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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: July 31, 1996
OR
[ ] Transition Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 [No Fee Required]
Commission File Number: 0-17590
THE FOUR SEASONS FUND LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Illinois 36-3586810
------------------------------- -------------------------
(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.
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 Four Seasons Fund Limited Partnership (the "Partnership") is a limited
partnership organized on February 10, 1988 pursuant to an Agreement of Limited
Partnership (the "Limited Partnership Agreement") and under the Revised Uniform
Limited Partnership Act of the State of Illinois. The Partnership was funded
through an offering of Units of Limited Partnership Interest ("Units"). Limited
Partners of Units are referred to herein as "Unitholders." The Partnership
implements asset allocation strategies by trading approximately 20% of its
original assets in the futures markets through an affiliated limited
partnership (the "Trading Company") of which the Partnership is the sole
limited partner, while maintaining its remaining assets in a "guaranteed yield
pool". The guaranteed yield pool was established at the commencement of
operations, and approximately 80% of the Partnership's assets were invested in
zero coupon U.S. Treasury Strip Notes (the "Notes"), so as to yield $1,000 per
unit, plus 5% compound annual yield, on November 15, 1994. On November 15,
1994, the Notes expired and in December 1994, approximately 80% of the
Partnership's assets were invested in new Notes so as to yield $1,515.85 per
unit, plus a minimum of 3% compound annual yield, on November 15, 2000.
The public offering of Units began on approximately October 1, 1988 and
was completed on February 23, 1989. The offering was registered under the
Securities Act of 1933, as amended, and Geldermann Securities, Inc. acted as
selling agent and selected numerous broker/dealers to act as additional selling
agents on a best efforts basis. A total of 41,409 Units were sold to the
public during the public offering.
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., an affiliate. Until
March 31, 1996, the General Partner was a wholly owned subsidiary of
Geldermann, Inc., an Illinois corporation ("Geldermann"). On March 31, 1996,
the General Partner became a wholly owned subsidiary of E.D. & F. Man Inc., a
Delaware corporation with headquarters in New York, New York.
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. The General Partner's investment in the
Partnership at the outset of trading was $410,620, which was worth $198,067 as
of July 31, 1996. On October 1, 1991, the General Partner redeemed 59 Units
for $73,625. In addition, the General Partner redeemed 250 Units on March 31,
1995 for $402,510.
RXR, Inc., a New York corporation (the "Trading Advisor"), is the
Partnership's Trading Advisor. RXR is not an affiliate of the Partnership or
of the General Partner.
The Trading Advisor directs the Partnership's futures and options trading
in stock index, bond and managed futures and short-term interest rate
instruments and forward trading, pursuant to a Joint Venture Agreement with the
Partnership's Trading Company. The Trading Advisor receives a quarterly
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profit share from the Partnership of 15% of New Trading Profits provided that
the joint venture has taxable income in a calendar year. This profit share is
retained by the Trading Advisor even if trading losses occur in subsequent
quarters; however, no further profit share is payable until any such trading
losses (other than losses attributable to redeemed units) are recouped by the
Partnership. At July 31, 1996, there were carry-forward losses of $1,245,307.
Reference is made to Note (5) of the Financial Statements. In addition, the
Trading Advisor receives a monthly consulting fee paid by the Commodity Broker
of 0.0417 of 1% (0.5% per annum) of the Partnership's month-end Net Assets.
New Trading Profits and Net Assets are each determined pursuant to formulas set
forth in the Joint Venture Agreement between the Partnership's Trading Company
and the Trading Advisor and the Consulting Agreement between Geldermann and the
Trading Advisor.
At the commencement of trading, the Partnership's assets were deposited in
the following proportions: approximately 20% with the Partnership's Trading
Company and approximately 80% which the General Partner, on the Partnership's
behalf, invested in zero-coupon United States Treasury strip notes as the
Partnership's guaranteed yield pool.
The Trading Company has a brokerage contract with the Commodity Broker,
which provides that the Commodity Broker will be paid a rate of 4.45% of Net
Assets per annum, plus floor brokerage, National Futures Association, exchange
and clearing fees. This rate was reduced from 4.75% on December 1, 1995.
The Trading Advisor's trading method is highly systematic and technical.
