UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of
1934
For the Fiscal Year Ended: December 31, 1999
or
Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
Commission File Number: 0-21286
THE FOUR SEASONS FUND II L.P.
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(Exact name of registrant as specified in its charter)
Delaware 54-1613165
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
c/o JAMES RIVER MANAGEMENT CORP.
103 Sabot Park
Manakin-Sabot, Virginia 23103
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(Address of principal executive offices)
Registrant's telephone number, including area code:
(804) 784-4500
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
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Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting and non-voting equity held by
non-affiliates as of February 29, 2000: $1,989,912.
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PART I
Item 1. Business
(a) General Development of Business
The Four Seasons Fund II L.P. (the "Partnership") is a limited
partnership organized on February 13, 1992 pursuant to a Limited Partnership
Agreement (the "Limited Partnership Agreement") and under the Delaware Revised
Uniform Limited Partnership Act. The Partnership was funded through an offering
of Units of Limited Partnership Interest ("Units"). Limited Partners are
referred to herein as "Unitholders." The Partnership implements asset allocation
strategies by trading approximately 13% of its original assets in the futures,
forward and options markets through an affiliated limited partnership (the
"Trading Company") of which the Partnership is the sole limited partner, while
maintaining its remaining assets in a guaranteed distribution pool.
The public offering of Units began on approximately September
8, 1992 and was completed on January 31, 1993. The offering was registered under
the Securities Act of 1933, as amended, and Kidder, Peabody & Co. Incorporated
acted as selling agent. A total of 11,226.272 Units were sold to the public
during the public offering.
James River Management Corp. (formerly named Kidder Peabody
Futures Management Corp.) (the "General Partner"), a Delaware corporation, is
the General Partner of the Partnership and, in that capacity, performs various
administrative services. The General Partner was organized in 1992 to serve as a
commodity pool operator. Until January 1, 1995, the General Partner was a direct
wholly-owned subsidiary of Kidder, Peabody Group Inc. and an indirect
wholly-owned subsidiary of General Electric Company. Effective as of such date,
all of the stock of the General Partner was sold to Paul H. Saunders and Kevin
M. Brandt, the senior officers of the General Partner, and the General Partner
is no longer affiliated with Kidder, Peabody & Co. Incorporated or its
affiliates. In connection with such sale, all of the directors of the General
Partner other than Messrs.
Saunders and Brandt resigned as directors.
ED&F Man International Inc. acts as the futures commission
merchant or commodity broker (the "Commodity Broker"), although Kidder, Peabody
& Co. Incorporated was the commodity broker until January 30, 1995. The
Commodity Broker is not an affiliate of the General Partner or the Partnership.
The General Partner and the Commodity Broker perform various services related to
the Partnership pursuant to the Partnership's Limited Partnership Agreement and
the customer agreement with the Commodity Broker. The General Partner's
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investment in the Partnership at the outset of trading was $120,000. The General
Partner had $26,394 invested as of December 31, 1999. The General Partner also
invested $20,000 directly into the Trading Company. The General Partner's
investment in the Trading Company was worth $5,103 at December 31, 1999.
RXR Inc., a New York corporation (the "Trading Advisor"), is
the Trading Company's Trading Advisor. The Trading Advisor is not an affiliate
of the Partnership or the General Partner. The Trading Advisor directs the
Partnership's futures, forward and options trading pursuant to an Advisory
Agreement with the Trading Company.
The Trading Advisor receives an incentive fee of 15% of New
Trading Profit achieved by the Trading Company as of the end of each calendar
quarter, and a monthly management fee of 0.0833 of 1% of the Partnership's
month-end Net Assets (1% per annum). New Trading Profits and Net Assets are each
determined pursuant to formulas set forth in the Advisory Agreement.
Brokerage commissions are payable by the Trading Company at a
flat rate of 0.2083 of 1% of the Partnership's month-end Net Assets (2.5% per
annum) plus give-up fees of approximately $2 per round-turn trade. Brokerage
commissions are split between the Commodity Broker, the General Partner and the
Partnership's selling agents.
The Trading Company also pays to the General Partner a sponsor
fee of 0.0625 of 1% of the Partnership's month-end Net Assets (0.75% per annum).
At the commencement of trading, the Partnership's assets were
allocated as follows: approximately 18% was invested in the Trading Company and
approximately 82% was invested in United States Treasury Strip Notes as the
Partnership's guaranteed distribution pool. The guaranteed distribution pool is
intended to assure each investor a 4% annual distribution and return of initial
net capital contribution at the end of the Partnership's approximately 10-year
time horizon.
The Trading Advisor's trading method is highly systematic and
technical. The Trading Advisor's program has four components, namely stock index
futures, bond futures, managed futures and short-term interest rate futures. The
objective of the trading method is to maintain an optimum asset mix in a fully
diversified portfolio, while integrating a managed futures component to achieve
significant capital gains through speculative trading in the futures, forward
and options markets.
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Regulation
Under the Commodity Exchange Act, as amended (the "Act"),
commodity exchanges and futures trading are subject to regulation by the
Commodity Futures Trading Commission (the "CFTC"). The National Futures
Association ("NFA"), "a registered futures association" under the Act, is the
only non-exchange self-regulatory organization for futures industry
professionals. The CFTC has delegated to the NFA responsibility for the
registration of "commodity trading advisors," "commodity pool operators,"
"futures commission merchants," "introducing brokers" and their respective
associated persons and "floor brokers." The Act requires "commodity pool
operators," such as the General Partner, "commodity trading advisors," such as
the Trading Advisor, and commodity brokers or "futures commission merchants,"
such as the Commodity Broker, to be registered and to comply with various
reporting and recordkeeping requirements. The General Partner, the Trading
Advisor and the Commodity Broker are all members of NFA. The CFTC may suspend a
commodity pool operator's or a trading advisor's registration if the CFTC finds
that its trading practices tend to disrupt orderly market conditions or in
certain other situations. In the event that the registration of the General
Partner as a commodity pool operator or the Trading Advisor's registration as a
commodity trading advisor was terminated or suspended, the General Partner and
the Trading Advisor, respectively, would be unable to continue to manage the
business of the Partnership. Should the General Partner's registration be
suspended, termination of the Partnership might result.
As members of NFA, the General Partner, the Trading Advisor
and the Commodity Broker are subject to NFA standards relating to fair trade
practices, financial condition and customer protection. As the self-regulatory
body of the futures industry, the NFA promulgates rules governing the conduct of
futures industry professionals and disciplines those professionals which do not
comply with such standards.
In addition to such registration requirements, the CFTC and
certain futures exchanges have established limits on the maximum net long or net
short position which any person may hold or control in particular futures. The
CFTC has adopted a rule requiring all domestic futures exchanges to submit for
approval speculative position limits for all futures contracts traded on such
exchanges. Many exchanges also limit the changes in futures contract prices that
may occur during a single trading day. The Trading Company may trade on foreign
commodity exchanges which are not subject to regulation by any United States
Government agency.
