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As Filed with the Securities and Exchange Commission on June 8, 1998
Registration Statement No. 33-37802
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 8
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CERES FUND, L.P.
(Exact name of registrant as specified in its charter)
TENNESSEE
(State of Incorporation)
6799
(Primary Standard Industrial Classification Code Number)
62-1444129
(IRS Employer Identification Number)
889 Ridge Lake Blvd., Memphis, Tennessee 38120
(901) 766-4590
(Address, including zip code, and telephone number, including
area code, of registrant's principal offices)
Frank L. Watson, Jr.
Randell Commodity Corporation
889 Ridge Lake Blvd.
Memphis, Tennessee 38120
(901) 766-4590
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
FRANK L. WATSON, JR.
ROBERT G. MORRIS
Baker, Donelson, Bearman & Caldwell
2000 First Tennessee Bank Bldg.
Memphis, Tennessee 38103
(901) 526-2000
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May 30, 1998
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box.
[X]
The registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CERES FUND, L.P.
100,000 UNITS OF LIMITED PARTNERSHIP INTEREST
OFFERED AT AVERAGE NET ASSET VALUE PER UNIT PLUS 4%
This Prospectus of Ceres Fund, L.P. (the "Partnership"), amends and
restates the previous Prospectus of the Partnership dated August 25, 1997, and
in particular discloses certain financial information on the General Partners at
December 31, 1997, and updates certain financial information and past
performance information of the Partnership through April 30, 1998.
The Partnership was organized in September, 1990 under the laws of the
State of Tennessee to engage in the speculative trading of commodity futures
contracts and other commodity interests. The Partnership is offering on a
continuous basis (the "Offering") 100,000 units of its limited partnership
interests ("Units") for a subscription price equal to the then current Average
Net Asset Value per Unit, plus a 4% selling commission. There is a minimum
subscription per investor of $2,000 (plus the 4% selling commission), subject to
higher minimum investment standards imposed by certain states. All subscriptions
are irrevocable. (See "Plan of Distribution" and "The Offering--Subscription
Procedure.") Refco, Inc. ("Refco") will act as the futures commission merchant
for the Partnership and Randell Commodity Corporation (the "Managing General
Partner") and RanDelta Capital Partners, L.P. (the "Financial General Partner")
(the "General Partners") are the General Partners of the Partnership. (See
"Futures Commission Merchant" and "General Partners.") All trading decisions
will be made for the Partnership by Frank L. Watson, Jr., Chairman of the
Managing General Partner. (See "General Partners" and "Trading Advisor.") The
Units are being offered through various broker dealers which are members of the
National Association of Securities Dealers, Inc. ("NASD") on a best-efforts
basis without any firm underwriting commitment. (See "Plan of Distribution.")
No secondary market for the Units exists and Units may not be redeemed
for the first six months after they are purchased. Thereafter, a Unit may be
redeemed at the Redemption Net Asset Value per Unit thereof as of the end of any
calendar quarter upon 10 days prior written notice to the Managing General
Partner. There is a redemption charge of 4%, 3% and 2% of the Redemption Net
Asset Value on all redemptions made on or prior to the end of sixth, ninth and
twelfth month, respectively, after a Unit is purchased, but not to exceed 5% of
the gross purchase price of such Units. This charge will be paid to the Managing
General Partner.
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Price to the Public (1) Selling Commissions Proceeds to the Partnership
(1)(2)(3) (1)(2)(3)
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Per Unit (minimum purchase 20 Units) (1) $ (2) $ (2) $ (2)
Total Maximum (100,000 Units) $ (2) $ (2) $ (2)
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(Notes to above table on the following page)
THESE ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE OF RISK. THESE
SECURITIES ARE SUITABLE FOR INVESTMENT ONLY BY PERSONS WHO CAN AFFORD TO LOSE
THEIR ENTIRE INVESTMENT. (SEE "RISK FACTORS" (PAGE 6) AND "SUITABILITY OF
INVESTMENT AND QUALIFICATION OF INVESTORS" (PAGE IV).
THE COMMODITY FUTURES TRADING COMMISSION ("CFTC") HAS NOT PASSED UPON THE MERITS
OF PARTICIPATING IN THIS POOL NOR HAS THE CFTC PASSED ON THE ADEQUACY OR
ACCURACY OF THIS DISCLOSURE DOCUMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is May 30, 1998
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NOTES:
(1) The Units are being offered on a best-efforts basis through members of
the NASD participating in the Offering ("Selling Agents"). Selling
Agents which are registered or exempt from registration under the
Commodity Exchange Act, as amended ("CEA"), will be entitled to receive
from Refco a continuing commission based upon the Net Asset Value of
the Units sold by each such Selling Agent for continuing services to be
provided to purchasers of Units. Continuing services include (i)
answering questions regarding daily Net Asset Value and computations
thereof, monthly statements, annual reports and tax information
provided by the Partnership; (ii) providing assistance to investors in
deciding when and whether to redeem their Units; and (iii) general
servicing of accounts. The continuing commissions will be paid by Refco
from its brokerage commissions for the life of the Partnership,
although the rate at which such commissions are charged may change. See
"Description of Charges to the Partnership." The Partnership and the
General Partners have agreed to indemnify the Selling Agents, the
General Partners, the Futures Commission Merchant, the Trading Advisor,
and their respective officers, directors, affiliates (as defined) and
control persons against certain liabilities (including attorneys'
fees). However, no indemnification will be made for liabilities, if
any, under federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving alleged
securities law violations as to the particular indemnitee and the court
approves the indemnification, or (ii) such claims have been dismissed
with prejudice on the merits by a court of competent jurisdiction as to
the particular indemnitee and the court approves the indemnification,
or (iii) a court of competent jurisdiction approves a settlement of the
claims against a particular indemnitee and finds that indemnification
of the settlement and related costs should be made to the indemnitee.
(2) During the Offering, Units subscribed for will be issued at the Average
Net Asset Value per Unit as of the first business day of each month
plus a selling commission equal to 4% of the subscription amount.
Subscriptions must be received 5 days prior to the last day of the
month to be admitted on the first business day of the next month. The
4% selling commission will be paid to the Selling Agent as a selling
fee. Proceeds from the sale of additional Units (less selling
commissions) will be deposited in the Partnership's trading account.
Interest earned on such proceeds prior to the closing applicable to
such Units will be retained by the Partnership. The selling commission
may be waived as to customers of the Managing General Partner and Refco
who purchase Units with assets in existing futures accounts. See "Plan
of Distribution."
(3) The proceeds of the Offering available to the Partnership and the
initial Net Asset Value per Unit have not been reduced for offering
expenses. Refco will pay all expenses of the Offering not borne by the
Selling Agents. See "Description of Charges to the Partnership."
THE PARTNERSHIP IS SUBJECT TO CONFLICTS OF INTEREST AND MUST PAY SUBSTANTIAL
CHARGES REGARDLESS OF WHETHER IT EARNS ANY PROFITS. SEE "CONFLICTS OF INTERESTS"
AND "DESCRIPTION OF CHARGES TO THE PARTNERSHIP."
CERES FUND, L.P. IS NOT A MUTUAL FUND OR ANY OTHER TYPE OF INVESTMENT COMPANY
WITHIN THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AND IS NOT SUBJECT TO
REGULATION THEREUNDER.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS DESCRIBED
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY ANY PERSON WITHIN ANY JURISDICTION TO ANY PERSON TO WHOM SUCH OFFER
WOULD BE UNLAWFUL.
