As Filed with the Securities and Exchange Commission on October
16, 1996.
Registration Statement No. 33-37802
=================================================================
SECURITIES AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 5
TO
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES
ACT OF 1933
- -----------------------------------
CERES FUND,
L.P.
(Exact name of registrant as
specified in its charter)
TENNESSEE
(State of
Incorporation)
6799
(Primary Standard Industrial
Classification Code Number)
62-1444129
(IRS Employer
Identification Number)
889 Ridge Lake Blvd.,
Memphis, Tennessee 38120
(901)
766-4590
(Address, including zip code, and
telephone number, including
area code, of
registrant's principal offices)
Frank L.
Watson, Jr.
Randell Commodity
Corporation
889 Ridge
Lake Blvd.
Memphis,
Tennessee 38120
(901)
766-4590
(Name, address, including zip
code, and telephone number,
including area code, of
agent for service)
- ------------------------------
Copies
to:
SAMUEL D.
CHAFETZ
ROGER S.
WOODMAN
Waring
Cox, PLC
50 North
Front Street
Suite
1300
Memphis,
Tennessee 38103
(901)
543-8000
- ------------------------------
September
27, 1996
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]
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 there-
after become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
CERES FUND,
L.P.
Cross Reference Sheet
Pursuant to Item 501(b) of
Regulation S-K between Part I
of Form S-1 and Prospectus
Location
Item
in
No. Description in Form S-1
Prospectus
- ---- -----------------------
----------
1. Forepart of Registration Statement
Outside Front Cover
Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover
Inside Front Cover
Pages of Prospectus
3. Summary Information, Risk Factors
Summary of the
and Ratios of Earnings to Fixed
Prospectus; Risk
Charges
Factors; Conflicts
of Interest; The
Partnership
4. Use of Proceeds
Use of Proceeds;
Trading Approach
5. Determination of Offering Price
Plan of Distribution
6. Dilution
Not Applicable
7. Selling Security Holders
Not Applicable
8. Plan of Distribution
Suitability of
Investment and
Qualification of
Investors; Plan of
Distribution;
Subscription
Procedure; Purchases
by Employee Benefit
Plans
9. Description of the Securities to be
Distribution to
Registered
Partners; Allocation
of Profits and
Losses; Redemptions;
The Partnership
Agreement
10. Interests of Named Experts and Counsel
Legal Opinions;
Experts
11. Information with Respect to Registrant
Summary of the
Prospectus;
Investment Factors;
Description of
Charges to the Part-
nership; Capitali-
zation; The Trading
Advisor; The Futures
Commission Merchant;
Trading Approach;
Glossary of Terms
and Definitions;
Commodity Futures
Markets; Adjusted
Asset Value and Net
Asset Value;
Financial
Statements; Certain
Federal Income Tax
Aspects
12. Disclosure of Commission Position
Not Applicable
on Indemnification for Securities
Act Liabilities
CERES FUND,
L.P.
100,000 Units of Limited
Partnership Interest
Offered at Average Net Asset
Value per Unit plus 4%
This Prospectus of Ceres Fund, L.P. (the "Partnership"),
amends and restates the previous Prospectus of the Partnership
dated August 22, 1994, in its entirety and in particular
discloses certain financial information on the Partnership, the
General Partners at December 31, 1995, and updates past
performance information of the Partnership through June 30, 1996.
The Partnership was organized in September, 1990 under
the
laws of the State of Tennessee to engage in the speculative
trading of commodity futures contracts and other commodity
interests. The Partnership is offering on a continuous basis
(the "Continuous Offering") 100,000 units of its limited
partnership interests ("Units") for a subscription price equal to
the then current Average Net Asset Value per Unit, plus a 4%
selling commission. There is a minimum subscription per investor
of $2,000 (plus the 4% selling commission), subject to higher
minimum investment standards imposed by certain states. All
subscriptions are irrevocable. (See "Plan of Distribution" and
"Subscription Procedure.") Refco, Inc. ("Refco") will act as the
futures commission merchant for the Partnership and Randell
Commodity Corporation (the "Managing General Partner") and
RanDelta Capital Partners, L.P. (the "Financial General Partner")
(the "General Partners") are the General Partners of the
Partnership. (See "The Futures Commission Merchant" and "The
General Partners.") All trading decisions will be made for the
Partnership by the Managing General Partner. (See "The General
Partners" and "The Trading Advisor.") The Units are being
offered through various broker dealers which are members of the
National Association of Securities Dealers, Inc. ("NASD") on a
best-efforts basis without any firm underwriting commitment. (See
"Plan of Distribution.")
Neither the General Partners nor any selling agents will
make a market in the Units after their initial sale. No Unit may
be redeemed for the first six months after it is sold.
Thereafter, a Unit may be redeemed at the Redemption Net Asset
Value per Unit thereof as of the end of any calendar quarter upon
10 days prior written notice to the Managing General Partner.
There is a redemption charge of 4%, 3% and 2% of the Redemption
Net Asset Value on all redemptions made on or prior to the end of
sixth, ninth and twelfth month, respectively, after a Unit is
purchased, but not to exceed 5% of the gross purchase price of
such Units. This charge will be paid to the Managing General
Partner.
- -----------------------------
THE PARTNERSHIP IS SUBJECT TO CONFLICTS OF INTEREST AND MUST PAY
SUBSTANTIAL CHARGES REGARDLESS OF WHETHER IT EARNS ANY PROFITS.
THE BUSINESS OF THE PARTNERSHIP AND THESE SECURITIES INVOLVE A
HIGH DEGREE OF RISK. THESE SECURITIES ARE SUITABLE FOR
INVESTMENT ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE
INVESTMENT. (SEE "RISK FACTORS", "CONFLICTS OF INTEREST" AND
"DESCRIPTION OF CHARGES TO THE PARTNERSHIP.")
THE COMMODITY FUTURES TRADING COMMISSION ("CFTC") HAS NOT PASSED
UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE
COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE
DOCUMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
CERES FUND, L.P. IS NOT A MUTUAL FUND OR ANY OTHER TYPE OF
INVESTMENT COMPANY WITHIN THE MEANING OF THE INVESTMENT COMPANY
ACT OF 1940, AND IS NOT SUBJECT TO REGULATION THEREUNDER.
The date of this
Prospectus is , 1996
------
<TABLE>
<CAPTION>
Selling
Proceeds to the
Price to the Commissions
Partnership
Public (1) (1)(2)(3)
(1)(2)(3)
------------- ------------
- ---------------
<S> <C> <C> <C>
Per Unit minimum
purchase 20 Units) (1) $ (2) $ (2) $
(2)
Total maximum
(100,000 Units) $ (2) $ (2) $
(2)
</TABLE>
NOTES:
(1) The Units are being offered on a best-efforts basis
through
members of the NASD as may participate in the offering
("Selling Agents"). Selling Agents which are registered
or
exempt from registration under the Commodity Exchange
Act,
as amended ("CEA"), will be entitled to receive from
Refco a
continuing commission based upon the Net Asset Value of
the
Units sold by each such Selling Agent for continuing
services to be provided to purchasers of Units.
Continuing
services include (i) answering questions regarding daily
Net
Asset Value and computations thereof, monthly statements,
annual reports and tax information provided by the
Partnership; (ii) providing assistance to investors in
deciding when and whether to redeem their Units; and
(iii)
general servicing of accounts. The continuing
commissions
will be paid by Refco from its brokerage commissions for
the
life of the Partnership, although the rate at which such
commissions are charged may change. See "Description of
Charges to the Partnership." The Partnership and the
General Partners have agreed to indemnify the Selling
Agents, the General Partners, the Futures Commission
Merchant, the Trading Advisor, and their respective
officers, directors, affiliates (as defined) and control
persons against certain liabilities (including attorneys'
fees). However, no indemnification will be made for
liabilities, if any, under federal or state securities
laws
unless (i) there has been a successful adjudication on
the
merits of each count involving alleged securities law
violations as to the particular indemnitee and the court
approves the indemnification, or (ii) such claims have
been
dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee
and
the court approves the indemnification, or (iii) a court
of
competent jurisdiction approves a settlement of the
claims
against a particular indemnitee and finds that
indemnification of the settlement and related costs
should
be made to the indemnitee.
(2) During the Continuous Offering, Units subscribed for will
be
issued at the Average Net Asset Value per Unit as of the
first business day of each month plus a selling
commission
equal to 4% of the subscription amount. Subscriptions
must
be received 5 days prior to the last day of the month to
be
admitted on the first business day of the next month.
The
4% selling commission will be paid to the Selling Agent
as a
selling fee. Proceeds from the sale of additional Units
(less selling commissions) will be deposited in the
Partnership's trading account. Interest earned on such
proceeds prior to the closing applicable to such Units
will
be retained by the Partnership. The selling commission
may
be waived as to customers of the Managing General Partner
and Refco who purchase Units with assets in existing
futures
accounts. See "Plan of Distribution."
(3) The proceeds of the Continuous Offering available to the
Partnership and the initial Net Asset Value per Unit have
not been reduced for organizational and offering expenses
since Refco paid such expenses without reimbursement.
Refco
will pay all expenses of the Continuous Offering not
borne
by the Selling Agents.
(4) The Partnership will deliver to each Limited Partner
within
90 days after the close of each fiscal year, audited
financial statements, including a balance sheet and
income
statement, of the Partnership for the fiscal year then
ended. In addition, the Partnership will provide to the
Limited Partners monthly profit and loss reports
containing
the information specified in regulations promulgated by
the
CFTC and as specified in the Agreement of Limited
Partnership (the "Partnership Agreement") attached hereto
as
Exhibit "A".
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO
MAKE
ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION
WITH THE MATTERS DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY
ANY PERSON WITHIN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH
OFFER WOULD BE UNLAWFUL.
THE PARTNERSHIP MUST FURNISH TO ALL LIMITED PARTNERS,
PURSUANT TO APPLICABLE REGULATIONS OF THE CFTC, ANNUAL AND
MONTHLY REPORTS COMPLYING WITH CFTC AND NATIONAL FUTURES
ASSOCIATION ("NFA") REQUIREMENTS. THE ANNUAL REPORTS WILL
CONTAIN FINANCIAL STATEMENTS CERTIFIED AND AUDITED BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS, AND THE MONTHLY REPORTS WILL
CONTAIN UNAUDITED FINANCIAL INFORMATION, RELATING TO THE
PARTNERSHIP.
CFTC RISK
DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL
CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO
DOING, YOU SHOULD BE AWARE THAT FUTURES AND OPTIONS TRADING CAN
QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING
LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN
ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO
WITHDRAW YOUR PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL
CHARGES FOR MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY
BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO
MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION
OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE
DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 20
AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN,
THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT
PAGE 31.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND
OTHER
FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS
COMMODITY POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN
THIS COMMODITY POOL YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE
DOCUMENT INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF
THIS INVESTMENT, AT PAGE 8.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY
TRADE
FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS
LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY
LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS
WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND
ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES
MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF
REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES
JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
SUITABILITY OF INVESTMENT AND QUALIFICATION OF INVESTORS
- --------------------------------------------------------
An investment in the Units is suitable only for persons
of
adequate financial means who have no need for liquidity with
respect to this investment and who have sufficient net worth to
sustain a loss of the entire investment. Investors accustomed to
thinking of limited partnership investments as "tax shelters"
should be aware that the Partnership is not intended to and will
not have such characteristics.
The Partnership Agreement contains provisions that place
restrictions on the transferability and sale of the Units,
including the restriction that the admission of an assignee to
the Partnership as a substituted Limited Partner may occur only
with the consent of the Managing General Partner. See "Risk
Factors - Limited Ability to Liquidate Investment in Units" and
"The Limited Partnership Agreement - Restriction on Transfers or
Assignments."
The minimum investment is $2,000, plus a selling
commission
equal to 4% of the subscribed amount, subject to higher
investment standards imposed by certain states. An investor will
be required to represent and warrant in the in the Subscription
Agreement, found in the separate Subscription Documents, that he
is aware of and can afford the risk of an investment in the
Partnership, including the risk of losing his entire investment.
Each Investor must also represent that (A) his net worth
(exclusive of home, furnishings and automobiles) is at least
$150,000 or that (B) he has a net worth of at least $45,000
(exclusive of home, furnishings and automobiles) and that his
actual gross income for 1995 and projected gross income for each
of 1996 and 1997 is expected to exceed $45,000. Such
representations are subject to higher investor suitability
standards imposed by certain states. The Managing General
Partner may reject any subscription in whole or in part, and all
subscriptions are irrevocable.
Each Investor should consider whether the purchase of a
Unit
is suitable for him, in the light of his individual investment
objectives and his present and expected future financial and tax
position and needs. Each Investor is urged to consult a
qualified tax advisor in connection with such consideration and
give particular attention to the limited liquidity of the Units
offered hereby.
AN INVESTMENT IN THE UNITS BY INDIVIDUAL RETIREMENT
ACCOUNTS
AND EMPLOYEE BENEFIT PLANS WILL RESULT IN UNRELATED BUSINESS
TAXABLE INCOME AND, ACCORDINGLY, MAY NOT BE SUITABLE FOR SUCH
PLANS.
TABLE OF
CONTENTS
SUMMARY OF THE PROSPECTUS . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
THE OFFERING. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Securities Offered. . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Plan of Distribution. . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Use of Proceeds . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Financial Information . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
INVESTMENT FACTORS. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
CONFLICTS OF INTEREST . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS. . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
DESCRIPTION OF CHARGES TO THE PARTNERSHIP . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
General Partners. . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Futures Commission Merchant (REFCO) . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Selling Agents. . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Other . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Projected Operating Expenses. . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Actual Operating Expenses . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
BUSINESS OF THE PARTNERSHIP . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
DISTRIBUTIONS TO PARTNERS . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
THE GENERAL PARTNERS. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
PAST PERFORMANCE OF THE PARTNERSHIP . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
BREAKEVEN ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
THE FUTURES COMMISSION MERCHANT . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
TRADING APPROACH. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
TRADING POLICIES. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
GLOSSARY OF CERTAIN TERMS AND DEFINITIONS . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
COMMODITY FUTURES MARKETS . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ADJUSTED ASSET VALUE AND NET ASSET VALUE. . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ALLOCATION OF PROFITS AND LOSSES. . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
REDEMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
CERTAIN FEDERAL INCOME TAX ASPECTS. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
PURCHASES BY EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
THE PARTNERSHIP AGREEMENT . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
PLAN OF DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SUBSCRIPTION PROCEDURE. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
F-1 - Audited Financial Statements of General Partners
F-2 - Audited Financial Statements of the Partnership
Exhibit A - Agreement of Limited Partnership
Exhibit B - Form of Request for Redemption
Exhibit C - Subscription Documents
SUMMARY OF THE
PROSPECTUS
- -------------------------
THE FOLLOWING IS A SUMMARY OF CERTAIN PROVISIONS OF THE
PROSPECTUS WHICH IS PROPOSED TO BE USED BEGINNING SEPTEMBER ,
----
1996. THIS PROSPECTUS DESCRIBES IN DETAIL NUMEROUS ASPECTS OF
THE OFFERING WHICH ARE MATERIAL TO INVESTORS, INCLUDING ASPECTS
SUMMARIZED HERE, AND THE ENTIRE PROSPECTUS MUST BE READ AND
UNDERSTOOD BY PROSPECTIVE INVESTORS. THE FOLLOWING SUMMARY IS
THEREFORE QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE PROSPECTUS.
Business
The Partnership will engage in speculative trading of
commodity futures contracts, forward contracts, commodity options
and other interests in commodities including, without limitation
futures contracts and options on financial instruments, physical
commodities and stock indices on organized exchanges in the U.S.
and abroad. See "Commodity Futures Market", "Trading Approach"
and "Trading Policies".
The
Partnership
The Partnership was organized as a limited partnership
under
the laws of the State of Tennessee on September 19, 1990. The
Partnership's principal place of business is located at 889 Ridge
Lake Blvd., Memphis, Tennessee 38120, Telephone 901/766-4590.
Interests in the Partnership will be continuously offered.
The General
Partners
The General Partners are Randell Commodity Corporation,
a
Tennessee corporation (the "Managing General Partner"), which
will act as the commodity pool operator of the Partnership, and
RanDelta Capital Partners, L.P., a Tennessee limited partnership
(the "Financial General Partner") (collectively the "General
Partners"). Randell Commodity Corporation is the sole general
partner of the Financial General Partner. The General Partners'
principal place of business is located at 889 Ridge Lake Blvd.,
Memphis, Tennessee 38120, telephone 901/766-4590. See "The
General Partners."
The Trading
Advisor
The Partnership's commodity trading activities will be
managed by Randell Commodity Corporation, the Managing General
Partner (sometimes referred to as the "Trading Advisor").
Pursuant to a management agreement, Randell Commodity Corporation
will make the Partnership's trading decisions. Randell
Commodity Corporation was incorporated in 1983, and has been a
commodity pool operator since 1983 and a commodity trading
advisor since 1984. Frank L. Watson, Jr. is the Chairman of
Randell Commodity Corporation. Mr. Watson received a Bachelor of
Arts degree from the University of Arkansas and a law degree from
Tulane University School of Law in 1965 and is a partner in the
Waring Cox, PLC law firm, Memphis, Tennessee. Prior to March 31,
1994, Delta International, Inc. was a trading advisor to the
Partnership. See "The Trading Advisor."
The Futures
Commission Merchant
Refco, Inc. ("Refco"), will serve as the Partnership's
futures commission merchant, will serve as the Partnership's
commodity broker and will provide various clearing and execution
services pursuant to the instruction of the Trading Advisor.
Refco is a registered futures commission merchant and one of the
largest commodity brokers in the world. See "The Futures
Commission Merchant."
Risks
Futures, forwards and options trading is speculative,
volatile and highly leveraged, and an investment in the
Partnership involves substantial risks, including the risk of
loss of a Limited Partner's entire investment (including any
profits, whether or not distributed). See "Risk Factors."
However, subject to certain conditions, if the Average Net Asset
Value per Unit declines to 50% or less of the highest Average Net
Asset Value per Unit at which Units have been purchased, adjusted
for distributions, all trading will be suspended and investors
given a chance to redeem their Units before any trading resumes.
See "Redemptions."
Conflicts of
Interest
Conflicts of interest exist in the structure and
operation
of the Partnership's business. These conflicts include conflicts
among the Partnership, the General Partners, and the Managing
General Partner acting as the Trading Advisor and as commodity
pool operator. In addition, no fully independent third party is
connected with this offering or the conduct of the business of
the Partnership who or which might be in a position to affect the
conduct thereof. Also, Refco is acting as the Futures Commission
Merchant while its affiliate is the sole limited partner in the
Financial General Partner and has provided the assets necessary
to enable RanDelta Capital Partners, L.P. to act as Financial
General Partner. Selling Agents may also be reluctant to
recommend redemption of Units since they would otherwise receive
continuing commissions which will be paid from a portion of the
brokerage commissions paid by the Partnership to Refco. See
"Conflicts of Interest."
Fees and Expenses Payable by
the Partnership and Partners
The Partnership will be subject to substantial charges
which
are summarized below and described in detail under "Description
of Charges to the Partnership and Partners."
Form of
Amount of
Recipient Compensation
Compensation
- --------- -------------
-------------
General Partners Monthly Management
1/3 of 1% per month of
Allocation
Adjusted Asset Value
Attributable to Units
held by Limited Partners
(4% annual rate).
Quarterly Incentive
15% of any Net New
Allocation
Appreciation attributable
to Units held by Limited
Partners.
Redemption Charges
Units held by Limited
Partners will be charged
a 4%, 3% and 2%
redemption fee, not to
exceed 5% of the gross
purchase price per Unit
on all redemptions made
on or prior to the end of
the sixth, ninth and
twelfth month,
respectively, after the
purchase of such Units.
Futures Commission Brokerage
$32.50 per roundturn,
Merchant Commissions
estimated to aggregate
30% of the Partnership's
average Net Asset Value,
determined annually.
Selling Agents Sales Commission
4% sales commission to
the Selling Agent
responsible for a sale of
Units.
Brokerage
Agents who are also
Commissions
appropriately registered
or exempt from
registration as futures
commission merchants,
will be paid by Refco
from its Brokerage
Commissions as of the
first day of each month
.4167% (5% per annum) of
the Net Asset Value of
the Units as a continuing
("trail") commission for
continuing services
related to the purchase
of Units. This fee is
payable monthly.
Other Periodic legal, accounting,
Estimated to aggregate 2%
auditing, postage, and other
of the Partnership's
communication expenses, and
average Net Asset Value,
all extraordinary and filing
determined annually.
fees of the Partnership.
The Partnership will pay substantial fees to the General
Partners and will pay substantial commodity brokerage commissions
to Refco. The General Partners will receive a monthly Management
Allocation equal to 1/3 of 1% (4% per annum) of the Adjusted Net
Asset Value (as defined in the Partnership Agreement)
attributable to Units held by Limited Partners, plus a quarterly
Incentive Allocation of 15% of any Net New Appreciation (as
defined) attributable to Units held by Limited Partners. Refco
will be paid $32.50 per roundturn as brokerage commissions, plus
any applicable exchange and NFA fees. Brokerage commissions are
estimated to equal 30% of average Partnership Net Asset Value per
year, but depending upon the volume of trading and market
conditions, may equal or exceed the average Net Asset Value in
any year. For example, if the Partnership was averaging
brokerage commissions equal to 50% of Net Asset Value and
suffered a 50% loss in a given period of time, the brokerage
commissions could, accordingly, equal 100% of such Net Asset
Value. The Partnership's assets will earn interest from Refco on
100% of the average daily equity maintained in cash in the
Partnership's trading account at a rate equal to 80% of the
average yield on the 13-week U.S. Treasury Bills issued during
each month. There is a redemption charge of 4%, 3% and 2% of the
Redemption Net Asset Value on all redemptions made on or prior to
the sixth, ninth and twelfth month, respectively, after a Unit is
purchased, but not to exceed 5% of the gross purchase price of
such Units. This charge will be paid to the General Partner.
Periodic legal, accounting, auditing, filing fees and other
expenses are estimated to be approximately 2% of the Net Asset
Value of the Partnership determined annually. See "Description
of Charges to the Partnership and Partners" and "Adjusted Asset
Value and Net Asset Value."
BREAK EVEN
ANALYSIS
The following takes into account all fees and expenses
enumerated above, and is expressed in a dollar amount and as a
percentage of a $2,000 investment.
<TABLE>
<CAPTION>
Description Percentage of
of Charges $2,000 Investment $2,000
Investment
---------- -----------------
- ------------------
<S> <C> <C>
Syndication and Selling
Expenses $ 80 4%
Management Fee 80 4
Incentive Fee (15%
of Net New
Appreciation) 27 1.35
Fund Operating Expense 40 2
Brokerage Commission
and Trading Fee 600 30
Less Interest
Income (100) (5)
Redemption Charges 100 5
Estimated Break
Even Level
after Redemp-
tion Charges $ 827 41.35%
</TABLE>
Trading
Approach
The Trading Advisor believes that the greatest profits
are
realized by futures traders who concentrate on major moves in a
particular commodity or commodity complex. The Trading Advisor
will attempt to identify these opportunities through the
utilization of registered commodity representatives who
specialize in a single commodity or commodity complex and will
apply a combination of fundamental and technical analyses using
the Trading Advisor's proprietary Base Capital Asset Management
System and Campaign Strategies Trading System in managing risk
and selecting trades. These trading devices are, respectively,
asset management and market timing devices. See "Trading
Approach" and "Trading Policies."
Redemption
of Units
Units may not be redeemed during the first six months
after
they are purchased. Thereafter, investors may redeem their Units
at the Redemption Net Asset Value per Unit as of the end of any
calendar quarter upon 10 days prior written notice to the
Managing General Partner. Redemption Net Asset Value per Unit is
calculated by, among other items, deducting accrued brokerage
commissions. There is a redemption charge of 4%, 3% and 2% of
the Redemption Net Asset Value on all Units redeemed at the end
of the sixth month, and on or prior to the end of the ninth and
twelfth month, respectively, after they are purchased, but not to
exceed 5% of the gross purchase price of such Units. See
"Redemptions."
Distributions
Distributions of profits, if any, will be made solely at
the
discretion of the Managing General Partner. The Managing General
Partner intends to make distributions only if substantial profits
are realized by the Partnership and only if the Average Net Asset
Value per Unit is at least $100 after the distribution. Subject
to the foregoing, the Managing General Partner intends to make
annual cash distributions in such amounts as will approximate a
Partner's tax liability with respect to Partnership income for
the fiscal year immediately preceding such distribution. See
"Distributions to Partners." Each Limited Partner will be
required to include his share of profits into income for tax
purposes regardless of whether any distributions are made. See
"Distributions to Partners" and "Certain Federal Income Tax
Aspects."
Stop Loss
Provision
Subject to conditions set forth in the Partnership
Agreement, if the Average Net Asset Value Per Unit has decreased
to 50% or less of the highest Average Net Asset Value at which
Units have been purchased, adjusted for all distributions, the
Managing General Partner will liquidate all open positions as
expeditiously as possible, suspend trading and set a Special
Redemption Date. Limited Partners would then have the
opportunity to withdraw or remain in the Partnership. If the
Partnership resumes trading after a Special Redemption Date,
subsequent Special Redemption Dates would occur if the Average
Net Asset Value per Unit declines to 50% or less of the highest
Average Net Asset Value per Unit at which Units have been
purchased since the previous Special Redemption Date (or the
Average Net Asset Value per Unit at such previous Special
Redemption Date, if higher), adjusted for distributions. See
"Redemptions."
Accounting for
Unit Value
For the purpose of calculating Average Net Asset Value
per
Unit for sales during the Continuous Offering or Redemption Net
Asset Value per Unit for redemption purposes, there are no
organizational and offering expenses to be included. For
purposes of calculating Average Net Asset Value per Unit, accrued
brokerage commissions will be excluded, but such commissions will
be included for purposes of calculating Redemption Net Asset
Value per Unit. All such calculations will be made as of the
first day of the applicable month. See "Adjusted Asset Value
and Net Asset Value" and "Redemptions."
Fiscal
Year
The fiscal year of the Partnership is the calendar year.
Termination of
Partnership
Under the Partnership Agreement, the Partnership will
terminate on the earlier of December 31, 2020, or the occurrence
of certain events. See "The Partnership Agreement."
THE
OFFERING
Securities Offered
The Partnership has registered a maximum of 100,000 Units
of
limited partnership interest. As of June 30, 1996, the
Partnership had 17,960.3927 Units outstanding. Under certain
conditions, the Managing General Partner may increase the number
of Units to 500,000 and make additional public or private
offerings of Units. See "Plan of Distribution."
Minimum Subscription
The minimum subscription is $2,000, plus a selling
commission of 4% of the Average Net Asset Value per Unit
purchased, subject to higher minimums imposed by certain state
securities laws. See "Plan of Distribution" and "Subscription
Procedure."
Plan of Distribution
The Units are being offered and sold through Selling
Agents
which are members of the NASD on a best efforts basis. The
Partnership will continue to sell Units valued as of the
beginning of each month at the then current Average Net Asset
Value per Unit, plus a selling commission of 4% of the
subscription amount until the maximum number of Units offered
have been sold. Subscriptions must be received 5 days prior to
the last day of the month to be admitted on the first business
day of the next month. Fractional Units will be issued. Selling
commissions may be waived as to customers of the Managing General
Partner or Refco who convert their existing futures accounts into
the purchase of Units. The General Partners will maintain an
interest in the Partnership not less than 1% of total Partnership
capitalization. As of June 30, 1996, the managing General
Partner beneficially owned approximately $3,000 or .08% and the
Financial General Partner beneficially owned approximately
$306,000, or 7.44%, of the Partnership. See "Subscription
Procedure" and "Plan of Distribution."
Use of Proceeds
The net proceeds of this Continuous Offering will be
deposited in the Partnership's commodity trading account with
Refco to be used for trading in futures contracts and other
futures interests. See "Use of Proceeds", "Trading Approach" and
"Trading Policies."
Financial Information
Financial information concerning the Managing General
Partner and the Financial General Partner is set forth at page F-
1 and F-2, respectively, hereto. Financial information
concerning the Partnership is set forth at page F-3 hereto.
RISK
FACTORS
The Partnership will be in a high risk business and a
prospective investor should consider the risk factors described
in the CFTC Risk Disclosure Statement, set forth on page v and
the following risks before subscribing for Units:
Commodity Futures Trading is Volatile. A principal risk
in
commodity futures trading is the traditional volatility (rapid
fluctuation) in the market prices of commodities. Price
movements are influenced by, among other things, changing supply
and demand relationships, governmental programs and policies and
national and international, political and economic events.
Changing crop prospects occasioned by unexpected weather or
damage by insects and plant diseases make it difficult to
forecast supplies of agricultural commodities. Demand is also
difficult to forecast due to such factors as variable world
production patterns, unexpected purchases by the United States or
foreign countries and continued changes in domestic needs.