The objectives of the trading method are to maintain an optimum asset mix in a
fully diversified portfolio, while integrating a 20% to 30% managed futures
component to achieve significant capital gains through speculative trading in
the futures and forward market.
Regulation
Under the Commodity Exchange Act, as amended (the "Act"), commodity
exchanges and futures trading are subject to regulation by the Commodity
Futures Trading Commission (the "CFTC"). The National Futures Association
("NFA"), a "registered futures association" under the Act, is the only
non-exchange self-regulatory organization for futures industry professionals.
The CFTC has delegated to the NFA responsibility for the registration of
"commodity trading advisors," "commodity pool operators," "futures commission
merchants," "introducing brokers" and their respective associated persons and
"floor brokers" and "floor traders". The Act requires "commodity pool
operators," such as the General Partner, "commodity trading advisors," such as
the Trading Advisor, and commodity brokers or "futures commission merchants,"
such as the Commodity Broker, to be registered and to comply with various
reporting and recordkeeping requirements. The General Partner, the Trading
Advisor and the Commodity Broker are all members of NFA. The CFTC may suspend
a commodity pool operator's or a trading advisor's registration if the CFTC
finds that its trading practices tend to disrupt orderly market conditions or
in certain other situations. In the event that the registration of the General
Partner as a commodity pool operator or the Trading Advisor's registration as a
commodity trading advisor was terminated or suspended, the General Partner and
the Trading Advisor, respectively, would be unable to continue to manage the
business of the Partnership. Should the General Partner's registration be
suspended, termination of the Partnership might result.
As members of NFA, the General Partner, the Trading Advisor and the
Commodity Broker are subject to NFA standards relating to fair trade practices,
financial condition and customer protection.
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As the self-regulatory body of the futures industry, the NFA promulgates rules
governing the conduct of futures industry professionals and disciplines those
professionals which do not comply with such standards.
In addition to such registration requirements, the CFTC and certain
futures exchanges have established limits on the maximum net long or net short
position which any person may hold or control in particular futures. The CFTC
has adopted a rule requiring all domestic futures exchanges to submit for
approval speculative position limits for all futures contracts traded on such
exchanges. Many exchanges also limit the changes in futures contract prices
that may occur during a single trading day. The Partnership may trade on
foreign commodity exchanges which are not subject to regulation by any United
States Government agency.
The Trading Advisor engages in trading on most major non-United States
exchanges and markets on behalf of the Partnership. Trading on such exchanges
and markets involves certain risks not applicable to trading on United States
exchanges and is frequently less regulated. For example, certain of such
exchanges may not provide the same assurances of the integrity (financial and
otherwise) of the marketplace and its participants as do United States
exchanges. Some non-United States exchanges, in contrast to United States
exchanges, are "principals' markets" in which performance is the responsibility
only of the individual member with whom the trader has dealt and is not the
responsibility of an exchange or clearing association. Furthermore, trading on
certain non-United States exchanges may be conducted in such a manner that all
participants are not afforded an equal opportunity to execute certain trades
and may also be subject to a variety of political influences and the
possibility of direct government intervention. The Partnership also would be
subject to the risk of fluctuations in the exchange rate between the local
currency and the United States dollar and to the possibility of exchange
controls. Finally, futures contracts traded on non-United States exchanges
(other than foreign currency contracts) might not be considered to be
"regulated futures contracts" for Federal income tax purposes.
(b) Financial information about industry segments
The Partnership's business constitutes only one segment, speculative
trading of forward and futures and options on futures contracts, for financial
reporting purposes. The Partnership does not engage in sales of goods and
services. The Partnership's revenue, operating results and total assets for
the five fiscal years ended July 31, 1996 are set forth under "Item 6.
Selected Financial Data."
(c) Narrative description of business
(1) See Items 1(a) and (b) above.
(i) through (xii) - not applicable.
(xiii) - the Partnership has no employees.
(d) Financial information about 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."
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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 through its Trading Company, has entered into a Joint
Venture Agreement with the Trading Advisor (under which the Trading Advisor has
complete discretion with respect to determination of the Partnership's trading
decisions with respect to that portion of the Partnership's assets which the
Trading Advisor manages) and a Customer Agreement with the Commodity Broker
(pursuant to which the Commodity Broker executes all trades on behalf of the
Partnership based on the instructions of the Trading Advisor).