THE PARTNERSHIP MUST FURNISH TO ALL LIMITED PARTNERS, PURSUANT TO APPLICABLE
REGULATIONS OF THE CFTC, ANNUAL AND MONTHLY REPORTS COMPLYING WITH CFTC AND
NATIONAL FUTURES ASSOCIATION ("NFA") REQUIREMENTS. THE ANNUAL REPORTS WILL
CONTAIN FINANCIAL STATEMENTS CERTIFIED AND AUDITED BY INDEPENDENT CERTIFIED
PUBLIC
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ACCOUNTANTS, AND THE MONTHLY REPORTS WILL CONTAIN UNAUDITED FINANCIAL
INFORMATION, RELATING TO THE PARTNERSHIP.
CFTC RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS
YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGE 16 AND A
STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER
THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 20.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY POOL, YOU SHOULD CAREFULLY
STUDY THIS DISCLOSURE DOCUMENT INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT, AT PAGE 6.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE
SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE
POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE
UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY
BE EFFECTED.
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SUITABILITY OF INVESTMENT AND QUALIFICATION OF INVESTORS
An investment in the Units is suitable only for persons of adequate
financial means who have no need for liquidity with respect to this investment
and who have sufficient net worth to sustain a loss of the entire investment.
INVESTORS ACCUSTOMED TO THINKING OF LIMITED PARTNERSHIP INVESTMENTS AS "TAX
SHELTERS" SHOULD BE AWARE THAT THE PARTNERSHIP IS NOT INTENDED TO AND WILL NOT
HAVE SUCH CHARACTERISTICS.
The Partnership Agreement contains provisions that place restrictions
on the transferability and sale of the Units, including the restriction that the
admission of an assignee to the Partnership as a substituted Limited Partner may
occur only with the consent of the Managing General Partner. See "Risk Factors -
Limited Ability to Liquidate Investment in Units" and "The Limited Partnership
Agreement - Restriction on Transfers or Assignments."
The minimum investment is $2,000, plus a selling commission equal to 4%
of the subscribed amount, subject to higher investment standards imposed by
certain states. An investor will be required to represent and warrant in the in
the Subscription Agreement, found in the separate Subscription Documents, that
he is aware of and can afford the risk of an investment in the Partnership,
including the risk of losing his entire investment. Each Investor must also
represent that (A) his net worth (exclusive of home, furnishings and
automobiles) is at least $150,000 or that (B) he has a net worth of at least
$45,000 (exclusive of home, furnishings and automobiles) and that his actual
gross income for 1996 and projected gross income for each of 1997 and 1998 is
expected to exceed $45,000. Such representations are subject to higher investor
suitability standards imposed by certain states. The Managing General Partner
may reject any subscription in whole or in part, and all subscriptions are
irrevocable.
Each Investor should consider whether the purchase of a Unit is
suitable for him, in the light of his individual investment objectives and his
present and expected future financial and tax position and needs. Each Investor
is urged to consult a qualified tax advisor in connection with such
consideration and give particular attention to the limited liquidity of the
Units offered hereby.
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TABLE OF CONTENTS
CFTC RISK DISCLOSURE STATEMENT.................................................iii
SUITABILITY OF INVESTMENT AND QUALIFICATION OF INVESTORS.......................iv
SUMMARY OF THE PROSPECTUS.......................................................1
THE OFFERING....................................................................5
Securities Offered........................................................5
Minimum Subscription......................................................5
Subscription Procedure....................................................5
Plan of Distribution......................................................5
Use of Proceeds...........................................................6
Financial Information.....................................................6
RISK FACTORS....................................................................6
INVESTMENT FACTORS.............................................................12
CONFLICTS OF INTEREST..........................................................13
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS...............................15
DESCRIPTION OF CHARGES TO THE PARTNERSHIP AND PARTNERS.........................16
General Partners.........................................................17
Futures Commission Merchant (REFCO)......................................18
Selling Agents...........................................................18
Other....................................................................18
Operating Expenses.......................................................19
Projected Operating Expenses.............................................19
Actual Operating Expenses................................................20
Break Even Analysis......................................................20
BUSINESS OF THE PARTNERSHIP....................................................21
USE OF PROCEEDS................................................................21
CAPITALIZATION.................................................................21
DISTRIBUTIONS TO PARTNERS......................................................21
GENERAL PARTNERS...............................................................22
PAST PERFORMANCE OF THE PARTNERSHIP............................................24
CAPSULE PERFORMANCE OF CERES FUND, L.P.........................................24
FUTURES COMMISSION MERCHANT....................................................26
TRADING APPROACH...............................................................27
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TRADING POLICIES................................................................29
COMMODITY FUTURES MARKETS.......................................................30
ADJUSTED ASSET VALUE AND NET ASSET VALUE........................................35
ALLOCATION OF PROFITS AND LOSSES................................................36
REDEMPTIONS.....................................................................37
CERTAIN FEDERAL INCOME TAX ASPECTS..............................................39
PURCHASES BY EMPLOYEE BENEFIT PLANS.............................................44
THE PARTNERSHIP AGREEMENT.......................................................45
PLAN OF DISTRIBUTION............................................................48
LEGAL MATTERS...................................................................49
EXPERTS .......................................................................49
ADDITIONAL INFORMATION..........................................................49
GLOSSARY OF CERTAIN TERMS AND DEFINITIONS.......................................50
Financial Statements of the Partnership as of December 31, 1997 and 1996,
and for the three years ended December 31, 1997................................F-1
Unaudited Financial Statements of the Partnership as of March 31, 1998........F-16
Balance Sheets of Randell Commodity Corporation as of December 31,
1997 and 1996.................................................................F-23
Balance Sheet of RanDelta Capital Partners, L.P. as of December 31,
1997 and 1996.................................................................F-31
Exhibit A - Agreement of Limited Partnership
Exhibit B - Form of Request for Redemption
Exhibit C - Subscription Documents (included under separate cover)
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SUMMARY OF THE PROSPECTUS
The following is a summary of certain provisions of the prospectus
which is dated May 30, 1998. This prospectus describes in detail numerous
aspects of the Offering which are material to investors, including aspects
summarized here, and the entire prospectus must be read and understood by
prospective investors. The following summary is therefore qualified in its
entirety by reference to the full text of the prospectus.
PARTNERSHIP
The Partnership was organized as a limited partnership under the laws
of the State of Tennessee on September 19, 1990. The Partnership's principal
place of business is located at 889 Ridge Lake Blvd., Memphis, Tennessee 38120,
Telephone 901/766-4590. Interests in the Partnership will be continuously
offered.
BUSINESS
The Partnership will engage in speculative trading of commodity futures
contracts, forward contracts, commodity options and other interests in
commodities including, without limitation futures contracts and options on
financial instruments, physical commodities and stock indices on organized
exchanges in the U.S. and abroad. See "Commodity Futures Market", "Trading
Approach" and "Trading Policies."
GENERAL PARTNERS
The General Partners are Randell Commodity Corporation, a Tennessee
corporation (the "Managing General Partner"), which will act as the commodity
pool operator of the Partnership, and RanDelta Capital Partners, L.P., a
Tennessee limited partnership (the "Financial General Partner") (collectively
the "General Partners"). Randell Commodity Corporation is the sole general
partner of the Financial General Partner. The General Partners' principal place
of business is located at 889 Ridge Lake Blvd., Memphis, Tennessee 38120,
telephone 901/766-4590. See "The General Partners."
