1
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
[Fee Required]
For the Fiscal Year Ended: October 31, 1995
--- Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
[No Fee Required]
Commission File Number: 0-10604
THE FUTURE FUND II
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(Exact name of registrant as specified in its charter)
Illinois 36-3148138
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o HEINOLD ASSET MANAGEMENT, INC.
440 South LaSalle
20th Floor
Chicago, Illinois 60605
(Address of principal executive offices)
Registrant's telephone number, including area code:
(312) 663-7500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Units
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.
Yes X 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 the 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
-----
The registrant is a limited partnership and, accordingly, has no voting stock
held by nonaffiliates or otherwise.
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PART I
Item 1. Business.
(a) General development of business.
The Future Fund II (the "Partnership") is a limited
partnership organized on July 30, 1981 pursuant to a Limited Partnership
Agreement (the "Limited Partnership Agreement") and under the Uniform Limited
Partnership Act of the State of Illinois. On July 31, 1987, the Partnership
elected to be governed under the Illinois Revised Uniform Limited Partnership
Act. The Partnership engages in speculative trading of futures and forward
contracts.
Until November 1, 1988, Heinold Commodities, Inc., a Delaware
corporation, was the General Partner of the Partnership and, in that capacity,
performed various administrative services for it. On November 1, 1988, in
order to effect a consolidation of the commodity pool operations of Geldermann,
Inc. ("Geldermann"), Heinold Commodities, Inc.'s commodity pool assets,
including its investment in the Partnership, were transferred to Heinold Asset
Management, Inc., an affiliate of Heinold Commodities, Inc.
Heinold Asset Management, Inc. (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 1982, to serve as the general partner and pool operator for public
and private commodity pools sponsored by Heinold Commodities, Inc. The General
Partner is a wholly owned subsidiary of Geldermann, an Illinois corporation.
Until December 12, 1994, Geldermann was an independent operating subsidiary of
ConAgra, Inc., a Delaware corporation with headquarters in Omaha, Nebraska. On
that date, Geldermann was acquired by E. D. & F. Man International Inc.
(formerly known as E. D. & F. Man International Futures Inc.), a New York
corporation with headquarters in New York, New York. References herein to the
"General Partner" refer to Heinold Commodities, Inc. for the period prior to
November 1, 1988 and to Heinold Asset Management, Inc. for periods on and after
November 1, 1988.
Until June 1, 1995, Geldermann acted as the Partnership's
futures commission merchant or commodity broker. On that date, E.D. & F. Man
International Inc.(the "Commodity Broker") replaced Geldermann as the
Partnership's commodity broker. The General Partner and the Commodity Broker
perform various services related to the Partnership's trading pursuant to the
Partnership's Limited Partnership Agreement and the Partnership's customer
agreement with the Commodity Broker. References to the "Commodity Broker" refer
to Geldermann, Inc. for the period prior to June 1, 1995 and to E.D. & F. Man
International Inc. for the the period on and after June 1, 1995.
The General Partner invested $355,000 in the Partnership at
the outset of trading. The net asset value of the General Partner's interest
in the Partnership, after the redemption of 277 Unit-equivalents for $392,094
on October 1, 1988, 38 Unit-equivalents for $58,105 on
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November 1, 1991 and 11 Unit-equivalents for $18,740 on October 31, 1994, was
$40,879 as of October 31, 1995.
The Partnership's initial trading advisor from the inception
of trading until August 1, 1988 had been Millburn Partners, a New Jersey
partnership. On August 1, 1988, Millburn Ridgefield Corporation, a Delaware
corporation whose sole shareholders consisted of the former partners of
Millburn Partners, became the commodity trading advisor for all public
commodity pools previously managed by Millburn Partners.
Effective January 1, 1990, the General Partner replaced
Millburn Ridgefield Corporation as the Partnership's trading advisor with
Trendstat Capital Management, Inc. ("Trendstat"). Trendstat traded on behalf of
the Partnership until February 28, 1995 when the General Partner terminated the
Advisory Agreement. On December 1, 1994, the General Partner allocated a
portion of the Partnership's assets to Sabre Fund Management Limited ("Sabre").
On March 10, 1995, the General Partner entered into Advisory Agreements with
First October Trading Company, Inc. ("First October"), Gandon Fund Management,
Ltd. ("Gandon"), Michael Tym, Jr. ("Tym") and Telesis Management, Inc.
("Telesis"). The Advisory Agreements with Sabre and First October were
terminated on June 30, 1995 and September 29, 1995, respectively. On October
31, 1995, the General Partner terminated the Advisory Agreements with Gandon,
Telesis and Tym .
