EXHIBIT 99.03
REGISTRATION OF COMMODITY POOL PROGRAMS
Adopted on September 21, 1983, effective January 1, 1984;
amended and adopted August 30, 1990
I. INTRODUCTION
A. APPLICATION
1. The standards contained in these Guidelines pertain to the offer
and sale of securities by commodity pool limited partnerships or
analogous corporate entities and are designed to establish
uniform and consistent standards to be applied by the various
state securities ADMINISTRATORS. The primary focus of the
Guidelines is on the securities related aspects of commodity pool
limited partnerships or analogous corporate entities rather than
the technical aspects of futures trading. The Guidelines do not
purport to supplant existing or future rules and regulations
promulgated by the Commodity Futures Trading Commission or the
National Futures Association.
2. The ADMINISTRATOR may modify or waive such Guidelines if the
object sought to be achieved thereby is accomplished by other
means. Where the individual characteristics of specific PROGRAMS
warrant modification from these standards, they will be
accommodated, insofar as possible, while still being consistent
with the spirit of these Guidelines.
COMMENT: In granting modifications or waivers from these Guidelines, the
ADMINISTRATOR may take into consideration such factors as: (i) the experience
and prior performance of the SPONSOR and/or ADVISOR: (ii) reduction of
ORGANIZATIONAL AND OFFERING EXPENSES, management, advisory or incentive fees,
brokerage commissions, other fees, costs and expenses below the limits set
forth in Section IV: and (iii) more favorable redemption rights.
3. Where applicable, the ADMINISTRATOR may require compliance with
the jurisdiction's guidelines for corporate securities and may
not allow a security with different rights and privileges to be
issued unless there is justification therefor.
4. When required by the ADMINISTRATOR, a CROSS REFERENCE SHEET shall
be furnished with the application.
B. DEFINITIONS. As used in these Guidelines, the following terms shall
mean:
1. ADMINISTRATOR-The official or agency administering the
securities laws of a state.
2. 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.
3. AFFILIATE-An AFFILIATE of a PERSON means (a) any PERSON directly
or indirectly owning, controlling or holding with power to
vote 10% or more of the outstanding voting securities of such
PERSON; (b) any PERSON 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled or held
with power to vote, by such PERSON; (c) any PERSON, directly or
indirectly, controlling, controlled by, or under common control
of such PERSON; (d) any officer, director or partner of such
PERSON; or (e) if such PERSON is an officer, director or
partner, any PERSON for which such PERSON acts in any such
capacity.
4. CAPITAL CONTRIBUTIONS-The total investment in a PROGRAM by a
PARTICIPANT or by all PARTICIPANTS, as the case may be.
5. COMMODITY BROKER-Any PERSON who engages in the business of
effecting transactions in COMMODITY CONTRACTS for the account of
others or for his own account.
6. COMMODITY CONTRACT-A contract or option thereon providing for
the delivery or receipt at a future date of a specified amount
and grade of a traded commodity at a specified price and
delivery point.
7. CROSS REFERENCE SHEET-A compilation of the Guideline sections,
referenced to the page of the prospectus, PROGRAM agreement, or
other exhibits, and justification of any deviation from the
Guidelines.
8. NET ASSETS-The total assets, less total liabilities, of the
PROGRAM determined on the basis of generally accepted accounting
principles. NET ASSETS shall include any unrealized profits or
losses on open positions, and any fee or expense including NET
ASSET fees accruing to the PROGRAM.
9. NET ASSET VALUE PER PROGRAM INTEREST-The NET ASSETS divided by
the number of PROGRAM INTERESTS outstanding.
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10. NET WORTH-The excess of total assets over total liabilities as
determined by generally accepted accounting principles. NET
WORTH shall be determined exclusive of home, home furnishings
and automobiles.
11. NEW TRADING PROFITS-The excess, if any, of NET ASSETS at the end
of the period over NET ASSETS at the end of the highest previous
period or NET ASSETS at the date trading commences, whichever is
higher, and as further adjusted to eliminate the effect on NET
ASSETS resulting from new CAPITAL CONTRIBUTIONS, redemptions, or
capital distributions, if any, made during the period decreased
by interest or other income, not directly related to trading
activity, earned on PROGRAM assets during the period, whether
the assets are held separately or in margin account.
12. ORGANIZATIONAL AND OFFERING EXPENSES-All expenses incurred by
the PROGRAM in connection with and in preparing a PROGRAM 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
underwriter's attorneys), expenses for printing, engraving,
mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow
holders, depositories, experts, expenses of qualification of the
sale of its PROGRAM INTEREST under federal and state law,
including taxes and fees, accountants' and attorneys' fees.
13. PARTICIPANT-The holder of a PROGRAM INTEREST.
14. PERSON-Any natural PERSON, partnership, corporation, association
or other legal entity.
15. PIT BROKERAGE FEE. PIT BROKERAGE FEE shall include floor
brokerage, clearing fees, National Futures Association fees, and
exchange fees.
16. PROGRAM-A Limited partnership, joint venture, corporation, trust
or other entity formed and operated for the purpose of investing
in COMMODITY CONTRACTS.
17. PROGRAM BROKER-A COMMODITY BROKER that effects trades in
COMMODITY CONTRACTS for the account of a PROGRAM.