(2) Maintains the Partnership's books and records which Unitholders or
their duly authorized representatives may inspect during normal business hours
for any proper purpose upon reasonable written notice to the General Partner.
(3) Furnishes each Unitholder with a monthly statement describing the
performance of the Partnership which sets forth the brokerage commissions and
other expenses incurred or accrued and any profit share allocable to the
Trading Advisor by the Partnership for the month.
(4) Forwards annual audited financial statements (including a statement
of financial condition and statement of operations) to each Unitholder.
(5) Provides to each Unitholder tax information necessary for the
preparation of his annual federal income tax return and such other information
as the CFTC may by regulation require.
(6) Performs secretarial and other clerical duties and furnishes office
space, equipment and supplies as may be necessary for supervising the affairs
of the Partnership.
(7) Administers the redemption of Units.
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 assets are subject. In
addition, there are no pending material proceedings involving the General
Partner or the Commodity Broker.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information. There is no trading market for the Units, and
none is likely to develop. They are transferable only after written notice has
been given to and approved by the General
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Partner. Units may be redeemed effective as of the close of business on the
last business day of any calendar quarter, and then only in whole Units, at Net
Asset Value per Unit (less any redemption fee, if applicable, as described
below) calculated as of the close of business (as determined by the General
Partner) on the effective date of redemption. Units redeemed on or prior to
the end of the fourth and after the end of the fourth but on or prior to the
end of the eighth full calendar quarter of the Partnership's operations were
subject to a 4% and 3% redemption charge, respectfully. This charge was paid
to the General Partner. Requests for redemption must be received by the
General Partner ten days before the redemption date. During the period August
1, 1990 through March 1991 (the last quarter during which redemption penalties
were charged) there were redemption charges of $83,805 paid to the General
Partner.
(b) Holders. As of July 31, 1996, there were 430 holders of Units.
(c) Dividends. No distributions or dividends have been made on the
Units, and the General Partner presently has no intention to make any.
Item 6. Selected Financial Data
The following is a summary of operations and total assets of the
Partnership for the five fiscal years ended July 31, 1996.
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Fiscal Year Fiscal Year Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended Ended Ended
July 31, 1996 July 31, 1995 July 31, 1994 July 31, 1993 July 31, 1992
------------- ------------- ------------- ------------- -------------
Revenues:
Gain (loss) on trading of
futures and
forward contracts $ (148,660) $ (532,491) $(1,445,324) $ 4,517,519 $ 6,172,108
Interest income 133,072 314,556 269,873 311,376 395,009
Accretion of U.S. Govern-
ment Treasury Strip
Notes 969,469 1,400,402 2,739,833 2,766,454 2,954,993
Gain (loss) on market
value of U.S.
Treasury Strip Notes (270,765) 829,359 (1,823,682) (1,199,683) 1,193,594
Realized gain on sale of
U.S. Treasury Strip Notes 0 45,157 88,837 371,154 549,690
----------- ----------- ----------- ----------- -----------
Total revenue 683,116 2,056,983 (170,463) 6,766,820 11,265,394
Expenses:
Brokerage commissions 726,631 1,068,370 1,918,393 1,961,745 1,958,415
Profit Share allocable to
Joint Venture Trading
Advisor 19,306 0 (36,724) 391,253 185,825
Other administrative
expenses 83,898 155,159 324,678 278,722 321,459
----------- ----------- ----------- ----------- -----------
Total expenses 829,835 1,223,529 2,206,347 2,631,720 2,465,699
----------- ----------- ----------- ----------- -----------
Income (loss) before
General Partner interest
in Trading Company (146,719) 833,454 (2,376,810) 4,135,100 8,799,695
General Partner interest
in Trading Company
operating (income) loss 21,622 24,054 50,618 (30,344) (50,993)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (125,907) $ 857,508 $(2,326,192) $ 4,104,756 $ 8,748,702
=========== =========== =========== =========== ===========
Net income (loss)
allocated to
General Partner $ (739) $ 20,910 $ (33,563) $ 59,877 $ 105,896
=========== =========== =========== =========== ===========
Net income (loss)
allocated to
limited partners $ (124,358) $ 836,598 $(2,292,629) $ 4,044,879 $ 8,642,806
=========== =========== =========== =========== ===========
Net income (loss)
per Unit of Partner-
ship Interest (for a
Unit outstanding
throughout the
year) $ (6.72) $ 195.09 $ (93.23) $ 166.33 $ 293.74
=========== =========== =========== =========== ===========
Total assets $16,069,074 $18,434,548 $37,604,209 $43,919,995 $44,597,906
=========== =========== =========== =========== ===========
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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 more Units
unless it undertakes a new public offering, which would require another
registration with the Securities and Exchange Commission. Due to the nature of
the Partnership's business, it will make no significant capital expenditures
and substantially all of its assets are and will be represented by U.S.