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<PAGE>
(b) Financial Information About Segments
For financial reporting purposes, the Partnership's business
constitutes only one segment, speculative trading of forward, futures, and
options on futures contracts. The Partnership does not engage in sales of goods
and services. The Partnership's revenue, operating results and total assets for
the years ended December 31, 1999, 1998, 1997, 1996 and 1995 are set forth under
"Item 6. Selected Financial Data." See Exhibit 13(a) containing the Financial
Statements of the Partnership.
(c) Narrative Description of Business
(1) See Items 1(a) and (b) above.
(i) through (xii) - not applicable.
(xiii) - the Partnership has no employees.
(d) Financial Information About Geographic Areas
The Partnership does not engage in material operations in
foreign countries (although it does trade on foreign exchanges and in foreign
currency futures contracts), nor is a material portion of its revenues derived
from foreign customers. See "Item 1(b). Financial Information About Segments."
Item 2. Properties
The Partnership does not own any properties. Under the terms
of the Limited Partnership Agreement, the General Partner performs the following
services for the Partnership:
(1) Manages the business of the Partnership. Pursuant to this
authority, the General Partner has entered into an Advisory Agreement with the
Trading Advisor (under which the Trading Advisor has complete discretion with
respect to determination of the Trading Company's trading decisions) and a
Customer Agreement with the Commodity Broker (pursuant to which the Commodity
Broker executes all trades on behalf of the Trading Company based on the
instructions of the Trading Advisor).
(2) Maintains the Partnership's books and records, which
Unitholders or their duly authorized representatives may inspect during normal
business hours for any proper purpose upon reasonable written notice to the
General Partner.
(3) Furnishes each Unitholder with a monthly statement
describing the performance of the Partnership, which sets forth the brokerage
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commissions, management fee, sponsor fee and other expenses incurred or accrued
and any incentive fees allocable to the Trading Advisor for the month.
(4) Forwards annual audited financial statements (including a
statement of financial condition and statement of operations) to each
Unitholder.
(5) Provides to each Unitholder tax information necessary for
the preparation of his/her annual federal income tax return and such other \
information as the CFTC may by regulation require.
(6) Performs secretarial and other clerical duties and
furnishes office space, equipment and supplies as may be necessary for
supervising the affairs of the Partnership.
(7) Administers the redemption of Units.
(8) Administers the annual distribution.
Item 3. Legal Proceedings
The General Partner is not aware of any pending legal
proceedings to which the General Partner, the Partnership or the Trading Company
is a party or to which any of their respective assets are subject. In the
ordinary course of its business, the Commodity Broker is involved in certain
legal actions. However, no pending proceeding affects the Commodity Broker's
ability to provide its services to the Partnership. None of the Trading Advisor,
the General Partner, the Partnership or the Trading Company has any connection
with such litigation.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information. There is no trading market for the
Units, and none is likely to develop. Units are transferable only after written
notice has been given to and approved by the General Partner. Units may be
redeemed effective as of the close of business on the last business day of any
calendar quarter, and only in whole Units, at Net Asset Value per Unit (less any
redemption fee, if applicable, as described below) calculated as of the close of
business (as
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determined by the General Partner) on the effective date of redemption. Units
redeemed on or prior to the end of the fourth full calendar quarter of the
Partnership's operations were subject to a redemption charge of 2%, 1% or 0%
depending on the amount of selling commissions paid by the Unitholder. Requests
for redemption must be received by the General Partner ten days before the
redemption date. For the year ended December 31, 1999 there were no redemption
charges paid to the Partnership.
Holders. As of December 31, 1999 there were 36 holders of
Units.
Dividends. The Partnership will make a $40 per Unit annual
distribution to each Unitholder, the first distribution having been made on
March 4, 1994 to Unitholders of record on February 16, 1994; the second
distribution having been made on February 23, 1995 to Unitholders of record on
February 16, 1995; the third distribution having been made on February 23, 1996
to Unitholders of record on February 23, 1996; the fourth distribution having
been made on February 18, 1997 to Unitholders of record on February 18, 1997;
the fifth distribution having been made on February 20, 1998 to Unitholders of
record on February 20, 1998; and the sixth distribution having been made on
February 22, 1999 to Unitholders of record on February 15, 1999. Except for the
distributions referred to above, no other dividends have been made or are
contemplated.
Securities Sold. None. Items (b) through (f) of item 701 of
Regulation S-K are not applicable.
(b) Not Applicable.
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Item 6. Selected Financial Data
The following is a summary of operations and total assets of
the Partnership for the years ended December 31, 1999, 1998, 1997, 1996 and
1995. For this purpose, the U.S. Treasury securities held in the guaranteed
distribution pool are valued at the lower of (1) cost plus accrued interest or
(2) market value.
<TABLE>
<CAPTION>
For the Years Ended
-------------------
December 31, December 31, December 31, December 31, December 31,
----------- ----------- ----------- ----------- -----------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C>
Revenues:
Gain: (loss) on
trading of Commodities
Positions $(11,767) $217,965 $330,164 $(250,741) $1,205,872
Interest Income 127,103 152,631 202,467 408,523 519,388
Redemption Income 0 0 0 0 0
Realized gain (loss) on
U.S. Treasury Strip Notes 5,757 34,961 14,148 69,419 (7,719)
Unrealized gain (loss) on
U.S. Treasury Strip Notes 0 0 0 0 557,725
------- -------- -------- --------- ----------
Total revenue 121,093 405,557 546,779 227,701 2,275,266
Expenses:
Brokerage commissions and
fees 53,748 64,231 83,269 165,938 211,672
Management Fees 21,013 25,243 32,675 64,846 83,141
Incentive Fees 0 0 0 0 0
GP Fees 15,784 18,963 24,536 48,685 62,416
Operating Expenses 23,582 29,198 23,311 32,475 33,859
------- -------- -------- --------- ----------
Total Expenses 114,127 137,635 163,791 311,944 391,088
------- -------- -------- --------- ----------
Income (loss) before
Allocation of Majority
Interest 6,966 267,922 382,988 (84,243) 1,884,178
Minority Interest
operating (income) loss 2,201 (3,228) (7,391) 6,992 (11,213)
------- -------- -------- --------- ----------
Net income (loss) $ 9,167 $ 264,694 $ 375,597 $ (77,251) $1,872,965
======= ========= ========= ========== ==========
Net income (loss)
allocated to General
Partner 113 6,060 10,813 (3) 19,503
======= ========= ========= ========== ==========
Net income (loss)
allocated to Limited
Partners 9,054 258,634 364,784 (77,248) 1,853,462
======= ========= ========= ========== ==========
Net income (loss) per Unit
(for a Unit outstanding
throughout the year/period) 4.95 120.71 124.68 (.03) 277.14
======= ========= ========= ========== ==========
Total assets $2,098,462 $2,279,865 $2,724,165 $5,566,829 $8,652,018
========== ========== ========== ========== ==========
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Reference is made to "Item 6. Selected Financial Data" and
"Item 8. Financial Statements and Supplementary Data." The information contained
therein is essential to, and should be read in conjunction with, the following
analysis.