18. PROGRAM INTEREST-A limited partnership interest or other
security representing ownership in a PROGRAM.
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19. PYRAMIDING-A method of using all or a part of an unrealized
profit in a COMMODITY CONTRACT position to provide margin for
any additional COMMODITY CONTRACTS of the same or related
commodities.
20. 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
COMMODITY BROKER 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.
21. VALUATION DATE-The date as of which the NET ASSETS of the
PROGRAM are determined.
22. VALUATION PERIOD-A regular period of time between VALUATION
DATES.
II. REQUIREMENTS OF THE SPONSOR.
A. EXPERIENCE. Both the SPONSOR and the ADVISOR must be able to
demonstrate sufficient knowledge and experience to carry out the
PROGRAM policies and objectives and to manage PROGRAM operations.
Ordinarily a minimum of three years of relevant experience will be
deemed sufficient.
B. FINANCIAL CONDITION. The financial condition of the Sponsor must be
commensurate with any financial obligations assumed in the operation
of the PROGRAM. At a minimum, the NET WORTH of the general partner
shall be:
1. An amount equal to 5% of CAPITAL CONTRIBUTIONS in all existing
PROGRAMS in which the SPONSOR has potential liability as a
general partner plus 5% of the PROGRAM INTERESTS being offered.
2. For this section, the minimum required NET WORTH shall in no
case be less than $50,000 nor shall NET WORTH in excess of
$1,000,000 be required.
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3. Evaluation will be made of contingent liabilities and the use of
promissory notes to determine the appropriateness of their
treatment in the computation of NET WORTH. If stock
subscriptions or promissory notes are used, the ADMINISTRATOR
may request that the SPONSOR demonstrate that the prospective
subscriber or maker have sufficient NET WORTH to fund its
obligation for the maximum amount of PROGRAM INTERESTS being
offered. A currently enforceable contract shall exist that will
require the prospective subscriber or maker to honor its
obligation upon CAPITAL CONTRIBUTION to the PROGRAM.
COMMENT: See Section VI.C.4.(b). for specific requirements relating to the
balance sheet of the SPONSOR.
C. INVESTMENT IN THE PROGRAM. The SPONSOR must make a permanent
investment in the PROGRAM equal to the greater of 1% of CAPITAL
CONTRIBUTIONS or $25,000. The SPONSOR'S investment should be made
prior to the commencement of trading and shall be maintained
throughout the existence of the PROGRAM. In appropriate cases, the
ADMINISTRATOR may require the SPONSOR to purchase for cash additional
interests in the PROGRAM.
D. REPORTS. The SPONSOR shall submit to the ADMINISTRATOR any
information required to be filed with the ADMINISTRATOR, including,
but not limited to, reports and statements required to be distributed
to PARTICIPANTS.
E. TAX RULING OR OPINION. If the PROGRAM is organized as a limited
partnership, the SPONSOR must obtain a favorable tax ruling from the
Internal Revenue Service or an opinion of qualified tax counsel in a
form acceptable to the ADMINISTRATOR concerning the tax status of a
limited partnership.
F. LIABILITY AND INDEMNIFICATION.
1. The PROGRAM shall not provide for indemnification of the SPONSOR
(which shall include AFFILIATES only if such AFFILIATES are
performing services on behalf of the PROGRAM) for any liability
or loss suffered by the SPONSOR, nor shall it provide that the
SPONSOR be held harmless for any loss or liability suffered by
the PROGRAM, unless all of the following conditions are met:
(a) The SPONSOR has determined, in good faith, that the course
of conduct which caused the loss or liability was in the
best interests of the PROGRAM, and
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(b) The SPONSOR was acting on behalf of or performing services
for the PROGRAM, and
(c) such liability or loss was not the result of negligence or
misconduct by the SPONSOR, and
(d) such indemnification or agreement to hold harmless is
recoverable only out of the assets of the PROGRAM and not
from the PARTICIPANTS.
2. Notwithstanding anything to the contrary contained in Section
II.F.1., the SPONSOR and any PERSON acting as a broker-dealer
shall not be indemnified for any losses, liabilities or expenses
arising from or out of an alleged violation of federal or state
securities laws unless the following conditions are met:
(a) There has been a successful adjudication on the merits of
each count involving alleged securities law violations as to
the particular indemnitee, or
(b) such claims have been dismissed with prejudice on the merits
by a court of competent jurisdiction as to the particular
indemnitee, or
(c) 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, and
(d) in the case of subparagraph (c), the court of law
considering the request for indemnification has been
advised of the position of the Securities and Exchange
Commission and the position of any state securities
regulatory authority where PROGRAM INTERESTS were offered
or sold as to indemnification for violations of securities
laws; provided that the court need only be advised and
consider the positions of the securities regulatory
authorities of those states (i) which are specifically set
forth in the PROGRAM agreement and (ii) in which plaintiffs
claim they were offered or sold PROGRAM INTERESTS.
3. The PROGRAM may not incur the cost of that portion of liability
insurance which insures the SPONSOR for any liability as to which
the SPONSOR is prohibited from being indemnified under this
section.
