As Filed with the Securities and Exchange Commission on August
26, 1997
Registration Statement No. 33-37802
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6
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
------------------------------
August 25, 1997
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<PAGE>
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 September 27, 1996, and in particular discloses certain
financial information on the General Partners at December 31, 1996,
and updates certain financial information and past performance
information of the Partnership through June 30, 1997.
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 "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 "The Offering--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 "Futures Commission
Merchant" and "General Partners.") All trading decisions will be
made for the Partnership by Frank L. Watson, Jr., Chairman of the
Managing General Partner. (See "General Partners" and "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.")
No secondary market for the Units exists and Units may not be
redeemed for the first six months after they are purchased.
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.
<TABLE>
<CAPTION>
Proceeds to the
Price to Selling Commissions Partnership
the 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 to above table on the following page)
THESE ARE SPECULATIVE SECURITIES AND 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"
(Page 6) AND "SUITABILITY OF INVESTMENT AND QUALIFICATION OF
INVESTORS" (Page iv).
THE COMMODITY FUTURES TRADING COMMISSION ("CFTC") HAS NOT PASSED
UPON THE MERITS OF PARTICIPATING IN THIS POOL NOR HAS THE CFTC
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.
The date of this Prospectus is August 25, 1997<PAGE>
NOTES:
(1) The Units are being offered on a best-efforts basis through
members of the NASD participating 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 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 Offering available to the Partnership and
the initial Net Asset Value per Unit have not been reduced for
offering expenses. Refco will pay all expenses of the
Offering not borne by the Selling Agents. See "Description of
Charges to the Partnership."
THE PARTNERSHIP IS SUBJECT TO CONFLICTS OF INTEREST AND MUST PAY
SUBSTANTIAL CHARGES REGARDLESS OF WHETHER IT EARNS ANY PROFITS.
SEE "CONFLICTS OF INTERESTS" AND "DESCRIPTION OF CHARGES TO THE
PARTNERSHIP."
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.
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 16 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 20.
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 6.
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.
<PAGE>
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 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 1996 and
projected gross income for each of 1997 and 1998 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.
<PAGE>
TABLE OF CONTENTS
CFTC RISK DISCLOSURE STATEMENT . . . . . . . . . . . . . . . .iii
SUITABILITY OF INVESTMENT AND QUALIFICATION OF INVESTORS . . . iv
SUMMARY OF THE PROSPECTUS. . . . . . . . . . . . . . . . . . . .1
THE OFFERING . . . . . . . . . . . . . . . . . . . . . . . . . .5
Securities Offered. . . . . . . . . . . . . . . . . . . . .5
Minimum Subscription. . . . . . . . . . . . . . . . . . . .5
Subscription Procedure. . . . . . . . . . . . . . . . . . .5
Plan of Distribution. . . . . . . . . . . . . . . . . . . .5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . .6
Financial Information . . . . . . . . . . . . . . . . . . .6
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT FACTORS . . . . . . . . . . . . . . . . . . . . . . 12
CONFLICTS OF INTEREST. . . . . . . . . . . . . . . . . . . . . 13
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS . . . . . . . 15
DESCRIPTION OF CHARGES TO THE PARTNERSHIP AND PARTNERS . . . . 16
General Partners. . . . . . . . . . . . . . . . . . . . . 17
Futures Commission Merchant (REFCO) . . . . . . . . . . . 18
Selling Agents. . . . . . . . . . . . . . . . . . . . . . 18
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Operating Expenses. . . . . . . . . . . . . . . . . . . . 19
Projected Operating Expenses. . . . . . . . . . . . . . . 19
Actual Operating Expenses . . . . . . . . . . . . . . . . 20
Break Even Analysis . . . . . . . . . . . . . . . . . . . 20
BUSINESS OF THE PARTNERSHIP. . . . . . . . . . . . . . . . . . 21
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . 21
CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . 21
DISTRIBUTIONS TO PARTNERS. . . . . . . . . . . . . . . . . . . 21
GENERAL PARTNERS . . . . . . . . . . . . . . . . . . . . . . . 22
PAST PERFORMANCE OF THE PARTNERSHIP. . . . . . . . . . . . . . 24
CAPSULE PERFORMANCE OF CERES FUND, L.P.. . . . . . . . . . . . 24
FUTURES COMMISSION MERCHANT. . . . . . . . . . . . . . . . . . 26
TRADING APPROACH . . . . . . . . . . . . . . . . . . . . . . . 27
TRADING POLICIES . . . . . . . . . . . . . . . . . . . . . . . 29
COMMODITY FUTURES MARKETS. . . . . . . . . . . . . . . . . . . 30
ADJUSTED ASSET VALUE AND NET ASSET VALUE . . . . . . . . . . . 35
ALLOCATION OF PROFITS AND LOSSES . . . . . . . . . . . . . . . 36
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 37
CERTAIN FEDERAL INCOME TAX ASPECTS . . . . . . . . . . . . . . 39
PURCHASES BY EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . 44
THE PARTNERSHIP AGREEMENT. . . . . . . . . . . . . . . . . . . 45
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . 48
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 49
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . 49
GLOSSARY OF CERTAIN TERMS AND DEFINITIONS. . . . . . . . . . . 50
Financial Statements of the Partnership as of
December 31, 1996 and 1995, and for the
three years ended December 31, 1996. . . . . . . . . . . . .F-1
Unaudited Financial Statements of the
Partnership as of June 30, 1997 . . . . . . . . . . . . . .F-17
Balance Sheets of Randell Commodity Corporation
as of December 31, 1996 and 1995 . . . . . . . . . . . . . F-26
Balance Sheet of RanDelta Capital Partners, L.P.
as of December 31, 1996 and 1995 . . . . . . . . . . . . . F-34
Exhibit A - Agreement of Limited Partnership
Exhibit B - Form of Request for Redemption
Exhibit C - Subscription Documents (included under separate
cover)<PAGE>
SUMMARY OF THE PROSPECTUS
The following is a summary of certain provisions of the
prospectus which is dated August 25, 1997. 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.
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.
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."
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."