Treasury Strip Notes and investments in futures and options on futures.
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. Other than these limitations on liquidity, which
are inherent in the Partnership's futures trading operations, the Partnership's
assets are highly liquid and are expected to remain so.
Results of Operations
The significant components of revenue generated by the Partnership
include: any net realized trading gains on closed futures contracts, any
increase in net unrealized appreciation on open futures and forward contracts,
interest income earned on U.S. Treasury securities, accretion of U.S. Treasury
Strip Notes, any gain on market value of U.S. Treasury Strip Notes and realized
gain on sale of U.S. Treasury Strip Notes. Partnership expenses include
brokerage commissions, profit shares and other administrative expenses.
Operating results show a profit for the fiscal years ended July 31, 1996
and July 31, 1995 and a loss for the fiscal year ended July 31, 1994.
The Net Asset Value per Unit on a redemption value basis as of July 31,
1996 and July 31, 1995 was $1,721.38 and $1,696.73, respectively.
The Fund showed slight over-all trading losses for the fiscal year ended
July 31, 1996. The Fund experienced profitable trading in short U.S. and
foreign financial positions which occurred due to an increase in the U.S.
interest rate. Profitable positions were also held in the agricultural and
currency markets. The Fund's profitable trading, however, was offset by
unprofitable short positions held in currencies primarily in the third quarter.
Additional losses were incurred in the financial and precious
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metals markets. As of October 31, 1995, January 31, 1996, April 30, 1996 and
July 31, 1996, the Net Asset Value per Unit on a redemption value basis was
$1,713.35, $1,802.86, $1,727.99 and $1,721.38, respectively.
The trading losses which occurred in fiscal year 1994 did not continue in
fiscal year 1995. During the fiscal year ended July 31, 1995, the Trading
Company's profitable trading in the metals, energy and financial sectors more
than offset the Partnership's unprofitable trading in the softs and currencies
sectors. Significant profits were made during the second quarter in long S&P
contracts due to the decline in interest rates. Large losses were incurred in
September in long Japanese Yen positions due to the increased strength of the
U.S. dollar. In addition, the trend of market losses in the U.S. Treasury
Strip Notes ceased with the maturity of the original notes and the purchase of
new notes in December 1994. From December 1, 1994 through July 30, 1995, the
new notes resulted in market gain. As of October 31, 1994, January 31, 1995,
April 30, 1995 and July 31, 1995, the Net Asset Value per Unit on a redemption
value basis was $1,522.59, $1,528.65, $1,641.58 and $1,696.73, respectively.
During the fiscal year ended July 31, 1994, the Trading Company's trading
in the agricultural, financial instruments and currency markets was
unprofitable. As of October 31, 1993, January 31, 1994, April 30, 1994 and July
31, 1994, the Net Asset Value per Unit on a redemption value basis was
$1,631.25, $1,631.35, $1,618.70 and $1,597.50, respectively,
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. Trading decisions for the Partnership are made by the Trading
Advisor.
The General Partner is a commodity pool operator registered with the
National Futures Association. The Trading Advisor and its respective
principals have been trading commodities accounts for investors pursuant to
their respective trading methods for several years.
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Item 11. Executive Compensation
The Partnership has no directors or officers. The General Partner
performs the services described in "Item 2. Properties" herein. E.D. & F. Man
International Inc. acts as the Partnership's commodity broker pursuant to the
Customer Agreement described in "Item 1(a). General development of business."
The General Partner participates in any appreciation in the net assets of
the Partnership in proportion to its investment.
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 and the Trading Advisor has
discretionary authority over the Partnership's futures and options on futures
contract trading. The General Partner owned 110 Unit-equivalents valued at
$198,067 as of July 31, 1996, 1.24% 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.