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4. The provision of advancement from PROGRAM funds to a SPONSOR or
its AFFILIATES for legal expenses and other costs incurred as a
result of any legal action is permissible if the following
conditions are satisfied:
(a) the legal action relates to acts or omissions with respect
to the performance of duties or services on behalf of the
PROGRAM;
(b) the legal action is initiated by a third party who is not a
PARTICIPANT, or the legal action is initiated by a
PARTICIPANT and a court of competent jurisdiction
specifically approves such advancement; and
(c) the SPONSOR or its AFFILIATES undertake to repay the
advanced funds to the PROGRAM, together with the applicable
legal rate of interest thereon, in cases in which such
PERSON is not entitled to indemnification under Section
II.F.1.
G. REMOVAL OR WITHDRAWAL OF GENERAL PARTNER(S). In PROGRAMS organized as
limited partnerships, the general partner(s) may not voluntarily
withdraw from the partnership without 120 days prior written notice
thereof to the limited partners. If a general partner withdraws as
general partner and the limited partners or remaining general partners
elect to continue the partnership, the withdrawing general partner
shall pay all expenses incurred as a result of its withdrawal. In the
event of removal or withdrawal, the general partner shall be entitled
to a redemption of its interest in the partnership at its NET ASSET
value on the next VALUATION DATE following the date of removal or
withdrawal.
H. PROPER REGISTRATION. A SPONSOR and ADVISOR must be in compliance with
applicable registration requirements under the COMMODITY EXCHANGE ACT
as amended.
III. SUITABILITY OF PARTICIPANTS
A. GENERAL POLICY.
1. The SPONSOR shall establish minimum income and net worth
standards for PERSONS who purchase PROGRAM INTERESTS.
2. The SPONSOR shall propose minimum income and net worth standards
which are reasonable given the type of PROGRAM and the risks
associated with the purchase of PROGRAM INTERESTS. PROGRAMS with
greater investor risk shall have minimum standards with a
substantial NET WORTH requirement. The ADMINISTRATOR shall
evaluate the
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standards proposed by the SPONSOR when the PROGRAM'S application
for registration is reviewed. In evaluating the proposed
standards, the ADMINISTRATOR may consider the following:
(a) potential volatility in net asset value;
(b) potential PARTICIPANTS;
(c) relationships among potential PARTICIPANTS, SPONSOR, and
ADVISOR;
(d) liquidity of PROGRAM INTERESTS;
(e) prior performance of SPONSOR, ADVISOR, and, if applicable,
PROGRAM;
(f) financial condition of the SPONSOR;
(g) potential transactions between the PROGRAM and the SPONSOR;
and
(h) any other relevant factors.
B. INCOME AND NET WORTH STANDARDS.
1. Unless the ADMINISTRATOR determines that the risks associated
with the PROGRAM would require lower or higher standards, each
PARTICIPANT shall have:
(a) a minimum annual gross income of $45,000 and a minimum NET
WORTH of $45,000; or
(b) A minimum NET WORTH of $150,000.
2. NET WORTH shall be determined exclusive of home, home
furnishings, and automobiles.
3. In the case of sales to fiduciary accounts, these minimum
standards shall be met by the beneficiary, the fiduciary
account, or by the donor or grantor who directly or indirectly
supplies the funds to purchase the PROGRAM INTERESTS if the donor
or grantor is the fiduciary.
4. The SPONSOR shall set forth in the final prospectus:
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(a) the investment objectives of the PROGRAM;
(b) a description of the type of PERSON who might benefit from
an investment in the PROGRAM; and
(c) the minimum standards imposed on each PARTICIPANT in the
PROGRAM.
C. DETERMINATION THAT SALE TO PARTICIPANT IS SUITABLE AND APPROPRIATE.
1. The SPONSOR and each PERSON selling PROGRAM INTERESTS on behalf
of the SPONSOR or PROGRAM shall make every reasonable effort to
determine that the purchase of PROGRAM INTERESTS is a suitable
and appropriate investment for each PARTICIPANT.
2. In making this determination, the SPONSOR and each PERSON selling
PROGRAM INTERESTS on behalf of the SPONSOR or PROGRAM shall
ascertain that the prospective PARTICIPANT:
(a) meets the minimum income and net worth standards established
for the PROGRAM;
(b) can reasonably benefit from the PROGRAM based on the
prospective PARTICIPANT'S overall investment objectives and
portfolio structure;
(c) is able to bear the economic risk of the investment based on
the prospective PARTICIPANT'S overall financial situation;
and
(d) has apparent understanding of:
(1) the fundamental risks of the investment;
(2) the risk that the PARTICIPANT may lose the entire
investment;
(3) the restrictions on the liquidity of PROGRAM INTERESTS;
(4) the restrictions on transferability of PROGRAM
INTERESTS;
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(5) the background and qualifications of the SPONSOR and
ADVISOR; and
(6) the tax consequences of the investment.
3. The SPONSOR or each PERSON selling PROGRAM INTERESTS on behalf of
the SPONSOR or PROGRAM will make this determination on the basis
of information it has obtained from a prospective PARTICIPANT.
Relevant information for this purpose will include at least the
age, investment objectives, investment experience, income, NET
WORTH, financial situation, and other investments of the
prospective PARTICIPANT, as well as any other pertinent factors.
4. The SPONSOR or each PERSON selling PROGRAM INTERESTS on behalf of
the SPONSOR or PROGRAM shall maintain records of the information
used to determine that an investment in PROGRAM INTERESTS is
suitable and appropriate for each PARTICIPANT. The SPONSOR or
each PERSON selling PROGRAM INTERESTS on behalf of the SPONSOR or
PROGRAM shall maintain these records for at least six years.