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, all trading decisions will be made for the
Partnership by Frank L. Watson, Jr., Chairman of Randell Commodity
Corporation. Randell Commodity Corporation was incorporated in
1983, and has been a commodity pool operator since 1983 and a
commodity trading advisor since 1984. 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 law firm Waring Cox, PLC, Memphis, Tennessee. Prior
to March 31, 1994, Delta International, Inc. was a trading advisor
to the Partnership. See "Trading Advisor."
Futures Commission Merchant
Refco, Inc. ("Refco"), will serve as the Partnership's futures
commission merchant 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 "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."
<TABLE>
<CAPTION>
Form of Amount of
Compensation Compensation
<S> <C>
Monthly Management 1/3 of 1% per month of Adjusted Asset Value
Allocation to attributable to Units held by Limited
General Partners Partners (4% annual rate).
Quarterly Incentive 15% of any Net New Appreciation attributable
Allocation to to Units held by Limited Partners
General Partners
Redemption Charges to Units held by Limited Partners will be charged
General Partners 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.
Brokerage Commissions $32.50 per roundturn, estimated to aggregate 30%
to Futures Commission of the Partnership's average Net Asset Value,
Merchant determined annually.
Sales Commission to 4% sales commission to the Selling Agent
Selling Agents responsible for a sale of Units.
Brokerage Commissions Selling Agents who are also appropriately to
Selling Agents registered or e xempt 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.
Periodic legal, accounting, Estimated to aggregate 1.5% of the Partnership's
auditing, postage, and other average Net Asset Value per year, adjusted
communication expenses, periodically.
and all extraordinary
and filing fees of the
Partnership.
</TABLE>
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. 50% of such brokerage commissions will be
paid to Refco upon the opening of a position and 50% will be paid
upon the closing of a position. 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
1.5% of the Net Asset Value of the Partnership per year. Such fees
shall be adjusted periodically. 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>
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>
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 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."
Glossary of Certain Terms and Definitions
Knowledge of certain terms and concepts relating to this
Offering is necessary for a potential investor to determine
whether to invest in the Partnership. See "Glossary of Certain
Terms and Definitions."
THE OFFERING
Securities Offered
The Partnership has registered a maximum of 100,000 Units of
limited partnership interest. As of June 30, 1997, the
Partnership had 29,723 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".
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
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."
Plan of Distribution
The Units are being offered and sold by the Partnership on a
best efforts basis through its Selling Agents who 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,
1997, the Managing General Partner beneficially owned
approximately $3,000 or .05% and the Financial General Partner
beneficially owned approximately $321,000, or 5.72%, of the
Partnership. See "Plan of Distribution."
Use of Proceeds
The net proceeds of this 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 Partnership is set forth
at page F-1 hereto. Financial information concerning the Managing
General Partner and the Financial General Partner is set forth at
pages F-28 and F-36 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 iii and
the following risks before subscribing for Units:
Risks Relating to Commodity Futures Trading and the Commodity
Futures Markets
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 of commodity futures are influenced by, among other
things: changing supply and demand relationships; weather;
agricultural, trade, fiscal, monetary and exchange control
programs and policies of governments; national and international
political and economic events and policies; and changes in
interest rates. 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 Advisor 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."
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. See "Commodity Futures Markets-Forward Trading."
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-Options."
Risks Relating to the Partnership and the Offering of Units
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 1.5% 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."
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."
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."
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."
Risks Relating to the Trading Advisor and the Trading Approach
Trading Decisions Based on Fundamental and Technical Analysis.
Trading decisions of the Trading Advisor 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, 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."
Taxation Risks
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 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."
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:
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").
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.
Trading Management. Trading decisions will be made for the
Partnership by the Trading Advisor. The Trading Advisor is a
registered commodity trading advisor with the CFTC and the NFA.
The Trading Advisor will manage the investments as described in
this Prospectus. See "Trading Approach" and "Trading Policies."
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.
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."
<PAGE>
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. 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 "General Partner", "Trading
Advisor" and "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."
Independence of Counsel. 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 Futures Commission Merchant
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:
<PAGE>
<TABLE>
<CAPTION>
Form of Amount of
Recipient Compensation Compensation
<S> <C> <C>
General Partners Monthly Management
Allocation 1/3 of 1% per month of Adjusted Asset
Value attributable to Units held by
Limited Partners (4% annual rate).
Quarterly Incentive
Allocation 15% of any Net New 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
Merchant Brokerage
Commissions $32.50 per roundturn, 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
Commissions Selling Agents who are 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 1.5%
accounting, auditing, of the Partnership's average
postage, and other Net Asset Value per year,
communication expenses, adjusted periodically.
and all extraordinary
and filing fees of the
Partnership.
</TABLE>
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, 1997, the Net
Asset Value per Unit of Limited Partner #1 ("LP1") was $100, and
that on March 31, 1997, 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,
1997, 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, 1997, 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, 1997, 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.
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. 50% of such brokerage
commissions will be paid to Refco upon the opening of a position
and 50% will be paid upon the closing of a position. See
"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.
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. 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.
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 1.5% of average Net Asset
Value per year, to be adjusted periodically. 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 offering expenses of the Partnership
relating to the Offering, including legal, accounting and
auditing fees, printing costs, solicitation and marketing costs,
and other related fees and expenses. Other than the payment of
sales commissions on a continuous basis, the Partnership will not
reimburse Refco for any such organizational and offering costs.
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.
Operating Expenses
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, 1997)
<TABLE>
<CAPTION>
Dollar
Item Amount(1)
<S> <C>
Management Allocations(2) $210,000
Incentive Allocations(3) --
Brokerage Commissions(4) 1,016,000
Exchange, clearing fees and NFA charges 58,000
Administrative Expenses(5) 90,000
---------
Total $1,374,000
==========
</TABLE>
- --------------
(1) All dollar amounts calculated based on the average
Partnership's Net Asset Value attributable to Limited
Partner Units January through June, 1997, 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 1.5% 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 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.