(a)(3) Exhibits as required by Item 601 of Regulation S-K
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(3) Articles of Incorporation and By-laws
a. Limited Partnership Agreement dated as of February 10, 1988, amended
and restated as of August 18, 1988.
The above exhibit is incorporated by reference from the Registration
Statement Amendment No. 1 filed by the Partnership on Form S-1 (File No.
33-20264) and declared effective as of September 28, 1988.
(10) Material Contracts
a. Joint Venture Agreement between the Partnership and RXR, Inc.
b. Customer Agreement between the Partnership and Geldermann, Inc.
The above exhibit is incorporated herein by reference from the
Registration Statement filed by the Partnership on Form S-1 (Reg. No. 33-20264)
and declared effective as of September 28, 1988.
(b) Reports on Form 8-K
The Partnership did not file any reports on Form 8-K during the quarter
ended July 31, 1996.
(27) Financial Data Schedule
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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 28th day of October, 1996.
THE FOUR SEASONS FUND LIMITED
PARTNERSHIP
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.
Title with
Signature General Partner Date
------------------- ------------------------------ ----------------
/s/ James R. Curley Chief Executive Officer October 28, 1996
------------------- and Director
James R. Curley
/s/ Lee E. Meyer Chief Financial Officer October 28, 1996
------------------- (principal accounting officer)
Lee E. Meyer
/s/ Ned Bennett Director October 28, 1996
-------------------
Ned W. Bennett
/s/ Thomas M. Harte Director October 28, 1996
-------------------
Thomas M. Harte
/s/ Ira Polk Director October 28, 1996
-------------------
Ira Polk
/s/ Daniel E. Ragen President (principal October 28, 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 October 28, 1996
MANAGEMENT, INC. Registrant
By /s/ Daniel E. Ragen
Daniel E. Ragen
President
-12-
13
THE FOUR SEASONS FUND
AND SUBSIDIARY
(AN ILLINOIS LIMITED
PARTNERSHIP)
Consolidated Financial Statements for the
Years Ended July 31, 1996, 1995 and 1994 and
Independent Auditors' Report
14
THE FOUR SEASONS FUND AND SUBSIDIARY
(AN ILLINOIS LIMITED PARTNERSHIP)
TABLE OF CONTENTS
- ------------------------------------------------------------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS:
Consolidated Statements of Financial Condition as of July 31, 1996 and 1995 F-2
Consolidated Statements of Operations for the Years Ended July 31, 1996, 1995
and 1994 F-3
Consolidated Statements of Partners' Capital for the Years Ended July 31, 1996, 1995
and 1994 F-4
Consolidated Statements of Cash Flows for the Years Ended July 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6 - F-9
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INDEPENDENT AUDITORS' REPORT
To the General Partner and
Limited Partners of
The Four Seasons Fund:
We have audited the accompanying consolidated statements of financial condition
of The Four Seasons Fund and Subsidiary (an Illinois Limited Partnership, the
"Partnership") as of July 31, 1996 and 1995, and the related consolidated
statements of operations, partners' capital and cash flows for each of the
three years in the period ended July 31, 1996. 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 Four Seasons Fund and Subsidiary as of
July 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended July 31, 1996, in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
September 6, 1996
16
THE FOUR SEASONS FUND AND SUBSIDIARY
(AN ILLINOIS LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JULY 31, 1996 AND 1995
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS 1996 1995
EQUITY IN FUTURES AND FORWARD TRADING ACCOUNTS:
Amount due from E.D. & F. Man International $ 2,198,520 $ 151,758
United States Treasury securities, at cost plus accrued interest
which approximates market value - 3,832,616
Net unrealized appreciation on open futures and forward contracts 250,897 92,763
----------- -----------
Total equity in futures and forward trading accounts 2,449,417 4,077,137
U.S. TREASURY STRIP NOTES - At market value (accreted cost:
$12,918,710 and $13,239,104 in 1996 and 1995, respectively) 13,620,157 14,357,411
----------- -----------
TOTAL ASSETS $16,069,574 $18,434,548
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued brokerage commissions payable to
E.D. & F. Man International $ $54,064 $ 61,429
Other accrued expenses 7,182 10,818
----------- -----------
Total liabilities 61,246 72,247
GENERAL PARTNER'S INTEREST IN TRADING COMPANY 67,366 88,989
PARTNERS' CAPITAL:
Limited Partners (units outstanding: 1996 - 8,743; 1995 - 10,001) 15,742,895 $18,074,506
General Partner (110 unit equivalents outstanding in 1996 and 1995) 198,067 198,806
----------- -----------
Total partners' capital 15,940,962 18,273,312
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $16,069,574 $18,434,548
=========== ===========
PER OUTSTANDING UNIT OF PARTNERSHIP INTEREST:
Net asset value $ 1,800.61 $ 1,807.33
=========== ===========
Redemption value $ 1,721.38 $ 1,696.73
=========== ===========
See notes to consolidated financial statements.