5. The SPONSOR shall disclose in the final prospectus the
responsibility of the SPONSOR and each PERSON selling PROGRAM
INTERESTS on behalf of the SPONSOR or PROGRAM to make every
reasonable effort to determine that the purchase of PROGRAM
INTERESTS is a suitable and appropriate investment for each
PARTICIPANT, based on information provided by the PARTICIPANT
regarding the PARTICIPANT'S financial situation and investment
objectives.
D. SUBSCRIPTION AGREEMENTS.
1. The ADMINISTRATOR may require that each PARTICIPANT complete and
sign a written subscription agreement.
2. The SPONSOR may require that each PARTICIPANT make certain
factual representations in the subscription agreement, including
the following:
(a) The PARTICIPANT meets the minimum income and net worth
standards established for the PROGRAM.
(b) The PARTICIPANT is purchasing the PROGRAM INTERESTS for his
or her own account.
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(c) The PARTICIPANT has received a copy of the prospectus.
(d) The PARTICIPANT acknowledges that the investment is not
liquid except for limited redemption provisions.
3. The PARTICIPANT must separately sign or initial each
representation made in the subscription agreement. Except in the
case of fiduciary accounts, the PARTICIPANT may not grant any
PERSON a power of attorney to make such representations on his or
her behalf.
4. The SPONSOR and each PERSON selling PROGRAM INTERESTS on behalf
of the SPONSOR or PROGRAM shall not require a PARTICIPANT to make
representations in the subscription agreement which are
subjective or unreasonable and which:
(a) might cause the PARTICIPANT to believe that he or she has
surrendered rights to which he or she is entitled under
federal or state law; or
(b) would have the effect of shifting the duties regarding
suitability, imposed by law on broker-dealers, to the
PARTICIPANT.
5. Prohibited representations include, but are not limited to the
following:
(a) The PARTICIPANT understands or comprehends the risks
associated with an investment in the PROGRAM.
(b) The investment is a suitable one for the PARTICIPANT.
(c) The PARTICIPANT has read the prospectus.
(d) In deciding to invest in the PROGRAM, the PARTICIPANT has
relied solely on the prospectus, and not on any other
information or representations from other PERSONS or
sources.
6. The SPONSOR may place the content of the prohibited
representations in the subscription agreement in the form of
disclosures to the PARTICIPANT. The SPONSOR may not place these
disclosures in the PARTICIPANT representation section of the
subscription agreement.
E. COMPLETION OF SALE.
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1. The SPONSOR or any person selling PROGRAM INTERESTS ON behalf of
the SPONSOR or PROGRAM may not complete a sale of PROGRAM
INTERESTS to a PARTICIPANT until at least five business days
after the date the PARTICIPANT receives a final prospectus.
2. The SPONSOR or the PERSON designated by the SPONSOR shall send
each PARTICIPANT a confirmation of his or her purchase.
F. MINIMUM INVESTMENT. The ADMINISTRATOR may require a minimum initial
and subsequent cash investment amount.
IV. FEES, COMPENSATION AND EXPENSES.
A. ORGANIZATIONAL AND OFFERING EXPENSES.
1. All ORGANIZATIONAL AND OFFERING EXPENSES, including commissions,
and any other compensation for sales of PROGRAM INTERESTS shall
be reasonable. In no event shall these expenses exceed 15% of
the CAPITAL CONTRIBUTIONS of the offering, regardless of the
source of payment. Any interest paid by the PROGRAM on deferred
ORGANIZATIONAL AND OFFERING EXPENSES shall comply with Section
VI.C.2.(e). Included in ORGANIZATIONAL AND OFFERING EXPENSES
shall be the redemption fees as set forth in Section VII.B.
2. No SPONSOR shall directly or indirectly pay or award any
commissions or other compensation to any PERSON engaged to sell
PROGRAM INTERESTS 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
PROGRAM INTERESTS.
COMMENT: Compensation paid to sales agents from a percentage of commodity
brokerage commissions (trail commissions) will not be considered objectionable
offering expenses under Section IV.A.
B. (Formerly Section IV.B.5) EXPENSES OF THE PROGRAM. All expenses of
the PROGRAM shall be billed directly to and paid by the PROGRAM. The
SPONSOR shall not be allowed (other than for ORGANIZATIONAL AND
OFFERING EXPENSES) to allocate to the PROGRAM any portion of its
indirect expenses incurred in connection with the administration of
the PROGRAM, including but not limited to salaries, rent, travel
expenses and such other items generally falling under the category of
SPONSOR overhead expense. All customary and routine administrative
expenses of the PROGRAM, except for the
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actual cost of legal and audit services provided by third parties,
shall be subject to the limitations imposed by Section IV.C.1. of
these Guidelines. The prospectus shall contain a separate estimate
of the amount of legal and audit fees to be charged to the PROGRAM
during the first full year of its operations based on minimum and
maximum offering sizes.