Liquidity
Most United States commodity exchanges limit fluctuations in
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
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futures contract has reached the daily limit for that day, positions in that
contract can neither be taken nor liquidated. Futures prices have occasionally
moved the daily limit for several consecutive days with little or no trading.
Similar occurrences could prevent the Trading Company from promptly liquidating
unfavorable positions and subject the Trading Company to substantial losses
which could exceed the margin initially committed to such trades. In addition,
even if futures prices have not moved the daily limit, the Trading Company may
not be able to execute futures trades at favorable prices if little trading in
such contracts is taking place. Other than these limitations on liquidity, which
are inherent in the Trading Company's futures trading operations, the
Partnership's assets are highly liquid and are expected to remain so.
Capital Resources
The Partnership does not intend to raise any additional
capital through borrowing and, because it is a closed-end fund, it cannot sell
any more Units unless it undertakes a new public offering, which would require
another registration with the Securities and Exchange Commission. Due to the
nature of the Partnership's business, it will make no significant capital
expenditures and substantially all of its assets are and will be represented by
U.S. Treasury Strip Notes and investments in futures, forwards and options.
Results of Operations
For the year ended December 31, 1999, operating results show a
gain of $9,167 and the Net Asset Value per Unit was $1,161.87. The significant
components of this aggregate gain were increases in the market value and
interest on U.S. Treasury securities. The gain in the market value of zero
coupon Treasury strips in the guaranteed distribution pool totaled $5,757
(combined realized and unrealized); the gain in accrued interest on same
securities equaled $127,103. The net loss on trading in futures and options on
futures was -$11,767 (combined realized and unrealized) for the year, with the
largest declines in 10-year U.S. T-note contracts (-$45,496), 5-year U.S. T-note
contracts (-$40,128) and New Zealand/U.S. dollar cross-rate contracts
(-$10,841). These losses were off-set in significant part by gains in futures
trading due to S&P 500 index contracts (+$74,193), Soybean oil contracts
(+$8,222) and Euro Currency Unit contracts (+$7,937). The remaining net loss of
- -$5,654 was the net result of smaller trading gains and losses in approximately
forty-two other markets. The combined gain of these operating activities
(+$121,093), less operating expenses of $114,127, plus the allocation of
minority interest in the affiliated Trading Company (+$2,201), equals the total
aggregate Partnership gain of +$9,167.
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Operating results showed a gain of $264,694 for the year ended
December 31, 1998, with the Net Asset Value per Unit as of December 31, 1998 at
$1,196.92. The significant components of this aggregate gain were profits on
trading in futures. The net gain on trading in futures and options on futures
was +$217,965 (combined realized and unrealized) for the year, with the largest
declines in British pound futures contracts (-$13,515), Australian 3-year bond
contracts (-$13,327) and 3-month Canadian Banker's Acceptance contracts
(-$12,964), and the most significant increases due to S&P 500 index contracts
(+$148,935), Japanese Government Bond contracts (+$26,370) and 5-year U.S.
T-note contracts (+$21,882). The remaining net gain of +$60,584 was the net
result of smaller trading gains and losses in approximately forty-five other
markets. The increase in the market value of zero coupon Treasury strips in the
guaranteed distribution pool totaled $34,961 (combined realized and unrealized);
the increase in accrued interest on same securities was $152,631. The combined
gain of these operating activities (+$405,557), less operating expenses of
$137,635, less the allocation of minority interest in the affiliated Trading
Company (-$3,228), equals the total aggregate Partnership gain of $264,694.
Operating results show a gain of +$375,597 for the year ended
December 31, 1997. The Net Asset Value per Unit as of December 31, 1997 was
$1,115.89. The significant components of this aggregate gain were gains on
trading of futures and options. The net gain on trading of futures and options
was +$330,164 (combined realized and unrealized) for the year, with the most
significant declines due to trading in soybean oil contracts (-$24,014) and in
sugar contracts (-$15,902) and the most significant increases due to S&P 500
contracts (+$92,800) and dollar indices (+$32,700). The remaining gain of
+$244,580 is the net result of smaller trading gains and losses in approximately
forty other markets. The increase in the market value of the bonds in the
guaranteed distribution pool totaled $14,148 (combined realized and unrealized);
the increase in accrued interest on same securities was $202,467. The combined
gain of these operating activities (+$546,779), less operating expenses of
$163,791, plus the allocation of minority interest in the affiliated Trading
Company (-$7,391), equals the total aggregate Partnership gain of +$375,597.
As disclosed in the Prospectus of the Partnership, there is a
risk of loss inherent in the speculative nature of the futures and options
trading activity. Past performance is not necessarily indicative of future
prospects for profitability. As also disclosed in the Prospectus of the
Partnership, the value of the bonds in the guaranteed distribution pool is
subject to interim declines in market value. However, if an investment in the
Partnership is held to the end of its defined time horizon, thereby allowing all
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bonds in the guaranteed distribution pool to liquidate upon maturity, an
investor will realize an annual 4% distribution plus a full return of his/her
initial capital investment.
Inflation is not a significant factor in the Partnership's
profitability.
Possible Effects of the European Monetary Union
The Trading Advisor historically has traded foreign
currencies, including European currencies, for the Partnership. The January 1,
1999 inauguration of the Euro and the market's reaction to the Euro, or to any
nation's possible future withdrawal from the European Monetary Union, may
adversely affect the trading opportunities, or trading results generally, of
currency traders. The absence of historical Euro trading data could be
detrimental to traders such as the Trading Advisor.
The conversion to a single euro-currency was a very
significant and novel political and economic event and there can be no certainty
about its direct or indirect future effects on currency markets. The
introduction of the Euro does not eliminate the global appetite for hedging and
speculation in European Markets. Rather, the Euro and Euro-denominated
instruments essentially provide investors the opportunity to achieve a more
diversified exposure to European markets without the necessity of trading
individual instruments in legacy currency. Unforeseen effects of the European
Monetary Union could result in trading losses for the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable pursuant to the "small business issuer"
exemption from the disclosure requirements of Regulation S-K.
Item 8. Financial Statements and Supplementary Data
Financial statements required by this Item are included in the
Exhibit 13(a) filed herewith.
The supplementary financial information specified by Item 302
of Regulation S-K is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Arthur Andersen LLP has served as the Partnership's
independent public accountants since 1995. Results for 1999, 1998, 1997, 1996
and 1995 have been audited by Arthur Andersen LLP. There have been no changes in
or disagreements with the accountants on accounting or financial disclosure.