F-2
17
THE FOUR SEASONS FUND AND SUBSIDIARY
(AN ILLINOIS LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JULY 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
REVENUES:
Net realized trading losses on closed
futures contracts $(306,794) $ (206,224) $ (599,523)
Increase (decrease) in net unrealized appreciation on
open futures and forward contracts 158,134 (326,267) (845,801)
Interest income 133,072 314,556 269,873
Accretion of U.S. Treasury Strip Notes 969,469 1,400,402 2,739,833
Gain (loss) on market value of U.S. Treasury
Strip Notes (270,765) 829,359 (1,823,682)
Realized gain on sale of U.S. Treasury Strip Notes - 45,157 88,837
---------- ----------- ------------
Total revenues 683,116 2,056,983 (170,463)
EXPENSES:
Brokerage commissions 726,631 1,068,370 1,918,393
Profit share allowable to joint venture trading advisor 19,306 - (36,724)
Other expenses 83,898 155,159 324,678
---------- ----------- ------------
Total expenses 829,835 1,223,529 2,206,347
---------- ----------- ------------
INCOME (LOSS) BEFORE GENERAL PARTNER'S
INTEREST IN TRADING COMPANY (146,719) 833,454 (2,376,810)
GENERAL PARTNER'S INTEREST IN TRADING
COMPANY OPERATING INCOME 21,622 24,054 50,618
---------- ----------- ------------
NET INCOME (LOSS) $(125,097) $ 857,508 $(2,326,192)
========== =========== ============
NET INCOME (LOSS) ALLOCATED TO:
General Partner $(739) $20,910 $(33,563)
Limited Partners (124,358) 836,598 (2,292,629)
---------- ----------- ------------
NET INCOME (LOSS) $(125,097) $ 857,508 $(2,326,192)
========== =========== ============
AVERAGE INCREASE (DECREASE) IN NET
ASSET VALUE FOR A UNIT OUTSTANDING
THROUGHOUT EACH YEAR $ (6.72) $ 195.09 $ (93.23)
========== =========== ============
See notes to consolidated financial statements.
F-3
18
THE FOUR SEASONS FUND AND SUBSIDIARY
(AN ILLINOIS LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED JULY 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL
PARTNERS'
LIMITED PARTNERS GENERAL PARTNER CAPITAL
BALANCE, JULY 31, 1993 $ 42,582,166 $ 613,969 $ 43,196,135
Redemption of 2,169 units of limited
partnership interest (3,532,024) - (3,532,024)
Net loss (2,292,629) (33,563) (2,326,192)
------------- ----------- ------------
BALANCE, JULY 31, 1994 36,757,513 580,406 37,337,919
Redemption of 12,798 units of limited
partnership interest and 250 of
General Partner units (19,519,605) (402,510) (19,922,115)
Net income 836,598 20,910 857,508
------------- ----------- ------------
BALANCE, JULY 31, 1995 18,074,506 198,806 18,273,312
Redemption of 1,258 units of limited
partnership interest (2,207,253) - (2,207,253)
Net loss (124,358) (739) (125,097)
------------- ----------- ------------
BALANCE, JULY 31, 1996 $15,742,895 $ 198,067 $15,940,962
============= =========== ============
See notes to consolidated financial statements.