Actual Operating Expenses
Attributable to Limited Partnership Units
for the Previous 12-Month Period of Operations
(January 1 - December 31, 1996)
<TABLE>
<CAPTION>
Dollar
Item Amount
<S> <C>
Management Allocations(1) $ 151,969
Incentive Allocations(2) 384,117
Brokerage Commissions(3) 541,907
Exchange, clearing fees and NFA charges 23,322
Administrative Expenses(4) 82,026
-----------
Total $ 1,183,341
===========
</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 1.5% 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."
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>
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
United States and abroad. As of June 30, 1997, 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, 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 included
herein beginning at page F-1.
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."
<PAGE>
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 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 the law firm Waring Cox, PLC,
Memphis, Tennessee, which is counsel to the Partnership, the
General Partner and the Memphis branch of Refco in connection
with this Offering. Mr. Watson will make the Partnership's
commodities trading decisions. 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, 56, 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 law firm Waring Cox,
PLC. Mr. Watson is engaged in the active practice of law.
Carol V. Watson, Vice President. Mrs. Watson, 50, was
elected Vice President of Randell Corporation and Randell
Commodity Corporation in March, 1989.
Marty Morgan, Secretary. Ms. Morgan, 52, 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, 39, 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.
<PAGE>
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 SEC and
any other federal or state agencies; (iii) calculation of
Adjusted Asset Value, Net Asset Value and all Management and
Incentive Allocations; and (iv) 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, 1997,
the Managing General Partner beneficially owned approximately
$3,000, or .05%, and the Financial General Partner beneficially
owned approximately $321,000 or 5.72% 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.
<PAGE>
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: $7,106,842
Current Net Asset Value: $5,622,129
Largest Monthly Drawdown: $1,050,806 / (16%) - 6/97
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 1997 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
Jan 1.5 1.3% (1.7)% (8.8)% (3.6)% 1.9%
Feb (2.6) 1.4 1.6 (0.6) (5.7) (2.0)
Mar (1.0) 4.8 (8.3) (5.2) (6.3) 0.0
April (0.97) 50.6 6.8 (4.0) 6.3 (0.7)
May 3.78 8.7 3.0 (18.0) 0.0 2.7
June (16.07) (3.5) 19.5 (12.4) 9.6 1.1
July -- 6.3 (0.5) (0.4) (1.6) 3.1
Aug -- 2.2 5.6 (2.2) 0.0 (1.8)
Sept -- 2.4 25.0 5.8 (0.9) (2.9)
Oct -- 2.3 18.1 (3.4) (0.4) 1.9
Nov -- 2.9 (5.7) (1.3) 13.1 (4.8)
Dec -- (0.9) 11.4 9.8 2.3 (0.5)
Year (16.35)% 97.4% 96.17% (36.06)% 11.52% (2..3)%
</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.<PAGE>
FUTURES COMMISSION MERCHANT
Description of the Futures Commission Merchant
General. 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 have entered
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. Under the
Customer Agreement, the Partnership pays 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 NFA fees. The
Managing General Partner reviews 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 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
distinct commodity futures contracts traded on recognized
commodity exchanges. These 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
United States 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.
COMMODITY FUTURES MARKETS
Commodity Futures Contracts
Commodity futures contracts are standarized contracts made
on a commodity exchange which provide for the future delivery of
specified quantities of various agricultural commodities,
industrial commodities, currencies, financial instruments or
metals 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, but opposite,
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 1997 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 1997 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. Certain futures
contracts such as those for stock or other financial or economic
indices approved by the CFTC settle in cash (irrespective of
whether any attempt is made to offset such contracts) rather than
delivery of any physical commodity.
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, that 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 options on commodity futures
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 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.<PAGE>
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, PLC, 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.
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.
Certain "publicly traded partnerships" are taxed 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, under applicable authorities, 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 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.
Long-term capital gain recognized with respect to futures
contracts, forward contracts and options traded on domestic
exchanges is subject to tax at the same rate as ordinary income,
but is subject to a maximum effective tax rate of 28 percent
(while legislation enacted in August 1997 reduced the maximum
long-term capital gains tax rate for certain assets, such
legislation did not reduce the maximum effective tax rate of 28%
applicable to long-term gain recognized under the 60/40 rule).
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 Partnership has met these requirements
for all prior years and has elected "qualified fund" status. The
General Partners anticipate that the Partnership will continue to
meet these requirements in future years. If the Partnership
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. Such interest is generally
deductible by noncorporate taxpayers only to the extent that it
does not exceed net investment income. A Limited Partner's
distributive share of net Partnership income and any gain from
the disposition of Units will be treated as investment income,
except that a Limited Partner's net capital gain from the
disposition of Units is not investment income unless the Limited
Partner waives the benefit of the 28% tax rate on such gains. It
is not clear whether a Limited Partner's distributive share of
Partnership net capital gain constitutes investment income where
such gain is taxed at the maximum 28% rate. Interest expense
incurred by a Limited Partner to acquire his Units generally will
be investment interest expense. 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 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.
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, or for any
negligent or, among other things, 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.
The General Partners believe that the Units will meet the
foregoing tests. However, the determination of whether the Units
will be "freely transferable" is a subjective test under the
Regulation based on all relevant facts and circumstances.
Accordingly, there is a risk that the Partnership could be deemed
to hold "plan assets" under the Regulation. In this regard, it
should be noted that the Partnership Agreement permits the
General Partner to compel the redemption of some or all Units
held by employee benefit plans or accounts.
While the Partnership will likely be classified as a
"publicly traded partnership" (subject to the 90% qualifying
income exception), recent amendments to the Code eliminated
certain unfavorable tax consequences of investments made by tax-exempt
entities in "publicly traded partnerships." Accordingly,
income from the Partnership's expected activities should 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 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 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 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 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 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.
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,
1996 and 1995, and for the three years ended December 31, 1996,
have been included herein in reliance upon the report 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.
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
Contracts 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.
<PAGE>
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Financial Statements and Schedule
December 31, 1996 and 1995
(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.
<PAGE> F-1
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, 1996 and 1995 and summary of net asset values
as of December 31, 1996, 1995 and 1994, and the related
statements of operations, changes in partners' capital and cash
flows for each of the years in the three-year period ended
December 31, 1996. 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, 1996 and 1995, and the results of its operations and
its cash flows for each of the years in the three-year period
ended December 31, 1996, 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.
