof.
E. Any amounts payable to the Limiteds pursuant to this Section 8.4 shall
be disbursed pro-rata to the Limiteds based on their Capital Contributions on
the date of the Sale.
F. Neither the Partnership nor the General Partners shall have any
obligation to cause a Sale to occur.
8.5 Other Sales or Dispositions to Third Party.
In the event the Partnership, in a transaction (dealing with all or
substantially all of the business of the Partnership) not covered by Section
8.4 hereof (but similar in scope to such a transaction), sells assets, merges
or has a public offering, it is hereby stated that it is the intention of the
General Partners that the Limiteds shall share in any "profit" or "premium"
recognized from such transaction. Because it is impossible at this time to
foresee all possible factual situations that may occur with respect to a given
transaction, it is equally impossible to determine a fair, just and equitable
formula at this time to distribute a portion such "profit" or "premium" to the
Limiteds. It is stated, however, at this time, as a matter of policy of the
Partnership that it is the intention of the General Partners to allow the
Limiteds to share a portion of such "profit" or "premium" (assuming any
"profit" or "premium" is also actually distributed to the General Partners) in
a fair, just and equitable manner in.such amount, if any, as determined in the
sole and absolute discretion of the Managing Partner at the time of such
transaction. In making such determination of such amount, if any, the Managing
Partner shall not be bound by the formula set forth in Section 8.4 hereof.
Neither the Partnership nor the General Partners shall have any obligation,
however, to cause such transaction to occur and no Limited shall have any right
to bring any cause of action against the Partnership or its General Partners by
reason of any statement made in this Section 8.5.
8.6 Allocation of Profits and Losses for Tax Purposes.
A. Except as provided in Sections 8.6B, C or D hereof, all Profits And
Losses For Tax Purposes of the Partnership shall be allocated as follows:
(i) In any calendar year in which the Partnership has a net profit for
tax purposes, to the Partners with each Partner sharing therein in the
proportion that Net Income distributed to the Partner and/or credited to
the Adjusted Capital Contribution of the Partner bears to all Net Income of
the Partnership for the calendar year.
(ii) In any calendar year in which the Partnership has a net loss
for tax purposes, first to the Subordinated Limited Partners with each
Subordinated Limited Partner bearing an amount of loss to the extent set
forth in the formula described in Section 8.lA(ii) hereof; provided,
however, that the total amount of losses allocated to a Subordinated
Limited Partner shall not reduce such Partner's Capital Account below zero
(determined after taking into account all prior or contemporaneous cash
distributions and all prior or
<PAGE> 108
contemporaneous allocations of income, gain, loss, deduction or credit and
as determined at the close of the taxable year in respect of which such
loss or deduction is to be allocated); and any remaining losses shall be
allocated to the General Partners in proportion to their respective General
Partner percentages.
B. The Managing Partner is authorized to allocate Profits and Losses For
Tax Purposes arising in any calendar year differently than otherwise provided
for in this Section 8.6 to the extent that the Managing Partner determines, in
his discretion, that such modifications are appropriate to cause the
allocations to comply with the principles of Section 704 of the Internal
Revenue Code and such modifications are in the overall best interests of the
Partners. Any allocation made pursuant to this Section 8.6B shall be deemed to
be a complete substitute for any allocation otherwise provided for in this
Article Eight and no amendment of this Agreement or approval of any Partner
shall be required.
C. Notwithstanding any other provisions of this Agreement to the
contrary, if the amount of any Partnership Minimum Gain at the end of any
taxable year is less than the amount of such Partnership Minimum Gain at the
beginning of such taxable year, there shall be allocated to any Partner having
a negative Capital Account at the end of such taxable year (determined after
taking into account any adjustments, allocations and distributions described in
Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and (6)) gross
income and gain (in respect of the current taxable year and any future taxable
year) in an amount sufficient to eliminate such negative Capital Account in
compliance with Treasury Regulations Section 1.704-1(b)(4)(iv)(e). Such
allocation of gross income and gain shall be made prior to any other allocation
of profits and losses for tax purposes. Any such allocation of gross income or
gain pursuant to this Section 8.6C shall be in proportion with such negative
Capital Accounts of the Partners and such allocations of gross income and gain
shall be taken into account, to the extent feasible, in computing subsequent
allocations of Profits and Losses For Tax Purposes of the Partnership so that
the net amount of all items allocated pursuant to each Partner pursuant to this
Article Eight shall, to the extent possible, be equal to the net amount that
would have been allocated to each such Partner pursuant to the provisions of
this Article Eight if the allocations made pursuant to the first sentence of
this Section 8.6C had not occurred.