Prices of interests in financial instruments are influenced
primarily by changes in and other matters affecting interest
rates. Foreign currency futures and forward prices are
influenced by, among other things, changes in balances of
payments and trade, domestic and international rates of
inflation, domestic and foreign interest rates, international
trade restrictions, currency devaluations and revaluations and
governmental monetary policies. Governmental action, by direct
intervention and regulation, influences all commodity interest
markets, especially the financial instruments, currency and gold
markets. In addition, wide swings in the stock markets, of the
nature experienced in October, 1987 and October, 1989, can have a
significant effect on the prices of commodity futures and options
thereon. See "Commodity Futures Markets."
The volatility associated with commodities futures
trading
is evident based on the varying rates of return earned by the
Partnership over the past five years. See "Past Performance of
the Partnership." Further, past performance is not necessarily
indicative of future performance. In May 1994, the Managing
General Partner became the sole Trading Advisor for the
Partnership. Prior to May 1994, the Managing General Partner and
Delta International, Inc. acted as co-trading advisors to the
Partnership. See "The General Partners--Departure of Delta
International, Inc." It should not be assumed that trading
decisions made by the Trading Adviser in the future will avoid
substantial losses, no less be profitable or result in
performance for the Partnership comparable to the Trading
Advisor's or Delta International, Inc.'s past performance.
Moreover, in a single adviser fund such as the
Partnership
where the Trading Adviser makes all of the trading decisions,
volatility may increase as compared to a fund with several
trading advisers (assuming such advisers are non-correlated with
each other) and, therefore, collectively have diversified risk
to a greater extent.
Commodity Futures Trading is Highly Leveraged. Commodity
futures contracts are traded on margins which typically range
from about 4% to 10% of the value of the contract. This produces
an extremely high degree of leverage. As a result, a relatively
small price movement in the commodities futures may result in
immediate and substantial losses to the investor. Accordingly,
like other leveraged investments, any purchase or sale of
commodity futures contracts may result in losses in excess of the
amount of margin deposits required. The Partnership may lose
more than its initial margin deposit on a trade, but Limited
Partners are not subject to losses in excess of their investment
in the Partnership plus profits, if any (including distributions
and, in certain circumstances, amounts received upon redemption
of Units), together with interest thereon. See "Commodity
Futures Markets - Margins" and "The Partnership Agreement." The
margin to equity ratio of the Partnership is approximately 30%,
which is greater than most commodity pools. The greater the
Partnership's margin to equity ratio, the greater the volatility
in the Partnership's Net Asset Value and, consequently, the
greater the potential losses to investors.
Commodity Futures Trading May be Illiquid. Commodity
exchanges limit fluctuations in commodity futures contract prices
during a single day by regulations referred to as "daily price
fluctuation limits" or "daily limits." During a single trading
day no trades may be executed at prices beyond the daily limit.
Once the price of a futures contract for a particular commodity
has increased or decreased by an amount equal to the daily limit,
positions in the commodity can be neither taken nor liquidated
unless traders are willing to effect trades at or within the
limit. Commodity futures prices have occasionally moved to the
daily limit for several consecutive days with little or no
trading. Similar occurrences could prevent the Partnership from
promptly liquidating unfavorable positions and subject the
Partnership to substantial losses. See "Commodity Futures
Markets - Regulation."
General Partners' Financial Condition. Although the
General
Partners' net worth is not a significant consideration in
connection with the Partnership's ability to meet its obligations
(because such obligations will typically be substantially larger
than such net worth), the General Partners' net worth is a
significant consideration in connection with their ability to
continue to act as such. The General Partners and their
principals will devote only so much of their time to the affairs
of the Partnership as they in their sole discretion deem
necessary. In addition, the General Partners intend to become
the general partner in other commodity pool limited partnerships.
If the General Partners were unable to continue their operations,
it would be necessary for the Partnership to find a substitute
general partner and/or trading advisor in order to continue the
Partnership's operations. See "The Partnership Agreement --
Dissolution and Liquidation" and "Financial Statements" with
respect to capitalization of the General Partners.
Substantial Charges to the Partnership. The Partnership
is
obligated to allocate and pay to the General Partners a monthly
Management Allocation equal to 1/3 of 1% (4% annual) of the
Adjusted Asset Value of the Partnership attributable to Units
held by the Limited Partners, and a quarterly Incentive
Allocation equal to 15% of Net New Appreciation attributable to
Units held by the Limited Partners, and brokerage commissions and
other charges (including, legal, accounting, auditing, postage,
communication expenses and other extraordinary expenses)
regardless of whether the Partnership realizes any profits. Such
other charges to which the Partnership is subject are estimated
at 2% of the Partnership's net assets per year. The Partnership
could, therefore, be required to make gross trading profits of a
substantial magnitude per year to avoid depletion of Partnership
assets from these charges. See "Description of Charges to the
Partnership and Partners."
Brokerage Commissions. Employment of the trading systems
described under "Trading Approaches" may result in active trading
during periods of high volatility and erratic markets.
Therefore, the Managing General Partner can neither anticipate
nor predict that more trading will occur than normal. The gross
trading performance may be required to increase substantially in
order to avoid depletion of the Partnership's Net Asset Value
from brokerage commissions. Depending on the volume of trading
and market conditions, brokerage commissions could be as much as
average Net Assert Value. For example, if the Partnership were
averaging brokerage commissions equal to 50% of Net Asset Value
and suffered a 50% loss in a given period of time, the brokerage
commissions could, accordingly equal 100% of such Net Asset
Value. In addition, there is a conflict of interest for Selling
Agents in advising Limited Partners regarding their investment in
or redemption of Units. The Selling Agents will be paid
continuing commissions each month equal to .4167% (5% per annum)
of the Net Asset Value of those Units they have sold that remain
outstanding. Accordingly, there is an incentive for the Selling
Agents to advise Limited Partners to remain in the Partnership so
that the Selling Agents may continue to receive such additional
compensation. See "Conflicts of Interest" and "Description of
Charges to the Partnership."
Trading Decisions Based on Fundamental and Technical
Analysis. Trading decisions of the Managing General Partner on
behalf of the Partnership will be based primarily on
"fundamental" market analysis with attention to certain technical
analysis and strategies. Fundamental market analysis examines
external factors such as government policies, national and
international political and economic events, changing crop
prospects and similar factors, which affect the supply and demand
for a particular commodity, in order to anticipate future prices.
Technical analysis is based on the theory that a study of
the markets themselves will provide sufficient information for
the anticipation of future prices. Technical analysis involves
studies of price levels and movements, volume level and open-
interest figures and utilizes charts, computer assistance and
other statistical methods to attempt to distinguish market
patterns and trends based primarily upon price behavior within
the market itself. Technical analysis is generally considered
helpful in determining the timing of position taking and the
appropriate moment to enter or exit a particular market, but may
be unable to respond to fundamental changes until after their
impact has ceased to influence the market. While computer
programs are generally utilized, the use of computer programs in
developing, operating or assisting a trading system does not
assure the success of the trading method. In utilizing the
proprietary technical methods, the Trading Advisor will utilize
its own and others' computer programs for analysis and generating
signals for trading. Other technical services such as charts and
other index calculations will also be observed and utilized. The
utilization of these factors may be qualitative and not
quantitative; therefore, the Trading Advisor will exercise a
significant degree of discretion in connection with the
application of the Partnership's trading strategies.
The profitability of diversified technical and
fundamental
trading systems depends upon major price moves or trends in some
commodities. In the past, there have been periods without major
price moves or trends and, presumably, such periods will continue
to occur. The best trading systems will not be profitable if
there are no major price moves or trends of the kind the systems
seek to identify. No assurance can be given that the Trading
Advisor will be successful in executing the Partnership's trading
strategy.
Possible Effects of Trend-Following Systems. Commodity
trading systems employing exclusively trend-following timing
signals, based either exclusively on fundamental or technical
analysis or on a combination thereof, are numerous. If many
traders follow very similar systems, bunching of buy and sell
orders can occur, which makes it more difficult for a commodity
position to be taken or liquidated. For example, "program
traders", who arbitrage between the "cash" and futures stock
index markets, will tend, as a group, to buy stock index futures
when the futures are priced at a discount to the "cash" markets
and to sell stock index futures when the reverse is the case.
The effect of such "group" or "program trading" on the success of
the Trading Advisor's trading approaches, although too difficult
to predict, may be adverse.
Possible Effects of Speculative Position and Trading
Limits.
The CFTC and commodity exchanges have established limits referred
to as "speculative position limits" on the maximum net long or
net short position which any person may hold or control in
particular commodities, and certain commodity exchanges have
established limits referred to as "trading limits" on the maximum
number of contracts which any person may trade on a particular
trading day. In addition the CFTC requires contract markets to
set speculation position limits on all futures contracts. See
"Commodity Futures Markets - Regulation." All commodity accounts
managed by the General Partners, including the Partnership's
account, may be required to be combined for position and trading
limit purposes. The Managing General Partner believes that
established position and trading limits will not adversely affect
the Partnership's contemplated trading. However, it is possible
that the trading decisions of the Managing General Partner may
have to be modified and that positions held by the Partnership
may have to be liquidated in order to avoid exceeding such
limits. Such modification or liquidation, if required, could
adversely affect the operations and profitability of the
Partnership.
The Managing General Partner as Trading Advisor -
Termination. The Managing General Partner, acting as the trading
advisor (the "Trading Advisor"), will make the trading decisions
for the Partnership. If the Managing General Partner is unable
to continue its operations, or if the Managing General Partner
were removed as a General Partner of the Partnership, it would be
necessary for the Partnership to find a substitute trading
advisor in order to continue the Partnership's operations.
Trading on Foreign Exchanges and Currency Exchange Rate
Fluctuations. The Trading Advisor may engage in trading on
foreign exchanges and other markets located outside of the U.S.
("Foreign Markets") on behalf of the Partnership. There is no
limit to the percentage of Partnership assets which may be
committed to trading on Foreign Markets. Neither CFTC
regulations nor regulations of any other U.S. Governmental agency
apply to the actual execution of transactions on Foreign Markets.
Some Foreign Markets, in contrast to domestic exchanges, are
"principals' markets" in which performance is the responsibility
only of the individual member with whom the trader has entered
into a commodity transaction and not of the exchange or clearing
corporation. In such case, the Partnership will be subject to
the risk of the bankruptcy or other inability of, or refusal, by
such member or the counter-party to perform with respect to such
transactions. For example, in the past, certain members of the
tin market of the London Metal Exchange failed to perform their
obligations under outstanding tin contracts, resulting in a
prolonged suspension of trading, and, ultimately, a closing of
that market and settlement of outstanding positions at an
artificial price level dictated by the London Metal Exchange. As
a result, a number of commodity traders suffered substantial
losses and other substantial reductions of the profits which they
would otherwise have realized. In effect, therefore, due to the
absence of a clearinghouse system on many foreign markets, such
markets are significantly more susceptible to disruptions (such
as that which occurred on the London Metal Exchange's tin market)
than on the United States exchanges. See "Commodity Futures
Markets-Commodity Regulation" and CFTC Risk Disclosure
Statement."
Furthermore, because the Partnership will determine Net
Asset Value per Unit in United States dollars, with respect to
trading on foreign markets the Partnership will be subject to the
risk of fluctuation in the exchange rate between the local
currency and dollars and to the possibility of exchange controls.
Unless the Partnership hedges itself against fluctuations in
exchange rates between the United States dollar and the
currencies in which trading is done on such foreign exchanges,
any profits which the Partnership might realize in such trading
could be eliminated as a result of adverse changes in exchange
rates and the Partnership could even incur losses as a result of
any such changes. See "Commodities Futures Markets-Commodity
Regulations" and "CFTC Risk Disclosure Statement."
Although the CFTC is prohibited by statute from
promulgating
rules which govern in any respect any rule, contract term or
action of any foreign commodity exchange, the CFTC has adopted
regulations to regulate the sale of foreign futures contracts and
foreign options within the United States. These regulations may
restrict the Partnership's access to foreign markets by limiting
the activities of certain participants in such markets with whom
the Partnership could otherwise have traded.
New Futures and Options Contracts. Only those futures
and
options on futures contracts designated or approved for trading
by the CFTC may be domestically traded by the Partnership.
Periodically, the CFTC may approve and designate additional
futures and options contracts. If the Trading Advisor determines
that it may be advantageous to trade in such new futures and
options contracts, it may do so. Because such futures and
options contracts will be new, there can be no assurance that the
trading approach of the Trading Advisor will be able to utilize
any such contracts. The markets in new futures and options
contracts, moreover, historically have been both illiquid and
highly volatile for some period of time after trading begins.
This presents both significant profit potential and a
corresponding high risk potential for any such contracts that are
traded. See "Commodity Markets."
Forward Contracts. Trading in forward contracts is not
regulated by the CFTC and such contracts are not traded on or
guaranteed by an exchange or its clearing house. Rather, banks
and dealers act as principals in the forward contract markets.
Consequently, there are not requirements with respect to
recordkeeping, financial responsibility or segregation of
customer funds and positions. If the Partnership trades in
forward contracts, it will be subject to the failure, inability
or refusal to perform a forward contract by a counter-party to
such forward contract. The default of a party with which the
Partnership had entered into a forward contract would deprive the
Partnership of any profit potential or force the Partnership to
cover its commitments for resale, if any, at the market price
then current.
Possible Claim Against Limited Partners. If the assets
of
the Partnership and the General Partners are insufficient to
discharge the obligations of the Partnership, the Partnership may
have a claim against a Limited Partner for the repayment of any
cash distributions received by him (including distributions made
on redemption of Units), with interest, but only to the extent
that such obligations arose before the distributions. See "The
Partnership Agreement - Liability of Limited Partners."
Limited Partners Will Not Participate in Management.
Pur-
chasers of the Units will not be entitled to participate in the
management of the Partnership or the conduct of its business, but
they do have limited voting rights. See "The Partnership
Agreement - Management of Partnership Affairs."
Possibility of Taxation as a Corporation. The tax
consequences of an investment in the Partnership are dependent
upon the Partnership being characterized as a partnership for
federal income tax purposes and not as an association taxable as
a corporation. No ruling has been obtained or will be sought by
the Partnership from the Internal Revenue Service (the "Service")
as to its classification for tax purposes, or with respect to any
of the projected tax consequences set forth in this Prospectus.
The Partnership will instead rely in this regard upon an opinion
of its counsel. This opinion is based, in part, upon the General
Partners' representation that 90% or more of the Partnership's
gross income will constitute "qualifying income" for purposes of
Section 7704 of the Internal Revenue Code of 1986, as amended
(because otherwise the continuous offering and redemption
features of the Partnership would likely will cause it to be
classified as a "publicly-traded partnership"). Such opinion is
not binding on the Service. The facts and authorities relied
upon by counsel in their opinion may change in the future. If
the Service determines that the Partnership is an association
taxable as a "corporation", there would be severe adverse tax
consequences to the Limited Partners. No representation or
warranty of any kind is made with respect to any tax consequences
relating to the business of the Partnership. See "Certain
Federal Income Tax Aspects."
Possible Changes in the Tax Code. In recent years, the
federal income tax laws have undergone repeated and substantial
changes, a number of which have been materially adverse or
potentially adverse, to investments such as the Partnership. It
is impossible to predict what the effect of future changes in the
federal income tax laws will be on an investment in the
Partnership. Change, if any, may be retroactive to transactions
entered into or completed prior to the effective date thereof and
could have a material impact on the tax treatment of the
transactions entered into by the Partnership. Potential Limited
Partners should seek the advice of their own tax advisors with
respect to the impact of the recent changes in the federal income
tax laws, as well as the impact of any future proposed tax
legislation, or administrative or judicial action. See "Certain
Federal Income Tax Aspects."
"Passive" Losses. Any income derived from the
Partnership's
trading activities, as well as interest income earned by the
Partnership, will constitute "portfolio income" or other income
not from a passive activity, which means that losses resulting
from a Limited Partner's other passive activities (including most
"tax shelter" limited partnerships) cannot be offset against such
income. See "Certain Federal Income Tax Aspects."
Partners' Tax Liability in Excess of Cash Distributions.
The Partnership is not required to distribute profits. If the
Partnership has taxable income for a fiscal year, such income
will be taxable to Limited Partners in accordance with their
distributive shares of the Partnership's profits, irrespective of
whether such profits have been distributed to them. Accordingly,
taxes payable by Limited Partners for any profits of the
Partnership may exceed any distributions received from the
Partnership. See "Certain Federal Income Tax Aspects."
Management and Incentive Allocations Payable to the
General
Partners. Miscellaneous itemized expenses of an individual
taxpayer are deductible only to the extent the aggregate amount
of these expenses exceed 2% of his adjusted gross income. This
2% floor will apply to a Partner's indirect deduction of
Partnership "investment advisory fees." The General Partners, in
the absence of further clarification by legislation, the
promulgation of regulations or judicial or administrative
interpretation, intends not to treat any part of the Management
and Incentive Allocations as "investment advisory fees." The tax
position which the General Partners intend to take could result
in Limited Partners being required to file amended tax returns
and pay additional taxes plus interest and penalties. The
General Partners will determine, in their sole discretion and
without consulting with Limited Partners, how to treat the
Management and Incentive Allocations, as well as other
Partnership expenses, for federal income tax purposes. See
"Certain Federal Income Tax Aspects."
Continuing Commissions. The Internal Revenue Service may
contend that a portion of the brokerage commissions paid by the
Partnership to Refco constitute nondeductible syndication
expenses under the theory that such commissions are to reimburse
Refco for its advance of the Partnership's organizational and
offering expenses, or because Selling Agents will receive
compensation from Refco on an ongoing basis from a portion of the
commodity brokerage commissions paid by the Partnership. If the
Service were successful in this regard, the Partnership would be
required to capitalize such amounts, thereby increasing the
amount of gain (or reducing the amount of loss) allocable to the
Partners with respect to the Partnership's trading activities.
See "Certain Federal Income Tax Aspects."
Possibility of Tax Audit. There can be no assurance that
the Partnership's tax returns will not be audited by the Service
or that adjustments to such returns will not be made as a result
of such an audit. Uncertainty concerning the federal tax status
of certain positions taking by the Partnership may increase the
likelihood that the Partnership's returns will be audited by the
Service. If an audit results in an adjustment, Limited Partners
may be required to file amended returns (which may themselves
also be audited) and to pay additional taxes plus interest and
penalties. See "Certain Federal Income Tax Aspects."
Limited Ability to Liquidate Investment in Units. A
Limited
Partner may not transfer his Units except in accordance with the
Partnership Agreement. No market exists for the sale of Units
and none is likely to develop. In addition, a transferee of a
Unit can only become a substituted Limited Partner with the
Managing General Partner's consent.
A Limited Partner may require the Partnership to redeem
(under certain circumstances) any or all of his Units at the
Redemption Net Asset Value per Unit, as of the last day of any
calendar quarter on 10-days' written notice to the Managing
General Partner. However, Limited Partners will have no right to
redeem Units until the end of the calendar quarter which occurs 6
months after the date of purchase. Thus, despite the fact that a
Limited Partner may believe it is in his best interests to
liquidate his investment in the Partnership during the first 6 to
8 months from purchase, the Limited Partner will be required to
remain invested in the Partnership during such period of time.
See "Redemptions."
Possible Effect of Redemptions on Unit Values. Because
a
request for redemption, to be effective, must be submitted at
least 10 days prior to the end of the calendar quarter for which
redemption is sought, the Redemption Net Asset Value per Unit
could decrease significantly, as well as increase, between the
date on which the request is submitted and the date redemption
occurs. If a substantial number of requests for redemption were
received by the Partnership during a relatively short period of
time, it is possible that the Partnership would be unable to
satisfy the requests from uncommitted funds. It could become
necessary, consequently, to liquidate commodity positions prior
to the time liquidation would be dictated by the Trading
Advisor's strategies, which could adversely affect the Redemption
Net Asset Value per Unit not only for Partners redeeming Units
but for the remaining Partners as well. See "Redemptions."
Options. Each option on a commodity futures contract or
physical commodity is a right, purchased for a certain price, to
either buy or sell a commodity futures contract or physical
commodity during a certain period of time for a fixed price.
Although successful commodity options trading requires many of
the same skills as does successful commodity futures trading, the
risks involved are somewhat different. For example, if the
Partnership buys an option (either to sell or purchase a futures
contract or commodity), it will pay a "premium" representing the
market value of the option. Unless the price of the futures
contract or commodity underlying the option changes and it
becomes profitable to exercise or offset the option before it
expires, the Partnership may lose the entire amount of such
premium. Conversely, if the Partnership sells an option either
to sell or purchase a futures contract or commodity, it will be
credited with the premium but will have to deposit margin due to
its contingent liability to take or deliver the futures contract
or commodity underlying the option in the event the option is
exercised. Sellers of options are subject to the entire loss
which occurs in the underlying futures position or underlying
commodity (less any premium received). See "Commodity Futures
Markets."
Conflicts of Interest. Conflicts of interest exist in
the
structure and operation of the Partnership's business. These
conflicts include conflicts among the Partnership, the General
Partners, and the Managing General Partner acting as the Trading
Advisor and as commodity pool operator. In addition, no fully
independent third party is connected with this offering or the
conduct of the business of the Partnership who or which might be
in a position to affect the conduct thereof. Also, Refco is
acting as the Futures Commission Merchant while its affiliate is
the sole limited partner in the Financial General Partner and has
provided the assets necessary to enable that General Partner to
act as Financial General Partner. Selling Agents may also be
reluctant to recommend redemption of Units since they would
otherwise receive a portion of the brokerage commissions paid by
the Partnership to the Futures Commission Merchant. See
"Conflicts of Interest."
Absence of Regulation Applicable to Securities Mutual
Funds
and their Advisers. The Partnership has not registered as a
securities investment company, or "mutual fund," and is not
subject to the extensive regulation of the Securities and
Exchange Commission imposed upon such entities under the
Investment Company Act of 1940. In addition, the General
Partners are not registered under the Investment Advisers Act of
1940 (or any similar state law). Therefore, investors may not be
accorded the protective measures provided by such legislation.
See "The Limited Partnership Agreement-Termination of the
Partnership." The Managing General Partner is registered with
the CFTC as a commodity pool operator and as a commodity trading
advisor. See "Commodity Futures Markets-Regulation." Any
determination that the Partnership be required to register as an
investment company under the Investment Company Act of 1940 could
have serious adverse consequences for the Partnership, the
Managing General Partner and the Limited Partners, including
termination of the Partnership. See "The Partnership Agreement-
Termination of the Partnership."
THE FOREGOING LIST OF RISK FACTORS DOES NOT PURPORT TO BE
A
COMPLETE EXPLANATION OF THE RISKS INVOLVED IN THIS OFFERING.
POTENTIAL INVESTORS SHOULD READ THE ENTIRE MEMORANDUM BEFORE
DETERMINING TO PURCHASE UNITS AND SEEK ADVICE FROM QUALIFIED
INDEPENDENT COUNSEL.
INVESTMENT
FACTORS
Limited Partners will be able to obtain certain
advantages
which might otherwise be unavailable to them if they were to
engage directly in commodity transactions. Among these are the
following:
(1) Limited Liability. Unlike an individual
investor
engaging in speculative commodity trading for his own account, a
Limited Partner cannot lose more than the amount of his
investment (and profits together with distributions and interest
thereon) and will not personally be subject to margin calls (See
"The Partnership Agreement" and "Commodity Futures Trading -
Margins").
(2) Investment Diversification. An investor who is
not
prepared to spend substantial time trading commodity futures
contracts may, nevertheless, participate in these markets through
the Partnership, thereby obtaining diversification in his
investment portfolio. It may be that the profit potential of the
Partnership will not depend upon favorable general economic
conditions, and that it will be as likely to be profitable during
periods of declining stock, bond and real estate markets as at
any other time; conversely, it may be unprofitable or profitable
during periods of generally favorable economic conditions.
(3) Trading Management. Trading decisions will be
made for
the Partnership by the Managing General Partner as the Trading
Advisor and commodity pool operator. The Trading Advisor is a
registered commodity trading advisor with the CFTC and the NFA.
The Trading Advisor will manage the investments pursuant to the
"Trading Approach" and "Trading Policies" sections of this
Prospectus.
(4) Interest Earned. The Partnership assets will
earn
interest from Refco on 100% of the average daily equity
maintained in cash in the Partnership's trading account at a rate
equal to 80% of the average yield on thirteen week U.S. Treasury
Bills issued during each month. An individual trader generally
would not receive any interest on the funds in his commodity
account unless he committed substantially more than the minimum
investment in the Partnership.
(5) Independence of Trading Advisor from Broker.
The
Trading Advisor, who will make all trading decisions for the
Partnership, will receive the Management Allocation and Incentive
Allocation from the Partnership and will not participate in
brokerage commissions on the Partnership account. Refco as the
Futures Commission Merchant charges commissions but has no
authority to make trading decisions and executes trades only at
the direction of the Trading Advisor. Refco will not participate
in Management or Incentive Allocations. See "Conflicts of
Interest."
CONFLICTS OF
INTEREST
The following relationships may involve inherent
conflicts
of interest which should be considered by prospective purchasers
of Units:
Accounts of Affiliates of the Futures Commission
Merchant.
The officers, directors and employees and associated persons of
Refco trade in commodity futures contracts for their own
accounts. The results of any such trading will not be available
for inspection by Limited Partners. In addition, Refco is a
registered futures commission merchant and executes transactions
in commodity futures contracts for its customers. See "The
Futures Commission Merchant." Thus, it is possible that Refco
could execute transactions for the Partnership in which the other
parties to the transactions are its officers, directors,
employees or customers. Such persons might also compete with the
Partnership in making purchases or sales of contracts without
knowing that the Partnership is also bidding on such contracts.
The Selling Agents. Pursuant to the Selling Agreement
among
the Partnership, the General Partners and each of the Selling
Agents, those Selling Agents which are registered or exempt from
registration as futures commission merchants ("FCMs") or
introducing brokers ("IBs") under the CEA will be paid
commissions by the Partnership for the sale of Units. Crescent
Futures Corporation, an independent introducing broker, may
introduce investors to the Partnership. Selling Agents who are
appropriately registered or exempt from registration as futures
commission merchants, introducing brokers or associated persons
will be paid continuing ("trail") commissions by Refco for
continuing services related to the purchase of Units so long as
those Units remain issued and outstanding. SELLING AGENTS MAY
HAVE A CONFLICT OF INTEREST IN ADVISING LIMITED PARTNERS AS TO
WHETHER THEY SHOULD REDEEM UNITS BECAUSE OF THE AGENTS' INCENTIVE
TO OBTAIN SUCH CONTINUING COMPENSATION.
Other Activities and Accounts of the General Partners and
their Affiliates. The Managing General Partner trades, and its
officers, directors, employees and affiliates trade in commodity
futures contracts for their own account and for the accounts of
other customers. The records of such trading will not be
available for inspection by Limited Partners; however, the
performance history of the Managing General Partner and its
parent, Randell Corporation, will be available through filings
required to be made with the CFTC. All of the positions held by
all accounts managed by the Managing General Partner will be
aggregated with positions held by the Partnership for purposes of
determining compliance with position limits. As a result, the
Partnership might not be able to enter into or maintain certain
positions if such positions, when added to the positions held by
such other accounts, would exceed applicable limits. If trading
orders must be revised as a result of the application of
speculative position limits, the Managing General Partner is
required to modify such orders in a manner which will not
substantially disproportionately affect the Partnership as
compared with the Managing General Partner's other accounts. In
addition, the Managing General Partner represents that it will
not knowingly or deliberately use trading strategies for the
Partnership which are inferior to those used for any other client
or account nor to favor any other account over the Partnership in
any way, although various factors affecting different types and
sizes of accounts may require the utilization of different stra-
tegies or trading methods for such accounts. See "Commodity
Futures Market - Regulation." See "The General Partner", "The
Trading Advisor" and "The Futures Commission Merchant."
Management of Other Pools and Accounts. The General
Partners and Refco may establish, sponsor, or be affiliated with
other commodity pools which may engage in the same or similar
business as the Partnership. The Managing General Partner
presently acts as the general partner of one other limited
partnership which is a commodity pool.
Although its fiduciary responsibility prohibits the
Managing
General Partner from knowingly favoring any account it manages
over any other, the performance of the Partnership could be
materially different from other accounts of the Managing General
Partner because of size, diversification, or special emphasis of
some accounts in certain specific commodities and, moreover, the
performance of the Partnership could be adversely affected by the
manner in which particular orders are entered by the Managing
General Partner for all such trading accounts since orders for
the same commodity are filled in the order they are received at
the particular trading floor. To the extent permitted by
applicable regulations, the Managing General Partner may use
"block orders" in effecting trades with a view to diminishing the
effect of any such potential conflict.
Trading Systems of the Managing General Partner and
Refco.