C. COMPENSATION.
1. NET ASSET Fee-Management fees, advisory fees and all other fees,
except for incentive fees and commodity brokerage commissions,
when added to the customary and routine administrative expenses
of the PROGRAM shall not exceed 1/2 of 1% of NET ASSETS per month
(not to exceed 6% annually). For the purpose of this limitation,
customary and routine administrative expenses shall include all
expenses of the PROGRAM other than commodity brokerage
commissions, incentive fees, the actual cost of legal and audit
services and extraordinary expenses. The SPONSOR shall not
receive a NET ASSET fee if it receives, directly or indirectly,
any portion of the brokerage commissions under Section IV.C.3 If
necessary, the SPONSOR shall reimburse the PROGRAM, no less
frequently than quarterly, for the amount by which such aggregate
fees and expenses exceed the limitations herein provided during
the period for which reimbursement is made up to an amount not
exceeding the aggregate compensation received by the SPONSOR,
including direct or indirect participations in commodity
brokerage commissions charged to the PROGRAM. If reimbursement
is required or extraordinary expenses are incurred, the SPONSOR
shall include in the PROGRAM'S next regular report to the
PARTICIPANTS a discussion of the circumstances or events which
resulted in the reimbursement or extraordinary expenses.
2. Incentive Fees.
(a) The aggregate incentive fee paid by the PROGRAM shall not
exceed 15% of the NEW TRADING PROFITS of the PROGRAM,
calculated not more often than quarterly on the VALUATION
DATE, over the highest previous VALUATION DATE. For
purposes of this calculation, PROGRAM losses shall be
carried forward but shall not be carried back. In no event
may a modification of ADVISOR compensation result in such
compensation exceeding the limitations provided herein.
Furthermore, any new contract with an existing ADVISOR must
carry forward all losses attributable to that ADVISOR.
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(b) The SPONSOR or ADVISOR will be entitled to an additional 2%
incentive fee for each 1% by which the PROGRAM'S NET ASSET
fee as set forth in IV.C.1. is reduced below 6% annually.
(c) Multi-ADVISOR PROGRAMS. The prospectus must clearly
disclose, in both the prospectus summary and text of the
prospectus, that incentive fees may be paid to an ADVISOR
for a given period despite aggregate PROGRAM losses for such
period.
(d) The prospectus shall contain a sample calculation of how
incentive fees will be determined.
3. Brokerage Commissions:
(a) The round turn commission to be initially charged to the
PROGRAM for each commodity on each exchange on which the
PROGRAM is expected to trade shall be disclosed immediately
following the compensation table in the prospectus. An
estimated range of such round turn commission shall be
included in the prospectus summary section. Such round turn
commission shall include all fees charged for each brokerage
transaction; including, but not limited to, PIT BROKERAGE
FEES. An estimate of the round turn commission should be
included where a flat rate or asset based commission will be
utilized.
(b) The prospectus must clearly disclose, in both the prospectus
summary and the text of the prospectus, an estimate of what
the brokerage rate will equal as a percentage of average NET
ASSETS annually.
(c) The PROGRAM shall seek the best price and services available
in its commodity futures brokerage transactions. A SPONSOR
shall not effect any transactions in COMMODITY CONTRACTS
with any COMMODITY BROKER affiliated directly or indirectly
with the SPONSOR or with any ADVISOR providing the SPONSOR
with research information, recommendations or other services
which might be of value to the SPONSOR, unless such
transactions are effected at competitive rates. In no event
will the PROGRAM be allowed to enter into any exclusive
brokerage contract. Brokerage commission charges will be
presumptively reasonable if they satisfy one of the
following maximum rates:
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i. 80% of the published retail rate plus PIT BROKERAGE
FEEs, or
ii. 14% annually of the average NET ASSETS excluding the
PROGRAM assets not directly related to trading
activity. This 14% limitation shall include PIT
BROKERAGE FEEs.
The prospectus must state that the brokerage commissions to
be charged will not exceed the limitations set forth
herein. The ADMINISTRATOR may require the PROGRAM to file
periodic reports concerning all brokerage transactions.
4. Other income.
a. Any interest or other income derived from any portion of the
PROGRAM assets whether held in the PROGRAM'S margin account
or otherwise shall accrue solely to the benefit of the
PROGRAM except as set forth below:
(1) Interest income may be used to reimburse the SPONSOR
for "deferred" ORGANIZATIONAL AND OFFERING EXPENSES.
Such compensation must be within the overall limits
set by Section IV.A.1.
(2) Not more than 20% of interest income derived from
PROGRAM assets may be allocated to the PROGRAM BROKER.
However, any interest income allocated to the PROGRAM
BROKER must be included in determining whether the
limitations imposed by Section IV.C.3.(c) have been
satisfied.
Any interest or other income derived from any portion of the
PROGRAM assets accruing to the benefit of the SPONSOR or
PROGRAM BROKER pursuant to Sections (1) or (2) herein, must
be clearly disclosed as compensation. The prospectus must
include a statement regarding the disposition of any
interest or other income earned by any portion of the
PROGRAM assets.
b. A SPONSOR shall not take any action with respect to the
assets or property of the PROGRAM which does not benefit the
PROGRAM. Such a prohibited action, among others would be
the utilization of PROGRAM funds as compensating balances
for the SPONSOR'S exclusive benefit.
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5. Only those items of compensation permitted herein will be
allowed. Any variance must be adequately justified to the
ADMINISTRATOR.