On November 1, 1995, the General Partner entered into Advisory
Agreements with Hyman Beck & Company, Inc. ("HB&Co."), Marathon Capital Growth
Partners, L.L.C. ("Marathon"), RXR, Inc. ("RXR") and Willowbridge Associates,
Inc. ("Willowbridge"). HB&Co., Marathon, RXR and Willowbridge are collectively
referred to herein as the "Trading Advisors."
The Trading Advisors receive a quarterly Profit Share equal
to 15% of any New Trading Profit (Trendstat received a 12% annual Profit Share
prior to December 1, 1994), determined as of the end of each calendar quarter.
The Profit Share shall also be paid to the Trading Advisors upon the redemption
of Units (any Profit Share accrued in respect of redeemed Units being paid to
the Trading Advisors from the redemption price of such Units) and upon
termination of the Advisory Agreements as if the date of termination were at
year-end.
The Trading Advisors receive a monthly management fee at a
rate which, when annualized, would equal an annual management fee of 2.0%
(Trendstat received 2.4% prior to December 1, 1994) of the Partnership's
average month-end Net Assets before deduction for any month-end Profit Share or
Profit Share accruals and before deduction for month-end brokerage commissions.
Until December 1, 1994, the Partnership paid commodity
brokerage commissions at an annual rate of 9.4% of average month-end Net Assets
(before all fees and charges, including the management fee referenced in the
preceding paragraph, National Futures Assocaiation ("NFA") fees and "give-up"
charges). This amount was reduced by 2.4% (to an annual 7%) as of
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December 1, 1994 to appropriately reflect that the Partnership and not the
Commodity Broker will pay the management fee.
The Trading Advisors have advised the Partnership that their
respective trading methods are based upon technical or fundamental trend
analysis and money management principles, which may be revised from time to
time. The objectives of the trading methods is to participate in all
significant sustained commodity price moves in the commodities traded by the
Partnership.
Regulation
Under the Commodity Exchange Act, as amended (the "Act"),
commodity exchanges and commodity futures trading are subject to regulation by
the Commodity Futures Trading Commission (the "CFTC"). The NFA, a "registered
futures association" under the Act, is the only non-exchange self regulatory
organization for commodities 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 Advisors, and commodity brokers or
"futures commission merchants," such as the Commodity Broker, to be registered
and to comply with various reporting and record keeping requirements. The
General Partner, the Trading Advisors and the Commodity Broker are all members
of the NFA. The CFTC may suspend a commodity pool operator's or commodity
trading advisor's registration if it 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 Advisors' registration as commodity trading advisors were
terminated or suspended, the General Partner and the Trading Advisors,
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 the NFA, the General Partner, the Trading
Advisors, 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 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 positions which any person may hold or control in particular
commodities. 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
Partnership may trade on foreign commodity exchanges which are not subject to
regulation by any United States Government agency.
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(b) Financial information about industry segments.
The Partnership's business constitutes only one segment,
speculative trading of futures and forward contracts for financial reporting
purposes. The Partnership does not engage in sales of goods or services. The
Partnership's revenue, operating profit and total assets for each of the five
fiscal years in the period ended October 31, 1995 are set forth under "Item 6.
Selected Financial Data."
(c) Narrative description of business.
(l) See Items l(a) and (b) above.
(i) through (xii) -- not applicable.
(xiii) -- the Partnership has no employees.
(d) Financial information about foreign and domestic
operations and export sales. The Partnership does not engage in sales of goods
or services. See "Item 1(b). Financial information about industry 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 Advisory Agreements with
the Trading Advisors (under which the Trading Advisors have complete discretion
over the assets allocated to each with respect to determination of the
Partnership's trading decisions) and a Customer Agreement with the Commodity
Broker (pursuant to which the Commodity Broker executes all trades on behalf of
the Partnership based on instructions of the Trading Advisors).
(2) Maintains the Partnership's books and records, which
Limited Partners or their duly authorized representatives may inspect during
normal business hours for any proper purpose upon 10 days' written notice to
the General Partner.
(3) Furnishes each Limited Partner with a monthly statement
describing the performance of the Partnership which sets forth aggregate profit
share allocations, brokerage commissions and other expenses incurred or accrued
by the Partnership during the month.
(4) Forwards annual audited financial statements (including a
statement of financial condition and a statement of operations) to each Limited
Partner.
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(5) Provides to each Limited Partner tax information
necessary for the preparation of his or her annual federal income tax return.
(6) Performs secretarial and other clerical responsibilities
and furnishes office space, equipment and supplies as may be necessary for
supervising the affairs of the Partnership.