F-4
19
THE FOUR SEASONS FUND AND SUBSIDIARY
(AN ILLINOIS LIMITED PARTNERSHIP)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JULY 31, 1996, 1995 AND 1994
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (125,097) $ 857,508 $(2,326,192)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Decrease in equity in futures and
forward trading accounts 1,627,720 3,314,797 4,559,005
Accretion of U.S. Treasury Strip Notes (969,469) (1,400,402) (2,739,833)
(Gain) loss on market value of U.S. Treasury
Strip Notes 270,765 (829,359) 1,823,682
Gain on sale of U.S. Treasury Strip Notes - (45,157) (88,837)
General Partner's interest in trading company
operating results (21,622) (24,054) (50,618)
Decrease in liabilities (11,001) (81,000) (406,952)
Sale of U.S. Treasury Strip Notes 1,435,957 31,527,180 2,761,769
Purchase of U.S. Treasury Strip Notes - (13,397,398) -
----------- ------------ --------------
Net cash provided by operating activities 2,207,253 19,922,115 3,532,024
CASH FLOWS FROM FINANCING
ACTIVITIES:
Redemption of partnership units (2,207,253) (19,922,115) (3,532,024)
----------- ------------ --------------
NET CHANGE IN CASH - - -
CASH - Beginning of year - - -
----------- ------------ --------------
CASH - End of year $ - $ - $ -
=========== ============= ==============
See notes to consolidated financial statements.
F-5
20
THE FOUR SEASONS FUND AND SUBSIDIARY
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1996, 1995 AND 1994
- --------------------------------------------------------------------------------
1. ORGANIZATION OF THE PARTNERSHIP
The Four Seasons Fund Limited Partnership (the "Partnership") was organized
in February 1988, under the Illinois Revised Uniform Limited Partnership Act
(the "Act"), for the purpose of engaging in speculative trading of primarily
futures and forward contracts. The Partnership was initially capitalized on
February 10, 1988. Trading activity began on March 1, 1989.
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.
Upon commencement of operations, approximately 80% of the Partnership's
assets was invested in zero coupon U.S. Treasury Strip Notes ("Strip Notes")
at a cost of $32,863,272, so as to yield $1,000 per unit, plus a 5% compound
annual yield, approximately 5-1/2 years after commencement of operations.
The remaining assets were invested in Geldermann Asset Allocation Management
Limited Partnership (the "Trading Company"), a separate limited partnership
of which the Partnership became the sole Limited Partner with an initial 99%
interest. The General Partner of the Trading Company, HAMI, also
contributed assets, resulting in an initial interest in the Trading Company
of 1%. The U.S. Treasury Strip Notes referred to above matured on November
15, 1994 and approximately $29,231,000 of proceeds was received at the
maturity date. In December of 1994, the Partnership purchased Strip Notes
maturing on November 15, 2000 at a cost of $13,397,392. The new Strip Notes
will provide a minimum 3% annual rate of return over a six-year term. The
Trading Company entered into a joint venture with RXR, Inc. ("RXR") for
purposes of engaging in speculative trading of futures, forward, and options
on futures contracts. Under the terms of the contract, the Trading Company
allocated its net assets to the joint venture and received joint venture
units equal to the number of Trading Company partnership units outstanding
at the date of the Agreement. Responsibility for managing the Partnership
is vested solely in the General Partner. However, in accordance with the
Limited Partnership Agreement, HAMI has delegated trading authority to RXR
("Trading Advisor") (Note 5).
The Trading Company'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 Trading Company'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.
The Trading Company has a brokerage contract with Man, previously
Geldermann, which provides that Man will be paid an annual rate equal to
4.45% of the month-end net assets of the Partnership, as defined, plus
related floor brokerage, NFA, exchange and clearing fees.
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21
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The consolidated financial statements include the accounts
of the Partnership and a majority-owned joint venture which exists between
the Trading Company and RXR. All significant intercompany accounts and
transactions are eliminated in consolidation.
REVENUE RECOGNITION - Futures and forward contracts are recorded on the
trade date and are reflected in the accompanying consolidated Statements of
Financial Condition at the difference between the original contract amount
and the market value on the last business day of the reporting period. The
difference between the original contract amount and the market value of
futures and forward contracts is reflected as the change in net unrealized
appreciation. Market values of futures contracts are based upon exchange
settlement prices. Market values of forward contracts are based upon quoted
rates provided by major financial institutions.
OPERATING EXPENSES - The Partnership bears all expenses incurred in
connection with its activities. These include brokerage commissions, floor
brokerage, clearing, exchange and NFA fees, Trading Advisor's profit shares
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 consolidated 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.