/s/ KPMG Peat Marwick LLP
Memphis, Tennessee
February 27, 1997
<PAGE> F-2
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Financial Condition
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ---- ----
<S> <C> <C>
Cash $ 108,554 15,538
Equity in commodity futures trading
account:
U.S. government obligations at fair
value (cost of $3,050,931 and
$2,269,189 at December 31, 1996
and 1995, respectively) 3,077,250 2,288,186
Cash 1,514,594 662,426
Unrealized gains on open futures
contracts 186,032 232,026
Open option contracts, at market - 1,840
Interest receivable 8,657 5,056
--------- ---------
Total assets $4,895,087 3,205,072
========= =========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accrued management fees $ 10,033 10,077
Accrued incentive fees 32,849 97,960
Other accrued expenses 42,544 15,489
Redemptions payable 32,572 83,926
--------- ---------
Total liabilities 117,998 207,452
--------- ---------
Partners' capital:
General partners 374,741 166,392
Limited partners 4,402,348 2,831,228
--------- ---------
Total partners' capital 4,777,089 2,997,620
--------- ---------
$4,895,087 3,205,072
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> F-3
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net gains (losses) on trading of
commodity futures and options
contracts:
Realized gains (losses) on
closed positions $3,457,913 1,877,265 (649,957)
Change in unrealized gains
(losses) on open futures
contracts (45,994) 164,872 65,904
Change in unrealized gains on
open options contracts (1,840) 1,840 -
--------- --------- ---------
Net gains (losses) on
investments 3,410,079 2,043,977 (584,053)
Investment income - interest
(note 3) 187,206 112,821 81,182
--------- --------- ---------
Income from operations 3,597,285 2,156,798 (502,871)
--------- --------- ---------
Brokerage commissions (note 3) 541,907 320,062 423,670
Exchange, clearing fees and NFA
charges 23,322 13,615 15,072
Management fee allocations
(note 2) 151,969 85,331 76,157
Incentive fee allocations
(note 2) 384,117 108,815 -
Professional and administrative
expenses 82,026 44,869 39,830
--------- --------- ---------
1,183,341 572,692 554,729
--------- --------- ---------
Net earnings (loss) $2,413,944 1,584,106 (1,057,600)
========= ========= =========
Net earnings (loss)
allocated to general
partner $ 208,349 87,697 (40,124)
========= ========= =========
Net earnings (loss)
allocated to limited
partners $2,205,595 1,496,409 (1,017,476)
========= ========= =========
Average Net earnings
(loss) per unit $ 115.23 69.57 (43.48)
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> F-4
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Changes in Partners' Capital
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Limited
partners partners Total
-------- -------- -----
<S> <C> <C> <C>
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
Capital contributions (395
units) - 96,154 96,154
Redemption of units (2,798
units) - (442,122) (442,122)
Distributions - (288,507) (288,507)
Net earnings for the year 208,349 2,205,595 2,413,944
------- ---------- ---------
Partners' capital at
December 31, 1996 $374,741 4,402,348 4,777,089
======= ========== =========
Average net asset value per
limited partnership unit at:
December 31, 1994; 22,679.4144
units outstanding $ 70.88
=========
December 31, 1995; 20,341.7718
units outstanding $ 139.18
=========
December 31, 1996; 17,938.6369
units outstanding $ 245.41
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE> F-5
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $2,413,944 1,584,106 (1,057,600)
Adjustments to reconcile net
earnings (loss) to net cash
provided by operating
activities:
Net unrealized (gains)
losses on open contracts 47,834 (166,712) (65,904)
(Increase) decrease in
operating assets:
Investments in commodities
futures trading account (1,641,232) (1,278,932) 1,710,732
Interest receivable (3,601) (1,977) (1,715)
Increase (decrease) in
operating liabilities:
Accrued management fees (44) 4,531 (5,343)
Accrued incentive fees (65,111) 97,960 (39,383)
Other accrued expenses 27,055 (1,922) (17,973)
--------- --------- ---------
Total adjustments (1,635,099) (1,347,052) 1,580,414
--------- --------- ---------
Net cash provided
by operating
activities 778,845 237,054 522,814
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from sale of
limited partnership units 96,154 191,647 234,065
Redemptions of limited
partnership units (493,476) (431,227) (774,614)
Distributions to limited partners (288,507) - -
--------- --------- ---------
Net cash used in
financing activities (685,829) (239,580) (540,549)
--------- --------- ---------
Net decrease in cash 93,016 (2,526) (17,735)
Cash at beginning of year 15,538 18,064 35,799
--------- --------- ---------
Cash at end of year $ 108,554 15,538 18,064
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> F-6
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Summary of Net Asset Values
At December 31, 1996
<TABLE>
<CAPTION>
Total
limited
Number Number Number Net asset partner
Subscriber of units of units of units value net asset
admission date subscribed withdrawn outstanding per unit value
-------------- ---------- --------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
January 1, 1996 20,341.7718 (2,797.8636) 17,543.9082 $245.38 4,304,987
November 1, 1996 239.4689 - 239.4689 246.28 58,977
December 1, 1996 155.2598 - 155.2598 247.23 38,384
----------- ---------- ----------- ------ ---------
20,736.5005 (2,797.8636) 17,938.6369 $245.41 4,402,348
=========== ========== =========== ====== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> F-7
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Summary of Net Asset Values
At December 31, 1995
<TABLE>
<CAPTION>
Total
limited
Number Number Number Net asset partner
Subscriber of units of units of units value net asset
admission date subscribed withdrawn outstanding per 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.
<PAGE> F-8
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Summary of Net Asset Values
At December 31, 1994
<TABLE>
<CAPTION>
Total
limited
Number Number Number Net asset partner
Subscriber of units of units of units value net asset
admission date subscribed withdrawn outstanding per 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.
<PAGE> F-9
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1996 and 1995
(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.
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.
(Continued)
<PAGE> F-10
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
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.
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.
(Continued)
<PAGE> F-11
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
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 speculative
investing, 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.
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 1995 and 1994 amounts have been reclassified to
conform to their 1996 presentation.