(7) Administers the redemption of Units.
Item 3. Legal Proceedings.
The General Partner is not aware of any pending legal
proceedings to which the Partnership is a party or to which any of its property
is subject. In addition, there are no pending material proceedings involving
the General Partner or the Commodity Broker.
In the ordinary course of its business, Geldermann is involved
in numerous legal actions, some of which seek substantial damages. In view of
the number and diversity of the claims, the number of jurisdictions involved,
and the inherent difficulty of predicting the outcome of litigation, Geldermann
cannot state what the eventual outcome of these pending claims will be. As a
matter of policy, Geldermann vigorously defends civil litigation, reparations
or arbitration proceedings pending against it, and in all proceedings currently
so pending believes it has defenses which are factually and legally sound.
Geldermann is contesting the allegations of each complaint and believes that
there are meritorious defenses in most of the lawsuits.
Although the CFTC's staff's interpretation that any matter
filed by the CFTC against a registrant is, on its face (even though it has not
been litigated), material litigation which has to be disclosed, Geldermann
takes exception to this. Notwithstanding the preceding, Geldermann herewith
discloses a CFTC Enforcement Action titled In the Matter of Thomas Collins, et
al., CFTC Docket No. 94-13.
The Complaint in this case alleges that Geldermann, in 1986,
carried and cleared accounts in joint tenancy for a Mid-America local floor
trader and/or ten individuals with whom the floor trader maintained a separate
joint account with each of the ten individuals. None of the afore-mentioned
persons were ever employees of Geldermann. Geldermann's function was only that
of clearing broker. Over a period of approximately four years, at the
direction of the account holder(s), Geldermann transferred certain positions
amongst and between the accounts. It is those transfers that the CFTC is
alleging are non-competitive, fictitious transactions. The CFTC's complaint
also alleges that Geldermann failed to properly supervise the employees who
accepted the transfer instructions from the account holder(s). Geldermann
takes exception to the CFTC's allegation and is vigorously defending this
litigation. Neither the Trading Advisors nor the Partnership have any
connection with this litigation.
Item 4. Submission of Matters to a Vote
of Security Holders.
None.
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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. The Units are transferable only after
written notice has been given to and approved by the General Partner. Units
may be and have been redeemed upon 10 days' notice at their Net Asset Value as
of the end of any month, as provided in the Limited Partnership Agreement. In
the event that all Units for which redemption is requested cannot be redeemed
as of any redemption date, Units of Limited Partners will be redeemed in the
order that requests for redemption have been received by the General Partner.
(b) Holders. As of November 1, 1995, there were 296 holders
of Units.
(c) Dividends. No distributions or dividends have been made
on the Units and the General Partner has no present intention to make any.
Item 6. Selected Financial Data.
The following is a summary of operations of the Partnership
for each of the five fiscal years in the period ended October 31, 1995.
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Fiscal Fiscal Fiscal Fiscal Fiscal
Year Ended Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31, October 31,
1995 1994 1993 1992 1991
Net gain (loss)
on trading of
futures and
forward contracts $ (539,516) $ (954,979) $1,545,559 $1,502,236 $ (976,286)
Interest income 192,864 170,686 177,205 243,036 405,117
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Total income (346,652) (784,293) 1,722,764 1,745,272 (571,169)
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Brokerage commissions 251,724 473,733 571,875 585,545 625,102
Management fees 56,467 0 0 0 0
Profit share 10,323 0 0 115,561 (44,649)
Other administrative
expenses 20,843 21,517 32,230 29,314 31,929
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Total expenses 339,357 495,250 604,105 730,420 612,382
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Net income (loss) $ (686,009) $(1,279,543) $1,118,659 $1,014,852 $(1,183,551)
=========== ============ ========== ========== ============
Net income (loss)
allocated to
General Partner $ (8,527) $ (18,726) $ 14,935 $ 10,773 $ (22,296)
=========== ============ ========== ========== ===========
Net income (loss)
allocated to
limited partners $ (677,482) $(1,260,817) $1,103,724 $1,004,079 $(1,161,255)
=========== ============ ========== ========== ===========
Increase (decrease)
in Net Asset Value
for a Unit Outstand-
ing throughout each
year $ (294.01) $ (486.16) $ 373.38 $ 269.34 $ (285.86)
========== ============ ========== ========== ===========
Total assets $3,102,890 $ 4,377,333 $6,255,140 $5,850,047 $ 5,936,595
========== =========== ========== ========== ===========
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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.
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 additional 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 its assets are and will be
represented by cash, U.S. Treasury securities and investments in futures and
forward contracts.