D. Notwithstanding any other provisions of this Agreement to the
contrary, except as provided in Section 8.6C hereof, if any Limited Partner or
Subordinated Limited Partner receives any adjustment, allocations, or
distributions described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) that reduces such Partner's Capital Account
below zero or increases the negative balance in such Partner's Capital Account,
gross income and gain shall be allocated to such Partner in an amount and
manner sufficient to eliminate any negative balance in his Capital Account
created by such adjustments, allocations, or distributions as quickly as
possible in accordance with Treasury Regulations Section 1.704-1(b)(2)(ii)(d).
Any such allocation of gross income or gain pursuant to this Section 8.6D shall
be in proportion with such negative Capital Accounts of such Partners. Any
allocations of items of gross income or gain pursuant to this Section 8.6D
shall (i) not duplicate any allocations of gross income or gain made pursuant
to Section 8.6C hereof, and (ii) be taken into account, to the extent feasible,
in computing subsequent allocations of Profits and Losses For Tax Purposes of
the Partnership, so that the net amount of all items allocated to each Limited
Partner and Subordinated Limited Partner pursuant to this Article Eight shall,
to the extent possible, be equal to the net amount that would have been
<PAGE> 109
allocated to each such Partner pursuant to the provisions of this Article Eight
if such adjustments, allocations or distributions had not occurred.
E. If and to the extent upon dissolution of the Partnership pursuant to
Section 2.4 hereof the allocations under Section 8.6A are inconsistent with the
following provision, then such allocations shall be adjusted to conform to the
following provision: income and gain (whether ordinary income, gain under
Section 1231 of the Internal Revenue Code, or capital gain) from disposition of
all remaining Partnership assets shall be allocated among the Partners so that
the positive balance of each Partner's Capital Account is equal to the cash to
be distributed to such Partner pursuant to Article 8.2 determined after all
Capital Accounts have been adjusted to reflect the allocations of Profits and
Losses For Tax Purposes of the Partnership and cash distributions made pursuant
to Section 8.1 hereof.
ARTICLE NINE
BOOKS, RECORDS AND REPORTS,
ACCOUNTING, TAX ELECTIONS, ETC.
9.1 Books, Records and Reports.
A. Proper and complete records and books of account shall be kept (or
caused to be kept) by the Managing Partner in which shall be entered all
transactions and other matters relative to the Partnership's business. The
Partnership's books and records shall be prepared in accordance with generally
accepted accounting principles, consistently applied. The books and records
shall at all times be maintained at the principal office of the Partnership and
shall be open for examination and inspection by the Partners or by their duly
authorized representatives during reasonable business hours. In particular,
the following books and records shall be kept:
(i) a current list and a past list of the full name and last known
mailing address of each Partner, specifying the General Partners and the
Limited Partners and the Subordinated Limited Partners, in alphabetical
order, including the date of admission or withdrawal of each Partner. To
the extent provided by the Missouri Act, these lists shall be provided to
the Secretary of State of Missouri, without cost, upon his written request;
(ii) a copy of the Certificate of Limited Partnership and all
Certificates of Amendment thereto, together with executed copies of any
Powers of Attorney pursuant to which any Certificate has been executed;
(iii) copies of the Partnership's federal, state and local income
tax returns and reports, if any, for the three most recent fiscal years;
and
(iv) copies of any written Partnership Agreements in effect and any
financial statements of the Partnership for the three most recent years.
B. The Managing Partner shall have prepared at least annually, at the
Partnership's expense, financial statements (balance sheet, statement of income
or loss, partners' equity, and changes in financial position) prepared in
accordance with generally accepted accounting principles which shall fairly
reflect the Partnership's financial position at the date ' shown and its
<PAGE> 110
results of operations for the period indicated. Copies of such statements and
report shall be made available to the Partners annually.
C. The Managing Partner shall have prepared at least annually, at the
Partnership's expense, a report containing Partnership information necessary in
the preparation of the Partners' federal income tax returns. Copies of such
report shall be distributed to each Partner as promptly as possible.