TRADING ADVISOR
The Partnership's commodity trading activities will be managed by
Randell Commodity Corporation, the Managing General Partner (sometimes referred
to as the "Trading Advisor"). Pursuant to a management agreement, all trading
decisions will be made for the Partnership by Frank L. Watson, Jr., Chairman of
Randell Commodity Corporation. Randell Commodity Corporation was incorporated in
1983, and has been a commodity pool operator since 1983 and a commodity trading
advisor since 1984. Mr. Watson received a Bachelor of Arts degree from the
University of Arkansas and a law degree from Tulane University School of Law in
1965 and is a shareholder in the law firm of Baker, Donelson, Bearman &
Caldwell, Memphis, Tennessee. Prior to March 31, 1994, Delta International, Inc.
was a trading advisor to the Partnership. See "Trading Advisor."
FUTURES COMMISSION MERCHANT
Refco, Inc. ("Refco"), will serve as the Partnership's futures
commission merchant and will provide various clearing and execution services
pursuant to the instruction of the Trading Advisor. Refco is a registered
futures commission merchant and one of the largest commodity brokers in the
world. See "Futures Commission Merchant."
RISKS
Futures, forwards and options trading is speculative, volatile and
highly leveraged, and an investment in the Partnership involves substantial
risks, including the risk of loss of a Limited Partner's entire investment
(including any profits, whether or not distributed). See "Risk Factors."
However, subject to certain conditions, if the Average Net Asset Value per Unit
declines to 50% or less of the highest Average Net Asset Value per Unit at which
Units have been
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purchased, adjusted for distributions, all trading will be suspended and
investors given a chance to redeem their Units before any trading resumes. See
"Redemptions."
CONFLICTS OF INTEREST
Conflicts of interest exist in the structure and operation of the
Partnership's business. These conflicts include conflicts among the Partnership,
the General Partners, and the Managing General Partner acting as the Trading
Advisor and as commodity pool operator. In addition, no fully independent third
party is connected with this offering or the conduct of the business of the
Partnership who or which might be in a position to affect the conduct thereof.
Also, Refco is acting as the Futures Commission Merchant while its affiliate is
the sole limited partner in the Financial General Partner and has provided the
assets necessary to enable RanDelta Capital Partners, L.P. to act as Financial
General Partner. Selling Agents may also be reluctant to recommend redemption of
Units since they would otherwise receive continuing commissions which will be
paid from a portion of the brokerage commissions paid by the Partnership to
Refco. See "Conflicts of Interest."
FEES AND EXPENSES PAYABLE BY THE PARTNERSHIP AND PARTNERS
The Partnership will be subject to substantial charges which are
summarized below and described in detail under "Description of Charges to the
Partnership and Partners."
Form of Amount of
Compensation Compensation
- ------------ -------------
Monthly Management Allocation 1/3 of 1% per month of Adjusted Asset Value
to General Partners attributable to Units held by Limited Partners
(4% annual rate).
Quarterly Incentive Allocation 15% of any Net New Appreciation attributable
to General Partners to Units held by Limited Partners.
Redemption Charges Units held by Limited Partners will be
to General Partners charged a 4%, 3% and 2% redemption fee, not
to exceed 5% of the gross purchase price per
Unit on all redemptions made on or prior to
the end of the sixth, ninth and twelfth month,
respectively, after the purchase of such Units.
Brokerage Commissions $32.50 per roundturn, estimated to aggregate
to Futures Commission Merchant 30% of the Partnership's average Net Asset
Value, determined annually.
Sales Commission to 4% sales commission to the Selling Agent
Selling Agents responsible for a sale of Units.
Brokerage Commissions Selling Agents who are also appropriately
to Selling Agents registered or exempt from registration as
futures commission merchants, will be paid by
Refco from its Brokerage Commissions as of the
first day of each month .4167% (5% per annum)
of the Net Asset Value of the Units as a
continuing ("trail") commission for continuing
services related to the purchase of Units.
This fee is payable monthly.
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Periodic legal, accounting, Estimated to aggregate 1.5% of the
auditing, postage, and other Partnership's average Net Asset Value per year,
communication expenses, and adjusted periodically.
all extraordinary and filing
fees of the Partnership.
The Partnership will pay substantial fees to the General Partners and
will pay substantial commodity brokerage commissions to Refco. The General
Partners will receive a monthly Management Allocation equal to 1/3 of 1% (4% per
annum) of the Adjusted Net Asset Value (as defined in the Partnership Agreement)
attributable to Units held by Limited Partners, plus a quarterly Incentive
Allocation of 15% of any Net New Appreciation (as defined) attributable to Units
held by Limited Partners. Refco will be paid $32.50 per roundturn as brokerage
commissions, plus any applicable exchange and NFA fees. 50% of such brokerage
commissions will be paid to Refco upon the opening of a position and 50% will be
paid upon the closing of a position. Brokerage commissions are estimated to
equal 30% of average Partnership Net Asset Value per year, but depending upon
the volume of trading and market conditions, may equal or exceed the average Net
Asset Value in any year. For example, if the Partnership was averaging brokerage
commissions equal to 50% of Net Asset Value and suffered a 50% loss in a given
period of time, the brokerage commissions could, accordingly, equal 100% of such
Net Asset Value. The Partnership's assets will earn interest from Refco on 100%
of the average daily equity maintained in cash in the Partnership's trading
account at a rate equal to 80% of the average yield on the 13-week U.S. Treasury
Bills issued during each month. There is a redemption charge of 4%, 3% and 2% of
the Redemption Net Asset Value on all redemptions made on or prior to the sixth,
ninth and twelfth month, respectively, after a Unit is purchased, but not to
exceed 5% of the gross purchase price of such Units. This charge will be paid to
the General Partner. Periodic legal, accounting, auditing, filing fees and other
expenses are estimated to be approximately 1.5% of the Net Asset Value of the
Partnership per year. Such fees shall be adjusted periodically. See "Description
of Charges to the Partnership and Partners" and "Adjusted Asset Value and Net
Asset Value."
BREAK EVEN ANALYSIS
The following takes into account all fees and expenses enumerated
above, and is expressed in a dollar amount and as a percentage of a $2,000
investment.
Percentage of
Description of Charges $2,000 Investment $2,000 investment
- ---------------------- ----------------- -----------------
Syndication and Selling Expense $ 80 4%
Management Fee 80 4
Incentive Fee (15% of Net 27 1.35
New Appreciation)
Fund Operating Expense 40 2
Brokerage Commission 600 30
and Trading Fee
Less Interest Income (100) (5)
----- -----
Redemption Charges 100 5
----- -----
Estimated Break Even Level
after Redemption Charges $ 827 41.35%
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Percentage of
Description of Charges $2,000 Investment $2,000 investment
- ---------------------- ----------------- -----------------
Estimated Break Even Level
No Redemption Charges $714 35.70%
==== =====
TRADING APPROACH
The Trading Advisor believes that the greatest profits are realized by
futures traders who concentrate on major moves in a particular commodity or
commodity complex. The Trading Advisor will attempt to identify these
opportunities through the utilization of registered commodity representatives
who specialize in a single commodity or commodity complex and will apply a
combination of fundamental and technical analyses using the Trading Advisor's
proprietary Base Capital Asset Management System and Campaign Strategies Trading
System in managing risk and selecting trades. These trading devices are,
respectively, asset management and market timing devices. See "Trading Approach"
and "Trading Policies."