V. RIGHTS AND OBLIGATIONS OF PARTICIPANTS.
A. MEETINGS. Meetings of the PARTICIPANTS may be called by the general
partner or by PARTICIPANTS holding more than 10% of the then
outstanding PROGRAM INTERESTS for any matters for which the
PARTICIPANTS may vote as set forth in a limited partnership agreement
or charter document. Such call for a meeting shall be deemed to have
been made upon receipt by the general partner of a written request,
either in PERSON or by certified mail, from holders of the requisite
percentage of PROGRAM INTERESTS stating the purpose of the meeting.
The general partner shall, within 15 days after receipt of said
request, provide written notice, either in PERSON or by certified
mail, to all PARTICIPANTS of the meeting and the purpose of such
meeting, which shall be held on a date not less than 30 or more than
60 days after the date of receipt of said notice at a reasonable time
and place.
B. VOTING RIGHTS OF LIMITED PARTNERS. To the extent permitted by the law
of the state of formation, the PROGRAM agreement shall provide that a
majority of the outstanding PROGRAM INTERESTS may, without necessity
for concurrence by the general partner, vote to (1) amend the PROGRAM
agreement, (2) remove the general partner(s), (3) elect a new general
partner(s), (4) cancel any contract for services with the SPONSOR
without penalty upon 60 days written notice, and (5) dissolve the
PROGRAM. Without concurrence of a majority of the outstanding PROGRAM
INTERESTS, the general partner(s) may not (i) amend the PROGRAM
agreement except for amendments which do not adversely affect the
rights of PARTICIPANTS, (ii) appoint a new general partner(s), or
(iii) dissolve the PROGRAM. Any amendment to the PROGRAM agreement
which modifies the compensation or distributions to which a general
partner is entitled or which affects the duties of a general partner
may be conditioned upon the consent of the general partner. If the
law of the state of formation provides that the PROGRAM will dissolve
upon termination of a general partner(s) unless the remaining general
partner(s) continues the existence of the PROGRAM, the PROGRAM
agreement shall obligate the remaining general partner(s) to continue
the PROGRAM'S existence; and if there will be no remaining general
partner(s), the termination of the last general partner shall not be
effective for a period of at least 120 days during which time a
majority of the outstanding PROGRAM INTERESTS shall have the right to
elect a general partner who shall agree to continue the existence of
the PROGRAM. The PROGRAM agreement shall provide for a successor
general partner where the only general partner of the PROGRAM is an
individual.
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C. (Formerly Section VI.C.4.) MATERIAL CHANGES. Any material changes in
the PROGRAM'S basic investment policies or structure shall require
prior written approval by a majority of PROGRAM INTERESTS held by
PARTICIPANTS.
D. ACCESS TO PROGRAM RECORDS.
1. The SPONSOR shall maintain at the principal office of the PROGRAM
a list of the names and addresses of an PROGRAM INTERESTS owned
by all PARTICIPANTS. Such list shall be made available for the
review by any PARTICIPANT or his representative at reasonable
times, and upon request, either in PERSON or by mail the SPONSOR
shall furnish a copy of such list to any PARTICIPANT or his
representative upon payment, in advance, of the reasonable cost
of reproduction and mailing.
2. The PARTICIPANTS and their representatives shall be permitted
access to all records of the PROGRAM, after adequate notice, at
any reasonable time. The SPONSOR shall maintain and preserve
such records for a period of not less than five years.
E. ANNUAL AND PERIODIC REPORTS. [Compliance with the provisions of CFTC
regulations for Reporting to Pool PARTICIPANTS, 17 C.F.R. Section
4.22 will be considered sufficient to comply with this Section E.]
1. The partnership agreement shall provide for the transmittal to
each PARTICIPANT of an annual report within 120 days after the
close of the fiscal year containing at least the following
information:
(a) A balance sheet as of the end of the PROGRAM'S fiscal year
and statements of income, partners' equity, and cash flows
for the year then ended, all of which shall be prepared in
accordance with generally accepted accounting principles and
accompanied by an auditor's report containing an opinion of
an independent certified public accountant or independent
public accountant.
(b) A statement showing the total fees, compensation, brokerage
commissions and expenses paid by the PROGRAM, segregated as
to type, and stated both in aggregate dollar terms and as a
percentage of NET ASSETS.
(c) The average round turn rate for the fiscal year shall be
computed within the scope of the annual audit. Such rate
shall be disclosed in the annual report.
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2. A SPONSOR shall be required to furnish PARTICIPANTS with
quarterly reports, which may be unaudited, containing the same
information as in (a) and (b) above within 60 days after the end
of the quarter.
3. A SPONSOR shall provide to all PARTICIPANTS, not later than March
15th of each year, all information necessary for the preparation
of the PARTICIPANT'S income tax returns.
4. The SPONSOR shall calculate the NET ASSETS of the fund daily and
shall make available upon the request of a PARTICIPANT, the NET
ASSET VALUE PER PROGRAM INTEREST.
F. TRANSFERABILITY OF PROGRAM INTERESTS.
1. Restrictions on assignment of PROGRAM INTERESTS or on the
substitution of a limited partner are generally disfavored and
such restrictions will be allowed only if (1) they are necessary
to comply with the safe harbor provisions of Internal Revenue
Service Notice 88-75 (or other safe harbors adopted by the
Internal Revenue Service that protect against treatment as a
publicly traded partnership) or (2) they are necessary to
preserve the tax status of the partnership or the
characterization or treatment of income or loss. In the case of
(2), any restriction must be affirmatively supported by an
opinion of counsel. The PROGRAM agreement shall require the
SPONSOR to eliminate or modify any restriction on substitution or
assignment at such time as the restriction is no longer
necessary.