9.2 Bank Accounts.
The bank accounts of the Partnership shall be maintained in such banking
institutions as the Managing Partner shall determine, and withdrawals shall be
made only in the regular course of Partnership business on such signature or
signatures as the Managing Partner may determine.
9.3 Depreciation and Elections.
A. All elections required or permitted to be made by the Partnership
under the Internal Revenue Code shall be made by the Managing Partner.
B. Notwithstanding anything to the contrary in this Section 9.3, the
Managing Partner shall not be responsible for initiating any change in
accounting methods from the methods initially chosen.
C. The Managing Partner is hereby designated as the "Tax Matters Partner"
under Section 6231(a)(7) of the Internal Revenue Code.
9.4 Fiscal Year.
The fiscal year of the Partnership shall be the calendar year for tax
purposes.
ARTICLE TEN
GENERAL PROVISIONS
10.1 Appointment of Attorneys-in-Fact.
A. Each Partner, by the execution hereof, hereby irrevocably constitutes
and appoints John W. Bachmann, Lawrence R. Sobol, and the then Managing Partner
(at any time the Managing Partner is not John W. Bachmann), his true and lawful
attorney-in-fact, and each of them, with full power and authority in his name,
place and stead, to execute or acknowledge under oath, deliver, file and record
at the appropriate public offices such documents as may be necessary or
appropriate to carry out the provisions of this Agreement including:
(i) All certificates and other instruments (including this Agreement
or any certificate of limited partnership and any amendment thereof) which
the Managing Partner deems appropriate to qualify or continue the
Partnership as a limited partnership under the Missouri Act (or a
partnership in which the Limited Partners will have limited liability
comparable to that provided by the Missouri Act) or under the laws of any
other jurisdiction in which the Partnership may conduct business;
(ii) All amendments to this Agreement or any certificate of limited
partnership which are required to be filed or which the Managing Partner
deems to be advisable to file;
<PAGE> 111
(iii) All instruments which the Managing Partner deems appropriate
to reflect a change or modification of the Partnership in accordance with
the terms of this Agreement;
(iv) All conveyances and other instruments which the Managing
Partner deems appropriate to reflect the dissolution and termination of the
Partnership; and
(v) All other instruments, documents or contracts (including, without
limiting the foregoing, any deed, lease, mortgage, note, bill of sale,
contract, trust agreement, guarantee, partnership agreement, indenture,
underwriting agreement or any instrument or documentation which may be
required to be filed (or which the Managing Partner deems advisable to
file) by the Partnership under the laws of any state or by any governmental
agency) requisite to carrying out the intent and purpose of this Agreement
and the business of the Partnership and its Affiliates.
B. The appointment by all Limited Partners of John W. Bachmann, Lawrence
R. Sobol, and the then Managing Partner (at any time the Managing Partner is
not John W. Bachmann), as attorney-in-fact, and each of them, shall be deemed
to be a power coupled with an interest in recognition of the fact that each of
the Partners under this Agreement will be relying upon the power of John W.
Bachmann, Lawrence R. Sobol, and the then Managing Partner (at any time the
Managing Partner is not John W. Bachmann), and each of them, to act as
contemplated by this Agreement in any filing and other action by them on behalf
of the Partnership. The foregoing power of attorney shall survive the death,
disability or incompetency of a Partner or the assignment by any Partner of the
whole or any part of its interest hereunder.
10.2 Word Meanings.
The words such as "herein", "hereinafter", "hereof", and "hereunder" refer
to this Agreement as a whole and not merely to a subdivision in which such
words appear unless the context otherwise requires. The singular shall include
the plural and the masculine gender shall include the feminine and neuter, and
vice versa, unless the context otherwise requires.
10.3 Binding Provisions.
The covenants and agreements contained herein shall be binding upon, and
inure to the benefit of the heirs, executors, administrators, successors and
assigns of the respective parties hereto.
10.4 Applicable Law.
This Agreement shall be construed and enforced in accordance with the laws
of the State of Missouri.
10.5 Counterparts.
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart,
except that no counterpart shall be binding unless signed by the Managing
Partner.
<PAGE> 112
10.6 Entire Agreement.
This Agreement contains the entire agreement between the parties and
supersedes all prior writings or representations.