REDEMPTION OF UNITS
Units may not be redeemed during the first six months after they are
purchased. Thereafter, investors may redeem their Units at the Redemption Net
Asset Value per Unit as of the end of any calendar quarter upon 10 days prior
written notice to the Managing General Partner. Redemption Net Asset Value per
Unit is calculated by, among other items, deducting accrued brokerage
commissions. There is a redemption charge of 4%, 3% and 2% of the Redemption Net
Asset Value on all Units redeemed at the end of the sixth month, and on or prior
to the end of the ninth and twelfth month, respectively, after they are
purchased, but not to exceed 5% of the gross purchase price of such Units. See
"Redemptions."
DISTRIBUTIONS
Distributions of profits, if any, will be made solely at the discretion
of the Managing General Partner. The Managing General Partner intends to make
distributions only if substantial profits are realized by the Partnership and
only if the Average Net Asset Value per Unit is at least $100 after the
distribution. Subject to the foregoing, the Managing General Partner intends to
make annual cash distributions in such amounts as will approximate a Partner's
tax liability with respect to Partnership income for the fiscal year immediately
preceding such distribution. See "Distributions to Partners." Each Limited
Partner will be required to include his share of profits into income for tax
purposes regardless of whether any distributions are made. See "Distributions to
Partners" and "Certain Federal Income Tax Aspects."
STOP LOSS PROVISION
Subject to conditions set forth in the Partnership Agreement, if the
Average Net Asset Value Per Unit has decreased to 50% or less of the highest
Average Net Asset Value at which Units have been purchased, adjusted for all
distributions, the Managing General Partner will liquidate all open positions as
expeditiously as possible, suspend trading and set a Special Redemption Date.
Limited Partners would then have the opportunity to withdraw or remain in the
Partnership. If the Partnership resumes trading after a Special Redemption Date,
subsequent Special Redemption Dates would occur if the Average Net Asset Value
per Unit declines to 50% or less of the highest Average Net Asset Value per Unit
at which Units have been purchased since the previous Special Redemption Date
(or the Average Net Asset Value per Unit at such previous Special Redemption
Date, if higher), adjusted for distributions. See "Redemptions."
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ACCOUNTING FOR UNIT VALUE
For the purpose of calculating Average Net Asset Value per Unit for
sales during the Offering or Redemption Net Asset Value per Unit for redemption
purposes, there are no organizational and offering expenses to be included. For
purposes of calculating Average Net Asset Value per Unit, accrued brokerage
commissions will be excluded, but such commissions will be included for purposes
of calculating Redemption Net Asset Value per Unit. All such calculations will
be made as of the first day of the applicable month. See "Adjusted Asset Value
and Net Asset Value" and "Redemptions."
FISCAL YEAR
The fiscal year of the Partnership is the calendar year.
TERMINATION OF PARTNERSHIP
Under the Partnership Agreement, the Partnership will terminate on the
earlier of December 31, 2020, or the occurrence of certain events. See "The
Partnership Agreement."
GLOSSARY OF CERTAIN TERMS AND DEFINITIONS
Knowledge of certain terms and concepts relating to this Offering is
necessary for a potential investor to determine whether to invest in the
Partnership. See "Glossary of Certain Terms and Definitions."
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THE OFFERING
SECURITIES OFFERED
The Partnership has registered a maximum of 100,000 Units of limited
partnership interest. As of April 31, 1998, the Partnership had 33,703 Units
outstanding. Under certain conditions, the Managing General Partner may increase
the number of Units to 500,000 and make additional public or private offerings
of Units. See "Plan of Distribution."
MINIMUM SUBSCRIPTION
The minimum subscription is $2,000, plus a selling commission of 4% of
the Average Net Asset Value per Unit purchased, subject to higher minimums
imposed by certain state securities laws. See "Plan of Distribution".
SUBSCRIPTION PROCEDURE
In order to purchase Units, an investor must (i) complete and execute
the Subscription Agreement found in the separate Subscription Documents, and the
power of attorney attached thereto and (ii) deliver or mail the Subscription
Agreement, the power of attorney forms and a check made payable to Ceres Fund,
L.P. for the full purchase price of the Units subscribed for to the Selling
Agent, which will forward the check and the other Subscription Documents to
Randell Commodity Corporation, 889 Ridge Lake Boulevard, Memphis, Tennessee
38120. The power of attorney must be notarized. The minimum subscription is
$2,080 (which includes the 4% per Unit sales commission). During the Offering,
the number of Units purchased will be determined based on the current Average
Net Asset Value per Unit, plus the 4% sales commission. The minimum subscription
is subject to higher minimums imposed by certain state security laws. See "Plan
of Distribution."
PLAN OF DISTRIBUTION
The Units are being offered and sold by the Partnership on a best
efforts basis through its Selling Agents who are members of the NASD on a best
efforts basis. The Partnership will continue to sell Units valued as of the
beginning of each month at the then current Average Net Asset Value per Unit,
plus a selling commission of 4% of the subscription amount until the maximum
number of Units offered have been sold. Subscriptions must be received 5 days
prior to the last day of the month to be admitted on the first business day of
the next month. Fractional Units will be issued. Selling commissions may be
waived as to customers of the Managing General Partner or Refco who convert
their existing futures accounts into the purchase of Units. The General Partners
will maintain an interest in the Partnership not less than 1% of total
Partnership capitalization. As of June 30, 1997, the Managing General Partner
beneficially owned approximately $3,000 or .05% and the Financial General
Partner beneficially owned approximately $321,000, or 5.72%, of the Partnership.
See "Plan of Distribution."
USE OF PROCEEDS
The net proceeds of this Offering will be deposited in the
Partnership's commodity trading account with Refco to be used for trading in
futures contracts and other futures interests. See "Use of Proceeds", "Trading
Approach" and "Trading Policies."
FINANCIAL INFORMATION
Financial information concerning the Partnership is set forth at page
F-1 hereto. Financial information concerning the Managing General Partner and
the Financial General Partner is set forth at pages F-23 and F-31, respectively,
hereto.
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RISK FACTORS
The Partnership will be in a high risk business and a prospective
investor should consider the risk factors described in the CFTC Risk Disclosure
Statement set forth on page iii and the following risks before subscribing for
Units:
RISKS RELATING TO COMMODITY FUTURES TRADING AND THE COMMODITY FUTURES MARKETS
Commodity Futures Trading is Volatile. A principal risk in commodity
futures trading is the traditional volatility (rapid fluctuation) in the market
prices of commodities. Price movements of commodity futures are influenced by,
among other things: changing supply and demand relationships; weather;
agricultural, trade, fiscal, monetary and exchange control programs and policies
of governments; national and international political and economic events and
policies; and changes in interest rates. See "Commodity Futures Markets."
The volatility associated with commodities futures trading is evident
based on the varying rates of return earned by the Partnership over the past
five years. See "Past Performance of the Partnership." Further, past performance
is not necessarily indicative of future performance. In May 1994, the Managing
General Partner became the sole Trading Advisor for the Partnership. Prior to
May 1994, the Managing General Partner and Delta International, Inc. acted as
co-trading advisors to the Partnership. See "The General Partners--Departure of
Delta International, Inc." It should not be assumed that trading decisions made
by the Trading Adviser in the future will avoid substantial losses, no less be
profitable or result in performance for the Partnership comparable to the
Trading Advisor's or Delta International, Inc.'s past performance.