Liquidity
Many 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 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 Partnership from promptly
liquidating unfavorable positions and subject the Partnership 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
Partnership may not be able to execute futures trades at favorable prices if
little trading in such contracts is taking place. Generally, forward contracts
can be closed out at the discretion of the Trading Advisors. However, if the
market is not liquid, it could prevent the timely closeout of an unfavorable
position until the delivery date, regardless of the changes in their value or
the Trading Advisors' investment strategies. Other than these limitations on
liquidity, which are inherent in the Partnership's trading operations, the
Partnership's assets are highly liquid and are expected to remain so.
Results of Operations
Operating results showed a loss for the fiscal years ended
October 31, 1995 and October 31, 1994 and a profit for the fiscal year ended
October 31, 1993.
The Net Asset Value per Unit as of October 31, 1995 and
October 31, 1994 was $1,409.63 and $1,703.64, respectively.
The Partnership showed a loss for the fiscal year ended
October 31, 1995 as the Partnership's profitable trading in the energies and
agricultural sectors was more than offset by its unprofitable trading in the
currencies, S&P and financial instrument sectors. Gains were made in the
agricultural sector due to the drought in the second and third quarters. In
addition, the
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Partnership profited from long crude oil positions in the energy market.
However, such gains were not enough to offset the large losses the Partnership
incurred in short S&P and bond positions due to the decline in the interest
rate.
The Partnership showed a loss for the fiscal year ended
October 31, 1994 as the Partnership's profitable trading in the energies and
meat sectors was more than offset by its unprofitable trading in the financial
instruments and currencies sectors.
The Partnership showed a profit for the fiscal year ended
October 31, 1993 as the Partnership was profitable in the agricultural,
currencies, metals, financial instruments and energy sectors and was not
unprofitable in any market.
Inflation is not a significant factor in the Partnership's
profitability.
Item 8. Financial Statements and Supplementary Data.
Financial statements are listed on page F-1 of this report.
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.
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no directors or executive officers. The
Partnership is managed by its General Partner. There are no "significant
employees" of the Partnership.
The General Partner is a commodity pool operator registered
with the NFA.
Item 11. Executive Compensation.
The Partnership has no directors or officers. The General
Partner performs the services described in "Item 2. Properties" herein. The
Commodity Broker 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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The General Partner participates in any appreciation in the
net assets of the Partnership in proportion to its respective investment in it.
Item 12. Security Ownership of Certain Beneficial Owners
and Management.
(a) Security ownership of certain beneficial owners.
The Partnership knows of no person who owns beneficially more
than 5% of the Units.
(b) Security ownership of management.
Under the terms of the Limited Partnership Agreement, the
Partnership's affairs are managed by the General Partner. The Trading
Advisors, pursuant to Advisory Agreements, have discretionary authority over
the Partnership's futures and forward contract trading. The General Partner
owned 29 Unit-equivalents valued at $40,879 as of October 31, 1995, 1.3% of the
Partnership's total equity.
(c) Changes in control.
None.
Item 13. Certain Relationships and Related Transactions.
See "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:
See Index to Financial Statements, infra.
(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.
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(a)(3) Exhibits as required by Item 601 of
Regulation S-K:
(3) Articles of Incorporation and By-Laws:
a. Limited Partnership Agreement dated as of July 30, 1981,
as amended on November 10, 1981.
b. Certificate of Limited Partnership of the Partnership as
filed with the Cook County Recorder of Deeds on July 30, 1981.
The above exhibits are incorporated herein by reference from
the Partnership's Registration Statement on Form S-1, File No. 2-73696.
c. Form L.P.-1205 of the Partnership, as filed with the
Illinois Secretary of State on July 31, 1987, electing to be governed under the
Illinois Revised Uniform Limited Partnership Act.
The above exhibit is incorporated by reference from the
Partnership's report on Form 10-K for the fiscal year ended October 31, 1987.
(10) Material Contracts:
a. Joint Venture Agreement dated as of April 1, 1987 between
the Partnership and Millburn Partners.
b. Customer Agreement dated as of April 1, 1987 between the
Joint Venture and Geldermann.
The above exhibits are incorporated by reference from the
Partnership's report on Form 10-K for the fiscal year ended October 31, 1987.
c. Amendment No. 1 to the Joint Venture Agreement between the
Partnership and Millburn Partners dated December 31, 1977.
d. Amendment No. 1 to the Customer Agreement between the
Joint Venture and Geldermann dated December 31, 1987.
e. Amendment No. 2 to the Joint Venture Agreement between the
Partnership and Millburn Ridgefield Corporation dated December 31, 1988.