10.7 Separability of Provisions.
Each provision of this Agreement shall be considered separable and if for
any reason any provision or provisions hereby are determined to be invalid or
unenforceable such validity or unenforceability shall not impair the operation
of or affect any other portion of this Agreement and this Agreement shall be
construed in all respects as if such invalid or unenforceable provision was
omitted.
10.8 Representations.
Each person who becomes a Limited hereunder does hereby represent and
warrant by the signing of a counterpart of this Agreement or an amendment to
this Agreement that the Partnership interest acquired by him was acquired for
his own account, for investment only, not for the interest of any other person
and not for resale to other persons or for further distribution. The Managing
Partner has not made and hereby makes no warranties or representations other
than those specifically set forth in this Agreement.
10.9 Section Titles.
Paragraph titles are for descriptive purposes only and shall not control or
alter the meaning of this Agreement as set forth in the text.
10.10 Partition
The Partners agree that the Partnership's assets are not and will not be
suitable for partition. Accordingly, each of the Partners hereby irrevocably
waives any and all right he may have to maintain any action for partition of
any of the Partnership's assets.
10.11 No Third Party Beneficiaries
This Agreement is made solely and specifically for the benefit of the
Partners and their respective successors and permitted assigns, and no other
person whatsoever shall have any rights, interests or claims hereunder or be
entitled to any benefits hereunder or on account of this Agreement as a third
party beneficiary or otherwise.
10.12 Arbitration
Any dispute hereunder shall be settled by arbitration in St. Louis County,
Missouri, in accordance with the Code of Arbitration Procedure of the National
Association of Securities Dealers, Inc., as then in effect. The parties
consent to the jurisdiction of the Supreme Court of the State of Missouri and
of the United States District Court for the Eastern District of the State of
Missouri for all purposes in connection with arbitration. The award entered by
the arbitrator(s) shall be final and binding on all parties to the arbitration.
Each party shall bear its respective arbitration expenses and shall each pay
fifty percent (50%) of the arbitrator's charges and expenses.
<PAGE> 113
10.13 Amendments.
In addition to the amendments otherwise authorized herein, this Agreement
may be amended, from time to time, without the consent or approval of (and
without prior notice to) any Limited, by the Managing Partner or by the
affirmative vote of General Partners.holding an aggregate of at least a
majority of the total General Partner Percentages. In particular, but without
limiting the foregoing, the interests of the Limited Partners and the
Subordinated Limited Partners in the Net Income or the Proceeds of Liquidation
of the Partnership or in any other allocation or distribution to be received by
them from the Partnership pursuant to Article Eight hereof or otherwise may be
reduced or increased or otherwise modified in accordance with this Section
10.13 without the consent or approval of (and without prior notice to) any
Limited.
10.14 Revocable Trusts.
Notwithstanding anything to the contrary herein contained, it is recognized
that certain of the Partners are not persons but are revocable trusts
("Trusts"), the grantors of which ("Grantors"), except for the transfer of
their partnership interests to (or the designation of) such Trusts created by
them, would be the Partners. Thus, when used herein the phrases "General
Partner", "Limited Partner", "Limited", "Partner" or "Subordinated Limited
Partner" shall be deemed, when the context hereof so requires (such as, without
limiting the generality of the foregoing, death, disability or withdrawal of a
Partner, gross negligent conduct of a General Partner, a General Partner
receiving a guaranteed draw for services rendered, General Partner required
submission of tax returns, sale by a General Partner of Retiring Interests
after his 56th birthday) to be a reference to the Grantor of such Trust. In
addition, to the extent that any General Partner has obligations or liabilities
imposed upon such General Partner pursuant to this Agreement, then, if such
General Partner is a Trust, such General Partner, by such General Partner's
signature hereto (and the Grantor of such Trust by such Grantor's signature
hereto), hereby agrees that said obligations and liabilities are also
obligations and liabilities of such Grantor.
IN WITNESS WHEREOF, the undersigned has executed this Sixth Amended and
Restated Agreement of Limited Partnership as of the day and year first above
written.