Neither the Partnership nor any Limited Partner will acquire any
interest in any trading systems or information developed by any
third party, the General Partners or Refco, or any officer,
director, employee, shareholder or associated person thereof
solely by virtue of his status as a Limited Partner in the
Partnership. Similarly, neither the Partnership nor any Limited
Partner will acquire any interest in the General Partners, Refco,
or any other corporation or partnership in which any officer,
director, employee, shareholder or affiliated person of the
foregoing has a beneficial interest solely by virtue of its
status as the Partnership or his status as a Limited Partner of
the Partnership.
Brokerage Charges. The Managing General Partner believes
that the Customer Agreement with Refco and arrangements
thereunder between the Partnership and Refco are consistent with
charges incurred by other commodity pools of a similar size and
with similar arrangements such pools have entered into with other
futures commission merchants and therefore are fair to the
Partnership. The Managing General Partner will review, at least
annually, the brokerage commission rates charged comparable
commodity pools by major futures commission merchants to
determine that the commission rates paid by the Partnership are
fair, consistent and competitive with such other rates. Certain
customers of Refco, including accounts owned or managed by
Randell Corporation, the parent of the Managing General Partner,
pay, and will continue to pay, commissions at rates both
substantially less and substantially more than those which will
be charged to the Partnership. The Partnership Agreement (to
which each Limited Partner will be a party) and the Subscription
Agreement executed by each Limited Partner (i) approve the
execution and delivery of the Customer Agreement by the
Partnership and (ii) authorize the payment to Refco by the
Partnership of brokerage fees at the rates provided for in the
Customer Agreement as described above. See "The General
Partners," "The Futures Commission Merchant" and "Futures
Contracts, Margins and Commissions." An affiliate of Refco is
the sole limited partner of RanDelta and has provided the assets
necessary to enable RanDelta to act as Financial General Partner.
Randell Commodity Corporation (the Managing General Partner and
Trading Advisor) is the general partner of RanDelta. Therefore,
the General Partners of the Partnership may be reluctant to
terminate Refco as the Futures Commission Merchant. In addition,
while neither the General Partners nor the Partnership are
affiliated with Refco, the affiliation of the sole limited
partner of RanDelta to Refco and the other relationships
described in this Prospectus may create a conflict of interest in
causing the Managing General Partner, as the Trading Advisor, to
actively trade the Partnership's account to generate brokerage
commissions for Refco. However, as a limited partner, the sole
limited partner of RanDelta does not have the authority to
participate in the management and control of RanDelta or render
management or investment advice thereto. Furthermore, while the
potential for such a conflict of interest exists, there is a
disincentive for the Trading Advisor to generate excessive
brokerage commissions since its own compensation from the
Partnership would be adversely affected.
Arrangements With Futures Commission Merchant and Others.
The Managing General Partner has in the past sold to its
principals and/or associated persons a variety of technical and
other commodity market information. Some of the data utilized by
the Managing General Partner concerning commodity accounts
managed by it is maintained on and provided from computer
equipment owned by the Futures commission merchant. The Managing
General Partner currently subleases office space from Sparks
Companies, Inc. ("SCI"), has offices adjacent to SCI in Memphis
and utilizes SCI's commodity research services and other research
capabilities. Also, the Managing General Partner and its
principals participate in investments in other ventures with
persons associated with the Futures Commission Merchant and have
had personal and business relationships with such persons over a
period of 15 years. However, no officer, director, employee or
associated person of the Futures Commission Merchant has any
direct or indirect interest in the Managing General Partner or
their income or profits and no officer, director or employee of
the Managing General Partner have any interest, direct or
indirect, in the Futures Commission Merchant. An affiliate of
Refco is the sole limited partner in the Financial General
Partner and has provided the assets necessary to enable that
General Partner to act as Financial General Partner; therefore,
the General Partners of the Partnership may be reluctant to
terminate Refco as the Futures Commission Merchant.
Compensation of the General Partners. BECAUSE THE
MANAGING
GENERAL PARTNER MANAGES THE PARTNERSHIP AND IS ITS TRADING
ADVISOR, IT HAS A DISINCENTIVE TO REPLACE ITSELF IF IT PERFORMS
POORLY FOR THE PARTNERSHIP. THE MANAGING GENERAL PARTNER IS ALSO
A GENERAL PARTNER IN THE FINANCIAL GENERAL PARTNER. IN ADDITION,
THE TERMS OF THE GENERAL PARTNERS' COMPENSATION HAVE NOT BEEN SET
BY ARMS LENGTH BARGAINING. HOWEVER, THE GENERAL PARTNERS HAVE A
LEGAL FIDUCIARY RESPONSIBILITY TO THE PARTNERSHIP TO EXERCISE
GOOD FAITH AND FAIRNESS IN ALL DEALINGS AFFECTING THE
PARTNERSHIP. IN ADDITION, THE GENERAL PARTNERS' COMPENSATION
DECREASES IF THE PARTNERSHIP PERFORMS POORLY. See "Fiduciary
Responsibility of the General Partners."
Independent Review. The Partnership, the General
Partners
and the Memphis branch of Refco are represented by a single law
firm. To the extent that the Partnership and this offering would
benefit by further independent review, such a benefit will not be
available in this offering. There is also an absence of arm's-
length negotiation with respect to the terms of this offering.
No other party will provide fully independent review of this
offering or the conduct of the Partnership's business.
Other Relationships. The sole shareholder of the parent
of
Randell Commodity Corporation, the Managing General Partner, is a
partner in the law firm which is counsel to the Partnership, the
General Partners, the Memphis branch of Refco, the affiliate of
Refco which is the sole limited partner in the Financial General
Partner, and the Commodity Broker. The General Partners and
Refco receive compensation from the Partnership in various forms
as described herein. See "Description of Charges to the
Partnership." There are no other relationships among the General
Partners, the Futures Commission Merchant or any principal of
them which are believed may result in any conflict of interest.
FIDUCIARY RESPONSIBILITY OF
THE GENERAL PARTNERS
In evaluating potential conflicts of interest, an
investor
should be aware that the General Partners have a responsibility
to the Limited Partners to exercise good faith and fairness in
all dealings affecting the Partnership. This is a rapidly
developing and changing area of the law, and Limited Partners who
have questions concerning the responsibilities of the General
Partners should consult their counsel. In the event that a
Limited Partner believes the General Partners have violated their
responsibility, such Limited Partner may seek legal relief for
himself and all other similarly situated Limited Partners or on
behalf of the Partnership under applicable laws, including
partnership and securities laws, to recover damages from or to
require an accounting by the General Partners. In addition, a
Limited Partner may institute legal proceedings or initiate
reparation proceedings before a CFTC administrative law judge
against the General Partners or the for violations of the anti-
fraud and other provisions of the CEA. The CFTC has issued a
statement of policy relating to indemnification of officers and
directors of a futures commission merchant and its controlling
persons under which it has taken the position that whether such
an indemnification is consistent with the policies expressed in
the CEA, as amended, in each instance will be determined by the
CFTC on a case-by-case basis. Prospective Limited Partners
should be aware that the broad authority given to the General
Partners, and the nature of the commodities markets, the limited
judicial decisions providing standards defining violations of the
CEA, and the exculpatory provisions of the Partnership Agreement
may make it difficult to establish a violation of the CEA.
The General Partners and certain of their affiliates,
directors and controlling persons may not be liable to the
Partnership or any Limited Partner for errors in judgment or
other acts or omissions not amounting to misconduct or
negligence, as a consequence of the indemnification and
exculpatory provisions described in the following paragraph.
Purchasers of Units may have more limited rights of action than
they would absent such provisions.
The General Partners and their affiliates shall have no
liability to the Partnership or to any Limited Partner for any
loss suffered by the Partnership which arises out of any action
or inaction of the General Partners or their affiliates if the
General Partners or their affiliates, in good faith, determined
that such course of conduct was in the best interest of the
Partnership and such course of conduct did not constitute
negligence or misconduct of the General Partners or their
affiliates. The Partnership has agreed to indemnify the General
Partners and certain of their affiliates, officers, directors and
controlling persons against claims, losses or liabilities based
on their conduct relating to the Partnership, provided that the
conduct resulting in the claims, losses or liabilities for which
indemnity is sought did not constitute negligence or misconduct
or breach of any fiduciary obligation of the Partnership, and was
done in good faith and in a manner reasonably believed to be in
the best interests of the Partnership. Affiliates of the General
Partners are entitled to indemnity only for losses resulting from
claims against such affiliates due solely to their relationship
with the General Partners or for losses incurred by such
affiliates in performing the duties of the General Partners. For
purposes of the exculpation and indemnification provisions of the
Partnership Agreement, the term "affiliates" means any person
performing services on behalf of the Partnership who (i) directly
or indirectly controls, is controlled by, or is under common
control with the General Partners; or (ii) owns or controls 10%
or more of the outstanding voting securities of the General
Partners; or (iii) is an officer or director of either General
Partner; or (iv) if either of the General Partners is an officer,
director, partner or trustee, is any company for which such
General Partner acts in any such capacity.
The Partnership will not indemnify the General Partners
or
any of the foregoing persons for any liability arising from
securities law violations in connection with the offering of the
Units unless the General Partners or such persons prevail on the
merits or obtain a court approved settlement which includes court
approved indemnification as described in Section 8.05(b) of the
Partnership Agreement.
Under the exculpatory provisions of the Partnership
Agreement, none of the General Partners or their affiliates will
be liable to the Partnership or to any of the Partners except by
reason of acts or omissions constituting bad faith, misconduct or
negligence, and that were not taken in good faith and in the
reasonable belief that such actions were in the best interests of
the Partnership. Purchasers of Units may have a more limited
right of action then they would absent such limitations. See
"Conflicts of Interest" and "The Partnership Agreement."
DESCRIPTION OF CHARGES TO THE
PARTNERSHIP AND PARTNERS
The Partnership will be subject, directly or indirectly,
to
substantial charges, all of which are described in detail below:
Form of
Amount of
Recipient Compensation
Compensation
- --------- -------------
--------------
General Partners Monthly Management
1/3 of 1% per month of
Allocation
Adjusted Asset Value
attributable to Units
held by Limited Partners
(4% annual rate)
Quarterly Incentive
15% of any Net New
Allocation
Appreciation attributable
to Unites held by Limited
Partners.
Redemption Charges
Units held by Limited
Partners will be charged
a 4%, 3% and 2%
redemption fee, not to
exceed 5% of the gross
purchase price per Unit
on all redemptions made
on or prior to the end of
the sixth, ninth and
twelfth month,
respectively, after the
purchase of such Units.
Futures Commission Brokerage
$32.50 per roundturn,
Commissions
estimated to aggregate
30% of Merchant the
Partnership's average Net
Asset Value, determined
annually.
Selling Agents Sales Commission
4% sales commission to
the Selling Agent
responsible for a sale of
Units.
Brokerage
Selling Agents who are
Commissions
also appropriately
registered or exempt from
registration as futures
commission merchants,
will be paid by Refco
from its Brokerage
Commissions as of the
first day of each month
.4167% (5% per annum) of
the Net Asset Value of
the Units as a continuing
("trail") commission for
continuing services
related to the purchase
of Units. This fee is
payable monthly.
Other Periodic legal,
Estimated to aggregate 2%
accounting,
of the Partnership's
auditing, postage,
average Net Asset Value,
and other communi-
determined annually.
cation expense, and
all extraordinary
and filing fees of the
Partnership.
1. GENERAL PARTNERS.
Management Allocation. For acting as General Partners,
commodity pool operator and trading advisor, the General Partners
will receive a monthly management special allocation under the
Partnership Agreement equal to 1/3 of 1% (4% per annum) of the
Adjusted Asset Value of the Partnership attributable to the Units
of limited partnership interest ("Management Allocation").
Adjusted Asset Value generally means the market value of all of
the assets of the Partnership less certain expenses and
liabilities, but before deduction for the Management Allocation,
the Incentive Allocation and accrued brokerage commissions on
open trades. See "Adjusted Asset Value and Net Asset Value."
The Management Allocation will be calculated and added to the
General Partners' capital accounts each month regardless of
whether the Partnership has any profits. The burden of the
Management Allocation will be charged entirely against the Units
of the Limited Partners.
Incentive Allocation. The General Partners will also
receive a quarterly incentive allocation ("Incentive Allocation")
under the Partnership Agreement equal to 15% of Net New
Appreciation achieved by Units as of the end of any calendar
quarter. The Incentive Allocation will be charged only against
the Units of those Limited Partners whose Units have achieved Net
New Appreciation as of the end of each calendar quarter. "Net
New Appreciation" means the increase, if any, in the Adjusted
Asset Value attained by such Unit as of the end of any quarter
(after reduction for the Management Allocation chargeable to such
Unit) over the highest Net Asset Value of the Unit as of the end
of any prior quarter, adjusted for distributions and redemptions.
The Incentive Allocation will be calculated and added to the
General Partners' capital accounts each quarter; however, the
Incentive Allocation will not be paid to the General Partners
unless there is Net New Appreciation with respect to any
individual Unit as of the end of each calendar quarter. Subject
to the foregoing, if any payment is made to the General Partners
in respect of quarterly appreciation experienced by the Limited
Partner, and the Limited Partner thereafter incurs a decline in
his respective Net Asset Value per Unit for any subsequent
calendar quarter, the General Partners will retain the amount
previously paid with respect to the prior appreciation. However,
no subsequent quarterly Incentive Allocation would be paid with
respect to any Units which have increased in value until all of
the declines for such Units are recovered, and the Net Asset
Value of such Units reaches a quarterly value in excess of any
prior highest quarterly value.
For example, assume that as of January 1, 1996, the Net
Asset Value per Unit of Limited Partner #1 ("LP1") was $100, and
that on March 31, 1996, the Adjusted Asset Value of the
Partnership attributable to LP1's Units, after subtraction of the
Management Allocation, was $110. LP1 has experienced $10 in Net
New Appreciation, and would be charged an Incentive Allocation of
$1.50, resulting in a Net Asset Value per Unit for LP1 of
$108.50. Assume also that during the quarter ending June 30,
1996, the Partnership experienced losses such that the Adjusted
Asset Value of the Partnership attributable to LP1's Units, after
subtraction of the Management Allocation, was $105. LP1 would be
charged no Incentive Allocation for the quarter and his Net Asset
Value per Unit likewise would be $105. Further assume that
Limited Partner #2 ("LP2") was admitted to the Partnership as of
July 1, 1996, at the Partnership's Average Net Asset Value per
Unit of $105 (again, an assumed figure). As of the end of the
quarter ending September 30, 1996, assume also that the Adjusted
Asset Value of the Partnership attributable LP1's and LP2's Units
was $112, again after subtraction of the Management Allocation.
LP1 has experienced $3.50 of Net New Appreciation ($112 less
$108.50, the highest prior Net Asset Value per Unit for LP1), and
would be charged an Incentive Allocation of $.525, resulting in a
Net Asset Value per Unit for LP1 of $111.475. LP2, on the other
hand, has experienced $7 of Net New Appreciation, and would be
charged an Incentive Allocation of $1.05, resulting in a Net
Asset Value per Unit for LP2 of $110.95. Therefore, because the
Incentive Allocation is computed separately for each Partner's
Units, each Partner's respective Net Asset Value per Unit will
differ depending upon when such Partner enters the Partnership.
"See "Adjusted Asset Value and Net Asset Value."
Redemption Charges. Units will be charged a 4%, 3%, and
2%
redemption fee, not to exceed 5% of the gross purchase price per
Unit, on all redemptions made on or prior to the end of the
sixth, ninth and twelfth month, respectively, after the purchase
of such Units. These redemption charges will be paid to the
General Partners.
2. FUTURES COMMISSION MERCHANT (REFCO).
Brokerage Commissions. Brokerage commissions will be
charged to the Partnership and paid to Refco at a rate (which
includes pit brokerage fees) equal to $32.50 per roundturn plus
any applicable NFA and exchange fees. See "The Futures
Commission Merchant." These commissions are estimated to equal
30% of average Partnership net assets per year, but depending
upon the volume of trading and market conditions, may equal or
exceed the average Net Asset Value of the Partnership in any
year. Depending on the volume of trading and market conditions,
brokerage commissions could be as much as average Net Asset
Value. For example, if the Partnership were averaging brokerage
commissions equal to 50% of Net Asset Value and suffered at 50%
loss in a given period of time, the brokerage commissions could,
accordingly equal 100% of such Net Asset Value. Refco will pay
continuing ("trail") commissions to those Selling Agents who are
also appropriately registered or exempt from registration as
futures commission merchants, introducing brokers or associated
persons as a commission for continuing services related to the
purchases of Units.
3. SELLING AGENTS.
Sales Commissions. The Partnership will pay Selling
Agents
who sell Units a commission equal to 4% of the subscription price
for such Units.
Continuing ("Trail") Commissions. Refco will pay to
those
Selling Agents who are also appropriately registered or exempt
from registration as futures commission merchants, introducing
brokers or associated persons a monthly commission for continuing
services related to the purchases of Units. Crescent Futures
Corporation, an independent introducing broker, may introduce
investors to the Partnership. The amount of such continuing
("trail") commission will be equal to .4167% (5% per annum) of
Net Asset Value of those Units sold by such Selling Agents that
remain issued and outstanding.
4. OTHER.
Periodic legal, accounting, auditing, postage and other
communication expenses, and all extraordinary expenses and filing
fees will be paid by the Partnership. The Partnership will pay
actual expenses incurred, estimated at 2% of Net Asset Value
determined annually. None of the General Partners' "overhead"
expenses incurred in connection with the administration of the
Partnership (including but not limited to, salaries, rent, and
travel expenses) will be charged to the Partnership. Any loans
made by the General Partners to the Partnership will not bear
interest in excess of their interest costs or in excess of the
rate charged by unrelated banks on comparable loans.
Refco has paid all organizational and offering expenses
of
the Partnership and the continuing offering of Units, including
legal, accounting and auditing fees, printing costs, solicitation
and marketing costs, and other related fees and expenses. The
Partnership will not reimburse Refco for any such organizational
and offering costs.
All selling commissions and redemption fees will not
exceed
15% of the offering proceeds.
The items described above represent all the compensation
the
General Partners or their affiliates will receive either directly
or indirectly as charges to the Partnership or the Limited
Partners.
THE FOLLOWING SUMMARY DOES NOT CONSTITUTE A
REPRESENTATION
BY THE PARTNERSHIP AS TO THE ACTUAL OPERATING EXPENSES OF THE
PARTNERSHIP. FURTHERMORE, THERE CAN BE NO ASSURANCE THAT THE
EXPENSES TO BE INCURRED BY THE PARTNERSHIP WILL NOT EXCEED THE
AMOUNTS AS PROJECTED OR THAT THERE WILL BE NO OTHER EXPENSES.
PROJECTED
OPERATING EXPENSES
Attributable to
Limited Partner Units
for the Current 12-Month
Period of Operations
(January 1 -
December 31, 1996)
<TABLE>
<CAPTION>
Dollar
Item Amount (1)
- ---- ----------
<S> <C>
Management Allocations (2) $ 145,000
Incentive Allocations (3) --
Brokerage Commissions (4) 600,000
Administrative Expenses (5) 80,000
--------
Total $ 825,000
========
</TABLE>
- -----------------
(1) All dollar amounts calculated based on the average
Partnership's Net Asset Value attributable to Limited
Partner Units January through May, 1996, and pro-rated
for
the remainder of the 12-month period.
(2) Fixed at 1/3 of 1% per month (a 4% annual rate) of the
Partnership's Adjusted Asset Value attributable to
Limited
Partner Units at month-end.
(3) Since the incentive fee is based on a formula (15% of Net
New Appreciation attributable to Limited Partner Units)
which depends upon Partnership trading performance and
since
Partnership trading performance is incapable of
projection,
the General Partner has determined not to estimate these
amounts.
(4) Based on roundturn brokerage commissions of $32.50
estimated
to be 2.5% per month (30% per year).
(5) Based on the ordinary administrative expenses to be
incurred
by the Partnership estimated at 2% per year of the
Partnership's average month-end Net Assets. Assumes that
the Partnership's Net Assets attributable to Limited
Partnership Units remain unchanged throughout the
12-month
period. Of the Administrative Expenses, 15% is estimated
to
be used for postage and mailing supplies, 60% is
estimated
to be used for audit and tax services (including
preparation
of the Partnership's tax return, required audits by CFTC
regulations, accounting reviews for Form 10-K's and
10-Qs),
and 25% is estimated to be used for legal fees.
A Unit subscribed for at the Net Asset Value of $100 must
earn gross trading profits plus interest income of $42.00 from
the Partnership's trading operations in order for an investor,
upon redemption of such Unit at the end one year, to receive $104
(representing the beginning Net Asset Value of such a Unit at the
commencement of trading operations plus the 4% sales commission)
after payment by the Partnership of its expenses and 2%
redemption fee.
If a limited Partner subscribed for a Unit at the Net
Asset
Value of $104 per Unit and immediately redeemed the Unit prior
to the commencement of trading operations (assuming that the
Partnership Agreement would allow such an immediate redemption),
the Limited Partner would receive $96 after reduction for the 4%
sales commission and a 4% redemption charge.
A break-even analysis, taking into account all fees and
expenses enumerated above is set forth at page 31 above under the
heading "Break-Even Analysis."
ACTUAL
OPERATING EXPENSES
Attributable to Limited
Partnership Units
for the Previous 12-Month
Period of Operations
(January 1 -
December 31, 1995)
<TABLE>
<CAPTION>
Dollar
Item Amount
---- ------
<S> <C>
Management Allocations(1) $ 85,331
Incentive Allocations(2) 108,815
Brokerage Commissions(3) 320,062
Administrative Expenses(4) 44,869
-------
Total $ 559,077
</TABLE>
- --------------
(1) Fixed at 1/3 of 1% per month (a 4% annual rate) of the
Partnership's Adjusted Asset Value attributable to
Limited
Partner Units at month-end.
(2) The incentive fee is based on a formula equal to 15% of
Net
New Appreciation attributable to Limited Partner Units.
(3) Based on roundturn brokerage commissions of $32.50.
(4) Based on the ordinary administrative expenses to be
incurred
by the Partnership estimated at 2% per year of the
Partnership's average month-end Net Assets
The General Partner will furnish to each Limited Partner
a
monthly account statement describing the performance of the
Partnership and setting forth the aggregate Management
Allocation, Incentive Allocation, brokerage commissions,
administrative expenses, and other fees and expenses incurred or
accrued by the Partnership during the month and certain other
information. See "The Partnership Agreement -- Reports and
Accounting."
BUSINESS OF THE
PARTNERSHIP
The Partnership was organized as a limited partnership
under
the laws of the State of Tennessee on September 19, 1990. The
Partnership will engage in speculative trading of commodity
futures contracts, forward contracts, commodity options and other
interests in commodities including, without limitation futures
contracts and options on financial instruments, physical
commodities and stock indices on organized exchanges in the U.S.
and abroad. As of June 30, 1996, approximately 100% of the
Partnership's assets were invested in commodity futures and
commodity options traded on U.S. exchanges and approximately 90%
of those investment activities were in agricultural commodities.
See "Use of Proceeds," "Commodity Futures Market--Regulation,"
"Trading Approach" and "Trading Policies."
USE OF
PROCEEDS
The net proceeds from the offering will be deposited in
the
Partnership's trading account at Refco to be used for trading in
futures contracts and other commodity interests in accordance
with the trading techniques and policies described under "Trading
Approach" and "Trading Policies." Funds not required to be held
by Refco in the Partnership's trading account may be invested by
the Managing General Partner for the benefit of the Partnership
in short term interest bearing obligations, primarily in
governmental obligations and obligations of commercial banks.
Approximately 50% of the Partnership's assets could be committed
as original margin for futures contracts, but from time to time
the percentage of assets committed as margin may be more or less
than such amount. The balance of the Partnership's assets will
be retained in the Partnership's commodity account with Refco to
apply as additional margin, if needed, or for operating purposes.
The Partnership will make no loans. Pursuant to Section 4d(2) of
the CEA of 1934, the Partnership's commodity account with Refco
will be segregated and neither commingled with the assets of any
other entity, nor used as margin for any other account. The
assets of the Partnership may be invested, from time to time, in
other entities engaged in commodity investments, but only if the
commission burden on such assets does not exceed that which such
assets would have borne had they been invested directly by the
Partnership as described herein; however, no such investment
shall be made if such investment will be deemed to be an
impermissible co-mingling of assets under applicable laws and
regulations. Deposit of assets with a futures commission
merchant as margin does not constitute commingling.
CAPITALIZATION
The capitalization of the Partnership is set forth in the
most recent financial statements of the Partnership prepared by
its independent accounting firm and included herein beginning at
page F-2.
DISTRIBUTIONS
TO PARTNERS
Distributions of profits, if any, will be made solely at
the
discretion of the Managing General Partner. The Managing General
Partner intends to make distributions only if substantial profits
are realized by the Partnership and only if the Average Net Asset
Value per Unit is at least $100 after the distribution. See
"Adjusted Asset Value and Net Asset Value." Subject to the
foregoing, the Managing General Partner intends to make annual
cash distributions in such amounts as will approximate a
Partner's tax liability with respect to Partnership income for
the fiscal year immediately preceding such distribution.
However, there can be no assurances that such distributions can
be made at such times or in such amounts and it is possible that
no distributions will be made in some years in which profits are
realized. Also, each Limited Partner will be required to include
his share of profits into income for tax purposes regardless of
whether any distributions are made. See "Certain Federal Income
Tax Aspects."
THE GENERAL
PARTNERS
Description of the Financial General Partner.
- --------------------------------------------
RanDelta Capital Partners, L.P. ("RanDelta"), the
Financial
General Partner, is a Tennessee limited partnership organized on
September 19, 1990. Randell Commodity Corporation, the Managing
General Partner is the general partner of RanDelta. The sole
limited partner of RanDelta is an affiliate of Refco, the Futures
Commission Merchant for the Partnership.
Description of the Managing General Partner.
- --------------------------------------------
Randell Commodity Corporation, the Managing General
Partner,
is a Tennessee corporation organized on January 10, 1983, and is
the commodity pool operator and the Commodity Trading Advisor for
the Partnership. Randell Commodity Corporation will make the
Partnerships commodities trading decisions. Randell Commodity
Corporation has been registered with the CFTC as a commodity pool
operator since May 5, 1983, and as a commodity trading advisor
since July 1, 1984, and has been a member of the NFA since March
24, 1984. The Managing General Partner is a wholly owned
subsidiary of Randell Corporation, a Delaware corporation, which
is wholly owned by Frank L. Watson, Jr. Mr. Watson is Chairman
of the Managing General Partner and a partner in Waring Cox, PLC,
Memphis, Tennessee, which is counsel to the Partnership, the
General Partner and the Memphis branch of Refco in connection
with this Continuous Offering. Randell Corporation was
registered with the CFTC as a commodity pool operator from July
1, 1982, to June 29, 1992, and as a commodity pool operator from
July 1, 1982, to July 23, 1994.
The officers and directors of the Managing General
Partner
and their business experience for the past 5 years is set forth
below.
Frank L. Watson, Jr., Chairman. Mr. Watson, 55, received
a
Bachelor of Arts degree from the University of Arkansas and a J.
D. degree from Tulane University. He is the sole shareholder of
Randell Corporation, the parent of Randell Commodity Corporation,
the Managing General Partner, and has been a Director of Randell
Commodity Corporation since its inception. Since 1973, Mr.
Watson has been an active partner in the Waring Cox law firm.
Mr. Watson is engaged in the active practice of law.
Carol V. Watson, Vice President. Mrs. Watson was elected
Vice President of Randell Corporation and Randell Commodity
Corporation in March, 1989.
Marty Morgan, Secretary. Ms. Morgan was elected
Secretary
of Randell Corporation and Randell Commodity Corporation in July,
1989. Since 1989, she has been employed as a legal secretary at
Waring Cox, PLC but has continued to retain her duties as
secretary.
Billy F. Dutton Jr., Treasurer. Mr. Dutton received a
Bachelor of Science degree in Business Administration and an
M.B.A. with a major in Accounting from Memphis State University.
On February 1, 1984, he was elected treasurer of Randell
Commodity Corporation and Randell Corporation. Mr. Dutton
graduated from the Southern College of Optometry in May of 1990.
Since June, 1990, he has maintained a full time practice but has
continued to retain his duties as treasurer.
Administrative, Civil or Criminal Actions. During the
past
5 years, there have been no administrative, civil or criminal
actions against the General Partners or any principal or
affiliate of the General Partners.
Duties of the Managing General Partner.