Average Net Earnings (Loss) Per Unit
------------------------------------
The average net earnings (loss) per unit as reported on the
statement of operations was calculated as earnings (loss)
allocated to the limited partners divided by average
outstanding units during the year.
(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:
(Continued)
<PAGE> F-12
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Management fees $151,969 85,331 76,157
Incentive fees 384,117 108,815 -
</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 1996, 1995 and 1994 were $541,907,
$320,062 and $423,670, 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 1996, 1995 and 1994 was $187,206, $112,821
and $81,182, 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.
(5) Distribution to Limited Partners
--------------------------------
On January 16, 1997, the General Partner declared a
distribution to the limited partners equal to the difference
between the December 31, 1996 net asset value per unit and
$210 per unit. This distribution, totaling $244,228 in cash
and 1,861.94 in units, resulted in each unit holder having a
net asset value of $210 per unit on January 1, 1997.
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.
(Continued)
<PAGE> F-13
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
(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 movements in commodities'
values. At December 31, 1996, the underlying notional value
of open contract commitments were long $15,307,885 and short
$(13,384,350).
The Partnership trades in a variety of futures and options
financial instruments, and all open positions are reported
at fair value. Trading revenue, including realized and
unrealized gains and losses, from financial futures
contracts and options transactions for the year ended
December 31, 1996 was $3,410,079. The average market value
of open commodity financial instruments, and the year-end
market value of open commodities are as follows:
<TABLE>
<CAPTION>
Average market Market value
value of open of open
positions positions at
during 1996 December 31, 1996
-------------- -----------------
<S> <C> <C>
Assets (Long Positions) $60,818 (20,695)
Liabilities (Short
Positions) 18,078 206,727
</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, 1996, substantially all of the Partnership's
financial instruments, as defined in the Statement, are
carried at fair value.
(Continued)
<PAGE> F-14
Schedule 1
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Schedule of Investments
December 31, 1996
<TABLE>
<CAPTION>
Par or
number of Fair
Description contracts value
----------- --------- -----
<S> <C> <C>
United States Treasury Bill due
01/30/97 3,000,000 $2,987,780
United States Treasury Bill due
02/13/97 90,000 89,470
---------
3,077,250
---------
Net cash balances from futures
trading 1,514,594
---------
Open options contracts in futures
trading accounts:
March 7 Wheat (200) (4,975)
March 7 Kans Wheat 500 (59,875)
July 7 Kans Wheat (300) (9,000)
February 7 Live Cattle 105 51,090
October 7 Live Cattle (65) (11,910)
May 7 Feeder Cattle 61 35,350
March 7 Soybeans 550 (84,000)
March 7 Soybean Oil 40 (2,160)
May 7 Soybean Oil (40) 77,280
May 7 Corn (1,000) 207,875
July 7 Corn (400) 23,000
May 7 Cotton (120) (64,600)
December 7 Cotton 80 28,200
March 7 Cocoa 10 1,050
May 7 Cocoa 10 900
March 7 Sugar (10) (7,280)
March 7 D Mark 10 8,750
March 7 S Franc (10) (3,663)
---------
186,032
---------
Total equity in futures
trading accounts 1,700,625
---------
Total investments $4,777,876
=========
</TABLE>
<PAGE> F-15
AFFIRMATION
STATE OF TENNESSEE )
)
CITY OF MEMPHIS )
I, FRANK L. WATSON, JR. being duly sworn, deposes and says:
1. I am President of Randell Commodity Corporation, the
commodity pool operator and the managing general partner of Ceres
Fund, L.P., as named in the attached Annual Report and am duly
authorized to execute this Affirmation.
2. To the best of my knowledge and belief, the information
contained in the attached Annual Report is accurate and complete.
/s/ Frank L. Watson, Jr.
- ---------------------------------
Frank L. Watson, Jr., President
Randell Commodity Corporation
SWORN TO AND SUBSCRIBED before me this 31st day of March,
1997.
/s/ Marty Morgan
NOTARY PUBLIC
My Commission Expires 4-29-1997
<PAGE> F-16
CERES FUND, L.P.
UNAUDITED FINANCIAL STATEMENTS
AS OF JUNE 30, 1997
The accompanying interim consolidated financial statements are
unaudited, but include all adjustments which management considers
necessary for the fair presentation of results at June 30, 1997,
all of which are of a normal, recurring nature.
Moreover, these financial statements do not purport to contain
complete disclosures in conformity with generally accepted
accounting principles and should be read in conjunction with the
Registrant's audited consolidated financial statements at and for
the period ended December 31, 1996.
The results reflected for the six month period ended June 30,
1997 and the period ended December 31, 1996, are not necessarily
indicative of the results for the entire fiscal year which will
end December 31, 1997.