GENERAL PARTNER:
/S/ JOHN W. BACHMANN
---------------------------------------------
John W. Bachmann
GENERAL PARTNERS AS SHOWN IN
THE BOOKS AND RECORDS OF THE
PARTNERSHIP*
*By /S/ JOHN W. BACHMANN
-----------------------------------------
John W. Bachmann
Attorney-In-Fact
<PAGE> 114
LIMITED PARTNERS AS SHOWN IN THE
BOOKS AND RECORDS OF THE PARTNERSHIP*
*By /S/ JOHN W. BACHMANN
-----------------------------------------
John W. Bachmann
Attorney-In-Fact
SUBORDINATED LIMITED PARTNERS AS
SHOWN IN THE BOOKS AND RECORDS OF
THE PARTNERSHIP*
*By /S/ JOHN W. BACHMANN
-----------------------------------------
John W. Bachmann
Attorney-In-Fact
<PAGE> 115
No person has been authorized to give any information or to make any
representation, other than those contained in this Prospectus, in connection
with the offer contained herein and, if so given or made, such information or
representation must not be relied upon as having been authorized by JFC. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities that are covered by this Prospectus in any jurisdiction
to any person to whom it is unlawful to make such offer or solicitation. The
delivery of this Prospectus and the sale of any securities hereunder shall not
imply that the information contained herein is correct at any time subsequent
to the respective dates at which information is given herein or the date
hereof.
------------------------------
TABLE OF CONTENTS
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE. . . . . . . . . . . . . . . 7
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
RECENT DEVELOPMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
DESCRIPTION OF INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . 43
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
GLOSSARY OF TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . 57
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Appendix C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
45,000 Units
THE JONES FINANCIAL
COMPANIES, A LIMITED
PARTNERSHIP
Limited Partnership Interests
------------------------------
PROSPECTUS
------------------------------
July _____, 1995
<PAGE> 116
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the Interests offered hereby, all of which
will be paid by JFC:
<TABLE>
<S> <C>
Registration Fee.................................... $15,518
Printing Expenses................................... <F1>
Legal Fees and Expenses............................. <F1>
Accounting Fees and Expenses........................ <F1>
Blue Sky Fees and Expenses.......................... <F1>
Miscellaneous....................................... <F1>
-------
TOTAL........................................... $ <F1>
---------------
<FN>
<F1> To be provided by amendment
</TABLE>
Item 15. Indemnification of Directors and Officers.
Section 4.7 of the Partnership Agreement provides as follows:
"Neither the Managing Partner nor any General Partner shall be liable,
responsible or accountable in damages to any of the Partners for, and the
Partnership shall indemnify and save harmless the Managing Partner and any
General Partner from any loss or damage incurred by reason of, any act or
omission performed or omitted by him in good faith on behalf of the Partnership
and in a manner reasonably believed by him to be within the scope of the
authority granted to him by this Agreement and in the best interests of the
Partnership, provided that the Managing Partner or the General Partner shall
not have been guilty of gross negligence or gross misconduct with respect to
such acts or omissions and, further, provided that the satisfaction of any
indemnification and any saving harmless shall be paid out of and limited to
Partnership assets and no Partner shall have any personal liability on account
thereof."
Item 16. Exhibits.
No. Description
- --- ----------------------------------------------------------------------
4.1 Sixth Amended and Restated Limited Partnership Agreement of The Jones
Financial Companies, a Limited Partnership dated as of October 1, 1993
(included as Appendix C to the Prospectus).
5.1 Opinion of Bryan Cave LLP regarding legality *
<PAGE> 117
8.1 Opinion of Bryan Cave LLP regarding tax matters *
10.1 Form of Cash Subordination Agreement between the Registrant and
Edward D. Jones & Co., incorporated herein by reference to
Exhibit 10.1 to the Partnership's registration statement of
Form S-1 (Reg. No. 33-14955).
10.2 Note Purchase Agreement between Tempus Corporation and Edward D.
Jones & Co., L.P. dated as of March 15, 1988, incorporated herein
by reference to Exhibit 10.1 to the Partnership's Quarterly Report
on Form 10-Q for the quarter ended March 25, 1988.
10.3 Complaint for Permanent Injunction and Other Equitable Relief and
Final Judgment of Permanent Injunction in re: SEC v. Edward D.
Jones & Co. (U.S. Dist. Ct. for Dist. of Columbia; Civil Action
No. 85-3078), incorporated herein by reference to Exhibit 10(i) to
the Partnership's current report on Form 8-K dated September 24,
1985.
10.4 Volume Discount Agreement dated May 27, 1987, between Digital
Equipment Corporation and Edward D. Jones & Co., incorporated
herein by reference to Exhibit 10.13(c) to the Partnership's
registration statement on Form S-1 (Reg. No.33-14955).