The Managing General Partner is responsible for the (i)
preparation of monthly and annual reports to the limited
partners; (ii) filing reports required by the CFTC, the
Securities and Exchange Commission and any other federal or state
agencies; (iii) calculation of Adjusted Asset Value, Net Asset
Value and all Management and Incentive Allocations; (iv) and
preparation of all accounting information. The Managing General
Partner will provide suitable facilities and procedures for
handling redemptions, transfers, distributions of profits (if
any) and orderly liquidation of the Partnership. Although Refco
will act as the Partnership's initial futures commission
merchant, the Managing General Partner is responsible for
selecting other futures commission merchants in the event Refco
is unable or unwilling to continue in its capacity, and the
Managing General Partner will review, not less often than
annually, the brokerage commission rates charged to comparable
commodity pools by major futures commission merchants who acted
as their sponsors to determine that the commission rates paid by
the Partnership are fair and consistent and competitive with such
other rates. Although the Managing General Partner will act as
the Partnership's initial commodity trading advisor, if it
becomes unable or unwilling to act as such with respect to all or
any portion or the Partnership's assets, it may in its discretion
select another qualified advisor or advisors. The Managing
General Partner will seek to avoid any excessive trading in the
Partnership's trading accounts.
In the event of a decline as of the close of business on
any
day in the Average Net Asset Value per Unit to 50% (or less) of
the highest Average Net Asset Value at which Units were purchased
(after adjusting for all distributions), the Managing General
Partner will cause the Partnership to cease trading and within
seven business days thereof will so notify the Limited Partners
and set a Special Redemption Date. Included in such notification
will be a description of the Limited Partner's voting and
redemption rights. See "The Partnership Agreement - Reports to
Limited Partners," and "Redemptions."
For a discussion of the General Partners' legal duties
and
obligations as a fiduciary of the Partnership, see "Fiduciary
Responsibility of the General Partners."
Minimum Net Worth and Purchase Requirements.
The Managing General Partner is registered as a commodity
pool operator with the CFTC. At present, the CFTC itself imposes
no minimum net worth or "net capital" requirements on commodity
pool operators. However, certain state securities
administrators, as a condition to approving the sale of units in
a commodity pool within their jurisdictions, require that the
General Partners and other commodity pool operators maintain a
minimum net worth. See "Risk Factors - General Partners'
Financial Condition" and "Conflicts of Interest - "Brokerage
Charges."
The Partnership Agreement required the General Partners
to
contribute to the Partnership the lesser of $100,000 or 3% of the
total capitalization of the Partnership. As of June 30, 1996,
the Managing General Partner beneficially owned approximately
$3,000, or .08%, and the Financial General Partner beneficially
owned approximately $306,000 or 7.44% of the Partnership. The
above to the contrary notwithstanding, in no event will the
General Partners' interest be less than an amount which will
entitle them to an interest of at least 1% in each material item
of Partnership income, gain, loss, deduction or credit
represented by units of general partnership interest. The
General Partners will share Partnership losses and profits with
the Limited Partners pro rata to the extent of their investment.
The General Partners may not transfer their interests so long as
they are acting as the General Partners. There are no
arrangements or commitments for any of the General Partners or
their affiliates to purchase Units in the Partnership. At the
end of any month, the General Partners may withdraw funds from
their Partnership capital accounts, so long as the aggregate
investment of the General Partners in the Partnership meets the
minimum investment requirements for the General Partners set
forth above and does not impair the ability of the Partnership to
fulfill its obligations to the Limited Partners under the
Partnership Agreement or to the creditors of the Partnership.
The General Partners, Refco and/or their affiliates may purchase
up to five percent (5%) of the 100,000 Units offered for
investment purposes.
Departure of Delta International, Inc.
On May 9, 1994, transactions were consummated pursuant to
which Delta International, Inc. terminated its services as a
trading advisor to the Partnership and withdrew as a co-general
partner of RanDelta Capital Partners, L.P. (the Financial General
Partner) effective March 31, 1994. These transactions were
effected without any cost or expense to the Partnership.
PAST PERFORMANCE OF
THE PARTNERSHIP
The following table presents the performance history for
Ceres Fund, L.P., a Tennessee Limited Partnership that commenced
operations in December 1991. The Managing General Partner is the
commodity pool operator. Ceres Fund, L.P. provides for a monthly
management fee equal to 1/3 of 1% (4% per annum) of partnership
net assets, a quarterly incentive fee of 15% of new trading gains
and brokerage commissions equal to $32.50 per roundturn (plus
applicable exchange and NFA fees).
IT SHOULD NOT BE ASSUMED THAT PARTICIPANTS IN THE
PARTNERSHIP WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE
EXPERIENCED BY INVESTORS IN THE PAST. THE RESULTS SET FORTH
BELOW ARE NOT INDICATIVE OF, AND HAVE NO BEARING ON, ANY RESULTS
THAT MAY BE OBTAINED BY THE PARTNERSHIP NOR ARE THE PAST RESULTS
OF THE OFFERED POOL. A GUARANTEE OF THE FUTURE PERFORMANCE OF
THE PARTNERSHIP. THIS IS DUE IN LARGE PART TO THE FACT THAT THE
RESULTS CONTAINED IN THESE TABLES DERIVE TO AN EXTENT FROM THE
UNCERTAIN NATURE AND FUNCTION OF THE COMMODITIES MARKETS AS WELL
AS THE DIVERGENT TRADING STRATEGIES, POLICIES AND METHODS OF THE
ADVISORS DIRECTING THE VARIOUS FUNDS.
The Managing General Partner and its officers, directors,
employees and affiliates have in the past traded and plan to
continue to trade, commodity interests for their own accounts.
The records of any such trading of proprietary accounts will not
be made available for inspection by any Limited Partner.
CAPSULE PERFORMANCE OF
CERES FUND, L.P.
Type of Pool: Publicly Offered (Continuous)
Date of Inception of Trading: December 1991
Aggregate Gross Capital Subscriptions to the Pool: $4,400,894
-----
Current Net Asset Value: $4,370,670
Largest Monthly Drawdown: $438,394 / (18%) - 5/94
Worst Peak to Valley Drawdown: $1,226,003 / (43.7%) - 1/94-8/94
PAST PERFORMANCE IS
NOT NECESSARILY
INDICATIVE OF
FUTURE RESULTS.
Ceres - Percentage rate of return [computed on a
compounded
monthly basis]
<TABLE>
<CAPTION>
Month 1996 1995 1994 1993 1992
1991
- ----- ---- ---- ---- ---- ----
----
<S> <C> <C> <C> <C> <C>
<C>
Jan 1.3% (1.7)% (8.8)% (3.6)% 1.9%
--
Feb 1.4 1.6 (0.6) (5.7) (2.0)
--
Mar 4.8 (8.3) (5.2) (6.3) 0.0
--
April 50.6 6.8 (4.0) 6.3 (0.7)
--
May 8.7 3.0 (18.0) 0.0 2.7
--
June -3.5 19.5 (12.4) 9.6 1.1
--
July -- (0.5) (0.4) (1.6) 3.1
--
Aug -- 5.6 (2.2) 0.0 (1.8)
--
Sept -- 25.0 5.8 (0.9) (2.9)
--
Oct -- 18.1 (3.4) (0.4) 1.9
--
Nov -- (5.7) (1.3) 13.1 (4.8)
--
Dec -- 11.4 9.8 2.3
(0.5) 2.0
---- ---- ---- ----
----
Year 70% 96.17% (36.06)% 11.52%
(2.3)% n.a.
</TABLE>
"Drawdown" means losses experienced by the pool over a specified
period.
"Largest Monthly Drawdown" means greatest decline in net asset
value due to losses sustained by the pool from the beginning to
the end of a calendar month.
"Largest Peak to Valley Drawdown" means greatest cumulative
decline in month-end net asset value of the pool due to losses
sustained during a period in which the initial month-end net
asset value of the pool is not equaled or exceeded by a
subsequent month-end net asset value.
"Rate of Return" is calculated each month by dividing net
performance by beginning net asset value. The monthly returns
are then compounded to arrive at the annual Rate of Return.
BREAK EVEN
ANALYSIS
The following analysis takes into account all fees and expenses
enumerated above and is expressed in a dollar amount and as a
percentage of a $2,000 investment.
<TABLE>
<CAPTION>
Percentage of
Description of Charges $2,000 Investment $2,000
investment
- ---------------------- -----------------
- -----------------
<S> <C> <C>
Syndication and Selling Expense $ 80
4%
Management Fee 80
4
Incentive Fee (15% of Net
New Appreciation) 27
1.35
Fund Operating Expense 40
2
Brokerage Commission
and Trading Fee 600
30
Less Interest Income ( 100 )
( 5 )
---
---
Redemption Charges 100
5
---
-
Estimated Break Even Level
after Redemption Charges $827
41.35%
</TABLE>
Management Allocation. For acting as General Partners, commodity
pool operator and trading advisor, the General Partners will
receive a monthly management special allocation under the
Partnership Agreement equal to 1/3 of 1% (4% per annum) of the
Adjusted Asset Value of the Partnership attributable to the Units
of limited partnership interest ("Management Allocation").
Adjusted Asset Value generally means the market value of all of
the assets of the Partnership less certain expenses and
liabilities, but before deduction for the Management Allocation,
the Incentive Allocation and accrued brokerage commissions on
open trades. See "Adjusted Asset Value and Net Asset Value".
The Management Allocation will be calculated and added to the
General Partners' capital accounts each month regardless of
whether the Partnership has any profits. The burden of the
Management Allocation will be charged entirely against the Units
of the Limited Partners.
Incentive Allocation. The General Partners will also receive a
quarterly incentive allocation ("Incentive Allocation") under the
Partnership Agreement equal to 15% of Net New Appreciation
achieved by Units as of the end of any calendar quarter. The
Incentive Allocation will be charged only against the Units of
those Limited Partners whose Units have achieved Net New
Appreciation as of the end of each calendar quarter. "Net New
Appreciation" means the increase, if any, in the Adjusted Asset
Value attained by such Unit as of the end of any quarter (after
reduction for the Management Allocation chargeable to such Unit)
over the highest Net Asset Value of the Unit as of the end of any
prior quarter, adjusted for distributions and redemptions. The
Incentive Allocation will be calculated and added to the General
Partners' capital accounts each quarter; however, the Incentive
Allocation will not be paid to the General Partners unless there
is Net New Appreciation with respect to any individual Unit as of
the end of each calendar quarter. Subject to the foregoing, if
any payment is made to the General Partners in respect of
quarterly appreciation experienced by the Limited Partner, and
the Limited Partner thereafter incurs a decline in his respective
Net Asset Value per Unit for any subsequent calendar quarter, the
General Partners will retain the amount previously paid with
respect to the prior appreciation. However, no subsequent
quarterly Incentive Allocation would be paid with respect to any
Units which have increased in value until all of the declines for
such Units are recovered, and the Net Asset Value of such Units
reaches a quarterly value in excess of any prior highest
quarterly value.
THE FUTURES
COMMISSION MERCHANT
Description of the Futures Commission Merchant. Refco
will
act as the Partnership's Futures Commission Merchant pursuant to
the Customer Agreement described below. Refco, organized in
1969, is primarily engaged in the commodity brokerage business.
Its principal office is located at 111 W. Jackson Blvd., Suite
1800, Chicago, Illinois 60604, and it has over 100 offices and
agents located in the United States, Canada, Europe, Australia
and Singapore. It is a clearing member of the Chicago Board of
Trade, the Chicago Mercantile Exchange, and all other major
United States commodity exchanges.
Certain officers, directors and employees of Refco and
its
associated persons trade commodity futures contracts for their
own accounts. It is possible that such persons may take
positions either similar or opposite to positions taken by the
Partnership and that the Partnership and such persons may from
time to time be competing for similar positions in the futures
markets. Furthermore, it is possible that Refco will effect
transactions for the Partnership in which the other party to such
transaction is an employee of, or otherwise associated with,
Refco. In addition, such persons may purchase Units in the
Partnership. See "Risk Factors" and "Conflicts of Interest."
Customer Agreement. The Partnership and Refco will enter
into a non-exclusive Customer Agreement, which provides that
Refco executes trades on behalf of the Partnership pursuant to
the instructions of the Managing General Partner. The
Partnership will pay Refco brokerage commissions on trades
executed by it on behalf of the Partnership at a rate (including
pit brokerage fees) equal to $32.50 per round turn, plus
applicable exchange fees and National Futures Association ("NFA")
fees. The Managing General Partner intends to review the
brokerage commission rates charged to the Partnership by Refco at
least annually to assure itself that such rates are reasonable in
relation to rates charged by other futures commission merchants
for similar services to commodity pools comparable to the
Partnership. In no event will the Partnership pay brokerage
commissions in excess of 80% of the Futures Commission Merchant's
(or its successor's) published retail rate, plus pit brokerage
fees. The Customer Agreement is cancelable by either the
Partnership or Refco at any time on 5 days' notice. While the
Customer Agreement is non-exclusive and the Partnership has the
right to seek lower commission rates from other brokers at any
time, the General Partners do not intend to negotiate with any
other brokerage firms for brokerage services for the Partnership
so long as the rates and services charged and provided by Refco
are reasonable in relation to the rates charged by other futures
commission merchants for comparable services. See "Conflicts of
Interest" and "Fiduciary Responsibility of the General Partners."
Although the General Partners believe that Refco's rates are
generally competitive with those charged by other major futures
commission merchants, certain non-member customers of Refco pay
and will continue to pay commissions at rates which are both
substantially below and substantially higher than those to be
charged to the Partnership. No assurance is given that the
commission rates to be charged to the Partnership will be as low
as rates which might be charged by other futures commission
merchants for similar trades.
Refco assumes no responsibility under the Customer
Agreement
except for rendering in good faith the services required of it
thereunder. The Customer Agreement provides that Refco, its
stockholders, directors, officers, employees and associated per-
sons shall not be liable to the Partnership, its partners or any
of their successors or assigns, except by reason of acts or
omissions due to misconduct, negligence or not having acted in
good faith in the reasonable belief that their actions were taken
in, or not opposed to, the best interests of the Partnership.
Selling Agreement. Pursuant to the Selling Agreements
between the Partnership and its various selling agents, Refco has
agreed to pay to qualified Selling Agents commissions on a
continuing basis for services to be rendered by the Selling
Agents to purchasers of Units in an amount equal to .4167% per
month (5% per annum) so long as the Units for which they are
responsible remain outstanding.
Relationship with Financial General Partner. An
affiliate
of Refco is the sole limited partner in the Financial General
Partner. That affiliate has provided the asset which permits the
Financial General Partner to act as such. See "Conflicts of
Interest."
Administrative, Civil or Criminal Actions. Neither Refco
nor any of its principals have been the subject of any
administrative, civil, or criminal action, whether pending, on
appeal, or concluded, within the preceding five years that Refco
would deem material for purposes of Part 4 of the Regulations of
the Commodity Futures Trading Commission ("CFTC") except as
follows:
On March 12, 1992, Refco settled a CFTC administrative
proceeding (In the Matter of Refco, Inc. and Ray E. Friedman,
CFTC Docket No. 90-21) alleging that Refco failed to keep the
office orders of Mr. Ray E. Friedman (then a director of Refco),
failed to supervise Mr. Friedman's personal trading, was
derivatively liable for Mr. Friedman's alleged violations of
speculative position limits, and had thereby violated earlier
cease and desist orders. Without admitting any of the CFTC
allegations, Refco settled this matter in order to avoid
protracted litigation and related costs by paying a civil penalty
of $440,000 and by agreeing to a cease and desist order.
On December 20, 1994, Refco settled a CFTC administrative
proceeding (In the Matter of Refco, Inc., CFTC Docker No. 95-2)
in which Refco was alleged to have violated certain financial
reporting, recordkeeping and segregation provisions of the
Commodity Exchange Act and CFTC regulations as a result of some
reporting and investment practices of Refco during 1990 and 1991.
Without any hearing on the merits of the CFTC allegations and
without admitting any of the allegations, Refco settled the
matter and agreed to payment of $1.25 million civil penalty,
entry of a cease and desist order, and appointment of an
independent consultant to review Refco's financial manual.
On January 23, 1996, Refco settled a CFTC administrative
proceeding (In the Matter of Refco, Inc., CFTC Docket No. 96-2)
in which Refco was alleged to have violated certain segregation
and supervision requirements and prior cease and desist orders.
The CFTC allegations concerned Refco's consolidated margining of
certain German accounts which were maintained at Refco from 1989
through April 1992. Refco simply executed and cleared
transactions for these accounts in accordance with client
instructions; Refco had no role in raising funds from investors
or in the trading decisions for these account. Refco had
received what it considered appropriate authorization from the
controlling shareholder of the account's promoters to margin the
accounts and transfer funds between and among the accounts on a
consolidated basis. The CFTC maintained that Refco should not
have relied upon such authorizations for the final consolidation
of the accounts. Without admitting any of the CFTC allegations
or findings, Refco settled the proceeding and agreed to payment
of a $925,000 civil penalty, entry of a cease and desist order,
and implementation of certain internal controls and procedures.
Refco does not believe that any of the foregoing matters
are
material to the clearing and execution services that it will
render.
Other. Refco acts only as the clearing broker for the
Partnership and as such will receive compensation from the
Partnership for execution of orders on behalf of the Partnership.
Refco is not involved in the offering of the Partnership or
solicitation of limited partners, but, has advanced funds for the
organization of the Partnership and the offering of Units. Refco
is not affiliated with the Partnership in any way, is not a
promoter or underwriter, and has not reviewed this document or
any other statements by the General Partners or any of its
employees or agents to determine their accuracy. Refco does not
accept any responsibility for any trading decisions made on
behalf of the Partnership, any statement in this document, any
claim made by a representative of the General Partners or the
Partnership, or any monies or property of the Partnership not
maintained with Refco.
TRADING
APPROACH
Trading Approach and Theory. The Trading Advisor will
make
the Partnership's trading decisions. The Trading Advisor
believes that the greatest profits are realized by futures
traders who identify and concentrate on major moves in a
particular commodity or commodity complex. The Trading Advisor
intends to attempt to identify these opportunities through the
utilization of registered commodity representatives who
concentrate on a single commodity or commodity complex ("Market
Specialist") and by the application of the fundamental approach
described below to determine whether to undertake a particular
opportunity. The timing of market entry and exit and the amount
of risk to be taken with respect to a particular opportunity are
to be determined using the technical approaches described below,
and "stop loss" trading policies developed by the Trading
Advisor. The Market Specialists will not have discretion to open
or liquidate commodity positions on behalf of the Partnership.
The Trading Advisor believes that Market Specialists, by virtue
of their specialization or concentration on a particular
commodity or commodity complex have special insights into the
trading opportunities presented from time to time and that such
Market Specialists will assist the Trading Advisor in realizing
such opportunities. The Trading Advisor intends to trade
accounts through these Market Specialists, who will receive
commissions thereon; therefor, a conflict of interest between the
Market Specialist and the Partnership may be deemed to exist.
However, the Trading Advisor believes that its Base Capital Asset
Management System and Campaign Strategies Trading System, which
are designed to limit losses and drawdowns, will provide
incentives to the Market Specialists to recommend only the most
promising trading opportunities.
The Base Capital Asset Management System (B-CAM). The
Base
Capital Asset Management System is a money management system
which acts as a filter with respect to (i) the allocation of
capital to a particular futures trading opportunity, (ii) the
amount of margin utilized in a futures position, (iii) the amount
of loss realized in a futures position, (iv) the preservation of
profits achieved in a particular futures position, and (v) the
termination of a particular futures position.
The Campaign Strategies Trading System. The Campaign
Strategies Trading System has two basic aspects - (i) the
"overview", which is based on fundamental analysis, and (ii) the
technical trading model, which is a primary analysis component of
the system - incorporated in an analytical model in an attempt to
anticipate the direction of futures prices and to establish
positions which will capitalize on price trends. For the
"overview", the Advisor segregates futures into two major groups:
agriculture commodities such as grains, livestock & meats, and
other foods; and financial futures such as currencies, financial
instruments and metals. Generally speaking, the Trading Advisor
has a bias towards holding contracts in agricultural commodities.
The Campaign Strategies Trading System will monitor over
50
commodity futures traded on recognized commodity exchanges.
These over 50 distinct futures contracts may, however, be
summarized into separate futures groupings within two major
categories, i.e. -- "Agricultural" and "Financial", as follows:
AGRICULTURAL
------------
(1) Grains
(2) Soybean Complex
(3) Fiber & Forest Products
(4) Livestock & Meats
(5) Foods & Imports
For example, Grains would include Corn, Oats and Wheat.
Soybean Complex would include Soybeans, Soybean Meal and Soybean
Oil. Fibers & Forest products represent Cotton and Lumber.
Livestock & Meats include Live Cattle, Live Feeder Cattle, Hogs
and Pork Bellies. Foods and Imports (sometimes referred to as
"exotics") include Cocoa, Coffee, Orange Juice and Sugar.
FINANCIAL
---------
(1) Currencies
(2) Financial Instruments
(3) Stock Index
(4) Metals
(5) Energy
Examples of Currencies are British Pound, Deutsche Mark,
Japanese Yen, Swiss Franc and U.S. Dollar Index. Financial
Instruments would include T-Bills, T-Bonds and Eurodollars.
Stock Index futures include NYSE Composite, S&P 500 Index and Dow
Jones Industrials. Metals Futures contain Copper, Gold, Platinum
and Silver. Energy futures include Heating Oil, Light Crude Oil,
Natural Gas and Unleaded Gas.
After analyzing these two major futures groups from a
fundamental standpoint to determine which commodities or
commodity complexes produce the most promising opportunities, the
Trading Advisor then applies technical analysis to confirm which
of the opportunities should be undertaken and the size of the
positions to be taken. The technical factors used by the Trading
Advisor are statistically generated, sometimes computer generated
and involve, among other things, weighted moving averages,
stochastics, directional movement indicators, Fibonacci analysis
and trend analysis. The utilization of these factors may be
qualitative and not quantitative; therefore, the Trading Advisor
will exercise a significant degree of discretion in connection
with the application of the Campaign Strategies Trading System.
The intended result of this process is to take only those
positions which appear to provide the most promising
opportunities from both a fundamental and a technical standpoint.
The B-CAM and Campaign Strategies Trading Systems are the
result of a joint development effort between the Trading Advisor
and Delta International, Inc., a Tennessee corporation (until
March 31, 1994, a trading advisor to the Partnership), and are
proprietary systems to each of them, and will not be made
available to the Limited Partners. No assurance can be given
that these systems will result in profits for the Partnership.
These systems are dynamic and will undergo significant changes
and adjustments from time to time.
TRADING
POLICIES
The objective of the Partnership is to achieve capital
appreciation of its assets through speculative trading in
commodity futures contracts, forward contracts, commodity options
and other interests in commodities including, without limitation,
futures contracts and options on financial instruments, physical
commodities and stock indices on organized exchanges in the U.S.
and abroad.
The Partnership will not (i) borrow (except as stated
below)
or loan money; (ii) permit commission rebates or give-ups to be
received by the Managing General Partner; (iii) invest in
securities (other than those in which customers' funds are
permitted to be invested under the Commodity Exchange Act and
regulations thereunder); (iv) commingle Partnership assets except
as permitted by law; or (v) permit churning of Partnership
commodity trading accounts.
In general, and subject to the foregoing prohibitions,
the
Partnership will attempt to operate within the following trading
policies, but no representation can be or is made that such
policies will be adhered to at all times:
1. The Partnership will take positions
in futures
contracts which are traded in sufficient volume to
permit,
in the opinion of the Trading Advisor, ease of taking and
liquidating positions.
2. In an effort to limit the risk, the
Managing
General Partner will seek (within certain limitations) to
diversify the Partnership's portfolio among several
commodities. This is expected to substantially reduce
the
effect of any single commodity on the portfolio's overall
risk. In addition, diversification is expected to
contribute to consistency of performance by reducing the
variability of overall returns relative to variability of
returns from any single commodity.
3. The Partnership may occasionally make
or accept
delivery of a commodity in order to take advantage of
market
anomalies. Normally, such deliveries accepted will be
disposed of promptly by retendering to the appropriate
clearing house the warehouse receipt representing the
delivery. If such retendering does not promptly occur,
the
Partnership's position in the physical commodity will be
fully hedged. For example, one such anomaly, known as a
"cash and carry" situation (which is analogous to an
arbitrage situation in the securities or foreign exchange
markets), enables a trader to establish a long futures
position in a nearby delivery month offset by a short
position in a more distant delivery month at a price
differential virtually guaranteeing a profit. The
profit,
however, might only be realizable by a trader having
sufficient capital to accept delivery of (and pay for)
the
commodities and redeliver them against the open short
futures position. The Partnership expects that it may
engage in such transactions and to utilize portions of
the
reserves to carry the cash commodities. Although not
often
available, the General Partners consider such "cash and
carry" situations to be comparatively low risk
transactions.
4. The Partnership will not acquire
additional
positions in any futures or forward contract for any
contract month or option if such additional positions
would
result in a net long or short position for that futures
or
forward contract or option for that month requiring as
margin or premium more than 15% of the Partnership's
Adjusted Asset Value. For purposes of implementing this
policy, soybean oil and soybean meal will be treated as
one
commodity.
5. The Partnership will not acquire
additional
positions in any futures or forward contract or option if
such additional positions would result in the aggregate
net
long or short positions for all futures or forward
contracts
and options requiring as margin or premium for all
outstanding positions more than 80% of the Partnership's
Adjusted Asset Value.
6. The Partnership generally will avoid
entering into
an open position in a futures contract in any commodity
after delivery has commenced in the commodity for the
contract month of the contract.
7. In connection with ownership of cash
commodities,
the Partnership may, when the Managing General Partner
deems
it advisable, borrow from banks or other sources using
the
cash commodities as collateral. Such borrowings could be
used to finance the acquisition of such cash commodities
or
to supply variation margin as required for any offsetting
short futures positions.
8. In furtherance of Partnership trading
policies,
the Partnership will not:
(a) Loan money to, or guarantee the
obligations
of, any Partner, except open account
indebtedness
incurred for goods or services rendered in the
ordinary
course of the Partnership's commodity trading
business;
(b) Commingle its assets with those
of any other
person, except to the extent permitted under
applicable
law, including the Commodity Exchange Act, as
amended,
and regulations promulgated thereunder;
(c) Trade in cash commodities unless
the
commodity is, in general, hedged;
(d) Engage in the pyramiding of its
positions
(i.e., the use of unrealized profits on
existing
positions to provide margins for additional
commodity
futures contracts of the same or a related
underlying
commodity). However, the Partnership's open
trade
equity on existing positions will be taken into
account
in determining whether to acquire additional
commodity
contracts on behalf of the Partnership;
(e) Permit trading of the
Partnership's commodity
trading account for the purpose of generating
excessive
brokerage commissions; or
(f) Trade in coin futures.
GLOSSARY OF CERTAIN
TERMS AND DEFINITIONS
- ------------------------------------------
The following glossary may assist the prospective
investor
in understanding the terms used in this Prospectus.
Adjusted Asset Value. See the "Adjusted Asset Value and
Net
Asset Value" section in this Prospectus.
Affiliate. See the Fiduciary Responsibility of the
General
Partners" section in this Prospectus.
Associated Persons. Any person who is associated with
any
futures commissions merchant, commodity pool operator, commodity
trading advisor or introductory broker or with any agent thereof
as a partner, officer or employee, in any capacity which involves
(i) solicitation or acceptance of customer orders (other than a
clerical capacity) or (ii) the supervision of any person or
persons so engaged.
Average Net Asset Value per Unit. See the "Adjusted
Asset
Value and Net Asset Value" section in this Prospectus.
Capital Contributions. The total investment in a program
by
a participant or by all participants, as the case may be. See
the "Capitalization" section in this Prospectus.
CFTC. The Commodity Futures Trading Commission.
Commission or Brokerage Commission. The fee charged by
a
broker for executing a trade in a commodity account of a
customer. Commissions are usually charged on a "round-turn"
basis, i.e., only upon the closing of an open position.
Commodity. The term commodity refers to goods, wares,
merchandise, produce and in general everything that is bought and
sold in commerce, including financial instruments and foreign
currencies. Out of this large class, certain commodities,
because of their wide distribution, universal acceptance, and
marketability in commercial channels, have been selected as
appropriate vehicles for trading on various national and
international exchanges located in principal marketing and
commercial areas. Such commodities are traded according to
uniform, established grade standards, in convenient predetermined
lots and quantities, are fungible (allow free substitution of one
lot for another to satisfy a contract) and, with few exceptions,
are storable over periods of time.
Commodity Contract. See "Futures Contract" in this
glossary.
Covered Option. A "covered" option is one in which the
seller of the option owns the underlying commodity or futures
contract at all times when such seller is obligated to deliver
such underlying commodity or futures contract upon the exercise
of the option.
Daily Price Fluctuation Limit. The maximum permitted
fluctuation (imposed by an exchange and approved by the CFTC) in
the price of a futures contract for a given commodity or stock
index that can occur on an exchange on a given day in relation to
the previous day's settlement price. Such maximum permitted
fluctuation is subject to change from time to time by the
exchange.
Delivery. The process of satisfying a commodity futures
contract by transferring ownership of a specified quantity and
grade of a commodity to the purchaser thereof.