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The above exhibits are incorporated by reference from the
Partnership's report on Form 10-K for the Fiscal Year ended October 31, 1988.
f. Advisory Agreement dated December 15, 1989 between the
Partnership and Trendstat.
The above exhibit is incorporated by reference from the
Partnership's report on Form 8-K filed on January 1, 1990.
g. Advisory Agreement dated December 1, 1994 between the
Partnership and Sabre Fund Management Limited.
The above exhibits are incorporated by reference from the
Partnership's report on Form 10-K for the Fiscal Year ended October 31, 1994.
h. Management Contract dated March 8, 1995 between the
Partnership and First October Trading Company, Inc.
i. Management Contract dated March 8, 1995 between the
Partnership and Gandon Fund Management, Ltd.
j. Management Contract dated March 8, 1995 between the
Partnership and Telesis Management, Inc.
k. Management Contract dated March 8, 1995 between the
Partnership and Michael Tym, Jr.
l. Management Contract dated November 1, 1995 between the
Partnership, the General Partner and Hyman Beck & Company, Inc.
m. Management Contract dated November 1, 1995 between the
Partnership, the General Partner and Marathon Capital Growth Partners, L.L.C.
n. Management Contract dated November 1, 1995 between the
Partnership, the General Partner and RXR, Inc.
o. Management Contract dated November 8, 1995 between the
Partnership, the General Partner and Willowbridge Associates, Inc.
(27) Financial Data Schedule
The above exhibits are filed herewith.
(b) Reports on Form 8-K:
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The Partnership did not file any reports on Form 8-K during
the quarter ended October 31, 1995.
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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, in the
City of Chicago and State of Illinois on the 29th day of January, 1996.
THE FUTURE FUND II
By HEINOLD ASSET MANAGEMENT, INC.
General Partner
By /s/ Daniel E. Ragen
-------------------
Daniel E. Ragen
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the General Partner of the Registrant in the capacities and on the date
indicated.
/s/ James R. Curley Chief Executive Officer January 29, 1996
- --------------------- and Director
James R. Curley
/s/ Robert Ledvora Chief Financial Officer, January 29, 1996
- -------------------- (principal accounting
Robert Ledvora officer)
/s/ Thomas M. Harte Director January 29, 1996
- ---------------------
Thomas M. Harte
/s/ Ira Polk Director January 29, 1996
- ---------------------
Ira Polk
/s/ Ned W. Bennett Director January 29,1996
- ---------------------
/s/ Daniel E. Ragen President (principal January 29, 1996
- --------------------- executive officer)
Daniel E. Ragen and Director
(Being the principal executive officer, the principal
financial and accounting officer, and a majority of the directors of Heinold
Asset Management, Inc.)
HEINOLD ASSET General Partner of January 29, 1996
MANAGEMENT, INC. Registrant
By /s/ Daniel E. Ragen
-------------------
Daniel E. Ragen
President
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(DELOITTE &
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THE FUTURE FUND II
(AN ILLINOIS LIMITED PARTNERSHIP)
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED OCTOBER 31, 1995 AND 1994 AND FOR THE
THREE YEARS ENDED OCTOBER 31, 1995 AND
INDEPENDENT AUDITORS' REPORT
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DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
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THE FUTURE FUND II
(AN ILLINOIS LIMITED PARTNERSHIP)
TABLE OF CONTENTS
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PAGE
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Statements of Financial Condition as of
October 31, 1995 and 1994 F-2
Statements of Operations for the
Years Ended October 31, 1995, 1994, and 1993 F-3
Statements of Partners' Capital for the
Years Ended October 31, 1995, 1994, and 1993 F-4
Statements of Cash Flows for the
Years Ended October 31, 1995, 1994, and 1993 F-5
Notes to Financial Statements F-6
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Two Prudential Plaza Telephone: (312) 946-3000
180 North Stetson Avenue Facsimile: (312) 946-2600
Chicago, Illinois 60601-6779
INDEPENDENT AUDITORS' REPORT
To the General Partner and
Limited Partners of
The Future Fund II:
We have audited the accompanying statements of financial condition of
The Future Fund II (an Illinois Limited Partnership, the "Partnership") as of
October 31, 1995 and 1994, and the related statements of operations, partners'