10.5 Master Lease Agreement dated as of May 29, 1987, between Digital
Equipment Corporation and Edward D. Jones & Co., incorporated
herein by reference to Exhibit 10.13(b) to the Partnership's
registration statement on Form S-1 (Reg. No. 33-14955).
10.6 Master Lease Agreement dated as of October 17, 1988, between
Edward D. Jones & Co., L.P., and BancBoston Leasing, incorporated
herein by reference to Exhibit 10.1 to the Partnership's Annual
Report on Form 10-K for the year ended September 30, 1988.
10.16 Satellite Communications Agreement dated as of September 12, 1988,
between Hughes Network Systems and Edward D. Jones & Co., L.P.,
incorporated herein by reference to Exhibit 10.1 to the
Partnership's Annual Report on Form 10-K for the year ended
September 30, 1988.
10.18 Agreements of Lease between EDJ Leasing Company and Edward D.
Jones & Co., L.P., dated August 1, 1991, incorporated herein by
reference to Exhibit 10.18 to the Partnership's Annual Report or
Form 10-K for the year ended September 27, 1991.
10.20 Edward D. Jones & Co., L.P. Note Purchase Agreement dated as of
May 8, 1992, incorporated herein by reference to Exhibit 10.1 to
the Partnership's Quarterly Report on Form 10-Q for the quarter
ended June 26, 1992.
10.21 Purchase and Sale Agreement by and between EDJ Leasing Co., L.P.
and the Resolution Trust Corporation, incorporated herein by
reference to Exhibit 10.21 to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1992.
<PAGE> 118
10.22 Master Lease Agreement between EDJ Leasing Company and Edward D.
Jones & Co., L.P., dated March 9, 1993, and First Amendment to
Lease dated March 9, 1994, incorporated herein by reference to
Exhibit 10.22 to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1994.
10.23 Purchase Agreement by and between Edward D. Jones & Co., L.P. and
Genicom Corporation dated November 25, 1992, incorporated herein
by reference to Exhibit 10.23 to the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1994.
10.24 Mortgage Note and Deed of Trust and Security Agreement between EDJ
Leasing Co., L.P. and Nationwide Insurance Company dated March 9,
1993, incorporated herein by reference to Exhibit 10.24 to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.25 Mortgage Note and Amendment to Deed of Trust between EDJ Leasing
Co., L.P. and Nationwide Insurance Company dated March 9, 1994,
incorporated herein by reference to Exhibit 10.25 to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994.
10.26 Mortgage Note; Dead of Trust and Security Agreement; Assignment of
Leases, Rents and Profits; and Subordination and Attornment
Agreement between EDJ Leasing Co., L.P. and Nationwide Insurance
Company dated April 6, 1994, incorporated by reference to Exhibit
10.1 to the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 25, 1994.
10.27 Note Purchase Agreement by Edward D. Jones & Co., L.P., for
$92,000,000 aggregate principal amount of 7.95% subordinated
capital notes due April 15, 2006, incorporated herein by reference
to Exhibit 10.1 to the Partnership's Quarterly Report on Form 10-Q
for the quarter ended June 24, 1994.
10.28 Equipment Lease Agreement between IFA Incorporated and Edward D.
Jones & Company, L.P., dated June 8, 1994, incorporated herein by
reference to Exhibit 10.2 to the Partnership's Quarterly Report on
Form 10-Q for the quarter ended June 24, 1994.
10.29 Master Lease Agreement and Addendum by and between Edward D. Jones
& Co., L.P. and General Electric Capital Corporation dated April
21, 1994, incorporated herein by reference to Exhibit 10.3 to the
Partnership's Quarterly Report on Form 10-Q for the quarter ended
June 24, 1994.
10.30 Equipment Lease by and between Edward D. Jones & Co., L.P., and
EDJ Leasing Co., L.P. dated April 1, 1994, incorporated herein by
reference to the Partnership's Quarterly Report on Form 10-Q for
the quarter ended June 24, 1994.
10.31 $8,200,000 Promissory Note to Commerce Bank National Association
by EDJ Leasing Co., L.P., dated April 5, 1994, incorporated herein
by reference to Exhibit 10.5 to the Partnership's Quarterly Report
on Form 10-Q for the quarter ended June 24, 1994.
