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
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
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
TABLE OF CONTENTS
PAGE
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
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
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
ASSETS
1999 1998
---- ----
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
---------- -----------
The accompanying notes are an integral part of these combined statements.
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997
---- ---- ----
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
The accompanying notes are an integral part of these combined statements.
2
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
LIMITED GENERAL
UNITS PARTNERS PARTNER TOTAL
---------- ---------- ---------- ----------
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
The accompanying notes are an integral part of these combined statements.
3
THE FOUR SEASONS FUND II L.P. AND AFFILIATE
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997
---------- -------- -----------
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 $ -- $ -- $ --
========== ======== ===========
The accompanying notes are an integral part of these combined statements.
4
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
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
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
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
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
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.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1999 1999 1999 1999
-------- -------- --------- ---------
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
======== ======== ========= =========
10