capital, and cash flows for each of the three years in the period ended October
31, 1995. These financial statements are the responsibility of the
Partnership's 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Future Fund II as of October 31, 1995
and 1994, and the results of its operations and its cash flows for each of the
three years in the period ended October 31, 1995, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
January 2, 1996
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DELOITTE TOUCHE
TOHMATSU
INTERNATIONAL
- ---------------
19
THE FUTURE FUND II
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
OCTOBER 31, 1995 AND 1994
- ------------------------------------------------------------------------------
ASSETS 1995 1994
CASH $ - $ 5,630
EQUITY IN FUTURES AND FORWARD TRADING ACCOUNTS:
United States Treasury securities, at cost plus
accrued interest which approximates market value 2,900,726 4,134,508
Net unrealized (depreciation) appreciation on open futures and
forward contracts (70,634) 90,754
Amount due from E. D. & F. Man International
(formerly Geldermann) 272,798 146,44
------------ ------------
Total equity in futures and forward trading accounts 3,102,890 4,371,703
------------ ------------
TOTAL ASSETS $ 3,102,890 $ 4,377,333
============ ============
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued brokerage commissions payable to E. D. & F. Man
International (formerly Geldermann) $ 16,458 $ 34,079
Redemptions payable 23,964 86,886
Other accrued expenses 2,217 10,897
Accrued management fee 2,756 -
------------ ------------
Total liabilities 45,395 131,862
PARTNERS' CAPITAL:
Limited Partners (units outstanding:
1995 - 2,140; 1994 - 2,463) 3,016,616 4,196,065
General Partner (unit equivalents outstanding:
1995 - 29; 1994 - 29) 40,879 49,406
------------ ------------
Total partners' capital 3,057,495 4,245,471
------------ ------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 3,102,890 $ 4,377,333
============ ============
NET ASSET VALUE PER OUTSTANDING UNIT OF
PARTNERSHIP INTEREST $ 1,409.63 $ 1,703.64
============ ============
See notes to financial statements.
-F-2-
20
THE FUTURE FUND II
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1995, 1994, AND 1993
- -----------------------------------------------------------------------------------------
1995 1994 1993
REVENUES:
Net realized trading gains (losses) on
closed futures and forward contracts $ (378,129) $ (756,051) $ 1,635,969
Decrease in net unrealized appreciation
on open futures and forward contracts (161,387) (198,928) (90,410)
Interest income 192,864 170,686 177,205
----------- ------------- ------------
Total revenues (346,652) (784,293) 1,722,764
EXPENSES:
Brokerage commissions 251,724 473,733 571,875
Profit share 10,323 - -
Other administrative expenses 20,843 21,517 32,230
Management fees 56,467 - -
----------- ------------- ------------
Total expenses 339,357 495,250 604,105
----------- ------------- ------------
NET INCOME (LOSS) $ (686,009) $ (1,279,543) $ 1,118,659
=========== ============= ============
NET INCOME (LOSS) ALLOCATED TO:
General Partner $ (8,527) $ (18,726) $ 14,935
=========== ============= ============
Limited Partners $ (677,482) $ (1,260,817) $ 1,103,724
=========== ============= ============
INCREASE (DECREASE) IN NET ASSET
VALUE FOR A UNIT OUTSTANDING
THROUGHOUT EACH YEAR $ (294.01) $ (468.16) $ 373.38
=========== ============= ============
See notes to financial statements.
-F-3-
21
THE FUTURE FUND II
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED OCTOBER 31, 1995, 1994, AND 1993
- ----------------------------------------------------------------------------------------------------------
TOTAL
LIMITED GENERAL PARTNERS'
PARTNERS PARTNER CAPITAL
BALANCE, OCTOBER 31, 1992 $ 5,713,587 $ 71,937 $ 5,785,524
Redemption of 377 units of limited
partnership interest (736,260) - (736,260)
Net income 1,103,724 14,935 1,118,659
------------- ----------- -------------
BALANCE, OCTOBER 31, 1993 6,081,051 86,872 6,167,923
Redemption of 337 units of limited
partnership interest and 11 general
partnership unit equivalents (624,169) (18,740) (642,909)
Net loss (1,260,817) (18,726) (1,279,543)
------------- ----------- -------------
BALANCE, OCTOBER 31, 1994 4,196,065 49,406 4,245,471
Redemption of 323 units of limited
partnership interest (501,967) - (501,967)
Net loss (677,482) (8,527) (686,009)
------------- ----------- -------------
BALANCE, OCTOBER 31, 1995 $ 3,016,616 $ 40,879 $ 3,057,495
============= =========== =============
See notes to financial statements.