2. No transfers may be made where, after the transfer, either the
transferee or the transferor would hold less than the minimum
number of PROGRAM INTERESTS equivalent to an initial minimum
purchase, except for transfers by gift, inheritance, intrafamily
transfers, family dissolutions, and transfers to AFFILIATES.
G. PARTICIPANT LIABILITY. A PROGRAM shall be structured so that a public
investor cannot be exposed to liability in excess of the amount of the
remaining balance of his capital account excluding partial
redemptions, distributions consisting of a return of capital and
accumulated profits.
H. ASSESSMENTS. Assessments of any kind shall be prohibited.
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VI. DISCLOSURE AND MARKETING REQUIREMENTS.
A. MINIMUM PROGRAM CAPITAL. The minimum amount of funds to activate a
PROGRAM shall be sufficient to accomplish the objectives of the
PROGRAM, including "spreading the risk." Any minimum less than
$500,000, after deduction of all front end charges, will be presumed
to be inadequate to spread the risk of the public investors.
Provision must be made for the return of 100% of paid subscriptions in
the event that the established minimum to activate the PROGRAM is not
reached. All funds received prior to activation of the PROGRAM must
be deposited with an independent custodian, trustee or escrow agent
whose name and address shall be disclosed in the prospectus.
COMMENT: The purpose of this requirement is to assure the adequate
diversification of the investments of the PROGRAM.
B. SALES LITERATURE. Sales literature, sales presentation (including
prepared presentations to prospective investors at group meetings) and
advertising used in the offer or sale of PROGRAM INTERESTS shall
conform in all applicable respects to requirements of filing,
disclosure and adequacy currently imposed on sales literature, sales
presentations and advertising used in the sale of corporate
securities.
C. CONTENTS OF THE PROSPECTUS.
1. Prospectus. A prospectus which is not part of a registration
statement declared effective by the Securities and Exchange
Commission pursuant to the Securities Act of 1933 shall generally
conform to the disclosure requirements which would apply if the
offering were so registered.
2. Conflicts of Interest and Transactions with AFFILIATES.
(a) Any conflicts of interest between the PROGRAM and any
SPONSOR, ADVISOR, COMMODITY BROKER or any AFFILIATE thereof,
must be fully disclosed.
(b) Unless specifically provided by these Guidelines the SPONSOR
shall not receive compensation or reimbursements for
providing goods and services to the PROGRAM.
(c) The SPONSOR shall also be required to disclose the steps
that will be taken to alleviate any real or potential
conflict of interest.
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(d) Prohibitions. Certain conflicts of interest are presumed to
be materially sufficient to render the proposed PROGRAM
incapable of accomplishing its stated objectives in the best
interest of the PARTICIPANTS and shall be controlled as
follows:
(1) It shall be presumptively unreasonable for the ADVISOR
to be affiliated with the PROGRAM BROKER.
(2) It shall be presumptively unreasonable for the ADVISOR
to be affiliated with the SPONSOR if the SPONSOR
receives, directly or indirectly, any portion of the
brokerage commissions, including trail commissions,
from PROGRAM operations.
(3) Unless the issuer can overcome the presumptions
outlined in (1) and (2) above, the prospectus shall
state that at no time will the above affiliations
exist.
(4) No loans may be made by the PROGRAM to the SPONSOR or
any other person.
(5) The funds of a PROGRAM shall not be commingled with the
funds of any other PERSON. Funds used to satisfy
margin requirements will not be considered commingled.
(6) No rebates or giveups may be received by the SPONSOR
nor may the SPONSOR participate in any reciprocal
business arrangements which could circumvent these
guidelines. Furthermore, the prospectus and PROGRAM
charter documents shall contain language prohibiting
the above as well as language prohibiting reciprocal
business arrangements which would circumvent the
restrictions against dealing with AFFILIATES or other
interested parties.
(7) A PROGRAM'S charter document shall prohibit the
commodity trading ADVISOR or any other PERSON acting in
such capacity from receiving a NET ASSET fee under
Section IV.C.1. if he shares or participates, directly
or indirectly, in any commodity brokerage commissions
generated by the program.
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(8) The maximum period covered by any contract of the
partnership with the ADVISOR or SPONSOR shall not
exceed one year. The agreement must be terminable
without penalty upon 60 days' written notice by the
PROGRAM.
(9) Any other agreement, arrangement or transactions,
proposed or contemplated, may be restricted in the
discretion of the ADMINISTRATOR if it would be
considered unfair to the PARTICIPANTS in the PROGRAM.
(10) A PROGRAM shall not engage in PYRAMIDING.
(11) All of the foregoing restrictions shall be disclosed in
the prospectus and contained in the partnership
agreement or charter document.
(e) On loans made available to the PROGRAM by the SPONSOR, the
SPONSOR may not receive interest in excess of its interest
costs, nor may the SPONSOR receive interest in excess of the
amounts which would be charged the PROGRAM (without
reference to the SPONSOR'S financial abilities or
guarantees) by unrelated banks on comparable loans for the
same purpose and the SPONSOR shall not receive points or
other financing charges or fees regardless of the amount.