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PART III
Item 10. Directors and Executive Officers of the Registrant
(a,b) Identification of Directors and Executive Officers.
The Partnership and the Trading Company have no directors or executive officers.
There are no "significant employees" of the Partnership or the Trading Company.
The Partnership and the Trading Company are managed by the General Partner. In
January 1995, all directors of the General Partner other than Paul H. Saunders
and Kevin M. Brandt resigned as directors in connection with the sale of the
General Partner to Mr. Saunders and Mr. Brandt. Trading decisions for the
Trading Company are made by the Trading Advisor.
The General Partner is a commodity pool operator registered
with the National Futures Association. The Trading Advisor and its respective
principals have been trading commodities accounts for investors pursuant to
their respective trading methods for several years.
(c) Identification of Certain Significant Employees. None.
(d) Family relationships. None.
(e) Business Experience. See "Item 1 (a)" and "Item 10 (a,b)"
above.
(f) Involvement in Certain Legal Proceedings. None.
(g) Promoters and Control Persons. Not applicable.
Item 405 of Regulation S-K is not applicable.
Item 11. Executive Compensation
The Partnership and the Trading Company have no directors or
officers. The General Partner performs the services described in "Item 2.
Properties" herein. The General Partner participates in any appreciation in the
net assets of the Partnership in proportion to its investment. ED&F Man
International Inc. acts as the Partnership's commodity broker pursuant to the
Customer Agreement described in "Item 1(a). General Development of Business."
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Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The Partnership knows of 8 Unitholders who own beneficially
more than 5% of the Units. All beneficial ownership is direct ownership.
Name and Address Number of Units Percentage of Units
------------------------------ --------------- -------------------
Kosman Inc. 125.00 7.06%
190498 CR-G
Scottbluff, NE 69361
Betty C. LaRoe IRA Rollover 210.89 11.91%
P.O. Box 69
Terrell, TX 75160
James K. LaRoe IRA Rollover 217.82 12.30%
P.O. Box 69
Terrell, TX 75160
Ralph Balcof Separate 100.00 5.65%
Property Trust
P.O. Box 1269
Azusa, CA 91702
Joyce & Michael Dileo 100.00 5.65%
21 Jefferson Place
Massapequa, NY 11758
Georgiana M. Ely Trust 100.00 5.65%
c/o Jane Mace
13122 Mission Valley Drive
Houston, TX 77069
Cella, McKeon & Williams 100.00 5.65%
P.O. Box 221
North Haven, CT 06473
Milton L. Shifman Scholarship Trust 100.00 5.65%
U/w/o Milton L. Shifman
111-34 Shearwater Court
Jersey City, NJ 07305
Security Ownership of Management
Under the terms of the Limited Partnership Agreement, the
Partnership's affairs are managed by the General Partner and the Trading Advisor
has discretionary authority over futures, forward and options trading. The
General Partner owned 22.717 Units valued at $26,394 as of December 31, 1999,
1.28% of the Partnership's total equity. The General Partner also owned a $5,103
interest in the Trading Company as of such date.
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Changes in Control
None.
Item 13. Certain Relationships and Related Transactions
See "Item 1. Business," "Item 2. Properties," "Item 11.
Executive Compensation" and "Item 12. Security Ownership of Certain Beneficial
Owners and Management."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)1. Financial Statements (found in Exhibit 13(a))
The required financial statements are included in the 1999
Annual Report, a copy of which is filed herein as Exhibit 13(a).
(a)2. Financial Statement Schedules
All Schedules are omitted for the reason that they are not
required, are not applicable, or because equivalent information has been
included in the financial statements or the notes thereto.
(a)3. Exhibits as required by Item 601 of Regulation S-K
(3) Articles of Incorporation and By-laws
a. Limited Partnership Agreement of the
Partnership dated as of February 13, 1992, amended and restated as of
September 8, 1992.
b. Amended and Restated Certificate of Limited
Partnership of the Partnership.
c. Certificate of Amendment to Certificate of
Limited Partnership of the Partnership.
(10) Material Contracts
a. Advisory Agreement between the Trading
Company and RXR Inc.
b. Customer Agreement between the Partnership
and Kidder, Peabody & Co. Incorporated.
c. Guarantee of The RXR Group Inc.
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d. Assignment and Assumption Agreement among
certain commodity pools (including the Partnership), Kidder, Peabody Co.
Incorporated and ED&F Man International Inc.
The above exhibits are incorporated herein by reference from
the Registration Statement filed by the Partnership on Form S-1 (Reg. No.
33-45938) and declared effective as of September 8, 1992, except that (1) the
Limited Partnership Agreement is incorporated by reference from the Prospectus
dated September 8, 1992 filed pursuant to Rule 424(b), (2) the Certificate of
Amendment to Certificate of Limited Partnership of the Partnership is
incorporated by reference from the Partnership's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1994 and (3) the Assignment and Assumption
Agreement is incorporated by reference from the Partnership's Annual Report on
10-K for the Fiscal Year Ended December 31,1994.
(13) 1999 Annual Report and Independent Auditors'
Report -- filed herewith as Exhibit 13(a).
(16) Letter regarding change in certified public
accountants is incorporated by reference to the Partnership's Report on Form 8-K
dated November 10, 1995.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The Partnership filed a report on Form 8-K dated November 10,
1995. No reports on Form 8-K were filed during the fourth quarter of 1999.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE FOUR SEASONS FUND II L.P.
By: James River Management Corp.,
General Partner
By: /s/ PAUL H. SAUNDERS
--------------------
Paul H. Saunders
Chairman and Chief Executive Officer
Date: March 30, 2000
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.
Signature Title With Registrant Date
/s/ PAUL H. SAUNDERS Chairman and Chief March 30, 2000
- -------------------- Executive Officer
Paul H. Saunders (Principal Executive Officer
and Chief Operating Officer)
/s/ KEVIN M. BRANDT President, Treasurer and March 30, 2000
- ------------------- Director (Principal Financial
Kevin M. Brandt and Accounting Officer)
(Being the principal executive officer, the principal
financial and accounting officer, and a majority of the directors of James River
Management Corp.)
JAMES RIVER MANAGEMENT CORP. General Partner March 30, 2000
of Registrant
By: /s/ KEVIN M. BRANDT
--------------------
Kevin M. Brandt
President
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE FOUR SEASONS FUND II L.P.
By: James River Management Corp.,
General Partner
By: ______________________
Paul H. Saunders
Chairman and Chief Executive Officer
Date: March 30, 2000
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
date indicated.
Signature Title With Registrant Date
Chairman and Chief March 30, 2000
Executive Officer
(Principal Executive Officer
and Chief Operating Officer)
- -------------------
Paul H. Saunders
President, Treasurer and March 30, 2000
Director (Principal Financial
and Accounting Officer)
- -------------------
Kevin M. Brandt
(Being the principal executive officer, the principal
financial and accounting officer, and a majority of the directors of James River
Management Corp.)