-F-4-
22
THE FUTURE FUND II
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1995, 1994, AND 1993
- ---------------------------------------------------------------------------------------------------------
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (686,009) $ (1,279,543) $ 1,118,659
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Decrease (increase) in equity in futures
trading accounts 1,268,813 1,877,807 (405,093)
Increase (decrease) in liabilities (23,545) (20,523) 22,694
------------ ------------- ------------
Net cash flows provided by operating activities 559,259 577,741 736,260
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of limited and general partnership
units or unit equivalents (564,889) (577,741) (736,260)
------------ ------------- ------------
NET DECREASE IN CASH (5,630) - -
CASH - Beginning of year 5,630 5,630 5,630
------------ ------------- ------------
CASH - End of year $ - $ 5,630 $ 5,630
============ ============= ============
See notes to financial statements.
-F-5-
23
THE FUTURE FUND II
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
- ---------------------------------------------------------------
1. ORGANIZATION OF THE PARTNERSHIP
The Future Fund II (the "Partnership") was organized in
July 1981, under the Illinois Uniform Limited
Partnership Act (the "Act"), for purposes of engaging
in speculative trading of futures contracts.
Heinold Asset Management, Inc. ("HAMI"), a wholly owned
subsidiary of Geldermann, Inc. ("Geldermann"), is the
General Partner of the Partnership. On December 12,
1994, the parent of Geldermann, ConAgra, Inc., sold all
of the common stock of Geldermann to E. D.& F. Man
International ("Man"). As a result, Geldermann and HAMI
are wholly owned by Man.
The Partnership has a brokerage contract with Man,
previously Geldermann, which provides that the
Partnership will pay Man brokerage commissions at the
annual rate of 7% of average month-end net assets, as
defined, plus NFA fees and "give-up" charges.
The Partnership's funds held at Man, previously
Geldermann, are in segregated accounts, as required by
the Commodity Futures Trading Commission. These funds
are used to meet minimum margin requirements for all of
the Partnership's open positions, as set by the exchange
upon which each contract is traded. These requirements
are adjusted, as needed, due to daily fluctuations in
the values of the underlying positions. If necessary,
certain positions may be liquidated to satisfy resulting
changes in margin requirements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - Futures contracts are recorded on
trade dates and are reflected in the accompanying
statements of financial condition at the market value on
the last business day of the reporting period. The
difference between the original contract amount and the
market value of the futures contracts is reflected as
the change in net unrealized appreciation. Market
values of futures contracts are based upon exchange
settlement prices.
Operating Expenses - The Partnership bears all expenses
incurred in connection with its activities. These
include brokerage commissions, "give-up" charges and NFA
fees; the trading advisor's profit share; and periodic
legal, auditing, tax return preparation and filing fees.
The General Partner bears all other operating expenses.
Income Taxes - No provision for Federal income taxes has
been made in the accompanying financial statements since
the net income (loss) of the Partnership is not taxable
as such but is includable in the income tax returns of
the individual partners.
Statements of Cash Flows - For purposes of reporting
cash flows, cash includes only cash on deposit at
financial institutions.
-F-6-
24
3. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
CONCENTRATION OF CREDIT RISK
The Partnership invests in various financial and
commodity futures and forward contracts for speculative
purposes. These contracts are marked to market daily,
with variations in value of the futures contracts
settled on a daily basis with the exchange upon which
they are traded. At October 31, 1995, the Partnership
held no long or short financial futures positions. The
Partnership held long and short financial futures
positions with aggregate notional values of
approximately $4,166,000 and $34,846,000, respectively,
at October 31, 1994, and approximately $13,736,000 and
$3,155,000, respectively, at October 31, 1993.
The exchange upon which each financial futures contract
is traded acts as the counterparty and, accordingly,
bears the risk of performance. A substantial portion of
the Partnership's open financial futures contracts was
transacted with the Chicago Mercantile Exchange.
Generally, financial futures contracts can be closed out
or offset at the discretion of the trading advisor.
However, if the market is not liquid, it could prevent
the timely closeout or offset of any unfavorable
positions or require the Partnership to hold those
positions until the delivery date, regardless of the
change in their value or the trading advisor's
investment strategies.
4. THE LIMITED PARTNERSHIP AGREEMENT
The Limited Partnership Agreement ("Agreement") provides
the following:
Allocation of Profit and Loss for Partnership Accounting
Purposes - The Limited Partners and the General Partner
share in the profits and losses of the Partnership in
proportion to the number of units or unit equivalents
held by each. However, no Limited Partner is liable for
obligations in excess of his capital contribution and
profits, if any, and such other amounts for which a
limited partner may be liable pursuant to the Act.
Distributions - Distributions (other than redemptions of
units) are made on a prorata basis at the sole
discretion of the General Partner in accordance with the
respective capital accounts of the partners. The
General Partner has made no distributions from the
Partnership to date.