Moreover, in a single adviser fund such as the Partnership where the
Trading Advisor makes all of the trading decisions, volatility may increase as
compared to a fund with several trading advisers (assuming such advisers are
non- correlated with each other) and, therefore, collectively have diversified
risk to a greater extent.
Commodity Futures Trading is Highly Leveraged. Commodity futures
contracts are traded on margins which typically range from about 4% to 10% of
the value of the contract. This produces an extremely high degree of leverage.
As a result, a relatively small price movement in the commodities futures may
result in immediate and substantial losses to the investor. Accordingly, like
other leveraged investments, any purchase or sale of commodity futures contracts
may result in losses in excess of the amount of margin deposits required. The
Partnership may lose more than its initial margin deposit on a trade, but
Limited Partners are not subject to losses in excess of their investment in the
Partnership plus profits, if any (including distributions and, in certain
circumstances, amounts received upon redemption of Units), together with
interest thereon. See "Commodity Futures Markets - Margins" and "The Partnership
Agreement." The margin to equity ratio of the Partnership is approximately 30%,
which is greater than most commodity pools. The greater the Partnership's margin
to equity ratio, the greater the volatility in the Partnership's Net Asset Value
and, consequently, the greater the potential losses to investors.
Commodity Futures Trading May be Illiquid. Commodity exchanges limit
fluctuations in commodity 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 for a particular commodity has
increased or decreased by an amount equal to the daily limit, positions in the
commodity can be neither taken nor liquidated unless traders are willing to
effect trades at or within the limit. Commodity futures prices have occasionally
moved to 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. See
"Commodity Futures Markets - Regulation."
Forward Contracts. Trading in forward contracts is not regulated by the
CFTC and such contracts are not traded on or guaranteed by an exchange or its
clearing house. Rather, banks and dealers act as principals in the forward
contract markets. Consequently, there are not requirements with respect to
recordkeeping, financial responsibility or segregation of customer funds and
positions. If the Partnership trades in forward contracts, it will be subject to
the
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failure, inability or refusal to perform a forward contract by a counter-party
to such forward contract. The default of a party with which the Partnership had
entered into a forward contract would deprive the Partnership of any profit
potential or force the Partnership to cover its commitments for resale, if any,
at the market price then current. See "Commodity Futures Markets-Forward
Trading."
Options. Each option on a commodity futures contract or physical
commodity is a right, purchased for a certain price, to either buy or sell a
commodity futures contract or physical commodity during a certain period of time
for a fixed price. Although successful commodity options trading requires many
of the same skills as does successful commodity futures trading, the risks
involved are somewhat different. For example, if the Partnership buys an option
(either to sell or purchase a futures contract or commodity), it will pay a
"premium" representing the market value of the option. Unless the price of the
futures contract or commodity underlying the option changes and it becomes
profitable to exercise or offset the option before it expires, the Partnership
may lose the entire amount of such premium. Conversely, if the Partnership sells
an option either to sell or purchase a futures contract or commodity, it will be
credited with the premium but will have to deposit margin due to its contingent
liability to take or deliver the futures contract or commodity underlying the
option in the event the option is exercised. Sellers of options are subject to
the entire loss which occurs in the underlying futures position or underlying
commodity (less any premium received). See "Commodity Futures Markets-Options."
RISKS RELATING TO THE PARTNERSHIP AND THE OFFERING OF UNITS
General Partners' Financial Condition. Although the General Partners'
net worth is not a significant consideration in connection with the
Partnership's ability to meet its obligations (because such obligations will
typically be substantially larger than such net worth), the General Partners'
net worth is a significant consideration in connection with their ability to
continue to act as such. The General Partners and their principals will devote
only so much of their time to the affairs of the Partnership as they in their
sole discretion deem necessary. In addition, the General Partners intend to
become the general partner in other commodity pool limited partnerships. If the
General Partners were unable to continue their operations, it would be necessary
for the Partnership to find a substitute general partner and/or trading advisor
in order to continue the Partnership's operations. See "The Partnership
Agreement -- Dissolution and Liquidation" and "Financial Statements" with
respect to capitalization of the General Partners.
Substantial Charges to the Partnership. The Partnership is obligated to
allocate and pay to the General Partners a monthly Management Allocation equal
to 1/3 of 1% (4% annual) of the Adjusted Asset Value of the Partnership
attributable to Units held by the Limited Partners, and a quarterly Incentive
Allocation equal to 15% of Net New Appreciation attributable to Units held by
the Limited Partners, and brokerage commissions and other charges (including,
legal, accounting, auditing, postage, communication expenses and other
extraordinary expenses) regardless of whether the Partnership realizes any
profits. Such other charges to which the Partnership is subject are estimated at
1.5% of the Partnership's net assets per year. The Partnership could, therefore,
be required to make gross trading profits of a substantial magnitude per year to
avoid depletion of Partnership assets from these charges. See "Description of
Charges to the Partnership and Partners."
Brokerage Commissions. Employment of the trading systems described
under "Trading Approaches" may result in active trading during periods of high
volatility and erratic markets. Therefore, the Managing General Partner can
neither anticipate nor predict that more trading will occur than normal. The
gross trading performance may be required to increase substantially in order to
avoid depletion of the Partnership's Net Asset Value from brokerage commissions.
Depending on the volume of trading and market conditions, brokerage commissions
could be as much as average Net Assert Value. For example, if the Partnership
were averaging brokerage commissions equal to 50% of Net Asset Value and
suffered a 50% loss in a given period of time, the brokerage commissions could,
accordingly equal 100% of such Net Asset Value. In addition, there is a conflict
of interest for Selling Agents in advising Limited Partners regarding their
investment in or redemption of Units. The Selling Agents will be paid continuing
commissions each month equal to .4167% (5% per annum) of the Net Asset Value of
those Units they have sold that remain outstanding. Accordingly, there is an
incentive for the Selling Agents to advise Limited Partners to remain in the
Partnership so that
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the Selling Agents may continue to receive such additional compensation. See
"Conflicts of Interest" and "Description of Charges to the Partnership."
Possible Claim Against Limited Partners. If the assets of the
Partnership and the General Partners are in sufficient to discharge the
obligations of the Partnership, the Partnership may have a claim against a
Limited Partner for the repayment of any cash distributions received by him
(including distributions made on redemption of Units), with interest, but only
to the extent that such obligations arose before the distributions. See "The
Partnership Agreement - Liability of Limited Partners."
Limited Partners Will Not Participate in Management. Purchasers of the
Units will not be entitled to participate in the management of the Partnership
or the conduct of its business, but they do have limited voting rights. See "The
Partnership Agreement - Management of Partnership Affairs."
Limited Ability to Liquidate Investment in Units. A Limited Partner may
not transfer his Units except in accordance with the Partnership Agreement. No
market exists for the sale of Units and none is likely to develop. In addition,
a transferee of a Unit can only become a substituted Limited Partner with the
Managing General Partner's consent.
A Limited Partner may require the Partnership to redeem (under certain
circumstances) any or all of his Units at the Redemption Net Asset Value per
Unit, as of the last day of any calendar quarter on 10-days' written notice to
the Managing General Partner. However, Limited Partners will have no right to
redeem Units until the end of the calendar quarter which occurs 6 months after
the date of purchase. Thus, despite the fact that a Limited Partner may believe
it is in his best interests to liquidate his investment in the Partnership
during the first 6 to 8 months from purchase, the Limited Partner will be
required to remain invested in the Partnership during such period of time. See
"Redemptions."