RECLASSIFICATIONS - Certain reclassifications have been made to prior year
amounts to conform with current year presentation.
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades both cash and derivative financial instruments. The
Company's principal source of revenues by reporting category is as follows:
CHANGE IN
REALIZED UNREALIZED
TRADING APPRECIATION
GAINS (LOSSES) (DEPRECIATION) TOTAL
Futures contracts $(25,915) $73,092 $47,177
Forward contracts (211,852) 45,042 (166,810)
Option contracts (69,027) 40,000 (29,027)
-------------- -------------- ------------
Total $(306,794) $158,134 $(148,660)
============== ============== ============
The Partnership was organized to engage in speculative trading of a
diversified portfolio of futures and forward contracts and commodity
options. SFAS No. 119, "Disclosure About Derivative Financial Instruments
and Fair Value of Financial Instruments," defines a derivative as a future,
forward, swap or option contract or other financial instruments with similar
characteristics such as caps, floors and collars. Generally these financial
instruments represent future commitments to exchange interest payment
streams or currencies, or to purchase or to sell other financial instruments
at specific terms at specified future dates. Option contracts provide the
holder with the right, but not the obligation, to purchase or sell a
F-7
22
financial instruments may have market and/or credit risk in excess of
amounts recorded in the Statements of Financial Condition.
MARKET RISK - Derivative financial instruments involve varying degrees of
off-balance sheet market risk whereby changes in the level or volatility of
interest rates, foreign currency exchange rates or market values of the
underlying financial instruments or commodities may result in changes in the
value of the financial instrument in excess of the amounts currently
reflected in the Statements of Financial Condition. The Partnership's
exposure to market risk is influenced by a number of factors, including the
relationships among financial instruments with off-balance sheet risk and
between financial instruments with off-balance sheet risk and the
Partnership's proprietary commodities, as well as the volatility and
liquidity in the markets in which the financial instruments are traded.
FAIR VALUE - The derivative instruments used in the Partnership's trading
activities are marked to market daily with the resulting unrealized gains or
losses recorded in the Statements of Financial Condition and the related
income or loss reflected in revenues derived from these transactions. The
fair value of derivative financial instruments held or issued for trading
purposes as of July 31, 1996 and the average monthly fair value of the
instruments for the fiscal year ended July 31, 1996 are as follows:
FAIR VALUES AT YEAR-END AVERAGE FAIR VALUES
ASSETS LIABILITIES ASSETS LIABILITIES
Futures contracts $383,493 $262,398 $333,386 $130,246
Forward contracts 89,802 - 13,181 53,485
Option contracts 40,000 - 3,333 8,175
4. LIMITED PARTNERSHIP AGREEMENT
The Limited Partnership Agreement (the "Agreement") provides for 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 of the
Partnership in excess of his capital contribution and profits, if any, and
such other amounts for which he 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 end of any calendar quarter
following 10 days' written request for redemption, subject to certain other
conditions, as described in the Agreement. Redemption is at net asset value
of the Partnership as of quarter-end, calculated by valuing the
Partnership's investment in Strip Notes at the lower of accreted cost or
market value.
Dissolution - The Partnership will be dissolved on December 31, 2007, or
upon the occurrence of certain future events, as specified in the Agreement.
F-8
23
5. ADVISORY AGREEMENT
Under the terms of the advisory agreement, RXR has the sole responsibility
for determining futures, forward, and options trades. As compensation for
these services, RXR receives an annual consulting fee from Man, previously
Geldermann, of 1/2 of 1% of the Partnership's net assets, as defined in the
Agreement. For the year ended July 31, 1996, this amount was $82,098. RXR
also earns a quarterly profit share from the Partnership of 15% of "new
trading profits," as defined in the Agreement, provided that the joint
venture has taxable income in a calendar year. This profit share is
retained by RXR even if "trading losses," as defined in the Agreement, occur
in subsequent quarters; however, no further profit share is payable until
any such trading losses (other than losses attributable to redeemed units)
are recouped by the Partnership.
******
F-9
24
To the best of my knowledge and belief, the information in this statement is
accurate and complete.
Heinold Asset Management, Inc.
(Pool Operator)
/s/ Lee E. Meyer
----------------
Lee E. Meyer
Chief Financial Officer
F-10