Forward Contract. A contract relating to the purchase
and
sale of a physical commodity for delivery at a future date. It
is distinguished from a futures contract in that it is not traded
on an exchange and it contains terms and conditions specifically
negotiated by the parties.
Futures Contract. Contracts made on or through a
commodity
exchange which provide for future delivery of agricultural and
industrial commodities, foreign currencies and financial
instruments, or for cash settlement in the case of stock index
futures. Such contracts are uniform for each commodity or
financial instrument and typically vary only with respect to
price, delivery or settlement time. A commodity futures contract
to accept delivery (buy) is referred to as a "long" contract;
conversely a contract to make delivery (sell) is referred to as a
"short" contract. Until a commodity futures contract is
satisfied by delivery or offset it is said to be an "open" posi-
tion.
Incentive Allocation. See the "Description of Charges to
the Partnership -- General Partner - Incentive Allocation"
section in this Prospectus.
Long or Short Position. A trader is long when he has
bought
a cash commodity or a futures contract, in contrast to a trader
being short, which means he has sold a cash commodity or a
futures contract.
Management Allocation. See the "Description of Charges
to
the Partnership -- General Partner - Management Allocation"
section in this Prospectus.
Margin. Good faith deposits with a broker to assure
fulfillment of a purchase or sale of a futures contract. Margins
do not involve the payment of interest.
Margin Call. A demand for additional funds after the
initial good faith deposit required to maintain a customer's
account in compliance with the requirements of a particular
commodity exchange or of a futures commission merchant.
Net Asset Value and Net Asset Value per Unit. See the
"Adjusted Asset Value and Net Asset Value" section in this
Prospectus.
Net Assets. See the "Adjusted Asset Value and Net Asset
Value" section in this Prospectus.
Net New Appreciation. See the "Description of Charges to
the Partnership -- General Partner - Incentive Allocation"
section in this Prospectus.
New Trading Profits. See Net New Appreciation.
NFA. The National Futures Association.
Option or Option Contract. A contract giving the
purchaser
the right, but not the obligation, to acquire or to dispose of
the commodity or futures contract underlying the option, or the
seller of an option contract the obligation to deliver or take
delivery of the commodity or futures contract underlying the
option. See "Stock Index Futures Options."
Organizational and Offering Expenses. All expenses
incurred
by the Partnership in connection with and in preparing the
Partnership for registration and subsequently offering and
distributing it to the public, including, but not limited to,
total underwriting and brokerage discounts and commissions
(including fees of the underwriters, attorneys), expenses for
printing, engraving, mailing, salaries of employees engaged in
sales activities, charges of transfer agents, registrars,
trustees, escrow holders, depositories, experts, expenses of
qualification of sale of its Units under Federal and state law,
including taxes and fees, accountants' and attorneys' fees. See
"Description of Charges to the Partnership and Partners -- Other"
section in this Prospectus.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor
brokerage, clearing fees, National Futures Association fees, and
exchange fees.
Position Limit. The maximum number of futures contracts
for
a given commodity that can be held or controlled at one time by
one person or a group of persons acting together. Such
limitation is imposed by the CFTC or an exchange.
Pyramiding. A method of using all or part of an
unrealized
profit in a commodity contract position to provide margin for any
additional commodity contract of the same or related commodities.
Redemption Net Asset Value per Unit. See the
"Redemptions"
section in this Prospectus.
Round-turn. The opening and closing of a futures or
option
position consisting of one contract.
Settlement Price. The closing price for futures
contracts
in a particular commodity, financial instrument or stock index
established by the clearing house or exchange after the close of
each day's trading.
Sponsor. Any person directly or indirectly instrumental
in
organizing a program or any person who will manage or participate
in the management of a program, including a futures commission
merchant who pays any portion of the organizational expenses of
the program, and the general partner(s) and any other person who
regularly performs or selects the persons who perform services
for the program. Sponsor does not include wholly independent
third parties such as attorneys, accountants and underwriters
whose only compensation is for professional services rendered in
connection with the offering of the Units. The term "sponsor"
shall be deemed to include its affiliates.
Stock Price Index. A tool for measuring, with a single
numerical value, the current price level of the stocks of a
composite of selected publicly-traded companies, which tend to
reflect the price level of all stocks in the market from which
the constituent corporations were selected. For example, the S&P
500 Stock Price Index is a capitalization-weighted index
comprising 500 of the largest and most actively traded domestic
industrial stocks; the market value of the 500 constituent
companies is equal to approximately 80% of the value of all
stocks traded on the New York Stock Exchange. Other indices
include the New York Stock Exchange Composite Index, the Major
Market Index, the Kansas City Value Line Index and the CRB Index.
Stock Index Futures or Index Futures or Stock Index
Futures
on tracts or Index Futures Contracts. A contract made on or
through a commodity exchange which provides for the future cash
settlement of the contract in an amount equal to a multiple of
the stock price index upon which the particular futures contract
is based. For example, futures contracts based on the S&P 500
Stock Price Index, which currently represent three-quarters of
all domestic stock index futures trading, are settled quarterly,
in cash, with no delivery of securities and without transferring
the full value of the contract, by charging final gains and
losses to the margin accounts of holders based on the opening
value of the S&P 500 Stock Price Index on the settlement date.
The major stock index futures are based on the S&P 500 Index
(traded on the Chicago Mercantile Exchange), the New York Stock
Exchange Composite Index (traded on the New York Futures
Exchange), the Major Market Index (traded on the Chicago Board of
Trade) and the Kansas City Value Line Index (traded on the Kansas
City Board of Trade).
Stock Index Futures Options or Index Futures Options or
Futures Options. A contract giving the purchaser the right, but
not the obligation, to acquire ("call") or to dispose ("put") of
the Stock Index Futures contract underlying the option, or the
seller of a Stock Index Futures Option contract the obligation to
deliver (in the case of a "call" seller) or take delivery (in the
case of a "put" seller) of the futures contract underlying the
option. However, exercise of a Stock Futures Option on the
settlement day of the underlying futures contract results in cash
settlement. On all other days, exercise of a call results in a
long futures position at the strike price in the underlying
contract months, and exercise of a put results in a short futures
position at the strike price in the underlying contract month.
Any short position open at the end of a trading day is liable to
the assignment of a futures position.
Trading Advisor. Any person who for any consideration
engages in the business of advising others, either directly or
indirectly, as to the value, purchase or sale of commodity
contracts or commodity options. See the "Trading Advisors"
section in this Prospectus.
Unrealized Profit or Loss. The profit or loss which
would
be realized on an open position if it were closed out at the
current settlement price.
COMMODITY
FUTURES MARKETS
Commodity Futures
- -----------------
Commodity futures contracts are contracts made on a
commodity exchange which provide for the future delivery of
various agricultural commodities, industrial commodities, foreign
currencies or money market instruments (or cash, in the case of
index futures) at a specified date, time and place. The
contractual obligations may be satisfied either by taking or
making physical delivery of an approved grade of the commodity or
by making an offsetting sale or purchase of an equivalent
commodity futures contract on the same exchange prior to the
designated date of delivery. As an example of an offsetting
transaction in which the physical commodity is not delivered, the
contractual obligations arising from the sale of one contract of
March 1994 wheat on a commodity exchange may be fulfilled at any
time before delivery of the commodity is required by the purchase
of one contract of March 1994 wheat on the same exchange. In
such instance the difference between the price at which the
futures contract was sold and the price paid for the offsetting
purchase, after allowance for the brokerage commission,
represents the profit or loss to the trader.
Commodity futures prices are highly volatile and are
influenced by, among other things, changing supply and demand
relationships, governmental, agricultural, commercial and trade
programs and policies, national and international political and
economic events, weather and climate conditions, insects and
plant disease and purchases by foreign countries. In the case of
stock index futures, prices are highly volatile and are
influenced by a wide, variety of related and random factors such
as interest rates, currency exchange rates, the relationship of
stock prices to dividends, price earnings ratios, the supply of
purchasable stock relative to available cash, program trading,
governmental activities and regulations, political and economic
events, and prevailing psychological characteristics of the
market place, as well as the impact of the trading policies and
decisions of institutions, individual investors and other mutual
fund and pool operators and trading advisors.
Two broad classifications of persons who trade in
commodity
futures are "hedgers" and "speculators." Commercial interests,
including farmers, which market or process commodities, use the
futures markets primarily for hedging. Hedging is a protective
procedure designed to minimize losses which may occur because of
price fluctuations. Commodity markets enable the hedger to shift
the risk of price fluctuations to the speculator. The usual
objective of the hedger is to protect the profit which he expects
to earn from his farming, merchandising or processing operations,
rather than to profit from his futures trading.
The speculator, unlike the hedger, generally expects
neither
to deliver nor receive the physical commodity. Instead, the
speculator risks his capital with the hope of profiting from
price fluctuations in commodity futures contracts. The specu-
lator is, in effect, the risk bearer who assumes the risks which
the hedger seeks to avoid. Speculators rarely take delivery of
the cash commodity but usually close out their futures positions
by entering into offsetting purchases or sales of futures
contracts. Because the speculator may take either long or short
positions in the commodity futures market, it is possible for him
to make profits or incur losses regardless of the direction of
price trends. All trades made by the Partnership will be
speculative rather than for hedging purposes because the
Partnership will not own any underlying stocks upon which the
stock price index, futures and options are based.
Forward Trading
- ---------------
Two additional categories of commodity transactions other
than futures contracts are "spot" contracts and "forward"
contracts. Both of these are varieties of cash commodity
transactions, as they relate to the purchase and sale of specific
physical commodities and may differ from each other with respect
to quantity, payment, grade, mode of shipment, penalties, risk of
loss and the like. The terms of certain forward contracts have
become more standardized and may, in lieu of requiring actual
delivery and acceptance, provide a right of offset or cash
settlement. For example, foreign currencies may also be
purchased or sold for future delivery in the international
foreign exchange market among banks, money market dealers and
brokers. The bank or other institution generally acts as a
principal in such forward contract transactions and includes its
anticipated profit and cost in the price it quotes for such
contract. Such forward contracts generally are not regulated by
the CFTC. Although United States banks, which are major
participants in the forward market, are regulated in various ways
by the Federal Reserve Board, the Comptroller of the Currency and
other federal and state banking officials, such banking
authorities do not regulate forward trading in foreign
currencies. In addition, forward trading in foreign currencies
is not regulated by any foreign governmental agency, although
exchange control restrictions on the movement of foreign
currencies are in effect in many nations. While the United
States currently does not impose restrictions on the movement of
currencies, it could choose to do so, and the imposition or
relaxation of exchange controls in various jurisdictions
significantly could affect the market for that and other
jurisdictions' currencies.
Cash Transactions
- -----------------
Cash commodity transactions may arise in conjunction with
futures transactions. For example, if the holder of a long
contract satisfies his obligations under the contract by taking
delivery of the commodity, such holder is said to have a cash
commodity position. This cash position, if it is not to be used
or processed by the holder, may be sold through spot or forward
contracts or delivered in satisfaction of a futures contract.
Options
- -------
Pursuant to its options program, the CFTC has designated
contract markets for trading commodity options including options
on U.S. Treasury Bond futures and gold futures as well as stock
index futures. The Partnership trades only in stock index
futures options as are established on domestic exchanges.
Trading policies of the Partnership place no limitation on the
percentage of Net Assets which may be invested in options, and
the Partnership may write options.
The risks involved in trading commodity options are
similar
to those involved in trading futures contracts, in that options
are speculative and highly leveraged. Specific market movements
of the commodity or futures contract underlying an option cannot
be predicted. Options are bought and sold on the trading floor
of a commodity exchange. The purchaser of an option pays a
premium and may be charged commissions and other fees. The
writer of an option must make margin deposits and may be charged
commissions and other fees. Exchanges provide trading mechanisms
so that an option once purchased can later be sold and an option
once written can later be liquidated by an offsetting purchase.
However, there can be no assurance that a liquid offset market
will exist for any particular option or at any particular time.
In such case, it might not be possible to effect offsetting
transactions in particular options. Thus, in the case of an
option on a future, to realize any profit, a holder would have to
exercise his option and comply with margin requirements for the
underlying futures contract. A writer could not terminate his
obligation until the option expired or he was assigned an
exercise notice.
Regulation
- ----------
Commodity exchanges in the United States are subject to
regulation by the CFTC under the CEA. The function of the CFTC
is to implement the objectives of the CEA preventing price
manipulation and excessive speculation and promoting orderly and
efficient commodity futures markets. Such regulation, among
other things, provides that futures trading in commodities must
be upon exchanges designated as "contract markets", and that all
trading on such exchanges must be done by or through exchange
members. Futures trading in all commodities traded on domestic
exchanges and in stock index futures is regulated.
The CFTC also has exclusive jurisdiction to regulate the
activities of "commodity trading advisors", "commodity pool
operators", "futures commission merchants" and "introducing
brokers." Registration as a commodity pool operator requires
annual filings with the CFTC and NFA setting forth the
organization, capital structure and identity of the management
and controlling persons of the commodity pool operator. In addi-
tion, the CFTC has authority under the CEA to require and review
books and records of, and review documents prepared by, the
commodity pool operator. The CFTC has adopted regulations which
impose reporting and recordkeeping requirements on commodity pool
operators and commodity trading advisors. The CFTC is authorized
to suspend registration of a commodity pool operator if the CFTC
finds that the pool's trading practices tend to disrupt orderly
market conditions, or that any controlling person is subject to
an order of the CFTC denying such person trading privileges on
any exchange, and in certain other specified circumstances. The
CFTC imposes similar requirements on commodity trading advisors.
In recent years, significant regulatory responsibilities
under the CEA have been transferred from the CFTC to the NFA,
which was approved in 1982 as a "registered futures association"
under the CEA. The NFA, a not-for-profit membership corporation,
now acts as a general self-regulatory body for the commodities
industry, performing a role similar to that played by the NASD
with respect to the securities industry. Membership in the NFA
is mandatory for certain commodity trading professionals, and
therefore the Managing General Partner and Refco are all members
of the NFA. However, neither membership in the NFA nor
registration with the CFTC of the Managing General Partner and
Refco implies that the NFA or the CFTC has passed upon or
approved their qualifications to perform in accordance with the
terms and objectives of this offering.
The CEA requires all futures commission merchants to meet
and maintain specified fitness and financial requirements,
account separately for all customers' funds and positions, and
maintain specified books and records on customer transactions
open to inspection by the staff of the CFTC. The CEA authorizes
the CFTC to regulate trading by futures commission merchants and
their officers and directors, permits the CFTC to require
exchange action in the event of market emergencies, and
establishes an administrative procedure under which commodity
(and stock index futures) traders may institute complaints for
damages arising from alleged violations of the CEA.
All exchanges (but generally not Foreign Markets or banks
in
the case of forward contracts) normally have regulations which
limit the amount of fluctuation in commodity and stock index
futures contract prices during a single trading day. These
regulations specify what are referred to as "daily price
fluctuation limits" or, more commonly, "daily limits.." The
daily limits establish the maximum amount the price of a futures
contract may vary from the previous day's settlement price at the
end of the trading session. Once the daily limit has been
reached in a particular commodity, no trades may be made at a
price beyond the limit. Positions in the commodity could then be
taken or liquidated only if traders are willing to effect trades
at or within the limit during the period for trading on such day.
The "daily limit" rule does not limit losses which might be
suffered by a trader because it may prevent the liquidation of
unfavorable positions. Also, commodity futures prices have
occasionally moved the daily limit for several consecutive
trading days, thus preventing prompt liquidation of futures
positions and subjecting the commodity futures trader to
substantial losses. See "Risk Factors-Commodity Futures Trading
may be Illiquid."
The CFTC and certain exchanges have established limits,
referred to as "position limits", on the maximum net long or net
short position which any person may hold or control in particular
commodities (and stock index futures). The CFTC has jurisdiction
to establish position limits with respect to all commodities (and
stock index futures).
The above described regulatory structure may be modified
at
any time by rules and regulations promulgated by the CFTC, the
various commodity exchanges, or by legislative changes enacted by
Congress. Furthermore, the registration with the CFTC of the
Managing General Partner, Refco or any Selling Agent does not
imply that the CFTC has passed upon or approved this offering or
their qualifications to act as described in this Prospectus.
Similarities and Contrasts between Futures Contracts and Options
Thereon for Commodities and for Stock Price Indices
- -----------------------------------------------------------------
Stock index futures and options thereon share many
features
in common with futures contracts and options thereon relating to
agricultural commodities, industrial commodities, foreign
currencies and money market instruments. Therefore, the
following information has been included with respect to non-stock
index futures contracts and options thereon in order to provide
the prospective investor with an understanding of the general
market system and regulatory environment for futures contracts
and options generally. Stock index futures contracts differ from
other commodity futures contracts in that settlement is in cash,
and not by delivery of an underlying physical commodity or
monetary instrument, and in that there is no transfer of the full
value of the contract but only charging of gains and losses to
the margin accounts of holders. Likewise, ultimate settlement of
an option on a stock index futures contract on the settlement day
of the underlying futures contract will result in such a credit
of gain or loss, and not the delivery of an underlying commodity
or financial instrument. Stock index futures contracts and
options thereon are similar to other commodity futures contracts
and options thereon in that they are traded primarily on
commodity exchanges which are regulated by the CFTC, have a
duration of a quarter or one month, have a set settlement
procedure, are subject to limits on the number of contracts or
options which may be owned by one entity and its affiliates
("position limits"), are subject to limits on daily price
movements ("daily price fluctuation limits" or "daily limits"),
and may be sold only by regulated persons and entities.
Forward Markets
- ---------------
No regulatory scheme currently exists in relation to the
interbank currency forward market, except for regulation of
general banking activities and exchange controls in the various
jurisdictions where trading occurs or in which the currency
originates. While the U.S. Government does not currently impose
any restrictions on the movements of currencies, it could choose
to do so, and the imposition or relaxation of exchange controls
in various jurisdictions could significantly affect the market
for that and other jurisdictions' currencies. Trading on the
interbank market also exposes the Partnership to a risk of
default, as the failure of a bank with which the Partnership had
forward contracted would likely result in a default.
Foreign Markets
- ---------------
Foreign Markets, on which the Partnership may trade,
differ
in certain respects from their U.S. counterparts and are not
subject to regulation by any U.S. Governmental agency.
Therefore, the protections afforded by such regulations will not
be available to the Partnership to the extent it trades on such
exchanges. For example, some Foreign Markets, in contrast to
domestic exchanges, are "principals' markets" in which
performance is the responsibility only of the individual member
with whom the trader has entered into a commodity transaction and
not of the exchange or clearing corporation. On such exchanges,
the Partnership will be subject to the risks of the bankruptcy or
other inability of, or refusal by, such member or the counter-
party to perform with respect to such transactions. For example,
in the past, certain members of the tin market on the London
Metal Exchange ("LME") failed to perform their obligations under
outstanding tin contracts, resulting in a prolonged suspension of
trading, and ultimately, a closing of that market and settlement
of outstanding positions at an artificial price level dictated by
the LME. As a result, a number of commodity traders suffered
substantial losses and other substantial reductions of the
profits which they would have otherwise realized. Due to the
absence of a clearinghouse system on many foreign markets, such
markets are significantly more susceptible to disruptions (such
as that which occurred on the LME's tin market) than on the
United States exchanges. On the other hand, futures contracts
for the Partnership traded on certain foreign exchanges
(including LME for certain commodities) will be registered with
the International Commodity Clearing House, Ltd. ("ICCH"), which
performs a clearing function similar to a clearing corporation on
a domestic commodity exchange.
London exchanges do not generally have "daily limits" on
commodity price movements or speculative position limits.
Minimum margin requirements on the London exchanges (other than
the LME, the Grain and Feed Trade Association and the London Meat
Futures Exchange) are established by the ICCH for exchange
members, which then may determine the margin amounts required to
their customers and the manner in which the margin requirements
may be met. On the LME, the Grain and Feed Trade Association and
the London Meat Futures Exchange, each dealer establishes the
margin he will require; no margins are required by the exchange
itself. Trading on the London exchanges is in pounds sterling
and U.S. Dollars. The London exchanges are not regulated by the
CFTC or any governmental agency of the U.S. or Great Britain.
Trading on other Foreign Markets may differ from trading on U.S.
Markets in a variety of ways and, accordingly, may subject the
Partnership to a variety of additional risks, including, among
others, special risks relating to bankruptcy, insolvency,
jurisdiction and lack of proximity of the Foreign Markets. See
"Risk Factors-Trading on Foreign Markets and Currency Exchange
Rate Fluctuations."
Margins
- -------
Commodity futures contracts are customarily bought and
sold
on margins which range upward from as little as one percent of
the purchase price of the contract being traded. Because of
these low margins, price fluctuations occurring in commodity (and
stock index) futures markets may create profits and losses which
are greater than are customary in other forms of investment or
speculation. Margin is the minimum amount of funds which must be
deposited by the commodity (and stock index) futures trader with
his futures commission merchant in order to initiate futures
trading or to maintain his open positions in futures contracts.
A margin deposit is not a partial payment as it is in connection
with the trading of securities, but is like a cash performance
bond; it helps assure the trader's performance of the futures
contract. Since the margin deposit is not a partial payment of
the purchase price, the trader does not pay interest to his
broker on a remaining balance. The minimum amount of margin
required in regard to a particular futures contract is set from
time to time by the exchange upon which such futures contract is
traded and may be modified from time to time by the exchange
during the term of the contract. Under the regulations of the
Chicago Board of Trade, the Partnership may be required to
maintain margin deposits equal to 125% of the minimum margin
levels applicable to commodity futures contracts traded on that
exchange. Brokerage firms carrying accounts for traders in
commodity futures contracts may increase the amount of margin
required as a matter of policy in order to afford further
protection for themselves. The General Partner does not
anticipate that banks will require margin from the Partnership
with respect to bank forward contracts.
Margins with respect to transactions on certain foreign
exchanges generally are established by member firms rather than
by the exchanges themselves. However, in the case of ICCH
cleared transactions, ICCH (as the independent clearing house)
requires margins and deposits from its members and such members
generally require their clients to furnish/pay amounts at least
equal to the ICCH charges.
When the market value of a particular open futures
position
changes to a point where the margin on deposit does not satisfy
the maintenance margin requirements, a margin call will be made
by the trader's broker. If the margin call is not met within a
reasonable time, the broker is required to close out the trader's
position. Margin requirements are computed each day by the
trader's broker. With respect to the Partnership's trading, the
Partnership, and not the Limited Partners personally, will be
subject to the margin calls, if any.
As a result of the stock market declines during October,
1987 and October, 1989, there is substantial debate concerning
whether the authority to set margins should continue to rest with
exchanges and whether, in any such event, such margins should be
increased significantly. If changes in margins requirements are
effected, it is likely that they will relate to stock index
futures, but it is possible that they could relate to other
commodity interests as well. Any such changes could have a
significant impact upon the Partnership.
ADJUSTED ASSET VALUE
AND NET ASSET VALUE
- ----------------------------------------
The Adjusted Asset Value of the Partnership is its assets
less certain of its liabilities determined in accordance with
generally accepted accounting principles, including any
unrealized profits and any unrealized losses on open commodity
positions. More specifically, Adjusted Asset Value of the
Partnership shall mean the sum of all cash, United States
Treasury bills and other securities (valued at cost plus accrued
interest and discount), the liquidating value (or cost of
liquidation, as the case may be) of all futures positions and the
fair market value of all other assets of the Partnership less all
liabilities of the Partnership, in each case as determined by the
General Partner in accordance with generally accepted accounting
principles; provided, however, that Adjusted Asset Value shall
not include a reduction for the monthly Management Allocation for
the month of determination or the quarterly Incentive Allocation
for the quarter of determination; provided, further, that
Adjusted Asset Value shall not include any unamortized
organizational and offering expenses or related liabilities of
the Partnership. The liquidating or market value of a commodity
futures contract or option shall be based upon the settlement
price on the commodity exchange on which the particular commodity
futures contract or option is traded by the Partnership;
provided, that if a contract could not be liquidated on the day
with respect to which Adjusted Asset Value is being determined,
due to the operation of daily limits or other rules of the
commodity exchange upon which that contract is traded or
otherwise, the settlement price on the first subsequent day on
which the contract could be liquidated shall be the basis for
determining the liquidating value of such contract for the day of
determination, or such other value as the General Partner may
deem fair and reasonable. In calculating unrealized profit or
loss on open futures position, the commission, if any, which
would be incurred in liquidating the open position will not be
taken into account, nor will any accrued brokerage fees.
The Net Asset Value of the Partnership is determined by
subtracting the Management Allocation for the month of
determination, and, if such month is the last month of a calendar
quarter, the Incentive Allocation for the quarter of
determination, from the Adjusted Asset Value of the Partnership.
Net Asset Value per Unit for each Unit owned by a
respective
Limited Partner is calculated as of the end of each month in the
following manner:
Step 1 - The aggregate Adjusted Asset Value allocable to
Limited Partnership Units is determined by multiplying (A) the
aggregate Adjusted Asset Value of the Partnership (Limited
Partnership Units and the interest of the General Partner) as of
the end of the month in question by (B) the ratio of (i) the
aggregate Net Asset Value of the Limited Partnership Units at the
beginning of the month in question, to (ii) the aggregate Net
Asset Value of the Partnership (Limited Partnership Units and the
interest of the General Partner) at the beginning of the month
in question.
Step 2 - The Adjusted Asset Value allocable to the
Limited
Partnership Units owned by each respective Limited Partner is
determined by multiplying the result determined in Step 1 above
by the ratio of (A) the aggregate Net Asset Value of the
individual Limited Partner's respective Units at the beginning of
the month in question, to (B) the aggregate Net Asset Value of
all Limited Partnership Units in the Partnership at the beginning
of the month in question.
Step 3 - The Adjusted Asset Value allocable to each Unit
owned by a Limited Partner is determined by dividing the result
in Step 2 by the number of Units owned by the respective Limited
Partner.
Step 4 - The Net Asset Value per Unit for each Unit owned
by
a respective Limited Partner is determined by subtracting (A) the
Management Allocation allocable to each Unit for such month, and
(B) if such month is the ending month of a calendar quarter, the
quarterly Incentive Allocation (if any) allocable to each such
Unit, from the result determined under Step 3 above.
In the event a Limited Partner acquires Units on
different
dates, for purposes of the above determinations, such Limited
Partner will be treated as a separate Limited Partner with
respect to the Units acquired on each such date. Since the
amount of the Management Allocation and Incentive Allocation
chargeable to a Limited Partner's respective Units will depend
upon the timing of the Limited Partner's purchase of such Units
and the Partnership's income, the Net Asset Value per Unit of
each respective Limited Partner's Units may differ.
With respect to Units purchased during the Continuous
Offering, the Average Net Asset Value per Unit is determined on
the last day of the month preceding the entry of the Limited
Partner to the Partnership by dividing (A) the difference between
(i) the result from Step 1 above, and (ii) the sum of (a) the
aggregate of the Management Allocation chargeable to all Units
during such preceding month, and (b) if such month is the ending
month of a calendar quarter the Incentive Allocation (if any)
chargeable to all Units as of the end of such quarter, by (B) the
number of Units outstanding at the end of the month.
The Net Asset Value of the General Partner's interest in
the
Partnership is calculated by subtracting the aggregate Net Asset
Value allocable to the Units from the aggregate Net Asset Value
of the Partnership.
Upon request, the General Partner will advise any Limited
Partner of the current Adjusted Asset Value per Unit, the Net
Asset Value per Unit and the number of Units credited to such
Limited Partner's account, as well as the current Average Net
Asset Value per Unit.
ALLOCATION OF
PROFITS AND LOSSES
- --------------------------------
Financial Allocations. Each Limited Partner and the
General
Partner (the General Partner and the Limited Partners,
collectively, are considered to be "Partners" for purposes of the
following explanation of the Partnership's accounting and tax
allocations) will have a capital account, the initial balance of
which will consist of such Partner's cash contribution to the
Partnership.
Federal Tax Allocations. At the end of each fiscal year,
the Partnership's taxable income, expense, capital gain and loss
will be allocated among the Partners, and each Partner will be
required to include in his personal income tax return his share
of such items.
The Management Allocation will be specially allocated
each
month to each Unit in proportion to the Limited Partner's
respective Adjusted Asset Value as determined in Step 3 in
"Adjusted Asset Value and Net Asset Value" above. The Incentive
Allocation (if any) for each Unit will be calculated and
specially allocated each quarter to those Units that have Net New
Appreciation for the quarter of determination.
Items of ordinary income and expense (excluding the
Management Allocation and the Incentive Allocation), such as
interest income, brokerage fees and expenses incidental to
trading, will be allocated pro rata among the Partners based on
their respective capital accounts (referred to in the Partnership
Agreement as the Partner's respective "Partnership Percentage
Interest") as of the beginning of each month in which the items
of ordinary income and expense accrue.