Possible Effect of Redemptions on Unit Values. Because a request for
redemption, to be effective, must be submitted at least 10 days prior to the end
of the calendar quarter for which redemption is sought, the Redemption Net Asset
Value per Unit could decrease significantly, as well as increase, between the
date on which the request is submitted and the date redemption occurs. If a
substantial number of requests for redemption were received by the Partnership
during a relatively short period of time, it is possible that the Partnership
would be unable to satisfy the requests from uncommitted funds. It could become
necessary, consequently, to liquidate commodity positions prior to the time
liquidation would be dictated by the Trading Advisor's strategies, which could
adversely affect the Redemption Net Asset Value per Unit not only for Partners
redeeming Units but for the remaining Partners as well. See "Redemptions."
Conflicts of Interest. Conflicts of interest exist in the structure and
operation of the Partnership's business. These conflicts include conflicts among
the Partnership, the General Partners, and the Managing General Partner acting
as the Trading Advisor and as commodity pool operator. In addition, no fully
independent third party is connected with this Offering or the conduct of the
business of the Partnership who or which might be in a position to affect the
conduct thereof. Also, Refco is acting as the Futures Commission Merchant while
its affiliate is the sole limited partner in the Financial General Partner and
has provided the assets necessary to enable that General Partner to act as
Financial General Partner. Selling Agents may also be reluctant to recommend
redemption of Units since they would otherwise receive a portion of the
brokerage commissions paid by the Partnership to the Futures Commission
Merchant. See "Conflicts of Interest."
Absence of Regulation Applicable to Securities Mutual Funds and their
Advisers. The Partnership has not registered as a securities investment company,
or "mutual fund," and is not subject to the extensive regulation of the
Securities and Exchange Commission imposed upon such entities under the
Investment Company Act of 1940. In addition, the General Partners are not
registered under the Investment Advisers Act of 1940 (or any similar state law).
Therefore, investors may not be accorded the protective measures provided by
such legislation. See "The Limited Partnership Agreement-Termination of the
Partnership." The Managing General Partner is registered with the CFTC as a
commodity pool operator and as a commodity trading advisor. See "Commodity
Futures Markets-Regulation."
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Any determination that the Partnership be required to register as an investment
company under the Investment Company Act of 1940 could have serious adverse
consequences for the Partnership, the Managing General Partner and the Limited
Partners, including termination of the Partnership. See "The Partnership
Agreement-Termination of the Partnership."
RISKS RELATING TO THE TRADING ADVISOR AND THE TRADING APPROACH
Trading Decisions Based on Fundamental and Technical Analysis. Trading
decisions of the Trading Advisor on behalf of the Partnership will be based
primarily on "fundamental" market analysis with attention to certain technical
analysis and strategies. Fundamental market analysis examines external factors
such as government policies, national and international political and economic
events, changing crop prospects and similar factors, which affect the supply and
demand for a particular commodity, in order to anticipate future prices.
Technical analysis is based on the theory that a study of the markets
themselves will provide sufficient information for the anticipation of future
prices. Technical analysis involves studies of price levels and movements,
volume level and open-interest figures and utilizes charts, computer assistance
and other statistical methods to attempt to distinguish market patterns and
trends based primarily upon price behavior within the market itself. Technical
analysis is generally considered helpful in determining the timing of position
taking and the appropriate moment to enter or exit a particular market, but may
be unable to respond to fundamental changes until after their impact has ceased
to influence the market. While computer programs are generally utilized, the use
of computer programs in developing, operating or assisting a trading system does
not assure the success of the trading method. In utilizing the proprietary
technical methods, the Trading Advisor will utilize its own and others' computer
programs for analysis and generating signals for trading. Other technical
services such as charts and other index calculations will also be observed and
utilized. The utilization of these factors may be qualitative and not
quantitative; therefore, the Trading Advisor will exercise a significant degree
of discretion in connection with the application of the Partnership's trading
strategies.
The profitability of diversified technical and fundamental trading
systems depends upon major price moves or trends in some commodities. In the
past, there have been periods without major price moves or trends and,
presumably, such periods will continue to occur. The best trading systems will
not be profitable if there are no major price moves or trends of the kind the
systems seek to identify. No assurance can be given that the Trading Advisor
will be successful in executing the Partnership's trading strategy.
Possible Effects of Trend-Following Systems. Commodity trading systems
employing exclusively trend-following timing signals, based either exclusively
on fundamental or technical analysis or on a combination thereof, are numerous.
If many traders follow very similar systems, bunching of buy and sell orders can
occur, which makes it more difficult for a commodity position to be taken or
liquidated. For example, "program traders", who arbitrage between the "cash" and
futures stock index markets, will tend, as a group, to buy stock index futures
when the futures are priced at a discount to the "cash" markets and to sell
stock index futures when the reverse is the case. The effect of such "group" or
"program trading" on the success of the Trading Advisor's trading approaches,
although too difficult to predict, may be adverse.
Possible Effects of Speculative Position and Trading Limits. The CFTC
and commodity exchanges have established limits referred to as "speculative
position limits" on the maximum net long or net short position which any person
may hold or control in particular commodities, and certain commodity exchanges
have established limits referred to as "trading limits" on the maximum number of
contracts which any person may trade on a particular trading day. In addition
the CFTC requires contract markets to set speculation position limits on all
futures contracts. See "Commodity Futures Markets - Regulation." All commodity
accounts managed by the General Partners, including the Partnership's account,
may be required to be combined for position and trading limit purposes. The
Managing General Partner believes that established position and trading limits
will not adversely affect the Partnership's contemplated trading. However, it is
possible that the trading decisions of the Managing General Partner may have to
be modified and that positions held by the Partnership may have to be liquidated
in order to avoid exceeding such limits. Such modification or liquidation, if
required, could adversely affect the operations and profitability of the
Partnership.
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The Managing General Partner as Trading Advisor - Termination. The
Managing General Partner, acting as the trading advisor, will make the trading
decisions for the Partnership. If the Managing General Partner is unable to
continue its operations, or if the Managing General Partner were removed as a
General Partner of the Partnership, it would be necessary for the Partnership to
find a substitute trading advisor in order to continue the Partnership's
operations.
Trading on Foreign Exchanges and Currency Exchange Rate Fluctuations.
The Trading Advisor may engage in trading on foreign exchanges and other markets
located outside of the U.S. ("Foreign Markets") on behalf of the Partnership.
There is no limit to the percentage of Partnership assets which may be committed
to trading on Foreign Markets. Neither CFTC regulations nor regulations of any
other U.S. Governmental agency apply to the actual execution of transactions on
Foreign Markets. Some Foreign Markets, in contrast to domestic exchanges, are
"principals' markets" in which performance is the responsibility only of the
individual member with whom the trader has entered into a commodity transaction
and not of the exchange or clearing corporation. In such case, the Partnership
will be subject to the risk of the bankruptcy or other inability of, or refusal,
by such member or the counter-party to perform with respect to such
transactions. For example, in the past, certain members of the tin market of the
London Metal Exchange failed to perform their obligations under outstanding tin
contracts, resulting in a prolonged suspension of trading, and, ultimately, a
closing of that market and settlement of outstanding positions at an artificial
price level dictated by the London Metal Exchange. As a result, a number of
commodity traders suffered substantial losses and other substantial reductions
of the profits which they would otherwise have realized. In effect, therefore,
due to the absence of a clearinghouse system on many foreign markets, such
markets are significantly more susceptible to disruptions (such as that which
occurred on the London Metal Exchange's tin market) than on the United States
exchanges. See "Commodity Futures Markets-Commodity Regulation" and "CFTC Risk
Disclosure Statement."