JAMES RIVER MANAGEMENT CORP. General Partner March 30, 2000
of Registrant
By: _______________________
Kevin M. Brandt
President
-17-
<PAGE>
THE FOUR SEASONS FUND II L.P.
1999 FORM 10-K
INDEX TO EXHIBITS
EXHIBIT PAGE
------- ----
Exhibit 13(a) 1999 Annual Report and Independent
Auditors' Reports E-1
Exhibit 27.01 Financial Data Schedule E-2
-18-
THE FOUR SEASONS FUND II L.P.
AND AFFILIATE
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
TOGETHER WITH AUDITORS' REPORT
E-1
<PAGE>
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
OATH
AS OF DECEMBER 31, 1999 AND 1998
To the best of my knowledge and belief, the information contained in these
combined financial statements is accurate and complete.
/s/ Paul H. Saunders
----------------------------------
Paul H. Saunders, Chairman and CEO
James River Management Corp.
General Partner for
The Four Seasons Fund II L.P.
and Affiliate
<PAGE>
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Combined Statements of Financial Condition As of December 31, 1999 and 1998...............................................1
Combined Statements of Operations For the Years Ended December 31, 1999, 1998, and 1997...................................2
Combined Statements of Changes in Partners'Capital For the Years Ended
December 31, 1999, 1998, and 1997................................................................................3
Combined Statements of Cash Flows For the Years Ended
December 31, 1999, 1998, and 1997................................................................................4
Notes to Combined Financial Statements As of December 31, 1999 and 1998...................................................5
</TABLE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
The Four Seasons Fund II L.P. and Affiliate:
We have audited the accompanying combined statements of financial condition of
The Four Seasons Fund II L.P. (a Delaware limited partnership) and Affiliate as
of December 31, 1999 and 1998, and the related combined statements of
operations, changes in partners' capital and cash flows for each of the three
years in the period ending December 31, 1999. These financial statements are the
responsibility of the general partner. 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 an 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 combined financial position of The Four Seasons Fund
II L.P. and Affiliate as of December 31, 1999 and 1998, and the combined results
of their operations and their cash flows for each of the three years in the
period ending December 31, 1999, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia
January 17, 2000
<PAGE>
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
ASSETS
1999 1998
---- ----
<S> <C>
EQUITY IN COMMODITY TRADING ACCOUNTS:
Receivable for cash retained $ 284,736 $ 375,836
Net unrealized gain on open futures contracts and forwards 18,281 48,168
Accrued interest receivable 761 961
---------- -----------
303,778 424,965
INVESTMENT IN GUARANTEED DISTRIBUTION POOL (NOTE 2) 1,794,281 1,854,829
OTHER 403 71
---------- -----------
Total assets $2,098,462 $2,279,865
========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Other accrued expenses $ 15,928 $ 11,617
Brokerage commissions payable 12,906 4,724
Payable to General Partner 3,861 1,413
Management fee payable 3,430 5,566
Redemptions payable -- 35,204
---------- -----------
36,125 58,524
Minority interest in Trading Company (Note 2) 5,103 7,304
---------- -----------
Total liabilities 41,228 65,828
---------- -----------
PARTNERS' CAPITAL:
General Partner (units outstanding - 22.717 at
December 31, 1999 and 1998) 26,394 27,190
Limited Partners (units outstanding - 1,747.909 and
1,827.066 at December 31, 1999 and 1998, respectively) 2,030,840 2,186,847
---------- -----------
Total partners' capital 2,057,234 2,214,037
---------- -----------
Total liabilities and partners' capital $2,098,462 $ 2,279,865
========== ===========
PARTNERSHIP UNITS OUTSTANDING 1,770.626 1,849.783
---------- -----------
NET ASSET VALUE PER UNIT $ 1,161.87 $ 1,196.92
---------- -----------
</TABLE>
The accompanying notes are an integral part of these combined statements.
<PAGE>
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C>
REVENUES:
Net realized trading gain $ 36,305 $ 279,153 $346,707
Net change in unrealized trading gain (29,887) 15,505 4,373
Net option premiums (18,185) (106,093) 8,484
Net change in unexpired options -- 29,400 (29,400)
--------- --------- --------
Net trading (loss) gain (11,767) 217,965 330,164
Gain on sale of U.S. Treasury securities 5,757 34,961 14,148
Interest income (Note 2) 127,103 152,631 202,467
--------- --------- --------
Total revenues 121,093 405,557 546,779
--------- --------- --------
EXPENSES:
Brokerage commissions (Note 4) 53,748 64,231 83,269
Management fee (Note 5) 21,013 25,243 32,675
General Partner fee (Note 3) 15,784 18,963 24,536
Other 23,582 29,198 23,311
--------- --------- --------
Total expenses 114,127 137,635 163,791
--------- --------- --------
INCOME BEFORE ALLOCATION OF MINORITY INTEREST 6,966 267,922 382,988
ALLOCATION OF MINORITY INTEREST (NOTE 2) 2,201 (3,228) (7,391)
--------- --------- --------
NET INCOME $ 9,167 $ 264,694 $375,597
========= ========= ========
ALLOCATION OF NET INCOME:
Limited Partners $ 9,054 $ 258,634 $364,784
General Partner 113 6,060 10,813
Net income per unit 4.95 121.04 124.68
</TABLE>
The accompanying notes are an integral part of these combined statements.
2
<PAGE>
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
---------- ---------- ---------- ----------
<S> <C>
BALANCE, DECEMBER 31, 1996 4,762.214 $4,821,407 $89,423 $4,910,830
Capital withdrawals (2,373.442) (2,430,337) -- (2,430,337)
Capital distribution to
partners (Note 3) -- (187,020) (3,469) (190,489)
Net income -- 364,784 10,813 375,597
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1997 2,388.772 2,568,834 96,767 2,665,601
Capital withdrawals (538.989) (548,539) (72,168) (620,707)
Capital distribution to
partners (Note 3) -- (92,082) (3,469) (95,551)
Net income -- 258,634 6,060 264,694
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1998 1,849.783 2,186,847 27,190 2,214,037
Capital withdrawals (79.157) (91,979) -- (91,979)
Capital distribution to
partners (Note 3) -- (73,082) (909) (73,991)
Net income -- 9,054 113 9,167
---------- ---------- ---------- ----------
BALANCE, DECEMBER 31, 1999 1,770.626 $2,030,840 $26,394 $2,057,234
========== ========== ========== ==========
NET ASSET VALUE PER UNIT:
December 31, 1997-
Amount $ 1,115.89
Units outstanding 2,388.772
December 31, 1998-
Amount $ 1,196.92
Units outstanding 1,849.783
December 31, 1999-
Amount $ 1,161.87
Units outstanding 1,770.626
</TABLE>
The accompanying notes are an integral part of these combined statements.