Capital gain will be allocated first to each Limited
Partner
who has redeemed a Unit during the fiscal year up to any excess
of the amount received upon redemption of the Unit over the tax
basis account maintained for the redeemed Unit. See Section 6.01
of the Limited Partnership Agreement. If the capital gain to be
so allocated is less than the excess of all amounts received for
redeemed Units over all corresponding tax basis accounts, the
entire amount of such capital gain will be allocated among the
Limited Partners who redeemed Units at a value in excess of such
Units' respective tax basis accounts in the ratio that each such
Limited Partner's excess bears to the aggregate excesses of all
such Limited Partners.
Any capital gain remaining after the allocation described
in
the previous paragraph will be allocated among all Limited
Partners whose capital accounts are in excess of their tax basis
accounts (after increasing such accounts in the amount of the
allocations described in the previous paragraph) in the ratio
that each such Limited Partner's amount of such additional excess
bears to all such Limited Partners' excess. If the gain to be so
allocated is greater than the excess of all such Limited
Partners' capital accounts over all such tax basis accounts, the
amount of such additional gain will be allocated among all
Limited Partners in the ratio that each Limited Partner's capital
account bears to all Limited Partners' capital accounts.
Capital loss will be allocated first to each Limited
Partner
who has redeemed a Unit during the fiscal year up to any excess
of the tax basis account maintained for the redeemed Unit over
the amount received upon redemption of the Unit. If the
aggregate capital loss to be so allocated is less than the excess
of all tax basis accounts for redeemed Units over the amount
received upon redemption of such Units, the entire amount of such
loss shall be allocated among the Limited Partners which redeemed
Units at a value less than such Units' respective tax basis
accounts in proportion to the respective amounts by which the
redemption value for each Unit was less than the applicable tax
basis.
Any capital loss remaining after the allocation described
in
the previous paragraph will be allocated among the Limited
Partners whose tax basis accounts are in excess of their capital
accounts (after decreasing such tax basis accounts in the amount
of the allocations described in the previous paragraph) in ratio
that each such Limited Partner's excess bears to all such Limited
Partners' excesses. If the loss to be so allocated is greater
than the excess of all such Limited Partners' tax basis accounts
over all such capital accounts, the amount of such additional
loss will be allocated among all Limited Partners in the ratio
that each Limited Partner's capital account bears to all Limited
Partners' capital accounts.
Any gain or loss required to be taken into account in
accordance with the "mark-to-market" provisions of Section 1256
of the Code will be considered capital gain or loss for purposes
of the foregoing allocations. See "Certain Federal Income Tax
Aspects-Taxation of Partners on Profits or Losses of the
Partnership." The General Partner's interest in the Partnership
will be treated on a Unit-equivalent basis for purposes of such
allocation.
In the event that future tax legislation restores the
distinction, generally eliminated in the Tax Reform Act of 1986,
between short and long-term capital gain, the allocations of
capital gain described above shall be pro rata between short and
long-term capital gain.
The allocation of profit and loss for federal income tax
purposes set forth herein is intended to eliminate, to the extent
possible, any disparity between a Partner's capital account and
his tax basis account in a manner that is consistent with
principles set forth in Section 704(c) of the Code.
REDEMPTIONS
A Limited Partner, on 10 days' written notice to the
Managing General Partner, may cause any or all of his Units to be
redeemed by the Partnership as of the last day of any calendar
quarter at the Redemption Net Asset Value per Unit thereof less
any amount owing by such Partner to the Partnership; provided,
that a Limited Partner will not be entitled to redeem any Unit
until after 6 full months from the time such Unit was purchased.
The "Redemption Net Asset Value per Unit" is calculated in the
same manner as the Net Asset Value per Unit except that
Partnership Adjusted Asset Value is determined by also
subtracting the commissions which would be incurred to liquidate
an open futures position, as well as any accrued brokerage fees.
See "Adjusted Asset Value and Net Asset Value." Redemptions made
on or prior to the end of the sixth, ninth and twelfth month
after the purchase of such Units will be charged a 4%, 3%, and 2%
redemption fee, respectively; however, the redemption fee will
not exceed 5% of the gross purchase price of such Units. These
redemption charges will be paid to the General Partners.
Except as otherwise noted herein, all requests for
redemption in proper form will be honored, and the Partnership's
commodity positions will be liquidated to the extent necessary to
effect redemptions. The right to obtain redemption is contingent
upon the Partnership having property sufficient to discharge its
liabilities on the date of redemption. It is also contingent on
receipt by the Managing General Partner of a request for
redemption in the form attached to the Partnership Agreement (or
any other form approved by the Managing General Partner) at least
10 days prior to the date on which redemption is requested.
Payment will be made within 15 days after the date of redemption,
except that under special circumstances, including, but not
limited to, the inability on the part of the Partnership to
liquidate commodity positions as of such date or default or delay
in payments due the Partnership from futures commission
merchants, banks or other persons, the Partnership may delay
payments to Partners requesting redemption of Units in amounts
equal to the proportionate part of the Net Asset Value of the
Units represented by the sums which are the subject of such
default or delay.
The Partnership Agreement also provides for a mandatory
Special Redemption Date if at any time the Average Net Asset
Value per Unit declines to 50% or less than the highest Average
Net Asset Value per Unit at which Units have been purchased
(after adjusting downward for all distributions), as of the close
of business on any day. In the event of such a decrease, all
trading will be suspended and all open positions liquidated as
promptly as practicable. The Managing General Partner must then
either withdraw from the Partnership (which would likely cause
its termination) or declare a Special Redemption Date pursuant to
which Limited Partners would be given an opportunity to redeem
their Units before trading would be permitted to recommence.
There can be no assurance, in the event that a Special Redemption
Date is called, that the Partnership's open positions could be
liquidated in a timely manner or without substantial additional
losses. However, the Special Redemption feature is intended to
provide Limited Partners with the opportunity to limit the
percentage of their initial investment which they are at risk of
losing by attempting to assure them of a suspension of trading
and an opportunity to redeem after a certain level of losses has
been incurred.
If trading resumes after a Special Redemption Date,
subsequent Special Redemption Dates will occur if the Average Net
Asset Value per Unit has decreased to 50% or less of the highest
Average Net Asset Value per Unit at which Units have been
purchased since the previous Special Redemption Date (or the
Average Net Asset Value per Unit at such previous Special
Redemption Date, if higher), after adjusting downward for all
distributions.
The Managing General Partner may, in its discretion,
declare
a Special Redemption Date at any time, if the Managing General
Partner determines that doing so would be in the best interests
of the Partnership. A Special Redemption Date, unlike routine
quarterly redemptions, involves a suspension of trading and
liquidation of open positions.
The Managing General Partner may, in its sole discretion,
effect a redemption of any Units held by any Limited Partner,
without such Partner's consent, at the Redemption Net Asset Value
per Unit thereof, if it considers doing so to be desirable for
the protection of the Partnership or its Partners. Any such
redemption may be effected upon ten days notice and, if effected
other than at the end of a calendar month or quarter, will not
include a reduction for any accrued Management or Incentive
Allocation that would otherwise be payable.
The liability of Limited Partners, including the possible
liability of a person who had Units redeemed, for liabilities of
the Partnership which arose before such redemption, is described
under "The Partnership Agreement-Nature of the Partnership."
See "Certain Federal Income Tax Aspects" for information
concerning federal income tax aspects of redemptions.
CERTAIN FEDERAL
INCOME TAX ASPECTS
THE FOLLOWING IS A SUMMARY OF SOME OF THE FEDERAL INCOME
TAX
CONSEQUENCES TO LIMITED PARTNERS RESULTING FROM AN INVESTMENT IN
THE PARTNERSHIP BASED UPON THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "CODE"), AND RULES, REGULATIONS AND EXISTING
INTERPRETATIONS RELATING THERETO, ANY OF WHICH COULD BE CHANGED
AT ANY TIME. A COMPLETE DISCUSSION OF ALL FEDERAL, STATE AND
LOCAL TAX ASPECTS OF AN INVESTMENT IN THE PARTNERSHIP IS BEYOND
THE SCOPE OF THIS SUMMARY, AND PROSPECTIVE INVESTORS MUST CONSULT
THEIR OWN TAX ADVISERS ON SUCH MATTERS. PROSPECTIVE INVESTORS
WHO ARE GENERALLY EXEMPT FROM TAX SHOULD CAREFULLY REVIEW THE
SECTION ENTITLED "EMPLOYEE BENEFIT PLANS" HEREIN.
Partnership Status
- ------------------
The General Partners have been advised by their counsel,
Waring Cox, that, in the opinion of such counsel, if the
Partnership is organized and operated in accordance with the
provisions of the Partnership Agreement and applicable state law,
then under present laws, regulations and judicial interpretations
thereof (all of which are subject to change), and subject to 90%
or more of the Partnership's gross income being "qualifying
income" as discussed below in this section, the Partnership will
be classified as a partnership for federal income tax purposes
and not as an association taxable as a corporation. No ruling
has been obtained from the Internal Revenue Service confirming
this tax treatment, and the General Partners do not intend to
request such a ruling. Under the applicable published
guidelines, including Revenue Procedure 89-12, 1989-1 C.B. 798,
the Partnership would be able to obtain such a ruling.
If the Partnership should at any time be classified as an
association taxable as a corporation, the Limited Partners would
not be treated as partners for tax purposes, income or loss of
the Partnership would not be passed through to the Limited
Partners and the Partnership would be subject to tax on its
income at the rates applicable to corporations. In addition, all
or a portion of distributions made by the Partnership to the
Limited Partners could be taxable to them as dividends (to the
extent of current or accumulated earnings and profits) or capital
gains, while none of those distributions would be deductible by
the Partnership in computing its taxable income.
Code Section 7704 was enacted in 1987 to treat certain
"publicly traded partnerships" as corporations. Publicly traded
partnerships are defined in Code Section 7704 as partnerships the
interests in which are traded on an established securities market
or are readily tradeable on a secondary market (or the
substantial equivalent thereof). Although Units will not be
traded on an established securities market or a secondary market,
the legislative history to Section 7704 states that the
substantial equivalent of a secondary market is indicated if the
partnership has a "regular plan of redemptions ...so that the
holders of interests have readily available, regular and ongoing
opportunities to dispose of their interests...." Furthermore, in
Notice 88-75 (June 20, 1988), the Service indicated that an open-
ended partnership (e.g., one that has a continuous offering
feature such as the Partnership) that has a redemption feature
will be classified as a publicly-traded partnership unless, among
other things, the partnership agreement requires at least 60 days
prior written notice of the partner's intent to redeem. In the
instant case, the Partnership Agreement only requires 10 days
notice. Accordingly, it is likely that the Partnership will be
classified as a publicly-traded partnership.
Nevertheless, even if the Partnership is classified as a
publicly-traded partnership, an exception from tax treatment as a
corporation is provided if 90% or more of the Partnership's gross
income for the taxable year is "qualifying income." Qualifying
income is defined to include certain kinds of passive income,
such as (i) interest, (ii) dividends, and (iii) in the case of a
partnership whose principal activity is the buying and selling of
commodity interests, income and gains (other than as a dealer)
from commodities or futures, options or forward contracts with
respect to such commodities (including foreign currency
transactions of a commodity pool).
It is the intention of the General Partners that all of
the
income of the Partnership will constitute "qualifying income"
within one or more of the foregoing categories. In addition, the
Partnership Agreement prohibits the General Partners from causing
the Partnership to fail the 90% qualifying income safe harbor.
Accordingly, while the continuous offering and redemption
features of the Partnership may cause the Partnership to be
classified as a publicly-traded partnership, it is unlikely that
the Partnership would be treated as a corporation for federal
income tax purposes, although there can be no assurance to this
effect.
The remainder of the Summary assumes that the Partnership
will be classified as a partnership for federal income tax
purposes.
Taxation of Partners on Profits or Losses of the Partnership
- ------------------------------------------------------------
The Partnership, as an entity, will not be subject to
federal income tax. In general, each Partner is required for
federal income tax purposes to take into account, in his taxable
year with which or within which a taxable year of the Partnership
ends, his distributive share of all items of Partnership income,
gain (including unrealized gain from futures contracts and
options "marked-to-market"), loss or deduction for such taxable
year of the Partnership. A Partner must take such items into
account even if the Partnership does not make any distributions
to such Partner during his taxable year.
A Partner's distributive share of such items for federal
income tax purposes generally is determined by the allocations
made pursuant to the Partnership Agreement, unless such items as
so allocated do not have "substantial economic effect" or are not
in accordance with the Partners' interests in the Partnership.
Under the Partnership Agreement, allocations are generally made
in proportion to Partners' capital accounts and therefore have
"substantial economic effect." However, the allocations required
by the Partnership Agreement with respect to the Management
Allocation and the Incentive Allocation , and when redemptions or
purchases or Units occur, generally will not be in proportion to
capital accounts. See "Allocations of Profits and Losses."
Nonetheless, the General Partners believe such allocations are
permitted for tax purposes, and the income tax regulations seem
to support that belief. If such allocations were not to be
sustained, each Partner's distributive share of the items that
are the subject of such allocations would be redetermined based
upon his interest in the Partnership by taking into account all
relevant facts and circumstances. Such a redetermination might
result in a larger share of Partnership income being allocated
(solely for tax purposes) to Partners who had not redeemed or
purchased Units during a given taxable year than was allocated to
them pursuant to the Partnership Agreement.
The amount of any Partnership loss (including capital
loss)
that a Partner is entitled to include in his personal income tax
return is limited to his tax basis for his interest in the
Partnership as of the end of the Partnership's taxable year in
which such loss occurred. Generally, a Partner's adjusted tax
basis for his interest in the Partnership is the amount paid for
such interest reduced (but not below zero) by his share of any
Partnership distributions, losses and expenses and increased by
his share of the Partnership's income, including gain.
Assuming that the Partnership meets the requirements to
be
treated as a "qualified fund" and elects to be so treated (as
discussed below), the General Partners anticipate that gain or
loss recognized with respect to all futures contracts, forward
contracts and options traded on domestic exchanges by the
Partnership will be characterized as capital gain or loss, of
which 60 percent will be treated as long-term and 40 percent will
be treated as short-term, regardless of the holding period of the
individual contracts (the "60/40 rule"). Income derived by the
Partnership from investing funds not required for trading in
interest-bearing obligations will generally be ordinary income.
In general, long-term capital gain is subject to tax at
the
same rate as ordinary income, but is subject to a maximum
effective tax rate of 28 percent. For corporations, such gain
likewise is taxed as ordinary income, but is subject to a maximum
effective corporate tax rate of 35 percent. Net capital losses
are deductible by individuals only to the extent of capital gains
(whether long-term or short-term) for the taxable year plus
$3,000. As an example, under these rules if a Partner's
distributive share of Partnership interest income (which
constitutes ordinary income for tax purposes) was $5,000, the
Partner's distributive share of Partnership trading losses (which
constitute capital losses for tax purposes) was $5,000 and the
Partner had no other capital gains, the Partner would have $2,000
of income subject to tax despite having derived no economic gain
from his investment in the Partnership. Corporations may deduct
capital losses only to the extent of capital gains.
The Partnership will meet the requirements to elect
"qualified fund" status if (i) the Partnership has at all time at
least 20 partners and no single partner owns more than 20% of the
interests in the capital or profits of the Partnership, (ii) the
principal activity of the Partnership at all times consists of
buying and selling futures contracts, forward contracts and
options with respect to commodities, (iii) at least 90% of the
gross income of the Partnership consists of interest, dividends,
income and gains from futures contracts, forward contracts or
options with respect to commodities and certain other capital
gains and (iv) no more than a de minimis amount of the gross
income of the Partnership consists of income from trading in
"spot" commodities. The General Partners anticipate that the
Partnership will meet these requirements and will elect
"qualified fund" status. If the Partnership elects "qualified
fund" status but fails to meet any of the above requirements in a
taxable year (i) a net loss recognized by the Partnership in such
taxable year with respect to all futures contracts, forward
contracts and options with respect to foreign currencies traded
by the Partnership will be characterized as a capital loss,
subject to the limitations described in the preceding paragraph,
and (ii) a net gain recognized by the Partnership in such taxable
year with respect to such contracts will be characterized as
ordinary income. If the Partnership did not elect such status,
the Partnership's trading of certain bank forward contracts, with
respect to foreign currencies, foreign currency futures contracts
traded on foreign exchanges and certain similar instruments would
result in ordinary income (or loss) against which the capital
losses, if any, from the Partnership's other trading activities
might not be fully deductible, as described in the preceding
paragraph.
The "mark-to-market" system of taxation and the 60/40
rule
will apply to most, if not all, futures contracts, forward
contracts and options which the Partnership will trade. Under
the mark-to-market system, any unrealized profit or loss on
positions in such contracts which are open as of the end of the
Partnership's taxable year will be treated as if such profit or
loss had been realized for tax purposes as of such time (even
though the positions in fact remain open). If an open position
on which profit or loss has been recognized as of the end of a
taxable year declines in value after such year-end and before the
position is in fact offset, a loss will be recognized for tax
purposes (irrespective of the fact that the trader may have
actually realized a gain on the position considered from the time
that such position was initiated). The converse is the case with
an open position on which a mark-to-market loss was recognized
for tax purposes as of the end of a taxable year but which
subsequently increases in value prior to being offset.
Treatment of Income and Loss Under the Passive Loss Rules
- ---------------------------------------------------------
The Code contains rules (the "Passive Loss Rules")
designed
to prevent the deduction of losses from "passive activities"
against income not derived from such activities, including income
from investment activities not constituting a trade or business,
such as interest and dividends ("Portfolio Income") and salary.
In accordance with Temporary Treasury Regulations promulgated
under the Code relating to the Passive Loss Rules, the ownership
of Units will not constitute a "passive activity", with the
result that income derived from the Partnership's trading
activities will constitute Portfolio Income or other income not
from a passive activity. This means that losses resulting from a
Partner's "passive activities" (including most "tax shelter"
limited partnerships) cannot be offset against such income and
net losses from Partnership operations will be deductible in
computing the taxable income of a Limited Partner (subject to
other limitations on the deductibility of such losses).
Limited Deduction for Certain Expenses
- --------------------------------------
Under prior law, individual taxpayers who itemized
deductions were permitted to deduct expenses of producing income,
including investment advisory fees, when computing taxable
income. The Code now provides that such expenses are to be
aggregated with unreimbursed employee business expenses and other
expenses of producing income (collectively the "Miscellaneous
Itemized Deductions"), and the aggregate amount of such
Miscellaneous Itemized Deductions will be deductible only to the
extent such amount exceeds 2% of a taxpayer's adjusted gross
income. The General Partners intend, in the absence of further
clarification by legislation, the promulgation of regulations or
judicial or administrative interpretation, not to treat any part
of the Management or Incentive Allocations payable to the General
Partner as a Miscellaneous Itemized Deduction subject to the 2%
floor limitation described above. If the Internal Revenue
Service were to successfully assert that the Partnership should
have treated all or any portion of the Partnership's expenses as
Miscellaneous Itemized Deductions, Limited Partners could be
required to file amended tax returns and to pay additional taxes
plus interest and penalties. The General Partners reserve the
right at any time, without consulting with the Limited Partners,
to determine the treatment of the Partnership's expenses for
federal income tax purposes.
Cash Distributions and Redemptions of Units
- -------------------------------------------
Cash received from the Partnership as a distribution with
respect to his interest in the Partnership or in redemption of
less than all of such interest generally does not result in
taxable income to a Partner, except as described below. Rather,
such distribution reduces (but not below zero) the total tax
basis of all of the Units held by the Partner after the
distribution or redemption. Any cash distribution in excess of a
Partner's adjusted tax basis for his interest in the Partnership
is treated as gain from the sale or exchange of such interest.
Because a Partner's tax basis in his Units is not increased on
account of his distributive share of the Partnership's income
until the end of the Partnership's taxable year, distributions
during the taxable year could result in taxable gain to a Partner
even though no gain would result if the same distributions were
made at the end of the taxable year. Furthermore, the share of
the Partnership's income allocable to a Partner at the end of the
Partnership's taxable year would also be includable in the
Partner's taxable income and would increase his tax basis in his
remaining interest in the Partnership as of the end of such
taxable year.
Redemption for cash of the entire interest in the
Partnership held by a Partner will result in the recognition of
gain or loss for federal income tax purposes. Such gain or loss
will be equal to the difference between the amount of the cash
distribution and the Partner's adjusted tax basis for such
interest. A Partner's adjusted tax basis for his interest in the
Partnership includes for this purpose his distributive share of
the Partnership's income or loss for the year of such redemption.
Limitation on Deductibility of Interest on Investment
- -----------------------------------------------------
Indebtedness
- ------------
Interest paid or accrued on indebtedness properly
allocable
to property held for investment is investment interest. Interest
expense incurred by a Limited Partner that is allocable to such
Limited Partner's investment in Units generally will be
investment interest. In addition, a Limited Partner's allocable
share of interest expense incurred by the Partnership, if any,
will be investment interest. Subject to a phase-in rule for
taxable years through 1990, such interest is generally deductible
by noncorporate taxpayers only to the extent that it does not
exceed net investment income (that is, generally, the excess of
(i) gross income from interest, dividends, rents and royalties,
which would include a Limited Partner's share of the
Partnership's Portfolio Income (see "-- Treatment of Income and
Loss under the Passive Loss Rules," above) and (ii) gains from
the disposition of investment property, over the expenses
directly connected with the production of such investment
income); provided, however, the Omnibus Budget Reconciliation Act
of 1993 (the "1993 Act") generally excludes net capital gain
attributable to the disposition of property held for investment
from investment income for purposes of computing the investment
interest limitation. A taxpayer, however, can elect to include so
much of his net capital gain in investment income as the taxpayer
chooses if he also reduces the amount of net capital gain
eligible for the 28-percent maximum capital gains rate by the
same amount. This provision is effective for taxable years
beginning after December 31, 1992. Any investment interest
expense disallowed as a deduction in a taxable year solely by
reason of the above limitation is treated as investment interest
paid or accrued in the succeeding taxable year.
Syndication and Organizational Expenses
- ---------------------------------------
Expenditures made in connection with the syndication of
a
partnership must be capitalized and cannot be amortized.
Syndication expenditures include amounts incurred to promote the
sale of, or to sell, Units in the Partnership, such as any
offering fees, sales commissions, legal fees incident to the
syndication and printing costs related thereto.
Expenditures for the organization for the Partnership
must
also be capitalized, but may be amortized and deducted over not
less than a 60-month period. Such expenses would include legal
fees incident to the organization of the Partnership, such as the
negotiation and preparation of the Partnership Agreement,
accounting fees relating to the establishment of the
Partnership's accounting system and any necessary filing fees.
With respect to the Partnership's offering and
organizational expenses, the General Partners will allocate
certain amounts as either syndication or organization fees. If
any amount treated by the Partnership as an organization expense
is finally determined to be a syndication expense, such portion
would not be amortizable by the Partnership or any of the
Partners.
In addition, the Internal Revenue Service could take the
position that (i) a portion of the Management Allocation and
Incentive Allocation paid to the General Partners constitutes
non-deductible syndication expenses, and (ii) a portion of the
General Partner's distributive share of Partnership income, gains
or cash distributions constitutes non-deductible syndication
expenses. The General Partners believe that no portion of the
fees or distributive share payable to it constitute non-
deductible syndication expenses. The General Partners anticipate
devoting a substantial amount of time to the management of the
Partnership and its trading activities which should support a
finding that such allocations are proper. However, there can be
no assurance that the Internal Revenue Service will agree with
this position.
Finally, the Internal Revenue Service may contend that a
portion of the brokerage commissions paid by the Partnership to
Refco constitute nondeductible syndication expenses under the
theory that such commissions are to reimburse Refco for its
advance of the Partnership's organizational and offering
expenses, or because Selling Agents may receive compensation from
Refco on an ongoing basis from a portion of the commodity
brokerage commissions paid by the Partnership. If the Service
were successful in this regard, the Partnership would be required
to capitalize such amounts, thereby increasing the amount of gain
(or reducing the amount of loss) allocable to the Partners with
respect to the Partnership's trading activities.
Partnership Audits; Penalties
- -----------------------------
The tax treatment of Partnership-related items is
determined
at the Partnership level rather than at the Partner level. The
General Partner has been appointed as "tax matters partner" with
the authority to determine the Partnership's response to an
audit, except that the General Partner does not have the
authority to settle tax controversies on behalf of any Limited
Partner who files a statement with the Internal Revenue Service
stating that the General Partner has no authority to settle
Partnership tax controversies on such Limited Partner's behalf.
The limitations period for assessment of deficiencies and claims
for refunds with respect to items related to the Partnership is
three years after the Partnership's return for the taxable year
in question is filed, and the General Partner has the authority
to, and may, extend such period with respect to all Limited
Partners. If an audit results in an adjustment, all Partners may
be required to file amended tax returns which may themselves also
be subject to audit, additional taxes, interest and penalties.
There can be no assurance that the Partnership's or a Limited
Partner's tax return will not be audited by the Internal revenue
Service or that no adjustments to such returns will be made as a
result of such an audit.
Section 6662 of the Code imposes a 20% penalty for any
substantial understatement of income tax liability for any
taxable year, or for any negligent or intentional disregard of
tax rules or regulations. A "substantial understatement" exists
if the total understatement of tax liability for the taxable year
exceeds the greater of 10% of the tax required to be shown on the
return or $5,000. "Negligence" includes any failure to make a
reasonable attempt to comply with the tax laws, and "disregard"
includes any careless, reckless or intentional disregard. If a
Partner makes a substantial understatement of personal tax
liability, the Partner may be subject to this penalty for any
disallowed item unless (i) it is supported by "substantial
authority" or (ii) the relevant facts affecting the tax treatment
of such items are disclosed in the return or in a statement
attached to the return. A special rule is applicable if an item
is attributable to a "tax shelter." In order to avoid the
penalty for understatement of tax liability for a tax shelter
item, in addition to the "substantial authority" requirement, the
taxpayer must reasonably believe that the tax treatment was more
likely than not the proper treatment. Based on the expected
activities of the Partnership, the General Partners do not
believe that the Partnership is a "tax shelter" for this purpose.
However, no assurance can be given that the Internal Revenue
Service or the courts will agree with this position.
State and Local Taxes
- ---------------------
In addition to the federal income tax consequences
described
above, the Partnership and the Partners may be subject to various
state and local taxes. Certain of such taxes could, if
applicable, have a significant effect on the amount of tax
payable with respect to an investment in the Partnership. A
Partner's distributive share of the profits of the Partnership
may be required to be included in determining reportable income
for state or local tax purposes, and state and local taxation of
gains and losses from certain of the Partnership's activities may
be inconsistent with the treatment of such gains and losses for
federal income tax purposes. LIMITED PARTNERS MUST CONSULT THEIR
OWN TAX ADVISERS REGARDING THE POSSIBLE APPLICABILITY OF STATE OR
LOCAL TAXES TO AN INVESTMENT IN THE PARTNERSHIP.
- ----------------------
Except as otherwise set forth, the foregoing statements
regarding the federal income tax consequences to the Partners of
an investment in the Partnership are based upon the provisions of
the Code as currently in effect and the existing administrative
and judicial interpretations thereunder. No assurance can be
given that administrative, judicial or legislative changes (other
than those discussed above) will not occur that would make the
foregoing statements incorrect or incomplete.
The foregoing discussion is not intended as a substitute
for
careful tax planning, particularly since certain of the income
tax consequences of an investment in the Partnership may not be
the same for all taxpayers. ACCORDINGLY, PROSPECTIVE INVESTORS
IN THE PARTNERSHIP ARE URGED TO CONSULT THEIR TAX ADVISERS WITH
SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION UNDER FEDERAL LAW
AND THE PROVISIONS OF APPLICABLE STATE AND LOCAL LAWS BEFORE
SUBSCRIBING FOR UNITS.
PURCHASES BY
EMPLOYEE BENEFIT PLANS
The purchase of Units by an employee benefit plan is
subject
to certain additional considerations because investments of such
plans are subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), as well as certain restrictions
imposed by Section 4975 of the Code. The term "employee benefit
plan" refers to any plan or account of various types (including
the related trusts) which provides for accumulation of assets or
benefits in respect of an individual's compensation, free from
federal income tax until such time as assets or benefits are
distributed from the plan. Such plans include corporate pension
and profit sharing plans, "simplified employee pension plans,"
KEOGH plans for self-employed individuals (including partners),
employee welfare plans and, for purposes of this discussion,
individual retirement accounts as described in Section 408 of the
Code.
In general, the person with investment discretion with
respect to an employee benefit plan should consult with his or
her attorney or other advisor with regard to (i) whether the
investment is prudent in accordance with the requirements of
section 404(a) of ERISA; (ii) whether the investment satisfies
the diversification requirements of section 404(a)(1)(C) of
ERISA; (iii) whether the investment is in accordance with the
documents and instruments covering the plan; (iv) whether a
prohibited transaction in violation of section 406 of ERISA or
section 4975 of the Internal Revenue Code will occur; (v) whether
the investment provides sufficient liquidity; (vi) the need to
value the assets of the plan annually pursuant section 103(d)(5)
of ERISA; (vii) whether all of the assets of the Partnership will
be considered as "plan assets" of the employee benefit plan,
rather than just the Units; and (viii) whether all or any portion
of the income attributable to the Units will be taxable as
"unrelated business taxable income" ("UBTI").