Furthermore, because the Partnership will determine Net Asset Value per
Unit in United States dollars, with respect to trading on foreign markets the
Partnership will be subject to the risk of fluctuation in the exchange rate
between the local currency and dollars and to the possibility of exchange
controls. Unless the Partnership hedges itself against fluctuations in exchange
rates between the United States dollar and the currencies in which trading is
done on such foreign exchanges, any profits which the Partnership might realize
in such trading could be eliminated as a result of adverse changes in exchange
rates and the Partnership could even incur losses as a result of any such
changes. See "Commodities Futures Markets-Commodity Regulations" and "CFTC Risk
Disclosure Statement."
Although the CFTC is prohibited by statute from promulgating rules
which govern in any respect any rule, contract term or action of any foreign
commodity exchange, the CFTC has adopted regulations to regulate the sale of
foreign futures contracts and foreign options within the United States. These
regulations may restrict the Partnership's access to foreign markets by limiting
the activities of certain participants in such markets with whom the Partnership
could otherwise have traded.
New Futures and Options Contracts. Only those futures and options on
futures contracts designated or approved for trading by the CFTC may be
domestically traded by the Partnership. Periodically, the CFTC may approve and
designate additional futures and options contracts. If the Trading Advisor
determines that it may be advantageous to trade in such new futures and options
contracts, it may do so. Because such futures and options contracts will be new,
there can be no assurance that the trading approach of the Trading Advisor will
be able to utilize any such contracts. The markets in new futures and options
contracts, moreover, historically have been both illiquid and highly volatile
for some period of time after trading begins. This presents both significant
profit potential and a corresponding high risk potential for any such contracts
that are traded. See "Commodity Markets."
TAXATION RISKS
Possibility of Taxation as a Corporation. The tax consequences of an
investment in the Partnership are dependent upon the Partnership being
characterized as a partnership for federal income tax purposes and not as an
association taxable as a corporation. No ruling has been obtained or will be
sought by the Partnership from the Internal Revenue Service (the "Service") as
to its classification for tax purposes, or with respect to any of the projected
tax
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consequences set forth in this Prospectus. The Partnership will instead rely in
this regard upon an opinion of its counsel. This opinion is based, in part, upon
the General Partners' representation that 90% or more of the Partnership's gross
income will constitute "qualifying income" for purposes of Section 7704 of the
Internal Revenue Code of 1986, as amended (because otherwise the Offering and
redemption features of the Partnership would likely will cause it to be
classified as a "publicly-traded partnership"). Such opinion is not binding on
the Service. The facts and authorities relied upon by counsel in their opinion
may change in the future. If the Service determines that the Partnership is an
association taxable as a "corporation", there would be severe adverse tax
consequences to the Limited Partners. No representation or warranty of any kind
is made with respect to any tax consequences relating to the business of the
Partnership. See "Certain Federal Income Tax Aspects."
Possible Changes in the Tax Code. In recent years, the federal income
tax laws have undergone repeated and substantial changes, a number of which have
been materially adverse or potentially adverse, to investments such as the
Partnership. It is impossible to predict what the effect of future changes in
the federal income tax laws will be on an investment in the Partnership. Change,
if any, may be retroactive to transactions entered into or completed prior to
the effective date thereof and could have a material impact on the tax treatment
of the transactions entered into by the Partnership. Potential Limited Partners
should seek the advice of their own tax advisors with respect to the impact of
the recent changes in the federal income tax laws, as well as the impact of any
future proposed tax legislation, or administrative or judicial action. See
"Certain Federal Income Tax Aspects."
"Passive" Losses. Any income derived from the Partnership's trading
activities, as well as interest income earned by the Partnership, will
constitute "portfolio income" or other income not from a passive activity, which
means that losses resulting from a Limited Partner's other passive activities
(including most "tax shelter" limited partnerships) cannot be offset against
such income. See "Certain Federal Income Tax Aspects."
Partners' Tax Liability in Excess of Cash Distributions. The
Partnership is not required to distribute profits. If the Partnership has
taxable income for a fiscal year, such income will be taxable to Limited
Partners in accordance with their distributive shares of the Partnership's
profits, irrespective of whether such profits have been distributed to them.
Accordingly, taxes payable by Limited Partners for any profits of the
Partnership may exceed any distributions received from the Partnership. See
"Certain Federal Income Tax Aspects."
Management and Incentive Allocations Payable to the General Partners.
Miscellaneous itemized expenses of an individual taxpayer are deductible only to
the extent the aggregate amount of these expenses exceed 2% of his adjusted
gross income. This 2% floor will apply to a Partner's indirect deduction of
Partnership "investment advisory fees." The General Partners, in the absence of
further clarification by legislation, the promulgation of regulations or
judicial or administrative interpretation, intends not to treat any part of the
Management and Incentive Allocations as "investment advisory fees." The tax
position which the General Partners intend to take could result in Limited
Partners being required to file amended tax returns and pay additional taxes
plus interest and penalties. The General Partners will determine, in their sole
discretion and without consulting with Limited Partners, how to treat the
Management and Incentive Allocations, as well as other Partnership expenses, for
federal income tax purposes. See "Certain Federal Income Tax Aspects."
Continuing Commissions. The Internal Revenue Service may contend that a
portion of the brokerage commissions paid by the Partnership to Refco constitute
nondeductible syndication expenses under the theory that such commissions are to
reimburse Refco for its advance of the Partnership's organizational and offering
expenses, or because Selling Agents will receive compensation from Refco on an
ongoing basis from a portion of the commodity brokerage commissions paid by the
Partnership. If the Service were successful in this regard, the Partnership
would be required to capitalize such amounts, thereby increasing the amount of
gain (or reducing the amount of loss) allocable to the Partners with respect to
the Partnership's trading activities. See "Certain Federal Income Tax Aspects."
Possibility of Tax Audit. There can be no assurance that the
Partnership's tax returns will not be audited by the Service or that adjustments
to such returns will not be made as a result of such an audit. Uncertainty
concerning the federal tax status of certain positions taking by the Partnership
may increase the likelihood that the Partnership's returns
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will be audited by the Service. If an audit results in an adjustment, Limited
Partners may be required to file amended returns (which may themselves also be
audited) and to pay additional taxes plus interest and penalties. See "Certain
Federal Income Tax Aspects."
THE FOREGOING LIST OF RISK FACTORS DOES NOT PURPORT TO BE A COMPLETE
EXPLANATION OF THE RISKS INVOLVED IN THIS OFFERING. POTENTIAL INVESTORS SHOULD
READ THE ENTIRE MEMORANDUM BEFORE DETERMINING TO PURCHASE UNITS AND SEEK ADVICE
FROM QUALIFIED INDEPENDENT COUNSEL.
INVESTMENT FACTORS
Limited Partners will be able to obtain certain advantages which might
otherwise be unavailable to them if they were to engage directly in commodity
transactions. Among these are the following:
Limited Liability. Unlike an individual investor engaging in
speculative commodity trading for his own account, a Limited Partner cannot lose
more than the amount of his investment (and profits together with distributions
and interest thereon) and will not personally be subject to margin calls (See
"The Partnership Agreement" and "Commodity Futures Trading - Margins").