3
<PAGE>
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---------- -------- -----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,167 $264,694 $ 375,597
Adjustments to reconcile net income to net
cash provided by operating activities-
Allocation of income (loss) to minority (2,201) 3,228 7,391
interest
Accretion of discount on Guaranteed
Distribution Pool (117,945) (138,248) (183,828)
Gain on sale of investment in Guaranteed
Distribution Pool (5,757) (34,961) (14,148)
Net change in unrealized gain on open
futures contracts and forwards 29,887 (15,505) (4,373)
Net change in unexpired options -- (29,400) 29,400
(Increase) decrease in operating assets:
Net receivable from Commodity Broker 91,300 60,210 283,953
Sale of bonds in Guaranteed Distribution
Pool 109,250 504,361 2,539,856
Maturity of bonds in Guaranteed
Distribution Pool 75,000 97,000 192,000
Other (332) 843 (221)
Increase (decrease) in operating
liabilities:
Payable to General Partner 2,448 (340) (5,392)
Brokerage commissions payable 8,182 (913) (18,055)
Management fee payable (2,136) 1,105 (142)
Other accrued expenses 4,311 980 (983)
---------- -------- -----------
Total adjustments 192,007 448,360 2,825,458
---------- -------- -----------
Net cash provided by operating activities 201,174 713,054 3,201,055
---------- -------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of partnership units (127,183) (600,503) (3,010,566)
Redemption of minority interest -- (17,000) --
Capital distribution to partners (73,991) (95,551) (190,489)
---------- -------- -----------
Net cash used in financing activities (201,174) (713,054) (3,201,055)
---------- -------- -----------
Net change in cash -- -- --
CASH, BEGINNING OF PERIOD -- -- --
---------- -------- -----------
CASH, END OF PERIOD $ -- $ -- $ --
========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these combined statements.
4
<PAGE>
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
1. ORGANIZATION:
The Four Seasons Fund II L.P. (the "Partnership") was organized under the
Delaware Revised Uniform Limited Partnership Act on February 13, 1992. An
initial public offering of its limited partnership units was completed on
January 31, 1993, at which time approximately 18 percent of the proceeds were
used to purchase limited partnership units of an affiliated limited partnership
(the "Affiliate" or "Trading Company"). All trading activity of the Partnership
and Trading Company (collectively the "Fund") takes place through the Trading
Company. The remaining proceeds from the Partnership's initial public offering
were used to purchase zero coupon U.S. Treasury securities (the "Guaranteed
Distribution Pool"). The management of the Partnership intends to utilize the
Guaranteed Distribution Pool to assure Limited Partners of an annual 4 percent
distribution and a return of their initial net capital investment at the end of
the Partnership's approximate ten-year time horizon (the "Time Horizon"). The
accompanying combined financial statements reflect the activities of the Fund.
The Fund's trading activity, which commenced on February 16, 1993, is directed
by a single trading advisor, RXR Inc. (the "Trading Advisor"), which is given
discretionary authority over the assets of the Trading Company. An advisory
agreement has been entered into with the Trading Advisor enumerating the terms
and conditions of the agreement and the basis of remuneration. The Trading
Advisor engages in the speculative trading of stock index futures, bond futures,
managed futures and short-term interest rate futures under its proprietary
Balanced Portfolio Program asset allocation system.
James River Management Corp., a Delaware corporation, is the general partner
(the "General Partner") of the Partnership and the Trading Company and is a
registered commodity pool operator. E.D.& F. Man International Inc.
is the commodity broker (the "Commodity Broker") for the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GUARANTEED DISTRIBUTION POOL - The Partnership's investment in the Guaranteed
Distribution Pool is valued at the lower of cost plus accrued interest or market
within the accompanying combined statements of financial condition. For purposes
of several fee calculations based on a percentage of net assets, the Guaranteed
Distribution Pool is valued at cost plus accrued interest. At December 31, 1999,
the cost plus accrued interest was $1,794,281, whereas market value was
$1,821,664. At December 31, 1998, the cost plus accrued interest was $1,854,829
whereas market value was $2,007,822. These securities are restricted in their
use and will only be sold upon withdrawal by a partner or to fund distributions.
MINORITY INTEREST - Minority interest reflected in the accompanying combined
financial statements represents the General Partner's approximately 2 percent
interest in the Trading Company. The Partnership is the sole limited partner of
the Trading Company.
RECEIVABLE FOR CASH RETAINED - Assets that are temporarily not invested are
maintained in the Trading Company's account with the Commodity Broker. All cash
receipts and disbursements of the Partnership occur at the Commodity Broker. The
Partnership may liquidate its account immediately upon written notice.
NET UNREALIZED GAIN (LOSS) ON OPEN FUTURES CONTRACTS - All of the Partnership's
commodity transactions and open positions are cleared and held, respectively,
with the Commodity Broker. Therefore, the accompanying combined statements of
financial condition reflect the net gains and (losses) of all open positions as
of December 31, 1999 and 1998.
REVENUE RECOGNITION - Open futures and option contracts entered into by the
Trading Company are valued at closing market quotations. The difference between
the cost and the market value of open contracts is reflected as net change in
5
<PAGE>
unrealized trading gain (loss) and net change in unexpired options on a
trade-date basis in the accompanying combined statements of operations.
INTEREST INCOME - Interest income includes both the accreted interest earned on
zero coupon U.S. Treasury securities in the Guaranteed Distribution Pool and
interest credited on cash balances held at the Commodity Broker. The Commodity
Broker credits the Trading Company monthly for interest earned, based on
prevailing short term money market rates, as defined, applied to the Trading
Company's average daily cash balance, as defined.
Interest income is accrued when earned.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities denominated in foreign
currencies are translated at year-end exchange rates. Gains and losses resulting
from foreign currency translations are calculated using daily exchange rates and
are included in the accompanying combined statements of operations as (a) net
realized trading gain (loss) at the time foreign currency is converted back to
U.S. dollars and upon recognition of a realized loss in foreign denominated
trades, and (b) net change in unrealized trading gain (loss) and net change in
unexpired options on outstanding foreign balances as of year-end.
INCOME TAXES - Income taxes have not been provided for, as partners are
individually liable for taxes, if any, on their share of the Partnership's net
income or loss.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - 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 disclosures 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.
3. PARTNERSHIP AGREEMENT:
The Partnership is governed by the terms of a limited partnership agreement (the
"Agreement"). A general summary of salient points of the Agreement is provided
below. Partners or prospective partners should refer to the Agreement to obtain
a complete understanding of all pertinent information. Responsibility for
managing the Partnership and the Trading Company is vested solely in the General
Partner. The Trading Company is also governed by a limited partnership agreement
which has been structured to mirror the Agreement of the Partnership. The only
material difference between the two agreements is with respect to the tax
allocations of profits and losses made by the Trading Company to the
Partnership, as opposed to the special tax allocations made by the Partnership
to its Limited Partners. Whereas the Agreement of the Partnership provides for
special allocations of gains and losses for tax purposes when limited
partnership units are redeemed during a fiscal year, the agreement of the
Trading Company simply passes the Partnership's share of the Trading Company's
annual profits and losses to the Partnership. As such, the Partnership, in turn,
will make the special allocations of such profits and losses.