The United States Department of Labor ("DOL") Regulation
2510.3-101 (the "Regulation") provides certain rules for
determining whether an investment in the Partnership by employee
benefit plans will be treated as an investment by such plans in
the underlying assets of the Partnership. If the Partnership
were deemed to hold "plan assets", the General Partners would
most likely become an ERISA fiduciary with respect to the
Partnership assets and, therefore, co-fiduciaries with the person
making the investment decision to purchase Units, and the assets
of the Partnership would be subject to the prohibited transaction
rules of ERISA and the Code.
The Regulation provides that assets of an entity in which
an
employee benefit plan invests will not be deemed for purposes of
ERISA to be assets of such plan if the class of "equity"
interests held by the plan are (i) held by 100 or more investors
independent of the Partnership and of each other, (ii) "freely
transferable" and (iii) sold to employee benefit plans as a part
of an offering of Units to the public pursuant to (a) an
effective registration statement under the Securities Act of 1933
and then the Units are registered under the Securities Act of
1934, or (b) an effective registration statement under Section
12(b) or 12(g) of the Securities Exchange Act of 1934.
Because the determination of whether the Units will be
"freely transferable" is a subjective test under the Regulation
based on all relevant facts and circumstances, and because it is
not known at this time whether the Units will be registered under
the Securities Exchange Act of 1934, the General Partners will
instead rely on an objective safe harbor under the Regulation
that the Units will not constitute "plan assets" so long as
employee benefit plans do not own more than 25% of the Units.
However, in the unlikely event that this 25% ownership threshold
is exceeded, it is possible that the General Partners may be
compelled to redeem some or all Units held by such plans or
accounts.
While the Partnership will likely be classified as a
"publicly traded partnership" (subject to the 90% qualifying
income exception), the 1993 Act amended the Code to eliminate
certain unfavorable tax consequences of investments made by tax-
exempt entities in "publicly traded partnership." Accordingly,
income from the Partnership's expected activities will not be of
a character that produces UBTI.
Units may not be purchased with the assets of an employee
benefit plan if the General Partners, any trading advisor or any
of their respective affiliates, either: (a) has investment
discretion with respect to the investment of such plan assets;
(b) has authority or responsibility to give or regularly gives
investment advice with respect to such plan assets, for a fee,
and pursuant to an agreement or understanding that such advice
will serve as a primary basis for investment decisions with
respect to such plan assets and that such advice will be based on
the particular investment needs of the plan; or (c) is an
employer maintaining or contributing to such plan.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF INDIVIDUAL
RETIREMENT ACCOUNTS OR OTHER EMPLOYEE BENEFIT PLANS IS IN NO
RESPECT A REPRESENTATION BY THE PARTNERSHIP, THE GENERAL
PARTNERS, ANY TRADING ADVISOR, OR ANY OTHER PARTY THAT THIS
INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO
INVESTMENTS BY ANY PARTICULAR PLAN OR THAT THIS INVESTMENT IS
APPROPRIATE FOR ANY PARTICULAR PLAN. THE PERSON WITH INVESTMENT
DISCRETION SHOULD CONSULT WITH HIS ATTORNEY AS TO THE PROPRIETY
OF SUCH AN INVESTMENT IN LIGHT OF THE CIRCUMSTANCES OF THE
PARTICULAR PLAN AND CURRENT TAX LAW.
THE PARTNERSHIP
AGREEMENT
The Partnership was formed in September, 1990. Upon the
further amendment of the Partnership Agreement, those investors
whose Subscriptions are accepted will be admitted as Limited
Partners. The Partnership will be governed by and operated in
accordance with the Agreement of Limited Partnership as set forth
in Exhibit A hereto. See "Allocation of Profits and Losses" for
a description of allocations of profits and losses. See "Use of
Proceeds" and "Capitalization" for a description of the Partners'
capital contributions. See also "Adjusted Asset Value and Net
Asset Value."
A prospective Limited Partner should carefully review the
Partnership Agreement. The following statements summarize
certain provisions of the Partnership Agreement, but do not
purport to be a complete description and are qualified in their
entirety by express reference to the Partnership Agreement.
Nature of the Partnership
- -------------------------
The Partnership has been formed under the Tennessee
Revised
Uniform Limited Partnership Act ("TRULPA"). The General Partners
have been advised by counsel that Units purchased and paid for
pursuant to and in accordance with this offering will be fully
paid and nonassessable. The General Partners will be liable for
all obligations of the Partnership to the extent that assets of
the Partnership are insufficient to discharge such obligations.
If the assets of the Partnership and the General Partners are
insufficient to discharge the obligations of the Partnership, a
Limited Partner will be liable for Partnership liabilities only
to the extent of the Limited Partner's capital contributions,
plus any profits or distributions (including any undistributed
profits and redemptions), together with interest thereon.
Management of Partnership Affairs
- ---------------------------------
The Limited Partners will not participate in the
management
or operations of the Partnership. Any participation by a Limited
Partner in the management of the Partnership may jeopardize the
limited liability of such Limited Partner. Responsibility for
managing the Partnership is vested solely in the Managing General
Partner. Responsibilities of the Managing General Partner
include, but are not limited to, the following: determining
whether the Partnership will make distributions of profits to
partners; administering redemptions of Limited Partners' Units;
preparing monthly, quarterly and annual reports to the Limited
Partners; executing various documents on behalf of the
Partnership and the Limited Partners pursuant to powers of
attorney; and supervising the liquidation of the Partnership if
an event causing termination of the Partnership occurs. The
Partnership Agreement prohibits the General Partners from
engaging in any action which would have a material adverse effect
on the Partnership except in its reasonable business judgment.
Reports and Accounting
- ----------------------
The Partnership will keep its books on an accrual basis
with
a calendar year end. The Partnership will retain for at least
six years all records necessary to determine the Limited
Partners' suitability. The Limited Partners, in person or by an
authorized agent, have the right at all times during reasonable
business hours to have access to, and copies mailed of (at the
expense of the Limited Partner), the Partnership's books and
records (including a list of the names and addresses of all
Partners and the number of Units owned). The financial
statements of the Partnership shall be audited at least annually
at Partnership expense by independent public accountants to be
designated by the Managing General Partner and each Limited
Partner shall be furnished with an annual report, certified by an
independent certified public accountant, containing such
information as the CFTC requires (the "Annual Report").
Presently, the CFTC requires that the Annual Report be provided
not later than 90 days after the end of each fiscal year. In
addition the Managing General Partner will report monthly to the
Limited Partners, inter alia, the Average Net Asset Value per
Unit, the brokerage commissions, Management and Incentive
Allocations, the value of each individual Limited Partner's Units
and administrative expenses incurred by the Partnership during
the month. Tax information will be provided by March 15 each
year. The Managing General Partner will notify each Limited
Partner within 7 business days from the date of (i) any material
change related to the brokerage commissions paid by the
Partnership, (ii) any material change in any contract with a
trading advisor, including any change in trading advisors, or
(iii) any modification in connection with the method of
calculating any incentive fee. Any such notice shall include a
description of any material effect such changes may have on the
interests of the Limited Partners, the Limited Partners' voting
rights and their redemption rights under the Partnership
Agreement.
Additional Partners
- -------------------
Since the completion of the Initial Offering in which
13,471.6805 Units were sold, the Partnership has continued to
offer and sell Units in this Continuous Offering. All Units are
offered by the Partnership at the Partnership's current Average
Net Asset Value per Unit plus 4%. After 100,000 Units have been
sold, the Managing General Partner may, in its discretion,
increase the number of Units to 500,000 and make additional
public or private offerings of Units provided that the net
proceeds to the Partnership of any such sales shall in no event
be less than the Average Net Asset Value per Unit at the time of
sale. The Managing General Partner may, in addition, issue Units
in series. The Managing General Partner, and not the
Partnership, will bear, or cause others to bear, all expenses
related to the Continuous Offering or any additional offering
thereafter. No Limited Partner will have any preemptive,
preferential or other rights with respect to the issuance or sale
of any additional Units. The Managing General Partner has the
sole discretion to admit additional Limited Partners.
Restrictions on Transfer
- ------------------------
The Partnership Agreement specifies the various
conditions
which must be met before a purported transfer of all or part of a
Limited Partner's interest shall be valid as to the Partnership
and the General Partners. The conditions include a determination
that the transfer will not terminate the Partnership for federal
income tax purposes, satisfaction of applicable securities laws,
and other matters. A transferor may be required to furnish a
satisfactory opinion of counsel to the effect that neither the
contemplated transfer nor any offering in connection therewith
violates any provision of any federal or state securities or
comparable law. Except for transfers by gift, inheritance,
intra-family transfers, family dissolutions, and transfers to
affiliates, no transfer may be made of less than all of the Units
owned by the Limited Partner where, after the transfer, either
the transferee or the transferor would hold less than the minimum
number of Units equal an initial minimum purchase. The consent
of the Managing General Partner is required for transfer of a
Unit, which consent can be withheld for any reason.
Dissolution and Liquidation
- ---------------------------
The Partnership will be dissolved upon the happening of
any
of the following events: (i) the term of the Partnership expires
on December 31, 2020; (ii) the affirmative vote of a simple
majority in interest of the Limited Partners; (iii) the failure
of any person or corporation to qualify as a successor General
Partner within ninety days after the last remaining General
Partner ceases to be a General Partner; (iv) an event occurs
which makes it unlawful for the business, as conducted by the
Partnership or the General Partners, to be continued; (v) the
disposition of all or substantially all of the property of the
Partnership; or (vi) any other event which, under the laws of the
State of Tennessee, would cause the Partnership's dissolution.
On dissolution resulting from the withdrawal, bankruptcy,
dissolution, incapacity or death of the last remaining General
Partner, the Limited Partners may, by a unanimous vote within 90
days of dissolution, elect a successor General Partner to
continue the business of the Partnership. However, there is no
assurance that the Limited Partners will be able to find or agree
upon a new General Partner in such event.
Furthermore, the Limited Partners may elect by a simple
majority vote to remove any General Partner in accordance with
the Partnership Agreement, which provides that if there is no
remaining General Partner, a new General Partner must be elected
by a majority in interest of the Units (or such higher percentage
as required under TRULPA).
Upon dissolution of the Partnership, the affairs of the
Partnership will be wound up and its assets distributed, as
provided in the Partnership Agreement. Prospective investors are
urged to study the Partnership Agreement in detail for
information with respect to the accounting upon dissolution, and
the application of the cash proceeds of the Partnership upon
liquidation. The Partnership Agreement provides that in the
event of dissolution or liquidation, after the payment of
creditors and the establishment of reserves, the Partners will
receive cash proceeds equal to their respective capital accounts
(or pro rata to their capital accounts if cash proceeds are less
than the Partners' aggregate capital accounts) and the balance,
if any, will be distributed to the Limited Partners and General
Partners in accordance with their respective interests.
Amendments, Meetings, Voting and Removal
- ----------------------------------------
The General Partners may amend the Partnership Agreement
without notice to, or consent of, the Limited Partners, if the
amendment does not have a material effect upon the Limited
Partners or the Partnership. Limited Partners holding a simple
majority in interest of the Units may amend the Partnership
Agreement, except that no amendment may be made which will change
the Partnership to a general partnership or change the
Partnership interest of any Partner, or increase the liabilities
or obligations of any Partner. Notwithstanding this, the General
Partners without the consent of, but with notice to, the Limited
Partners may amend the Partnership Agreement to the minimum
extent necessary to comply with any amendment to Internal Revenue
Code sections 704 or 7704 or the Regulations thereunder or any
judicial or administrative interpretation thereof.
Meetings of the Limited Partners may be called by the
General Partners or Limited Partners having more than 10% of the
voting power of the Limited Partners by delivering written notice
of such call to the Managing General Partner. Such meetings
shall be at a time and place fixed by the Managing General
Partner which is not less than 30 nor more than 60 days after the
call of the meeting.
The voting power of a Limited Partner on any matter will
be
equal to the number of Units owned by him. Action may be taken
by written consent without a meeting of the Partnership upon
written consent of Limited Partners holding the same number of
Units as would have been required had an actual meeting been
held. For purposes of obtaining written consent, the Managing
General Partner may require a written response by a Limited
Partner within not less than 30 days. If the Limited Partner
does not respond within the stated time period, the Limited
Partner will be deemed to have abstained from the matter
specified in the written consent.
Any General Partner may be removed by a simple majority
in
interest of all the Limited Partners if: (i) if there is no
remaining General Partner, a Successor General Partner is
elected; and (ii) the removed General Partner shall be entitled
to a redemption of its general partnership interest at its Unit-
equivalent basis; and (iii) the removal of the General Partner
would not result in the Partnership's ceasing to be treated as a
partnership for purposes of the applicable provisions of the
Code; and (iv) Successor General Partner assumes the removed
General Partner's obligations of the Partnership for claims
arising prior to removal and agrees to indemnify the removed
General Partner for such claims in a form satisfactory to the
removed General Partner.
Indemnification
- ---------------
The General Partners and certain of their affiliates,
directors and controlling persons may not be liable to the
Partnership or any Limited Partner for errors in judgment or
other acts or omissions not amounting to misconduct or
negligence, as a consequence of the indemnification and
exculpatory provisions described in the following paragraph.
Purchasers of Units may have more limited rights of action than
they would absent such provisions.
The General Partners and their affiliates shall have no
liability to the Partnership or to any Limited Partner for any
loss suffered by the Partnership which arises out of any action
or inaction of the General Partners or their affiliates if the
General Partners or their affiliates, in good faith, determined
that such course of conduct was in the best interest of the
Partnership and such course of conduct did not constitute
negligence or misconduct of the General Partners or their
affiliates. The Partnership has agreed to indemnify the General
Partners and certain of their affiliates, officers, directors and
controlling persons against claims, losses or liabilities based
on their conduct relating to the Partnership, provided that the
conduct resulting in the claims, losses or liabilities for which
indemnity is sought did not constitute negligence or misconduct
or breach of any fiduciary obligation of the Partnership, and was
done in good faith and in a manner reasonably believed to be in
the best interests of the Partnership. Affiliates of the General
Partners are entitled to indemnity only for losses resulting from
claims against such affiliates due solely to their relationship
with the General Partners or for losses incurred by such
affiliates in performing the duties of the General Partners. For
purposes of the exculpation and indemnification provisions of the
Partnership Agreement, the term "affiliates" means any person
performing services on behalf of the Partnership who (i) directly
or indirectly controls, is controlled by, or is under common
control with the General Partners; or (ii) owns or controls 10%
or more of the outstanding voting securities of the General
Partners; or (iii) is an officer or director of either General
Partner; or (iv) if either of the General Partners is an officer,
director, partner or trustee, is any company for which such
General Partner acts in any such capacity.
The Partnership will not indemnify the General Partners
or
any of the foregoing persons for any liability arising from
securities law violations in connection with the offering of the
Units unless the General Partners or such persons prevail on the
merits or obtain a court approved settlement which includes court
approved indemnification as described in Section 8.05(b) of the
Partnership Agreement.
Under the exculpatory provisions of the Partnership
Agreement, none of the General Partners or their affiliates will
be liable to the Partnership or to any of the Partners except by
reason of acts or omissions constituting bad faith, misconduct or
negligence, and that were not taken in good faith and in the
reasonable belief that such actions were in the best interests of
the Partnership. Purchasers of Units may have a more limited
right of action then they would absent such limitations. See
"Conflicts of Interest" and "Fiduciary Responsibility of the
General Partners."
General
- -------
In compliance with the Statement of Policy of the North American
Securities Administrators Association, Inc. relating to the
registration to commodity pool programs under state securities or
"Blue Sky" laws, the Partnership Agreement provides that: (i) the
Partnership will make no loans; (ii) no rebates or give-ups,
among other things, may be received from the Partnership by any
of the General Partners, the futures commission merchant or any
affiliate of the foregoing, and any such restriction may not be
circumvented by reciprocal business arrangements among any of the
General Partners, the futures commission merchant or any of their
respective affiliates and the Partnership; (iii) any agreements
between the Partnership and the General Partners or any of their
affiliates will not exceed one year and must be terminable by the
Partnership upon no more than 60 days' written notice; (iv) the
funds of the Partnership will not be commingled with the funds of
any other person (deposit of assets with a futures commission
merchant, clearing house or forward dealer does not constitute
commingling for these purposes); (v) no person is permitted to
receive, directly or indirectly, any advisory, management or
incentive fees or profit-sharing allocation from the Partnership
or any joint ventures, partnerships, or similar arrangements in
which the Partnership participates, for investment advice or
management who shares or participates in any commodity brokerage
commissions paid by the Partnership; (vi) no sponsors shall
directly or indirectly pay or award any commissions or other
compensation to any person engaged to sell Units or give
investment advice to a potential participant (provided, however,
that this clause shall not prohibit the payment to a registered
broker/dealer or other properly licensed person of normal sales
commissions for selling Units); and (vii) no affiliate of any
trading advisor or manager of the Partnership shall be permitted
to participate, directly or indirectly, in any commodity
brokerage commissions paid by the Partnership.
PLAN OF
DISTRIBUTION
The Units will be offered by the Partnership through its
Selling Agents who are members of National Association of
Securities Dealers ("NASD") pursuant to a Selling Agreement
between the Partnership, the Selling Agents and Refco. The Units
will be offered on a best efforts basis without any firm
underwriting commitment. See "Risk Factors - No Assurance That
Units Will be Sold." The compensation to the Selling Agents is
described in detail in "Description of Charges to the
Partnership." Selling Agents may pay a portion of such
compensation to their respective employees.
The Partnership will offer Units for sale valued as of
the
first business day of each month at the then current Average Net
Asset Value per Unit, plus a selling commission of 4%, until the
maximum number of Units offered hereby have been sold.
Purchasers of Units during the Continuous Offering will be
admitted on the first business day of the month following the
month in which their subscription is received. Subscriptions
must be received by the General Partners not later than the fifth
day prior to the end of a month in order for a subscriber to be
admitted on the first business day of the next month. Proceeds
from the sale of Units during the Continuous Offering will be
added to the Partnership's trading account. Interest earned on
such proceeds prior to closing applicable to such Units will be
retained by the Partnership. The number of Units subscribed for
will be determined for each subscriber by dividing the Average
Net Asset Value per Unit on the first day of such month, plus 4%
selling commission, into the amount tendered by such subscriber.
Fractional Units will be issued. The Partnership is registering
100,000 Units for sale under this prospectus. However, after all
100,000 Units have been sold, the Managing General Partner may,
in its discretion, subsequently register an additional 400,000
Units and increase the number of Units to 500,000 and make
additional public or private offerings of Units provided that the
net proceeds to the Partnership of any such sales shall in no
event be less than the Average Net Asset Value per Unit at the
time of sale. The Managing General Partner, and not the
Partnership, will bear, or cause others to bear, all expenses
related to the Continuous Offering or any additional offering
thereafter. No Limited Partner will have any preemptive,
preferential or other rights with respect to the issuance or sale
of any additional Units.
The Managing General Partner may reject any subscription
in
whole or in part for any reason. All subscriptions are
irrevocable.
SUBSCRIPTION
PROCEDURE
In order to purchase Units, an investor must (i) complete
and execute the Subscription Agreement found in the separate
Subscription Documents, and the power of attorney attached
thereto and (ii) deliver or mail the Subscription Agreement, the
power of attorney forms and a check made payable to Ceres Fund,
L.P. for the full purchase price of the Units subscribed for to
the Selling Agent, which will forward the check and the other
Subscription Documents to Randell Commodity Corporation, 889
Ridge Lake Boulevard, Memphis, Tennessee 38120. The power of
attorney must be notarized. The minimum subscription is $2,080
(which includes the 4% per Unit sales commission). During the
Continuous Offering, the number of Units purchased will be
determined based on the current Average Net Asset Value per Unit,
plus the 4% sales commission. The minimum subscription is
subject to higher minimums imposed by certain state security
laws. See "Plan of Distribution."
LEGAL
MATTERS
The legality of the Units offered hereby will be passed
upon
by Waring Cox, PLC of Memphis, Tennessee.
EXPERTS
The financial statements of Ceres Fund, L.P. as of
December
31, 1995 and 1994, and for the three years ended December 31,
1995, have been included herein in reliance upon the reports of
KPMG Peat Marwick, LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
ADDITIONAL
INFORMATION
The Partnership has filed with the Securities and
Exchange
Commission (the "Commission") in Washington, D.C., a Registration
Statement under the Securities Act of 1933, as amended, with
respect to the securities offered hereby. This Prospectus does
not contain all of the information set forth in the Registration
Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For
further information regarding the Partnership and the securities
offered hereby, reference is made to the Registration Statement,
and to the exhibits and schedules thereto, which may be inspected
without charge at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C., and copies of which may be obtained from the Commission at
prescribed rates by writing to the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Statements made in this
Prospectus as to the contents of any contract, agreement or other
document referred to are not necessarily complete. With respect
to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is hereby made
to the exhibit for a more complete description of the matter
involved and each such statement shall be deemed qualified in its
entirety by such reference.
The Partnership is subject to the informational
requirements
of the Securities Exchange Act of 1934 (the "Exchange Act") and
in accordance therewith will file reports and other information
with the Commission which 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 regional
offices of the Commission at 75 Park Place, 14th Floor, New York,
New York 10007 and Everett McKinley Dirkson Building, 219 South
Dearborn Street, Room 1204, Chicago, Illinois 60604. Copies of
such material can also be obtained from the public reference sec-
tion of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates.
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell Corporation)
Balance Sheets
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
- ----------------------------
The Board of Directors
Randell Commodity Corporation:
We have audited the accompanying balance sheets of Randell
Commodity Corporation (a wholly-owned subsidiary of Randell
Corporation) as of December 31, 1995 and 1994. These balance
sheets are the responsibility of the Company's management. Our
responsibility is to express an opinion on these balance sheets
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
balance sheets are free of material misstatement. An audit of a
balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An
audit of a balance sheet also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall balance sheet presentation. We
believe that our audits of the balance sheets provide a reasonable
basis for our opinion.
In our opinion, the balance sheets referred to above present
fairly, in all material respects, the financial position of Randell
Commodity Corporation as of December 31, 1995 and 1994, in
conformity with generally accepted accounting principles.
March 22, 1996
RANDELL COMMODITY
CORPORATION
(A wholly-owned subsidiary
of Randell Corporation)
Balance Sheets
December 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Current assets:
Cash $ --
389
Accounts receivable - affiliate 59,009
6,171
Due from related party 102,343
- --
Commodity futures trading account 160,727
152,477
-------
- -------
Total current assets 322,079
159,037
Investment in commodity partnerships
(note 2) 14,986
11,193
Property and equipment, net
(notes 3 and 4) 419,803
401,466
Total assets $ 756,868
571,696
=======
=======
</TABLE>
Liabilities and
Stockholder's Equity
- -------------------------------------
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued
expenses $ 6,279
582
Current installments of long-term
debt (note 4) 40,063
41,962
Due to affiliate 4,475
4,475
Total current liabilities 50,817
47,019
Long-term debt, excluding current
installments (note 4) 157,892
13,439
-------
- ------
Total liabilities 208,709
60,458
Stockholder's equity:
Common stock, $1 par value,
100,000 shares authorized, 1,033
shares issued and outstanding 1,033
1,033
Additional paid-in capital 1,227,041
1,227,041
Accumulated deficit (679,915)
(716,836)
Total stockholder's equity 548,159
511,238
Contingent liabilities (note 2) ---------
- ---------
Total liabilities and
stockholder's equity $ 756,868
571,696
=======
=======
</TABLE>
See accompanying notes to balance sheets.
RANDELL COMMODITY
CORPORATION
(A wholly-owned subsidiary
of Randell Corporation)
Notes to
Balance Sheets
December 31,
1995 and 1994
(1) Summary of Significant Policies
-------------------------------
Randell Commodity Corporation (the Company) is a
wholly-owned
subsidiary of Randell Corporation. The Company is a
registered commodity trading adviser and commodity pool
operator. The Company also owns and operates a ranch
located
in Mississippi.
The following sets forth the Company's significant
accounting
policies.
Commodity Futures Trading Account
---------------------------------
The Company's commodities futures trading account is
reported
at fair value. These funds are invested in a customer's
segregated account under the Commodities Exchange Act.
Investment in Partnerships
--------------------------
During 1995, the Company was the general partner in three
commodity partnerships. The Company accounts for its
interest
in these partnerships using the equity method of
accounting.
In addition to serving as general partner, the Company
receives management fees from these partnerships.
Property and Equipment
----------------------
Property and equipment are recorded at cost and
depreciated
over their estimated lives using straight-line and
accelerated
methods.
Income Taxes
------------
Deferred tax assets and liabilities are recognized for
the
estimated future tax consequences attributable to
differences
between the financial statement carrying amounts of
existing
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using
enacted
tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change
in
tax rates is recognized in income in the period that
includes
the enactment date.
Management Estimates
--------------------
The preparation of financial statements in conformity
with
generally accepted accounting principles requires
management
to make estimates and assumptions that affect the
reported
amounts of assets and liabilities and disclosure of
contingent
assets and liabilities at the date of the financial
statements
and the reported amounts of revenues and expenses during
the
reporting period. Actual results could differ from those
estimates.
(2) Investment in Commodity Partnerships
------------------------------------
The following is a summary of the Company's investment in
commodity partnerships:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Crescent Index Fund $ -- 1,127
The Pyramid Fund, L.P. 5,051 1,546
RanDelta Capital
Partners, L.P. 9,935 8,520
----- -----
$ 14,986 11,193
</TABLE>
The following summarizes the aggregate assets and liabilities of
the partnerships for which the Company serves as a general partner
at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assets $4,690,108 2,832,500
Liabilities 217,950 81,422
--------- ---------
$4,472,158 2,751,078
========= =========
</TABLE>
As a general partner, the Company is contingently liable for
liabilities of the partnerships.
(3) Property and Equipment
----------------------
The following is a summary of property and equipment at December
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Farmland $ 351,972 351,972
Farm buildings and
improvements 88,577 88,577
Farm machinery and
equipment 101,819 101,819
Trucks and autos 53,182 37,252
Computer and office
equipment 54,019 50,235
------- -------
649,569 629,855
Less accumulated
depreciation 229,766 228,389
------- -------
$ 419,803 401,466
</TABLE>
(4) Long-term Debt
--------------
The following is a summary of long-term debt at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Mortgage note payable
in monthly installments
of $3,425 in 1995 and
$3,000 in 1994, including
interest at 9%, with a
maturity date of October
2000, secured by real
property $ 160,468 33,807
9.75% note payable due in
monthly installments of
$714 through August 1999,
secured by an automobile 24,313 --
8.25% note payable due in
monthly installments of
$555 through February 1998,
secured by an automobile 13,174 --
8.49% note payable due in
monthly installments of
$754 through August 1997,
secured by an automobile -- 21,594
------- -------
197,955 55,401
Less current installments 40,063 41,962
------- ------
$ 157,892 13,439
</TABLE>
Maturities of long-term debt at December 31,1995 are as follows:
<TABLE>
<C> 1996 <C> 40,064
1997 43,827
1998 42,221
1999 39,164
2000 32,679
------
$ 197,955
=======
</TABLE>
(5) Income Taxes
------------
At December 31, 1995 and 1994, there were no tax effects of
temporary differences that give rise to significant portions of the
deferred tax assets and liabilities.
The Company files a consolidated federal income tax return with its
sole shareholder, Randell Corporation. At December 31, 1994,
Randell Corporation, had available net operating losses of $182,081
available to offset future federal taxable income as follows:
<TABLE>
<CAPTION>
Year of expiration
Amount
------------------ ------
<C> <C>
2007 $ 91,879
2009 90,202
-------
$182,081
</TABLE>
(6) Off-Balance-Sheet Risk
----------------------
In the normal course of business, the Company enters into
transactions in financial instruments with off-balance-sheet risk.
These financial instruments include financial futures contracts and
option contracts. Futures contracts provide for the delayed
delivery of commodities, which the seller agrees to make delivery
at a specified future date, at a specified price. Futures
contracts and options on such contracts are held for trading and
arbitrage purposes. The notional value of these contracts reflects
the extent of involvement the Company has in particular types of
contracts. Risk arises from the potential inability of
counterparties to meet the terms of their contracts and from
movements in commodities' values. At December 31, 1995, the
underlying notional value of open contract commitments were long
$175,250.