3. Notification
(a) Notice shall be sent to each PARTICIPANT within seven
business days from the date of:
i) any decline in the NET ASSET VALUE PER UNIT
to less than 50% of the NET ASSET VALUE on
the last VALUATION DATE;
ii) any material change in contracts with
ADVISORS, including any change in ADVISORS or
any modification in connection with the
method of calculating the incentive fee;
iii) any other material change affecting the
compensation of any party.
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(b) No material change related to brokerage commissions shall be
made until notice is given and PARTICIPANTS, based on such
notice, have the opportunity to redeem pursuant to Section
VII.B.
(c) Included in the required notification shall be a description
of the PARTICIPANT'S redemption rights pursuant to VII.B.
and C. and voting rights pursuant to V.B. and a description
of any material effect such changes may have on the
interests of PARTICIPANTS.
4. FINANCIAL INFORMATION REQUIRED ON APPLICATION. The SPONSOR or
the PROGRAM shall provide as an exhibit to the application or
where indicated below shall provide as part of the prospectus,
the following financial statements:
(a) Balance Sheet of the PROGRAM. A balance sheet of the
PROGRAM as of the end of its most recent fiscal year,
prepared in accordance with generally accepted accounting
principles and accompanied by an independent auditor's
report containing no material qualification or explanatory
paragraph relating to material uncertainties or going
concern issues, and an unaudited balance sheet as of a date
not more than 135 days prior to the date of filing. Such
balance sheets shall be included in the prospectus.
(b) Balance Sheet of the SPONSOR.
(1) Corporate SPONSOR. A balance sheet of any corporate
SPONSOR as of the end of its most recent fiscal year,
prepared in accordance with generally accepted
accounting principles and accompanied by an independent
auditor's report containing no material qualification
or explanatory paragraph relating to material
uncertainties or going concern issues, and an unaudited
balance sheet as of a date not more than 135 days prior
to the date of filing. Such balance sheets shall be
included in the prospectus.
(2) Individual SPONSOR. A statement of financial condition
as of a time not more than 135 days prior to the date
of filing an application. Such statement of financial
condition shall be prepared in accordance with
generally accepted accounting principles and reviewed
and reported upon by an independent certified public
accountant or independent public accountant under the
review standards as set forth by
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the American Institute of Certified Public Accountants.
A representation of the amount of such NET WORTH must
be included in the prospectus.
(c) Filing of Other Statements. The ADMINISTRATOR may, where
consistent with the protection of investors, request
additional financial statements of the SPONSOR, ADVISOR,
PROGRAM BROKER or any AFFILIATE thereof, or permit the
omission of one or more of the statements required under
this section and the filing, and substitution thereof, of
appropriate statements verifying financial information
having comparable relevance to an investor in determining
whether he should invest in the PROGRAM.
VII. MISCELLANEOUS PROVISIONS
A. FIDUCIARY DUTY. The PROGRAM agreement shall provide that the SPONSOR
shall have fiduciary responsibility for the safekeeping and use of all
funds and assets of the PROGRAM, whether or not in his immediate
possession or control, and that he shall not employ, or permit another
to employ such funds or assets in any manner except for the exclusive
benefit of the PROGRAM.
In addition, the PROGRAM shall not permit the PARTICIPANT to contract
away the fiduciary obligation owed to the PARTICIPANT by the SPONSOR
under common law.
B. REDEMPTIONS. The PROGRAM shall provide for the redemption of PROGRAM
interests at least quarterly except that redemption need not be
offered until six months after the commencement of trading.
Redemption charges for units redeemed during the first, second, third,
and fourth, six month periods following the commencement of trading,
shall not exceed 4%, 3%, 2%, and 1% of the NET ASSET OF VALUE PER
PROGRAM INTEREST respectively. The SPONSOR shall state the VALUATION
DATE in the prospectus. A PARTICIPANT must notify the SPONSOR in
writing at least 10 days prior to the VALUATION DATE of his wish to
redeem his PROGRAM INTERESTS. The SPONSOR must redeem such PROGRAM
INTERESTS at the NET ASSET value on the VALUATION DATE unless the
number of redemptions would be detrimental to the tax status of the
PROGRAM; in which case, the SPONSOR shall select by lot so many
redemptions as will, in its judgment, not impair the PROGRAM'S status.
PARTICIPANTS shall be notified in writing within 10 days after the
VALUATION DATE whether or not their PROGRAM INTERESTS have been
redeemed. Payment for the redeemed PROGRAM INTERESTS shall be made
within 30 days after the VALUATION DATE. The SPONSOR may provide that
redemptions
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may be temporarily suspended if, in the SPONSOR'S judgment, additional
redemptions would impair the ability of the PROGRAM to meet its
objectives.
C. SPECIAL REDEMPTION. A Special Redemption period shall be established
whenever a PROGRAM experiences a decline in the NET ASSET VALUE PER
PROGRAM INTEREST as of the close of business on any business day to
less than 50% of the NET ASSET VALUE PER PROGRAM INTEREST on the last
VALUATION DATE. PROGRAM trading shall be temporarily suspended during
such special redemption period.
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