Redemptions - A Limited Partner (or any assignee
thereof) may cause any or all of his units to be
redeemed as of the first day of any month following 10
days' written request for redemption, subject to certain
other conditions, as described in the Agreement.
Redemption is at net asset value as of the previous
month-end.
Dissolution - The Partnership will be dissolved on July
1, 2002, or upon the occurrence of certain future
events, as specified in the Agreement.
5. ADVISORY AGREEMENT
Effective January 1, 1990, the Partnership entered into
a management agreement with Trendstat Capital
Management, Inc. (the "Trading Advisor"). Under the
terms of the agreement, the Trading Advisor has sole
responsibility for determining the Partnership's futures
and forward trades. As compensation for these services,
the Trading Advisor receives an annual profit share
equal to 12% of any "new trading profits," as defined in
the agreement, accrued monthly and paid as of the end of
each calendar year. This profit share is retained by
the Trading Advisor even when "trading losses" occur in
subsequent years;
-F-7-
25
however, no further profit share is payable until any
such trading losses (other than losses attributable to
redeemed units) are recouped by the Partnership.
As of December 1, 1994, the Partnership entered into an
advisory agreement with Sabre Fund Management Limited.
As of the same date, both active advisors will receive
annual profit shares equal to 15% of any "new trading
profits," as defined in the agreement, accrued monthly
and paid as of the end of each calendar year.
On February 28, 1995, the Partnership terminated its
trading agreement with Trendstat Capital Management,
Inc.
Effective March 10, 1995, the Partnership entered into
trading agreements with trading advisors, Telesis
Management, Inc. ("Telesis"), First October Trading Co.
("First October"), Gandon Fund Management Ltd. ("Gandon"),
and Michael Tym, Jr. ("Tym").
Under the terms of the advisory agreements, the trading
advisors have sole responsibility for determining
futures and options trades. As compensation for
services, each advisor receives certain fees.
Management fees are paid at .167 of 1% (2% annually) of
monthly net assets. Each advisor also receives
incentive fees paid at the end of each calendar quarter
at 15% of new trading profits, as defined.
On June 30, 1995, the partnership terminated its trading
agreement with Sabre. Effective September 29, 1995, the
Partnership terminated its trading agreement with First
October.
On October 31, 1995 the Partnership terminated its
trading agreements with Telesis, Tym, and Gandon.
Effective November 1, 1995, the Partnership entered into
trading agreements with Willowbridge Associates, Inc.
("Willowbridge"), RXR Group, Inc. ("RXR"), Hyman Beck and
Co. ("Hyman Beck"), and Marathon Capital Growth partners
("Marathon").
6. PROSPECTIVE ACCOUNTING STANDARDS
In October 1994, the FASB issued SFAS 119, Disclosure
About Derivative Financial Instruments and Fair Value of
Financial Instruments. This Statement requires
disclosures about amounts, nature, and terms of
derivative financial instruments that are not subject to
Statement 105 because they do not result in
off-balance-sheet risk of accounting loss. This
Statement is effective for financial statements issued
for fiscal years ending after December 15, 1994, except
for entries with less than $150 million in total assets.
For those entities, this Statement is effective for
fiscal years ending after December 15, 1995. The
adoption of this Statement is not expected to have a
significant impact on the Partnership.
******
-F-8-
26
To the best of my knowledge and belief, the information in this statement is
accurate and complete.
Heinold Asset Management, Inc.
(Pool Operator)
/s/ Robert Ledvora
- ----------------------------------------------------
Robert Ledvora
Executive Vice-President and Chief Financial Officer
27
EXHIBIT INDEX
10(h) Management Contract dated March 8, 1995 between
the Partnership and First October Trading
Company, Inc.
10(i) Management Contract dated March 8, 1995 between
the Partnership and Gandon Fund Management, Ltd.
10(j) Management Contract dated March 8, 1995 between
the Partnership and Telesis Management, Inc.
10(k) Management Contract dated March 8, 1995 between
the Partnership and Michael Tym, Jr.
10(l) Management Contract dated November 1, 1995
between the Partnership, the General Partner
and Hyman Beck & Company, Inc.
10(m) Management Contract dated November 1, 1995
between the Partnership, the General Partner and
Marathon Capital Growth Partners, L.L.C.
10(n) Management Contract dated November 1, 1995
between the Partnership, the General Partner
and RXR, Inc.
10(o) Management Contract dated November 8, 1995
between the Partnership, the General Partner and
Willowbridge Associates, Inc.
27 Financial Data Schedule