GENERAL PARTNER FEE - As compensation for operating the Partnership, reporting
to investors and assuming the risk that the Trading Company will have
insufficient assets to pay amounts due in the event that its trading account
with the Commodity Broker is liquidated, the General Partner receives a fee at
the annual rate of 0.75 percent of the average month-end net assets of the Fund,
as defined, after reduction of such net assets for brokerage commissions, but no
other expenses or fees due or accrued as of such month-end. All expenses of the
Fund are paid by the Trading Company.
CONTRIBUTION OF GENERAL PARTNER - The General Partner is required to make and
maintain an investment in both the Partnership and Trading Company equal to 1
percent of their respective total capitalization. The General Partner may make a
withdrawal of either such investment as of the end of any month, but at all
times its capital account in each must be equal to at least 1 percent of net
assets, as defined.
SELLING COMMISSIONS - Investors purchasing units in the initial public offering
were subject to a selling commission payable to the selling agent. The
commission was dependent on the size of the individual subscription and ranged
from $0 to $20 per unit. In aggregate, total selling commissions were
approximately $89,000. Such charges, which were remitted to the selling agent,
are not reflected in the accompanying combined statements of operations.
6
<PAGE>
ORGANIZATIONAL AND OFFERING COSTS - Organizational and offering costs incurred
in connection with the formation of the Fund amounted to approximately $454,000.
In accordance with the terms of the Agreement, the Fund paid a portion of such
costs, amounting to $226,925, from the proceeds of the initial public offering
up to the maximum of $20 per limited partnership unit. Additional organizational
and offering costs in excess of the $20 per unit maximum amounted to
approximately $227,000 and were paid by the General Partner.
REDEMPTIONS - Investors may redeem part or all of their units as of any calendar
quarter and upon ten days' written notice to the General Partner. Upon
redemption, investors will receive their allocable share of the net asset value,
as defined, of the Trading Company plus their allocable share of the Guaranteed
Distribution Pool valued at the lower of the cost plus accrued interest or
market value. Due to the nature of the investments comprising the Guaranteed
Distribution Pool, investors who redeem prior to the end of the Time Horizon may
not receive a return of their full initial net investment.
ANNUAL DISTRIBUTION - The Fund made annual distributions to all Limited Partners
of record as of February 18, 1999, February 20, 1998, and February 18, 1997. The
distribution equaled 4 percent of the original investor contributions to the
Fund (after subtraction of up-front selling commissions, if applicable), also
equal to $40 per unit. Except for the annual 4 percent distribution, the General
Partner has no intention to make any further distributions except in
extraordinary circumstances.
ALLOCATIONS - As of the last business day of each month and on each redemption
date, the net assets of the Partnership are determined, valuing the Guaranteed
Distribution Pool at the lower of cost plus accrued interest or market. Any
increase or decrease in the Fund's net assets as compared to the last such
determination of net assets is credited or charged to the capital accounts of
each partner in the ratio that the balance of each account bears to the balance
of all accounts. A separate allocation is performed for Federal income tax
purposes.
TERMINATION OF PARTNERSHIP - The Partnership was organized to implement the
Trading Advisor's Balanced Portfolio Program asset allocation strategy over the
Time Horizon. In the event that the Trading Company is unable to sustain
sufficient trading profits to avoid depletion of its assets from commissions,
fees or trading losses and is subsequently liquidated prior to the end of the
Time Horizon, limited partners who do not redeem prior to the end of the Time
Horizon will nevertheless receive a return of their full initial net investment
plus an annual 4 percent distribution due to the nature of the zero coupon
investments comprising the Guaranteed Distribution Pool.
The Partnership will terminate and be dissolved upon the occurrence of any of
the following events:
a. December 31, 2021;
b. receipt by the General Partner of an approval to dissolve the
Partnership at a specified time by Limited Partners owning more than 50
percent of the units then outstanding and owned by the Limited
Partners, notice of which is sent by registered mail to the General
Partner not less than 90 days prior to the effective date of such
dissolution;
c. the withdrawal, dissolution, insolvency or removal of the General
Partner unless the Partnership is continued in accordance with the
terms of the Partnership Agreement; or
d. the occurrence of any event which shall make the continued existence
of the Partnership unlawful or require termination of the Partnership.
The Trading Company may terminate trading and liquidate in the event that its
net assets decline to the level where they are less than or equal to 5 percent
of the current net assets of the Fund, as defined. The Trading Company is
required to liquidate in the event that its net assets decline to less than or
equal to 3 percent of the current net assets of the Fund. This percentage was
approximately 18 percent as of December 31, 1999.
7
<PAGE>
4. BROKERAGE COMMISSIONS:
The Trading Company is charged brokerage commissions monthly at a fixed annual
rate of 2.5 percent as applied to month-end net assets, as defined, of the Fund,
including the Guaranteed Distribution Pool, as valued at cost plus accrued
interest. The fixed rate includes all exchange, clearing and National Futures
Association fees and floor brokerage, but not any give-up charges. The brokerage
commission is allocated among the Commodity Broker, selling agents and General
Partner in accordance with the clearing and selling agreements negotiated by the
General Partner.
5. MANAGEMENT AND INCENTIVE FEES:
The Trading Company has entered into an advisory agreement with the Trading
Advisor that specifies the terms of remuneration. The Trading Company pays the
Trading Advisor a monthly management fee at the annual rate of 1 percent of the
month-end net assets of the Fund, as defined. For purposes of calculating the
monthly management fee, net assets are computed prior to incentive fees and are
reduced by brokerage commissions, general partner fee and administrative costs
as of the end of the month of determination. In addition, the Guaranteed
Distribution Pool is valued at cost plus accrued interest.
The Trading Advisor is also entitled to a quarterly incentive fee of 15 percent
of any cumulative new trading profits recognized by the Trading Company. New
trading profits include net profits earned from (i) realized trading profit or
loss, plus or minus (ii) the change in unrealized trading profit or loss on open
contracts from the inception of trading to the end of a particular calendar
quarter. Such fees are calculated after payment of monthly brokerage
commissions, management fee, general partner fee and administrative costs but
without deduction of incentive fees paid. New trading profits do not include
interest earned and are not reduced by organizational expenses or selling
commissions. There was no incentive fee in 1999, 1998 or 1997.
6. OPERATING EXPENSES:
The Fund pays its routine legal, accounting, audit, computer and other operating
costs. The net assets of the Fund reflect an accrual for such expenses incurred
but not yet paid.