<PAGE> 119
10.32 Agreement and Plan of Acquisition between The Jones Financial
Companies and Boone National Savings and Loan Association, F.A.,
incorporated herein by reference to Exhibit 10.1 to the
Partnership's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
10.33 Credit Agreement between EDJ Leasing Co., L.P. and Southtrust Bank
of Alabama, N.A. dated October 26, 1994, incorporated herein by
reference to Exhibit 10.33 to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.34 Master Lease Agreement between EDJ Leasing Company and Edward D.
Jones & Co., L.P. dated October 26, 1994, incorporated herein by
reference to Exhibit 10.34 to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.35 Lease Financing Line of Credit Agreement and Term Note Agreement
between EDJ Leasing Co., L.P. and Enterprise Bank dated
December 6, 1994, incorporated herein by reference to
Exhibit 10.35 to the Partnership's Annual Report on Form 10-K for
the year ended December 31, 1994.
10.36 Master Lease Agreement between EDJ Leasing Co. and Edward D. Jones
& Co. L.P., dated December 6, 1994, incorporated herein by
reference to Exhibit 10.36 to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.37 Purchase Agreement by and between Edward D. Jones & Co., L.P. and
Tektronix Inc. dated February 28, 1995, incorporated herein by
reference to Exhibit 10.37 to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1994.
10.38 Loan Agreement between Edward D. Jones & Co., L.P. and Boatmen's
Bank dated April 28, 1995, incorporated herein by reference to
Exhibit 10.1 to the Partnership's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1995.
10.39 1995 Employee Limited Partnership Interest Purchase Plan of The
Jones Financial Companies, a Limited Partnership
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Bryan Cave LLP (included in Exhibits 5.1 and 8.1)
24.1 Power of Attorney (included on Signature Page)
- ---------------
* To be filed by amendment
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
<PAGE> 120
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the County of St. Louis, State of Missouri, on July 14, 1995.
THE JONES FINANCIAL COMPANIES,
A LIMITED PARTNERSHIP
By /S/ JOHN W. BACHMANN
-----------------------------------------
John W. Bachmann, Managing Partner
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John W. Bachmann, Steven Novik and Lawrence R.
Sobol, and each of them, his true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and any other
documents and instruments incidental thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents and/or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/S/ JOHN W. BACHMANN
- ---------------------------------- Managing Partner July 14, 1995
John W. Bachmann
/S/ STEVEN NOVIK
- ---------------------------------- Chief Financial Officer July 14, 1995
Steven Novik
<PAGE> 1
EXHIBIT 10.39
THE JONES FINANCIAL COMPANIES,
a Limited Partnership
1995 EMPLOYEE LIMITED PARTNERSHIP INTEREST PURCHASE PLAN
1. Title
This plan (the "Plan") shall be known as the "1995 Employee Limited
Partnership Interest Purchase Plan of The Jones Financial Companies, a Limited
Partnership". The Jones Financial Companies, a Limited Partnership ("JFC"), is
a Missouri limited partnership with its principal offices located at 12555
Manchester Road, Des Peres, Missouri 63131.
2. Purpose
The purpose of the Plan is to provide certain employees of JFC and its
subsidiaries (as hereinafter defined) (the "Participants") an opportunity to
acquire limited partnership interests (the "Interests") in JFC. The purchase
price of each full Interest shall be $1,000. As used herein, "subsidiaries"
includes any partnerships (general or limited) all the partnership interests of
which are owned, directly or indirectly, by JFC.
3. Participants
Participants in the Plan shall be employees of JFC and its
subsidiaries as selected by the Plan committee (the "Committee") of JFC, in its
discretion, to be personnel important to the growth of JFC and its
subsidiaries.
4. Interests Covered by the Plan
The total number of Interests covered by the Plan shall be 45,000
($45,000,000). This number of Interests shall be adjusted to reflect any
subsequent Interest splits, reverse Interest splits or similar matters
affecting the number of outstanding Interests of JFC. Interests not exceeding
this number may be sold to Participants by JFC. In the event any award of
purchase rights of Interests is cancelled or expired on account of the
termination of a Participant's employment, lapse of time, failure to exercise
by a Participant, or for any other reason, the Committee may again award the
purchase rights of the Interest so cancelled to an existing or new Participant.