<PAGE> F-17
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statement of Financial Condition
June 30, 1997
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
ASSETS
<S> <C> <C>
Cash $ 151,001 $ 108,554
U. S. Treasury obligations
plus accrued interest 6,062,520 3,077,250
Equity in
commodity trading account:
Cash 652,529 1,514,594
Unrealized gain <loss> of
open futures contracts <604,068> 186,032
Market Value of open option
contracts <482,050> -0-
Other assets 3,551 8,657
__________ __________
$ 5,783,483 $ 4,895,087
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued management fees $ 18,052 $ 10,033
Accrued incentive fees -0- 32,849
Other accrued expenses 63,471 36,006
Amounts received for
future subscriptions 7,100 6,538
Redemptions payable 72,731 32,572
__________ _________
161,354 117,998
__________ _________
Partners' capital:
General partners 324,381 374,741
Limited partners 5,297,748 4,402,348
__________ _________
Total partners' capital 5,622,129 4,777,089
__________ _________
$ 5,783,483 $ 4,895,087
============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> F-18
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statement of Operations
For the period from January 1, 1997
through June 30, 1997
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income
Net gains (losses) on
trading of commodity
futures and option
contracts:
Realized gain (losses)
on closed positions $ 352,471 2,294,187 (431,221) $ 1,859,287
Change in unrealized
gain (losses) on
open positions (782,424) 1,970 (94,506) 92,681
Interest 136,624 79,548 77,126 46,918
---------- --------- --------- ----------
Income (Loss)
From Operations $(293,329) $2,375,705 $(448,601) $1,998,886
---------- ---------- ---------- ----------
Expenses
Brokerage commissions,
exchange, clearing fees
and NFA charges 536,440 251,388 339,022 160,852
Management fee
allocations 104,363 66,264 57,445 39,630
Incentive fee
allocations -0- 277,618 -0- 243,321
Professional and
administrative
expenses 52,403 35,544 27,026 21,329
---------- ---------- ---------- ----------
693,206 630,814 423,493 $ 465,132
---------- ---------- ---------- ----------
Net Income (Loss) $ (986,535) $1,744,891 $(872,094) $1,533,754
=========== ========== ========== ==========
Aggregate Income (Loss)
Allocated to
General Partners $ ( 50,360) $ 142,712 $ (46,004) $ 125,924
Aggregate Income (Loss)
Allocated to
Limited Partners $ (936,175) $1,602,179 $(826,090) $1,407,830
Net Income (Loss)
per Limited Partnership
Unit (Average) $ (39.28) $ 83.66 $ (30.72) $ 77.68
</TABLE>
(a) Aggregate Income <Loss> Allocated to Limited Partners of
$1,407,830 divided by Average Units Outstanding between March 31,
1996 and June 30, 1996 (18,122.6574 Units).
See accompanying notes to financial statements.
<PAGE> F-19
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating
activities:
Net Income <Loss> $ (986,535) $ 1,744,891
Adjustments to reconcile net income
<loss> to net cash provided by
operating activities:
Net unrealized gain <loss>
on open contracts (782,424) 1,970
(Increase) decrease in
operating assets:
U. S. Treasury obligation (2,985,270) (100,024)
Investments in commodities fund 862,065 (1,255,067)
Unrealized gain <loss> on
open futures and options
contracts 1,572,524 19,571
Market Value of open option
contracts 482,050 104,340
Other Assets 5,106 (4,050)
Increase (decrease) in
operating liabilities:
Accrued management fees 8,019 3,751
Accrued incentive fees (32,849) 145,361
Other accrued expenses 27,465 7,299
Amounts received for future
subscriptions 562 --
Redemptions payable 40,159 (15,443)
Total Adjustments (802,593) (1,092,292)
Net Cash from <used in>
operating activities (1,789,128) 652,599
Cash Flows from <used in>
Financing Activities:
Net proceeds from sale
of limited partnership units 2,278,063 --
Redemption of limited partnership
units (202,260) (343,420)
Distribution to limited partners (244,228) (288,507)
Contributions received from
general partners -- --
Net increase <decrease> in cash 42,447 20,672
Cash at the beginning of the year 108,554 15,538
Cash at the end of the quarter 151,001 36,210
</TABLE>
<PAGE> F-20
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
June 30,1997
(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 will
act 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. At June 30, 1997, a
total of 54,912.4320 units have been sold, 1,861.9400 units have
been distributed in lieu of a cash distribution, and 27,051.6754
units have been redeemed, leaving an outstanding balance at June
30, 1997, of 29,722.6966 units.
The general partners agreed to make a capital contribution of the
lesser of $100,000 or 3% of total partnership capitalization and
made an initial capital contribution of $45,000 and has made
additional capital contributions during the period of $55,000 to
meet its investment commitment in the Partnership. 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) will be 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.
The Partnership is not liable for any organizational and offering
expenses in connection with the issuance and distribution of the
units. Refco, Inc., the Partnership's commodity broker, paid the
organizational expenses of the Partnership and the expenses of
offering the units to the public. The Partnership will not
reimburse Refco, Inc. for any portion of the costs so incurred
and will not be liable for any such costs at any time.
<PAGE> F-21
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.
Valuation of Futures Contracts
Open commodity futures contracts are valued at market daily and
unrealized gains and losses are reflected in income.
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.
(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 will pay to the general partners 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. During the six months
ended June 30, 1997, management fees totaled $104,363 and
incentive fees totaled $0.
(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 1996, Refco
charged the Partnership commissions on commodity trades at the
rate of $32.50 per round-turn. Total commissions charged to the
Partnership by Refco during this six month period were $507,830.
The Partnership earns interest on 80% of the average daily equity
maintained as cash in the Partnership's trading account at a rate
equal to the average yield on 13-week United States Treasury
Bills. Total interest earned by the Partnership from this source
during this six month period amounted to $136,624.
(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, the Memphis branch of
Refco and the Partnership's commodity broker.
<PAGE> F-22
(5) Distribution to Limited Partners.
On January 16, 1997, the General Partner declared a distribution
to the limited partners equal to the difference between the
December 31, 1996, net asset value per unit and $210 per unit.
This distribution, totaling $244,228 in cash and 1,861.94 in
units, resulted in each unit holder having a net asset value of
$210 per unit on January 1, 1997.
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.
<PAGE> F-23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
for the Quarter Ended June 30, 1997
Results of Operations
The Three and Six Months Ended June 30, 1997 Compared to the
Three and Six Months Ended June 30, 1996.
Trading results were less profitable during the three months
ended June 30, 1997 as compared to the same period in 1996. The
Partnership had a loss from trading activities of $448,601 for
the three months ended June 30, 1997, as compared to income from
trading activities of $1,998,886 for the three months ended June
30, 1996. The losses during this period are primarily
attributable to losses in connection with the trading of grain
contracts. As a result of such losses from trading activities,
the Partnership had a net loss of $872,094 for the three months
ended June 30, 1997 compared to net income of $1,533,754 for the
same period in 1996; and a net loss per limited partnership Unit
of $30.72 for the three months ended June 30, 1996, compared to
net income per limited partnership Unit of $77.68 for the same
period in 1996.