7. FINANCIAL INSTRUMENTS WITH MARKET AND CREDIT RISKS AND CONCENTRATIONS
OF CREDIT RISK:
In the normal course of operations, the Trading Company enters into various
contractual commitments with elements of market risk in excess of the amounts
recognized in the statements of financial condition. These contractual
commitments may include exchange traded futures, forward contracts and exchange
traded options on futures contracts.
Contractual commitments which involve future settlement give rise to both market
and credit risk. Market risk represents the potential loss that can be caused by
a change in the market value of a particular financial instrument. The Trading
Company's exposure to market risk is determined by a number of factors,
including the size, composition and diversification of positions held,
volatility of interest, market currency rates and liquidity. The market risk is
monitored by both the Trading Advisor and the General Partner, independently
from the other. Trade positions and the corresponding commodity markets are
monitored by both on a daily basis through computer link to the futures
commission merchants and access to on-line commodity pricing systems. All trades
are monitored with respect to volatility, daily profit and loss, and margin
usage (a risk parameter assigned by the exchanges) and when necessary,
appropriate review and actions are taken.
Exchange traded futures and options contracts are marked to market daily, with
variations in value settled on a daily basis with the exchange upon which they
are traded and with the futures commission merchant through which the futures
and options are executed. The Trading Company has not taken or made physical
delivery on futures contracts.
Forward contracts are negotiated contractual commitments to purchase or sell a
specified amount of financial instruments, currencies or commodities at a future
date at a predetermined price.
8
<PAGE>
An option on a futures contract gives the purchaser of the option the right to
take a position at a specified price in the underlying futures contract. Options
have limited life spans, usually tied to the settlement date of the underlying
futures contract. As a writer of options, the Trading Company receives a premium
in exchange for bearing the risk of unfavorable changes in the market value of
the underlying instrument.
The Trading Company records all contractual commitments involving future
settlement at market or fair value. Consequently, changes in the amounts
recorded in the Trading Company's statements of financial condition resulting
from movement in market prices are included currently in the accompanying
statements of operations.
During June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). This statement establishes the
standards for the accounting and the reporting of derivatives and hedging
activities. SFAS No. 133 is effective for fiscal years beginning after June 15,
2000; however, early adoption is encouraged. The Partnership has elected early
adoption and, accordingly, these standards are applied in the accompanying
financial statements. As further explained above, the Partnership's contractual
commitments are carried at market or fair value. As such, the adoption of SFAS
No. 133 has not had any effect on the Partnership's financial position or
results of operations. The Partnership has adopted the disclosure requirements
under SFAS No. 133.
CREDIT RISK AND CONCENTRATION OF CREDIT RISK
Exchange traded futures and option contracts possess low credit risk since all
transactions are guaranteed by the exchange on which they are traded and daily
cash settlements by all counterparties are required for changes in the market
value of the contracts. Furthermore, the bonds held by the Partnership in the
Guaranteed Distribution Pool are U.S. Government obligations. Credit risk is
measured by the loss that the Trading Company would record if its counterparties
failed to perform pursuant to the terms of contractual commitments. Management
of credit risk involves a number of considerations, such as the financial
profile of the counterparty, specific terms and duration of the contractual
agreement and the value of collateral held, if any. All of the Trading Company's
open financial futures, and exchange traded options were transacted with the
Commodity Broker. All Trading Company assets (other than those used to fund
margin requirements on foreign futures positions) are maintained by the
Commodity Broker in a segregated customer account, as required by the Commodity
Futures Trading Commission. In general, approximately 20 percent to 40 percent
of the Trading Company's assets are used in funding margin requirements. As of
December 31, 1999, approximately $59,048 was held in margin at the Commodity
Broker for the benefit of the Trading Company.
There exists a risk of non-performance related to forward contracts. E.D.&F. Man
International Inc. is the Partnership's primary forward contract counterparty.
Management believes that the exposure to credit risk associated with the
non-performance of its counterparty is minimal. However, credit risk can be
directly impacted by volatile financial markets.
9
<PAGE>
8. QUARTERLY FINANCIAL INFORMATION (UNAUDITED):
The following summarized quarterly financial information presents the results of
operations and other data for the three-month periods ended March 31, June 30,
September 30 and December 31, 1999 and 1998. Such information, which has not
been audited, is presented in thousands, except for unit and per unit data.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1999 1999 1999 1999
-------- -------- --------- ---------
<S> <C>
Revenues $ 38 $ 36 $ 29 $ 18
Expenses 30 29 28 27
-------- -------- --------- ---------
Income (loss) before allocation of
minority interest 8 7 1 (9)
Allocation of minority interest -- -- 1 1
-------- -------- --------- ---------
Net income (loss) $ 8 $ 7 $ 2 $ (8)
======== ======== ========= =========
Net assets $2,070 $2,077 $ 2,065 $2,057
======== ======== ========= =========
Partnership units outstanding, end of
period 1,783 1,783 1,771 1,771
-------- -------- --------- ---------
Net asset value per unit, end of period $1,161 $1,165 $ 1,166 $1,162
-------- -------- --------- ---------
Net income (loss) per unit $ 4.31 $ 3.92 $ 1.02 $ (4.30)
-------- -------- --------- ---------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1998 1998 1998 1998
-------- -------- --------- ---------
Revenues $ 175 $ 23 $ 120 $ 88
Expenses 37 35 38 28
-------- -------- --------- ---------
Income (loss) before allocation of
minority interest 138 (12) 82 60
Allocation of minority interest (5) 3 (1) --
-------- -------- --------- ---------
Net income (loss) $ 133 $ (9) $ 81 $ 60
======== ======== ========= =========
Net assets $ 2,646 $ 2,441 $ 2,189 $ 2,214
======== ======== ========= =========
Partnership units outstanding, end of
period 2,339 2,165 1,879 1,850
======== ======== ========= =========
Net asset value per unit, end of period $ 1,131 $ 1,128 $ 1,165 $ 1,197
======== ======== ========= =========
Net income (loss) per unit $ 55.58 $ (3.84) $ 37.47 $ 31.83
======== ======== ========= =========
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMBINED STATEMENTS OF FINANCIAL CONDITION, COMBINED STATEMENTS OF OPERATIONS,
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL AND COMBINED STATEMENTS OF
CASH FLOW AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 304,181
<SECURITIES> 1,794,281
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,098,462
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,098,462
<CURRENT-LIABILITIES> 41,228
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,057,234
<TOTAL-LIABILITY-AND-EQUITY> 2,098,462
<SALES> 0
<TOTAL-REVENUES> 121,093
<CGS> 0
<TOTAL-COSTS> 90,545
<OTHER-EXPENSES> 23,582
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,167
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,167
<EPS-BASIC> 4.95
<EPS-DILUTED> 4.95
</TABLE>