5. Performance Awards - Description
The Committee may, in its discretion, award all or any part of the
Interests covered by the Plan to a Participant pursuant to a performance award
("Performance Award"). Interests shall not be issued at the time the
Performance Award is granted. The Performance Award shall represent the right
of the Participant to purchase the number of Interests from JFC described
therein within the time period specified by the Committee. The purchase price
of each full Interest shall be $1,000 payable by the Participant at the time
the Interests are purchased as provided in Section 7 hereof. Performance
Awards may be conditioned on the Participant's continued employment by JFC, or
its subsidiaries, or in any other manner the Committee may determine. Prior to
exercise of a Performance Award by a Participant, such Performance Award may be
cancelled by the Committee in its sole discretion.
<PAGE> 2
6. Performance Awards - Granting
Performance Awards shall be granted as follows:
a. Initial Performance Awards. After approval of this Plan by the
Managing Partner of JFC, the Committee will meet to establish the initial
Participants and the amount, duration and other terms, if any, of the initial
Performance Awards. In making its determination of who shall be Participants
and the amount, duration and other terms of each Performance Award, the
Committee shall take into account such factors as the Participant's level of
responsibility, job performance, potential for growth, level and types of
compensation and such other factors as the Committee deems relevant.
b. Subsequent Performance Awards. During the term of the Plan,
additional Performance Awards may be granted (subject to the maximum number of
Interests provided for above) in the discretion of the Committee, either (i) to
new Participants in the Plan or (ii) to prior Participants in the Plan.
c. Notice of Performance Awards. Upon granting of any Performance
Awards by the Committee, the Participant shall be advised as to the amount,
duration and other terms of the Performance Award.
7. Payment by Participants
As designated by the Performance Award, a Participant shall pay for
the Interests awarded to such Participant in cash within the time period
established by the Committee for the exercise of such Performance Award or such
Participant shall forfeit his right to purchase such Interests.
8. Purchase Date
After a Participant's funds are received by JFC, such funds will be
used to purchase the Participant's Interests from JFC on the date specified in
the Performance Award or as otherwise determined by the Committee. Any
Participant not already a limited partner of JFC will become a limited partner
of JFC on the purchase date.
9. Reports
As soon as practicable after each purchase of Interests by a
Participant, such Participant will receive a statement of purchase.
10. Termination
A Participant's participation in the Plan may be terminated by the
Committee at any time.
11. Costs of Administering Plan
All costs and expenses of administering the Plan will be paid by JFC.
12. Committee Membership; Authority
The Plan shall be administered by the Committee consisting of one or
more general partners of JFC, which may include the Managing Partner, appointed
to the Committee by the Managing Partner of JFC. The Committee may consist of
only one general partner of JFC. The Committee shall have authority to
interpret the Plan, to establish any rules or regulations relating to the Plan
<PAGE> 3
which it deems appropriate and to make other determinations which it believes
necessary and advisable for the proper administration of the Plan. Decisions
of the Committee in matters relating to the Plan shall be final and conclusive
on JFC and all Participants. The Committee's determinations under the Plan,
including, without limitation, determinations as to employees to receive
Performance Awards, the amount, duration and other terms and provisions of such
awards and the agreements evidencing the same, need not be uniform. Members of
the Committee shall not be eligible to participate in the Plan. A member of
the Committee shall be liable only for any action taken or determination made
in bad faith. The Committee shall determine (i) the employees, if any, to whom
Performance Awards shall be granted, (ii) the time or times of which such
Performance Awards shall be granted, (iii) the amount and duration of the
Performance Awards, and (iv) the limitations, restrictions, conditions and
other terms applicable to such Performance Awards.
13. Amendments and Termination of the Plan
JFC reserves the right against any or all employees, including those
who may be Participants under this Plan, to amend the Plan at any time either
retroactively or prospectively and to terminate or suspend the Plan or any
Performance Award at any time for any reason.
14. Non-Assignability
Performance Awards under the Plan are non-transferable and may not be
assigned or pledged by any Participant at any time and no recognition shall be
required to be given by JFC to any attempt to assign any rights hereunder.
15. Effective Date
The effective date of this Plan is August _____, 1995.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of the
Registration Statement on Form S-2 concerning 45,000 units of limited
partnership interests of The Jones Financial Companies, a Limited Partnership.
/S/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri
July 13, 1995