Trading results were also less profitable during the six months
ended June 30, 1997 as compared to the same period in 1996. The
Partnership had a loss from trading activities of $293,329 for
the six months ended June 30, 1997, compared to income from
trading activities of $2,375,705 for the six months ended June
30, 1996. The losses during this period were primarily
attributable to losses in connection with the trading of grain
contracts. As a result of such losses from trading activities,
the Partnership had a net loss of $986,535 for the six months
ended June 30, 1997, compared to net income of $1,744,891 for the
same period in 1996; and a net loss per limited partnership Units
of $39.28 for the six months ended June 30, 1997, compared to net
income per limited partnership Unit of $83.66 for the same period
in 1996.
Liquidity
The Partnership does not engage in sales of goods or services.
Its only assets are its capital in its commodity futures trading
account, consisting of cash and net unrealized appreciation on
open
futures contracts, and interest receivable. Because of the low
margin deposits normally required in commodity futures trading,
relatively small price movements may result in substantial losses
to the Partnership. Such substantial losses could lead to a
material decrease in liquidity. To minimize this risk the
Partnership follows certain policies including:
(1) Partnership funds will be invested only in futures
contracts which are traded in sufficient volume to permit, in the
opinion of the Advisor, ease of taking and liquidating positions.
(2) The Partnership will diversify its positions among various
commodities. The Partnership will not initiate additional
positions in a single commodity if such additional positions
would
result in a net single long or short position in such commodity
requiring as margin more than 15% of the net assets of the
Partnership.
(3) The Partnership will not establish commodity positions if
such positions would result in required margins in excess of 80%
of its net asset value for all commodities combined.
<PAGE> F-24
(4) The Partnership may occasionally accept delivery of a
commodity. Unless such delivery is disposed of promptly by
retendering the warehouse receipt representing the delivery to
the
appropriate clearing house, the Partnership's position in the
physical commodity will be fully hedged.
(5) The Partnership will not employ the trading technique
commonly known as "pyramiding", in which the speculator uses
unrealized profits on existing positions as margin for the
purchase or sale of additional positions in the same or related
commodities.
(6) The Partnership may from time to time employ trading
strategies such as spreads or straddles on behalf of the
Partnership. The term "spread" describes a commodity futures
trading strategy involving the simultaneous buying and selling of
futures contracts on the same commodity but involving different
delivery dates or markets and in which the trader expects to earn
a profit from a widening or narrowing of the difference between
the prices of the two contracts.
Other than the risks inherent in commodity futures trading, the
Partnership knows of no trends, demands, commitments, events or
uncertainties which will result in or which are reasonably likely
to result in the Partnership's liquidity increasing or decreasing
in any material way. The Limited Partnership Agreement requires
dissolution of the Partnership under certain circumstances as
defined in the Limited Partnership Agreement including a decrease
in the net asset value of a Unit at the close of business on any
business day to less than 50% of the highest average net asset
value at which Units have been sold.
In order to limit credit risks, the Partnership does not enter
into counterparty transactions such as currency or other swaps
and it limits its trading activities to futures and options
traded on U.S. commodity exchanges.
Capital Resources
The Partnership does not intend to raise any additional capital
through borrowing. Due to the nature of the Partnership's
business, it will make no significant capital expenditures, and
substantially all its assets are and will be represented by cash,
United States Treasury securities and commodity futures
investments.
The Partnership's capital consists of the capital
contributions of the partners as increased or decreased by gains
or losses on commodity futures trading and by expenses, interest
income, redemptions of Units and distributions of profits, if
any. Gains or losses on commodity futures trading cannot be
predicted. Market moves in commodities are dependent upon
fundamental and technical factors which the Partnership may or
may not be able to identify. Partnership expenses consist of,
among other things, commissions, management fees and incentive
fees. The level of
these expenses is dependent upon the level of trading and the
ability of the Advisors to identify and take advantage of price
movements in the commodity markets, in addition to the level of
net assets maintained. Furthermore, interest income is dependent
upon interest rates over which the Partnership has no control. A
forecast cannot be made as to the level of redemptions in any
given period.
<PAGE> F-25
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell Corporation)
Balance Sheets
December 31, 1996 and 1995
(With Independent Auditors' Report Thereon)
<PAGE> F-26
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, 1996 and 1995. 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, 1996 and 1995,
in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
March 21, 1997
<PAGE> F-27
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell Corporation)
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
-------- ------- --------
<S> <C> <C>
Current assets:
Cash $ 3,953 --
Accounts receivable - affiliate 31,366 59,009
Due from related party 100,000 102,343
Commodity futures trading account 165,681 160,727
------- -------
Total current assets 301,000 322,079
Investment in commodity partnerships (note 2) 19,278 14,986
Property and equipment, net (notes 3 and 4) 432,221 419,803
--------- --------
Total assets $752,499 756,868
========= =========
</TABLE>
Liabilities and Stockholder's Equity
-------------------------------------------
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $ 6,091 6,279
Current installments of long-term debt (note 4) 50,769 40,063
Due to affiliate 4,475 4,475
---------- ----------
Total current liabilities 61,335 50,817
Long-term debt, excluding current
installments (note 4) 150,028 157,892
---------- ----------
Total liabilities 211,363 208,709
---------- ----------
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 (686,938) (679,915)
------------- -----------
Total stockholder's equity 541,136 548,159
------------- -----------
Total liabilities and stockholder's equity $ 752,499 756,868
============= ==========
</TABLE>
See accompanying notes to balance sheets.
<PAGE> F-28
RANDELL COMMODITY CORPORATION
(wholly-owned subsidiary of Randell Corporation)
Notes to Balance Sheets
December 31, 1996 and 1995
(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 1996, the Company was the general partner in two
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.
(Continued)
<PAGE> F-29
2
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell
Corporation)
Notes to Balance Sheets
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>
1996 1995
------ -------
<S> <C> <C>
The Pyramid Fund, L.P. $ 5,144 5,051
RanDelta Capital Partners, L.P. 14,134 9,935
----------- --------
$ 19,278 14,986
========== =========
</TABLE>
The following summarizes the aggregate assets and liabilities of
the partnerships for which the Company serves as a general
partner at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Assets $6,594,240 4,690,108
Liabilities 148,480 217,950
----------- ----------
$6,445,760 4,472,158
========== ==========
</TABLE>
As a general partner, the Company is contingently liable for
liabilities of the partnerships.