The Company trades in a variety of futures and options financial
instruments, and all open positions are reported at market. The
average market value of commodity financial instruments, and the
year-end market value of open commodities are as follows:
<TABLE>
<CAPTION>
Average Market
market value
value at December
during 1995 31, 1995
----------- ------------
<S> <C> <C>
Assets (Long Positions) $ (125) (313)
Liabilities
(Short Positions) (23) 0
</TABLE>
(7) Related Party Transactions
--------------------------
At December 31, 1995, the Company was due approximately $103,000
from Randell Corporation. At December 31, 1995 and 1994, the
Company, as general partner of Ceres Fund L.P. (the Fund), was due
approximately $59,000 and $6,000, respectively, from the Fund.
RANDELTA CAPITAL PARTNERS, L.P.
Balance Sheets
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
- -----------------------------
The Partners
RanDelta Capital Partners, L.P.:
We have audited the accompanying balance sheets of RanDelta Capital
Partners, L.P. as of December 31, 1995 and 1994. These balance
sheets are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these balance sheets
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
balance sheets are free of material misstatement. An audit of a
balance sheet includes examining, on a test basis, evidence
supporting the amounts and disclosures in that balance sheet. An
audit of a balance sheet also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall balance sheet presentation. We
believe that our audits of the balance sheets provide a reasonable
basis for our opinion.
In our opinion, the balance sheets referred to above present
fairly, in all material respects, the financial position of
RanDelta Capital Partners, L.P. as of December 31, 1995 and 1994,
in conformity with generally accepted accounting principles.
March 22, 1996
RANDELTA CAPITAL
PARTNERS, L.P.
Balance
Sheets
December 31,
1995 and 1994
<TABLE>
<CAPTION>
Assets 1995
1994
------ ----
- ----
<S> <C> <C>
Current assets:
Cash $ 6,580
1,768
Fees receivable 48,980
- --
Due from affiliates 21,475
21,475
------
- ------
Total current assets 77,035
23,243
Investment in partnership (note 2) 187,832
78,695
Participation in loan (note 3) 750,000
750,000
-------
- -------
$1,014,867
851,938
=========
=======
Partners' Equity
Partners' equity:
General partners $ 9,935
8,520
Limited partners (note 3) 1,004,932
843,418
---------
- -------
$1,014,867
851,938
=========
=======
</TABLE>
See accompanying notes
to balance sheets.
RANDELTA CAPITAL
PARTNERS, L.P.
Notes to
Balance Sheets
December 31,
1995 and 1994
(1) Summary of Significant Accounting Policies
Organization
------------
RanDelta Capital Partners, L.P. (RanDelta) is a Tennessee
limited partnership organized on September 19, 1990. On March 31,
1994, Delta International, Inc., a co-general partner of RanDelta,
sold its partnership interest in RanDelta to Randell Commodity
Corporation and withdrew as a general partner. Randell Commodity
Corporation is the general partner of RanDelta. The partnership
agreement requires that the net income of the partnership be
allocated on a pro rata basis to the limited and general partners
based on their capital contributions.
RanDelta was formed to serve as the financial general
partner
of CERES Fund, L.P. (CERES), a limited partnership involved in
speculative commodities and futures trading, which commenced
operations on December 1, 1991.
Income Taxes
------------
No provision for income taxes has been made in the
accompanying balance sheets since, as a partnership, income and
losses for tax purposes are allocated to the partners for inclusion
in their respective tax returns.
Management Estimates
--------------------
The preparation of financial statements in conformity
with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(2) Investment in Partnership
-------------------------
RanDelta accounts for its interest in CERES using the
equity
method of accounting. In addition to serving as general partner,
RanDelta receives incentive fees from CERES. Fees receivable from
CERES at December 31, 1995 and 1994 totaled $48,980 and $-0-,
respectively.
RANDELTA CAPITAL PARTNERS, L.P.
Notes to Balance Sheets
Aggregate assets and liabilities for CERES were $3,205,072 and
$207,452 respectively, at December 31, 1995 and $1,759,977 and
$73,872, respectively, at December 31, 1994.
(3) Participation in Loan
---------------------
On November 13, 1990, RanDelta entered into an agreement with a
limited partner whereby the limited partner sold to RanDelta at par
an undivided 68.1818% interest in a note receivable from a cattle
feeding operation in exchange for a limited partnership interest in
RanDelta. RanDelta and the limited partner are to share in
principal payments on the loan on the basis of their respective
interests. The loan is payable on demand, bears interest at the
prime rate, and is unsecured. RanDelta is not entitled to receive
any portion of the interest due under the note. The borrower is a
related party to the limited partner.
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Financial Statements and Schedule
December 31, 1995 and 1994
(With Independent Auditors' Report Thereon)
To the best of my knowledge and belief, the information
contained herein is accurate and complete.
Frank L. Watson Jr., Chairman
Randell Commodity Corporation
General Partner and Commodity Pool Operator
Ceres Fund, L.P.
Independent Auditors' Report
- ---------------------------
The Partners
Ceres Fund, L.P.:
We have audited the accompanying statements of financial condition
of Ceres Fund, L.P. (a Tennessee Limited Partnership) as of
December 31, 1995 and 1994, and the related statements of
operations, changes in partners' capital, cash flows, and summary
of net asset values for each of the years in the three-year period
ended December 31, 1995. 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 Ceres
Fund, L.P. (a Tennessee Limited Partnership) as of December 31,
1995 and 1994, and the results of its operations and its cash
flows for each of the years in the three-year period ended December
31, 1995, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplementary
information included in Schedule 1 is presented for purposes of
additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial
statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a
whole.
Memphis, Tennessee
February 16, 1996
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Statements of
Financial Condition
December 31,
1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ----- ----
<S> <C> <C>
Cash $ 15,538 $
18,064
Equity in commodity futures
trading account:
U.S. government obligations at
market (cost of $2,269,189 and
$1,430,559 at December 31, 1995
and 1995, respectively) 2,288,186
1,440,561
Cash 662,426
231,119
Unrealized gains on open futures
contracts 232,026
67,154
Open option contracts, at market 1,840
- --
Other assets 5,056
3,079
---------
- ---------
Total assets 3,205,072
1,759,977
=========
=========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accrued management fees $ 10,077 $
5,546
Accrued incentive fees 97,960
- --
Other accrued expenses 15,489
17,411
Redemptions payable 83,926
50,915
------
- ------
Total liabilities 207,452
73,872
=======
======
Partners' capital:
General partners 166,392
78,695
Limited partners 2,831,228
1,607,410
---------
- ---------
Total partners capital 2,997,620
1,686,105
---------
- ---------
3,205,072
1,759,977
=========
=========
</TABLE>
See accompanying notes to financial statements.
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Statements of
Operations
Years ended December 31,
1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994
1993
---- ----
- ----
<S> <C> <C> <C>
Net gains (losses) on trading
of commodity futures and
options contracts:
Realized (losses) gains on
closed positions $1,877,265 (649,957)
$1,018,320
Change in unrealized gains on
open futures contracts 164,872 65,904
16,857
Change in unrealized gains on
open options contracts 1,840 --
8,438
--------- -------
- ---------
Net gains (losses) on
investments 2,043,977 (584,053)
1,043,615
--------- -------
- ---------
Investment income - interest
(note 3) 112,821 81,182
106,876
Brokerage commissions (note 3) 320,062 423,670
613,527
Exchange, clearing fees and
NFA charges 13,615 15,072
20,052
Management fee allocations
(note 2) 85,331 76,157
122,672
Incentive fee allocations
(note 2) 108,815 --
44,542
Professional and admini-
strative expenses 44,869 39,830
57,796
------- -------
-------
572,692 554,729
858,589
------- -------
-------
Net earnings (loss) $1,584,106 (1,057,600)
291,902
========= =========
=======
</TABLE>
See accompanying notes to financial statements.
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Statements of Changes in
Partners' Capital
Years ended December 31,
1995, 1994 and 1993
<TABLE>
<CAPTION>
General Limited
partners partners
Total
-------- --------
- -----
<S> <C> <C> <C>
Partners' capital at December
31, 1992 $ 95,748 $3,085,428
$3,181,176
Capital contributions
(7,223 units) 5,458 709,365
714,823
Redemption of units (14,067
units) -- (1,386,430)
(1,386,430)
Net earnings for the year 17,613 274,289
291,902
------ ---------
- ---------
Partners' capital at December
31, 1993 118,819 2,682,652
2,801,471
Capital contributions (2,317
units) -- 234,065
234,065
Redemption of units (3,761
units) -- (291,831)
(291,831)
Net loss for the year (40,124) (1,017,476)
(1,057,600)
------- ---------
- ---------
Partners' capital at December
31, 1994 78,695 1,607,410
1,686,105
Capital contributions (2,704
units) -- 191,647
191,647
Redemption of units (5,042
units) -- (464,238)
(464,238)
Net earnings for the year 87,697 1,496,409
1,584,106
------- ---------
- ---------
Partners' capital at December
31, 1995 $166,392 2,831,228
2,997,620
======= =========
=========
Average net asset value per limited partnership unit at:
December 31, 1993; 24,122.7011 units outstanding 111.21
======
December 31, 1994; 22,679.4144 units outstanding 70.88
======
December 31, 1995; 20,341.7718 units outstanding 139.18
======
</TABLE>
See accompanying notes to financial statements.
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Statements of
Cash Flows
Years ended December 31,
1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994
1993
---- ----
----
<S> <C> <C> <C>
Cash flows from operating activi-
ties:
Net earnings (loss) $1,584,106 (1,057,600)
291,902
Adjustments to reconcile
net earnings (loss) to
net cash provided by
operating activities:
Net unrealized losses
(gains) on open con-
tracts (166,712) (65,904)
(25,295)
(Increase) decrease in
operating assets:
U.S. government
obligations (847,625) 1,059,012
(57,556)
Investments in com-
modities futures
trading account (431,307) 651,720
(268,773)
Other assets (1,977) (1,715)
(288)
Increase (decrease) in
operating liabilities:
Accrued management fees 4,531 (5,343)
570
Accrued incentive fees 97,960 (39,383)
39,383
Other accrued expenses (1,922) (17,973)
8,183
--------- ---------
- ---------
Total adjustments (1,347,052) 1,580,414
(303,776)
--------- ---------
-------
Net cash provided
by (used in) ope-
rating activities 237,054 522,814
(11,874)
------- -------
------
Cash flows from financing acti-
vities:
Net proceeds from sale of
limited partnership units 191,647 234,065
468,683
Redemptions of limited
partnership units (431,227) (774,614)
(852,732)
Contributions received from
general partners -- --
5,458
--------- ---------
- ---------
Net cash used in
financing activi-
ties (239,580) (540,549)
(378,591)
------- -------
-------
Net decrease in cash (2,526) (17,735)
(390,465)
Cash at beginning of year 18,064 35,799
426,264
--------- ---------
- ---------
Cash at end of year $ 15,538 18,064
35,799
========= =========
=========
</TABLE>
See accompanying notes to financial statements.
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Summary of Net
Asset Values
At December
31, 1995
<TABLE>
<CAPTION>
Number Number Number Net
asset Total
Subscriber of units of units of units value
per net asset
admission date subscribed withdrawn outstanding unit
value
- -------------- ---------- --------- -----------
- --------- --------
<S> <C> <C> <C> <C>
<C>
December 1, 1991 13,471.6805 (9,382.9291) 4,088.7514
$139.71 571,255
January 1, 1992 1,868.7042 (308.5313) 1,560.1729
138.96 216,808
February 1, 1992 1,708.8416 (735.5574) 973.2842
140.16 136,412
March 1, 1992 2,122.9736 (1,387.6491) 735.3245
139.44 102,537
April 1, 1992 584.4999 (434.8956) 149.6043
140.20 20,975
May 1, 1992 918.3502 (329.6641) 588.6861
138.94 81,792
June 1, 1992 1,678.3638 (503.3093) 1,175.0545
139.86 164,344
July 1, 1992 2,002.6730 (306.3825) 1,696.2905
138.98 235,755
August 1, 1992 1,132.8673 (514.0451) 618.8222
139.33 86,223
September 1, 1992 1,820.2180 (788.3632) 1,031.8548
139.50 143,944
October 1, 1992 1,979.2928 (1,286.1599) 693.1329
140.02 97,054
November 1, 1992 543.6780 (392.5141) 151.1639
139.72 21,120
December 1, 1992 1,179.6235 (466.6253) 712.9982
139.18 99,237
January 1, 1993 2,314.5105 (1,258.8993) 1,055.6112
139.06 146,798
February 1, 1993 466.9657 (26.7688) 440.1969
139.81 61,543
March 1, 1993 2,393.2721 (1,049.9125) 1,343.3596
139.21 187,011
April 1, 1993 679.3648 (258.6136) 420.7512
139.00 58,483
May 1, 1993 243.4826 (32.4874) 210.9952
139.05 29,338
July 1, 1993 157.6181 (69.9852) 87.6329
140.68 12,328
August 1, 1993 328.7689 (113.4646) 215.3043
140.10 30,165
September 1, 1993 392.3815 (371.8211) 20.5604
143.61 2,953
October 1, 1993 246.6610 -- 246.6610
139.15 34,322
February 1, 1994 1,550.2812 -- 1,550.2812
137.11 212,552
March 1, 1994 693.0397 (191.8743) 501.1654
136.16 68,239
April 1, 1994 74.1121 -- 74.1121
135.47 10,040
January 1, 1995 2,704.0027 (2,704.0027) --
- -- --
---------- ---------- ----------
- ------ ------
Total 43,256.2273 (22,914.4555) 20,341.7718
$139.18 2,831,228
=========== =========== ===========
====== =========
</TABLE>
See accompanying notes to financial statements.
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Summary of Net
Asset Values
At December
31, 1994
<TABLE>
<CAPTION>
Number Number Number Net
asset Total
Subscriber of units of units of units value
per net asset
admission date subscribed withdrawn outstanding unit
value
- -------------- ---------- --------- -----------
- --------- --------
<S> <C> <C> <C> <C>
<C>
December 1, 1991 13,471.6805 (9,013.5958) 4,458.0847
$71.01 316,578
January 1, 1992 1,868.7042 (284.0076) 1,584.6966
70.63 111,925
February 1, 1992 1,708.8416 (735.5574) 973.2842
71.24 69,334
March 1, 1992 2,122.9736 (1,387.6491) 735.3245
70.87 52,115
April 1, 1992 584.4999 (363.5997) 220.9002
71.26 15,741
May 1, 1992 918.3502 (188.3795) 729.9707
70.62 51,548
June 1, 1992 1,678.3638 (457.5539) 1,220.8099
71.09 86,783
July 1, 1992 2,002.6730 (306.3825) 1,696.2905
70.64 119,823
August 1, 1992 1,132.8673 (491.0528) 641.8145
70.82 45,452
September 1, 1992 1,820.2180 (654.2110) 1,166.0070
70.90 82,672
October 1, 1992 1,979.2928 (1,253.8675) 725.4253
71.17 51,627
November 1, 1992 543.6780 (256.7382) 286.9398
71.01 20,376
December 1, 1992 1,179.6235 (443.8094) 735.8141
70.74 52,052
January 1, 1993 2,314.5105 (620.6037) 1,693.9068
70.68 119,725
February 1, 1993 466.9657 (26.7688) 440.1969
71.06 31,280
March 1, 1993 2,393.2721 (448.6933) 1,944.5788
70.75 137,588
April 1, 1993 679.3648 (258.6136) 420.7512
70.65 29,724
May 1, 1993 243.4826 (32.4874) 210.9952
70.67 14,911
July 1, 1993 157.6181 (69.9852) 87.6329
71.51 6,266
August 1, 1993 328.7689 (113.4646) 215.3043
71.21 15,332
September 1, 1993 392.3815 (273.9149) 118.4666
73.00 8,648
October 1, 1993 246.6610 -- 246.6610
70.72 17,444
February 1, 1994 1,550.2812 -- 1,550.2812
70.79 109,742
March 1, 1994 693.0397 (191.8743) 501.1654
70.79 35,477
April 1, 1994 74.1121 -- 74.1121
70.80 5,247
---------- ---------- ----------
- ----- -------
Total 40,552.2246 (17,872.8102) 22,679.4144
$70.88 1,607,410
</TABLE>
See accompanying notes to financial statements.
INSERT SUMMARY OF NET ASSET VALUES FOR 1993 HERE
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Notes to
Financial Statements
December 31,
1995 and 1994
(1) Summary of Significant Accounting Policies
------------------------------------------
Organization
------------
Ceres Fund, L.P. (the Partnership) is a Tennessee limited
partnership organized on September 19, 1990 to engage in
the
speculative trading of commodities futures contracts and
other
commodity interests. Randell Commodity Corporation
(Randell)
and RanDelta Capital Partners, L.P. (RanDelta) are the
general
partners. Randell serves as the managing general partner
and
RanDelta serves as the financial general partner.
Randell
acts as commodity trading advisor with respect to the
Partnership.
The Partnership solicited subscriptions for a maximum of
100,000 units of limited partnership interest at $105 per
unit
($100 net of commission). During the initial offering
period
13,471.6805 units were sold and the Partnership commenced
trading commodity futures contracts on December 1, 1991.
The
Partnership continues to sell units as of the end of each
month at the then average net asset value per unit plus
a
selling commission of 4% in accordance with the terms of
the
Limited Partnership Agreement, and can continue selling
units
until the maximum number of units offered have been sold.
The general partners agreed to make a capital
contribution up
to the lesser of $100,000 or 3% of total partnership
capitalization. In no event will the general partners'
interest in the Partnership be less than 1% of total
partnership capitalization.
Income and expenses of the Partnership (excluding the
Management Allocation and Incentive Allocation) are
allocated
pro rata among the partners based on their respective
capital
accounts as of the beginning of the month in which the
items
of income and expense accrue, except that limited
partners
have no liability for partnership obligations in excess
of his
or her capital account, including earnings. The
Management
Allocation and Incentive Allocation are allocated to the
Limited Partners only in accordance with the terms of the
Limited Partnership Agreement.
Units may not be redeemed during the first six months
after
they are purchased. Thereafter, limited partners may
redeem
their units at the redemption net asset value per unit as
of
the end of any calendar quarter upon ten days written
notice
to the managing general partner. The redemption charge
will
be based on the redemption net asset value on all units
redeemed as more fully described in the offering
prospectus.
Under the terms of the partnership agreement, the
Partnership
will terminate on the earlier of December 31, 2020, or
the
occurrence of certain events as more fully described in
the
Limited Partnership Agreement.
Equity in Commodity Futures Trading Account
-------------------------------------------
U.S. government obligations represent investments in U.S.
Treasury Bills with a maturity of 90 days or less and are
carried at fair market value and any unrealized gains and
losses are reflected in income. Cash represents deposits
at
brokers and funds temporarily held in interest bearing
accounts.
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Notes to
Financial Statements
Futures Contracts and Options Contracts
---------------------------------------
Futures contracts are required to be made on a commodity
exchange and call for the future delivery of various
agricultural and nonagricultural commodities, currencies
or
financial instruments at a specified time and place.
These
contractual obligations, depending on whether one is a
buyer
or a seller, may be satisfied either by taking or making
physical delivery of an approved grade of the particular
commodity (or, in the case of some contracts, by cash
settlement) or by making an offsetting sale or purchase
of an
equivalent commodity futures contract on the same (or a
linked) exchange prior to the designated date of
delivery. In
market terminology, a trader who purchases a futures
contract
is long in the futures market, and a trader who sells a
futures contract is short in the futures market.
Outstanding
futures contracts (those that have not been closed out by
an
offsetting purchase or sale or by delivery) are known as
open
trades or "open positions."
Among the agricultural commodities for which there are
futures
contracts are corn, oats, wheat, soybeans, soybean oil,
soybean meal, live cattle, live hogs, pork bellies,
coffee,
sugar, cocoa and cotton. Nonagricultural commodities for
which there are futures contracts include copper, silver,
gold, platinum, lumber, currency, Treasury bonds and
bills,
mortgage-backed securities, Eurodollar deposits, certain
petroleum products and stock, inflation and interest rate
related indices.
An option on a futures contract gives the purchaser of
the
option the right (but not the obligation) to take a
position
at a specified price (the "striking", "strike" or
"exercise
price") in the underlying futures contract. Options have
limited life spans, usually tied to the delivery or
settlement
date of the underlying futures contract. Some options,
however, expire significantly in advance of such date.
The
value of an option at any given point in time is a
function of
market volatility and the price level of the underlying
futures contract.
Open futures contracts are valued at the settlement price
on
the date of valuation as determined by the exchange on
which
the contract was traded. Changes in the market value of
open
futures contracts, entered into for either speculative
investing or hedging purposes, are recorded as unrealized
gains or losses in the accompanying statement of
operations.
Realized gains and losses (excluding commissions and
other
exchange related fees) are recognized when such contracts
are
closed.
Income Taxes
------------
No provision for income taxes has been made in the
accompanying financial statements since, as a
partnership,
income and losses for tax purposes are allocated to the
partners for inclusion in their respective tax returns.
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Notes to
Financial Statements
Management Estimates
--------------------
The preparation of financial statements in conformity
with
generally accepted accounting principles requires
management
to make estimates and assumptions that affect the
reported
amounts of assets and liabilities and disclosure of
contingent
assets and liabilities at the date of the financial
statements
and the reported amounts of revenues and expenses during
the
reporting period. Actual results could differ from those
estimates.
Reclassifications
-----------------
Certain 1994 and 1993 amounts have been reclassified to
conform to their 1995 presentation.
(2) Management Agreement
--------------------
The Partnership has entered into a Management Agreement
in
consideration of and as compensation for the services to
be
rendered by the General Partners and trading advisors.
The
Partnership pays a monthly Management Allocation equal to
1/3
of 1% (4% per annum) of the Adjusted Net Asset Value of
units
at month end, plus a quarterly Incentive Allocation of
15% of
any net new appreciation in the adjusted net asset value
of
units for the quarter. Such fees were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Management fees $ 85,331 76,157 122,672
Incentive fees 108,815 -- 44,542
</TABLE>
(3) Customer Agreement with Refco, Inc.
-----------------------------------
The Partnership entered into a customer agreement with
Refco,
Inc. (Refco), pursuant to which the Partnership deposits
its
assets in a commodity trading account with Refco who
executes
trades on behalf of the Partnership. The Partnership
agrees
to pay such brokerage and commission charges and fees as
Refco
may establish and charge from time to time. During 1993,
and
through June 29, 1994, Refco charged the Partnership
commissions on commodity trades at the rate of $45.50 per
round-turn. This commission rate was renegotiated by the
General Partner and effective July 1, 1994, commissions
payable to Refco were reduced to $32.50 per round-turn.
Total
commissions charged to the Partnership by Refco in 1995,
1994
and 1993 were $320,062, $423,670 and $613,527,
respectively.
The Partnership earns interest on Treasury Bills held in
its
account, on interest-bearing accounts and on 80% of the
average daily equity maintained as cash in the
Partnership's
trading account at a rate that approximated the average
yield
on 13-week United States Treasury Bills. Total interest
earned by the Partnership in 1995, 1994 and 1993 was
$112,821,
$81,182 and $106,876, respectively.
(4) Related Parties
---------------
The sole shareholder of the parent of the managing
General
Partner is an active partner in the law firm which is the
counsel to the Partnership, the General Partners and the
Memphis branch of Refco, the Partnership's commodity
broker.
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
(5) Subsequent Event
----------------
On January 15, 1996, the General Partner declared a
distribution to the limited partners equal to the
difference
between the December 31, 1995 net asset value per unit
and
$125 per unit. This distribution, totaling $288,507
resulted
in each unit holder having a net asset value of $125 per
unit
on January 1, 1996.
(6) Off-Balance-Sheet Risk
----------------------
In the normal course of business, the Partnership enters
into
transactions in financial instruments with
off-balance-sheet
risk. These financial instruments include financial
futures
contracts and option contracts. Futures contracts
provide for
the delayed delivery of commodities, which the seller
agrees
to make delivery at a specified future date, at a
specified
price. Futures contracts and options on such contracts
are
held for trading and arbitrage purposes. The notional
value
of these contracts reflects the extent of involvement the
Partnership has in particular types of contracts. Risk
arises
from the potential inability of counterparties to meet
the
terms of their contracts and from movements in
commodities'
values. At December 31, 1995, the underlying notional
value
of open contract commitments were long $7,260,934 and
short
$(2,087,075).
The Partnership trades in a variety of futures and
options
financial instruments, and all open positions are
reported at
market. Trading revenue, including realized and
unrealized
gains and losses, from financial futures contracts and
options
transactions for the year ended December 31, 1995 was
$2,043,977. The average market value of commodity
financial
instruments, and the year-end market value of open
commodities
are as follows:
<TABLE>
<CAPTION>
Average market Market
value
value during 1995 at December
31, 1995
-----------------
- --------------------
<S> <C> <C>
Assets (Long Positions) $192,001 210,291
Liabilities (Short Positions) (55,856) 23,575
</TABLE>
(7) Fair Value of Financial Instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107,
Disclosure About Fair Value of Financial Instruments,
extends
existing fair value disclosure practices for some
instruments
by requiring all entities to disclose the fair value of
financial instruments, both assets and liabilities
recognized
and not recognized in the statement of financial
condition,
for which it is practicable to estimate fair value. If
estimating fair value is not practicable, this Statement
requires disclosures of descriptive information pertinent
to
estimating the value of a financial instrument. At
December
31, 1995, substantially all of the Partnership's
financial
instruments, as defined in the Statement, are carried at
fair
value.
Schedule 1
----------
CERES FUND,
L.P.
(A Tennessee
Limited Partnership)
Schedule of
Investments
December
31, 1995
<TABLE>
<CAPTION>
Par or
number of
Description contracts
Value
----------- ---------
- -----
<S> <C> <C>
United States Treasury Bill due 02/15/96 900,000 $
894,004
United States Treasury Bill due 02/01/96 1,400,000
1,394,182
- ---------
2,288,186
- ---------
Net cash balances from futures trading
662,426
- -------
Open options contracts in futures trading accounts:
March 6 Wheat 40
34,000
July 6 Wheat 40
42,000
March 6 Kans Wheat 20
5,000
July 6 Kans Wheat (40)
(22,825)
February 6 Live Cattle 25
(17,930)
April 6 Live Cattle 25
(13,450)
February 6 Live Hogs (10)
3,700
April 6 Live Hogs (10)
4,600
November 6 Soybeans 20
(500)
March 6 Soybean Oil 75
(9,414)
May 6 Soybean Oil (50)
38,100
March 6 Corn 100
168,750
December 6 NY Cotton 1
(5)
March 6 Cotton Option 1
720
March 6 Cotton Option 2
1,120
- -------
233,866
- -------
Total equity in futures trading accounts
896,292
- ---------
Total investments
$3,184,478
=========
</TABLE>
See accompanying independent auditors' report.
*
PART
II
INFORMATION NOT
REQUIRED IN PROSPECTUS
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
(1)
Form of Selling Agreement
among the Partnership,
Refco, Inc. and Selling
Agents is incorporated by
reference to Exhibit (1)
to the Post-Effective
Amendment No. 4 to the
Registration Statement of
the Partnership dated
June 30, 1994 (SEC File
No. 33-37802.)
(2)(b)
Agreement of Limited
Partnership of the
Partnership is
incorporated by reference
to Exhibit (2)(b) to the
Post-Effective Amendment
No. 1 to the Registration
Statement of the
Partnership dated April
26, 1991 (SEC File No.
33-37802)
(5)
Opinion of Waring Cox is
incorporated by reference
to Exhibit 5 to the Post-
Effective Amendment No. 1
to the Registration
Statement of the
Partnership dated April
26, 1991 (SEC File No.
33-37802.)
(10)(a)
Amendment No. 1 to the
Management Agreement
among the Partnership,
Randell Commodity
Corporation and Delta
International, Inc. is
incorporated by reference
to Exhibit 10(a) to the
Post-Effective Amendment
No. 4 to the Registration
Statement of the
Partnership dated June
15, 1994 (SEC File No.
33-37802)
(24)(a)
Consent of accountants
for the Partnership.
(24)(c)
See Exhibit 5.
(b) Financial Statement Schedules
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933,
the Registrant has duly caused this Post Effective Amendment No. 5
of the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Memphis,
State of Tennessee on October , 1996.
CERES FUND, L.P.
By: RANDELL COMMODITY CORPORATION,
Managing General Partner
By: /s/ Frank L. Watson, Jr.
-----------------------------
Frank L. Watson, Jr., Chairman and Sole Director
KPMG Peat Marwick LLP
Morgan Keegan Tower, Suite 900
Fifty North Front Street
Memphis, TN 38103
Accounts' Consent
We consent to the use herein of our report dated February 16,
1996, to the financial condition of Ceres Fund, L.P. (a Tennessee
Limited Partnership) as of December 31, 1995 and 1994, and the
related statements of operations, changes in partners' capital,
cash flows, and summary of net asset values for each of the years
in the three-year period ended December 31, 1995 and the
reference to our Firm under the heading "Experts" in the
Prospectus.
/s/ KPMG Peat Marwick LLP
Memphis, Tennessee
October 30, 1996