(Continued)
<PAGE> F-30
3
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell
Corporation)
Notes to Balance Sheets
(3) Property and Equipment
-----------------------
The following is a summary of property and equipment at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Farmland $ 351,972 351,972
Farm buildings and improvements 88,577 88,577
Farm machinery and equipment 102,553 101,819
Trucks and autos 53,182 53,182
Computer and office equipment 54,019 54,019
---------- ----------
650,303 49,569
Less accumulated depreciation 218,082 229,766
------------ -----------
$ 432,221 419,803
============ ===========
</TABLE>
(4) Long-term Debt
--------------------
The following is a summary of long-term debt at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -----
<S> <C> <C>
Mortgage note payable in monthly installments of
$3,425, including interest at 9%, with a maturity
date of October 2000, secured by real property $132,681 160,468
9.75% note payable due in monthly installments of
$714 through August 1999, secured by an
automobile 17,258 24,313
8.25% note payable due in monthly installments of
$555 through February 1998, secured by an
automobile 6,880 13,174
10.49% note payable due in monthly installments of
$11,444 through March 2001, secured by farm
equipment 43,978 --
------- -------
200,797 197,955
Less current installments 50,769 40,063
--------- -------
$ 150,028 157,892
======== ========
</TABLE>
(Continued)
<PAGE> F-31
4
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell
Corporation)
Notes to Balance Sheets
Maturities of long-term debt at December 31,1996 are as
follows:
<TABLE>
<C> <C>
1997 $ 50,769
1998 49,925
1999 47,669
2000 42,068
2001 10,366
---------
$ 200,797
==========
</TABLE>
(5) Income Taxes
------------------
At December 31, 1996 and 1995, 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, 1995, Randell Corporation, had available net
operating losses of $144,195 available to offset future federal
taxable income as follows:
<TABLE>
<CAPTION>
Year of expiration Amount
---------------------- ---------
<C> <C>
2007 $ 53,993
2009 90,202
-------
$144,195
========
</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, 1996,
the underlying notional value of open contract commitments were
long $129,950 and short ($131,100).
(Continued)
<PAGE> F-32
5
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell Corporation)
Notes to Balance Sheets
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 value Market Value
of open positions of open positions
during 1996 at December 31, 1996
---------------------- -----------------------
<S> <C> <C>
Assets (Long Positions) $ 1,768 3,300
Liabilities (Short Positions) (606) (2,400)
</TABLE>
(7) Related Party Transactions
---------------------------------
At December 31, 1996 and 1995, the Company was due
approximately $100,000 and $103,000, respectively, from Randell
Corporation. At December 31, 1996 and 1995, the Company, as
general partner of Ceres Fund L.P. (the Fund), was due
approximately $31,000 and $59,000, respectively, from the Fund.
<PAGE> F-33
RANDELTA CAPITAL PARTNERS, L.P.
Balance Sheets
December 31, 1996 and 1995
(With Independent Auditors' Report
Thereon)
<PAGE> F-34
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, 1996 and 1995. 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, 1996 and 1995,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
March 21, 1997
<PAGE> F-35
RANDELTA CAPITAL PARTNERS, L.P.
Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
Assets 1996 1995
------ ------- -------
<S> <C> <C>
Current assets:
Cash $ 2,157 6,580
Fees receivable 16,425 48,980
Due from affiliates 33,975 21,475
-------- -------
Total current assets 52,557 77,035
Investment in partnership (note 3) 417,731 187,832
------- --------
$470,288 264,867
========= ========
Liabilities and Partners' Equity
------------------------------------
Liabilities - distributions payable $ 16,260 --
---------- ---------
Partners' equity:
General partners $ 14,134 9,935
Limited partners (note 2) 1,189,894 1,004,932
------------ ----------
$1,204,028 1,014,867
Less: note receivable (note 2) (750,000) (750,000)
------------ ----------
Total partners' equity 454,028 264,867
------------ ----------
Total liabilities and partners' equity $ 470,288 264,867
============ ==========
</TABLE>
See accompanying notes to balance sheets.
<PAGE> F-36
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell
Corporation)
Notes to Balance Sheets
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
----------------------------------------------------
Organization
------------
RanDelta Capital Partners, L.P. (RanDelta) is a
Tennessee limited partnership organized on September 19, 1990.
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.
Reclassification
-------------------
Certain 1995 amounts have been reclassified to conform
to 1996 presentation.
(Continued)
<PAGE> F-37
2
RANDELL COMMODITY CORPORATION
(A wholly-owned subsidiary of Randell Corporation)
Notes to Balance Sheets
(2) Note Receivable
---------------
On November 13, 1990, RanDelta entered into an
agreement with a limited partner whereby the limited partner
exchanged, at par, an undivided 68.1818% interest in a third
party note receivable 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 note is payable on demand, bears interest at the
prime rate, and is unsecured. RanDelta is not entitled to any
portion of interest due under the note. The borrower is a
related party to the limited partner. RanDelta's interest in the
note receivable is presented in the accompanying balance sheet as
a contra to partners' equity. For purposes of determining net
worth for other purposes, the note receivable is included in
partners' equity.
(3) 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, 1996 and 1995 totaled
$16,425 and $48,980, respectively.
Aggregate assets and liabilities for CERES were
$4,895,087 and $117,998, respectively, at December 31, 1996 and
$3,205,072 and $207,452, respectively, at December 31, 1995.
<PAGE> F-38
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)
(23)(a) Consent of accountants for the Partnership.
(23)(c) Consent of Waring Cox (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. 6 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 August 26, 1997.
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
Accounts' Consent
We consent to the use herein of our report dated February 27, 1997, on the
statements of financial condition of Ceres Fund, L.P. (a Tennessee Limited
Partnership) as of December 31, 1996 and 1995, and summary of net asset
values as of December 31, 1996, 1995 and 1994, and the related statements of
operations, changes in partners' capital and cash flows for each of the
years in the three-year period ended December 31, 1996 and the reference
to our Firm under the heading "Experts" in the Prospectus.
/s/ KPMG Peat Marwick LLP
Memphis, Tennessee
August 25, 1997