Investment Diversification. An investor who is not prepared to spend
substantial time trading commodity futures contracts may, nevertheless,
participate in these markets through the Partnership, thereby obtaining diver
sification in his investment portfolio. It may be that the profit potential of
the Partnership will not depend upon favorable general economic conditions, and
that it will be as likely to be profitable during periods of declining stock,
bond and real estate markets as at any other time; conversely, it may be
unprofitable or profitable during periods of generally favorable economic
conditions.
Trading Management. Trading decisions will be made for the Partnership
by the Trading Advisor. The Trading Advisor is a registered commodity trading
advisor with the CFTC and the NFA. The Trading Advisor will manage the
investments as described in this Prospectus. See "Trading Approach" and "Trading
Policies."
Interest Earned. The Partnership assets will earn interest from Refco
on 100% of the average daily equity maintained in cash in the Partnership's
trading account at a rate equal to 80% of the average yield on thirteen week
U.S. Treasury Bills issued during each month. An individual trader generally
would not receive any interest on the funds in his commodity account unless he
committed substantially more than the minimum investment in the Partnership.
Independence of Trading Advisor from Broker. The Trading Advisor, who
will make all trading decisions for the Partnership, will receive the Management
Allocation and Incentive Allocation from the Partnership and will not
participate in brokerage commissions on the Partnership account. Refco as the
Futures Commission Merchant charges commissions but has no authority to make
trading decisions and executes trades only at the direction of the Trading
Advisor. Refco will not participate in Management or Incentive Allocations. See
"Conflicts of Interest."
CONFLICTS OF INTEREST
The following relationships may involve inherent conflicts of interest
which should be considered by prospective purchasers of Units:
Accounts of Affiliates of the Futures Commission Merchant. The
officers, directors and employees and associated persons of Refco trade in
commodity futures contracts for their own accounts. The results of any such
trading will not be available for inspection by Limited Partners. In addition,
Refco is a registered futures commission merchant and executes transactions in
commodity futures contracts for its customers. See "The Futures Commission
Merchant." Thus, it is possible that Refco could execute transactions for the
Partnership in which the other parties to the transactions
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are its officers, directors, employees or customers. Such persons might also
compete with the Partnership in making purchases or sales of contracts without
knowing that the Partnership is also bidding on such contracts.
The Selling Agents. Pursuant to the Selling Agreement among the
Partnership, the General Partners and each of the Selling Agents, those Selling
Agents which are registered or exempt from registration as futures commission
merchants ("FCMs") or introducing brokers ("IBs") under the CEA will be paid
commissions by the Partnership for the sale of Units. Crescent Futures
Corporation, an independent introducing broker, may introduce investors to the
Partnership. Selling Agents who are appropriately registered or exempt from
registration as futures commission merchants, introducing brokers or associated
persons will be paid continuing ("trail") commissions by Refco for continuing
services related to the purchase of Units so long as those Units remain issued
and outstanding. SELLING AGENTS MAY HAVE A CONFLICT OF INTEREST IN ADVISING
LIMITED PARTNERS AS TO WHETHER THEY SHOULD REDEEM UNITS BECAUSE OF THE AGENTS'
INCENTIVE TO OBTAIN SUCH CONTINUING COMPENSATION.
Other Activities and Accounts of the General Partners and their
Affiliates. The Managing General Partner trades, and its officers, directors,
employees and affiliates trade in commodity futures contracts for their own
account and for the accounts of other customers. The records of such trading
will not be available for inspection by Limited Partners; however, the
performance history of the Managing General Partner and its parent, Randell
Corporation, will be available through filings required to be made with the
CFTC. All of the positions held by all accounts managed by the Managing General
Partner will be aggregated with positions held by the Partnership for purposes
of determining compliance with position limits. As a result, the Partnership
might not be able to enter into or maintain certain positions if such positions,
when added to the positions held by such other accounts, would exceed applicable
limits. If trading orders must be revised as a result of the application of
speculative position limits, the Managing General Partner is required to modify
such orders in a manner which will not substantially disproportionately affect
the Partnership as compared with the Managing General Partner's other accounts.
In addition, the Managing General Partner represents that it will not knowingly
or deliberately use trading strategies for the Partnership which are inferior to
those used for any other client or account nor to favor any other account over
the Partnership in any way, although various factors affecting different types
and sizes of accounts may require the utilization of different strategies or
trading methods for such accounts. See "Commodity Futures Market - Regulation."
See "General Partner", "Trading Advisor" and "Futures Commission Merchant."
Management of Other Pools and Accounts. The General Partners and Refco
may establish, sponsor, or be affiliated with other commodity pools which may
engage in the same or similar business as the Partnership. The Managing General
Partner presently acts as the general partner of one other limited partnership
which is a commodity pool.
Although its fiduciary responsibility prohibits the Managing General
Partner from knowingly favoring any account it manages over any other, the
performance of the Partnership could be materially different from other accounts
of the Managing General Partner because of size, diversification, or special
emphasis of some accounts in certain specific commodities and, moreover, the
performance of the Partnership could be adversely affected by the manner in
which particular orders are entered by the Managing General Partner for all such
trading accounts since orders for the same commodity are filled in the order
they are received at the particular trading floor. To the extent permitted by
applicable regulations, the Managing General Partner may use "block orders" in
effecting trades with a view to diminishing the effect of any such potential
conflict.
Trading Systems of the Managing General Partner and Refco. Neither the
Partnership nor any Limited Partner will acquire any interest in any trading
systems or information developed by any third party, the General Partners or
Refco, or any officer, director, employee, shareholder or associated person
thereof solely by virtue of his status as a Limited Partner in the Partnership.
Similarly, neither the Partnership nor any Limited Partner will acquire any
interest in the General Partners, Refco, or any other corporation or partnership
in which any officer, director, employee, shareholder or affiliated person of
the foregoing has a beneficial interest solely by virtue of its status as the
Partnership or his status as a Limited Partner of the Partnership.
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Brokerage Charges. The Managing General Partner believes that the
Customer Agreement with Refco and arrangements thereunder between the
Partnership and Refco are consistent with charges incurred by other commodity
pools of a similar size and with similar arrangements such pools have entered
into with other futures commission merchants and therefore are fair to the
Partnership. The Managing General Partner will review, at least annually, the
brokerage commission rates charged comparable commodity pools by major futures
commission merchants to determine that the commission rates paid by the
Partnership are fair, consistent and competitive with such other rates. Certain
customers of Refco, including accounts owned or managed by Randell Corporation,
the parent of the Managing General Partner, pay, and will continue to pay,
commissions at rates both substantially less and substantially more than those
which will be charged to the Partnership. The Partnership Agreement (to which
each Limited Partner will be a party) and the Subscription Agreement executed by
each Limited Partner (i) approve the execution and delivery of the Customer
Agreement by the Partnership and (ii) authorize the payment to Refco by the
Partnership of brokerage fees at the rates provided for in the Customer
Agreement as described above. See "The General Partners," "The Futures
Commission Merchant" and "Futures Contracts, Margins and Commissions." An
affiliate of Refco is the sole limited partner of RanDelta and has provided the
assets necessary to enable RanDelta to act as Financial General Partner. Randell
Commodity Corporation (the Managing General Partner and Trading Advisor) is the
general partner of RanDelta. Therefore, the General Partners of the Partnership
may be reluctant to terminate Refco as the Futures Commission Merchant. In
addition, while neither the General Partners nor the Partnership are affiliated
with Refco, the affiliation of the sole limited partner of RanDelta to Refco and
the other relationships described in this Prospectus may create a conflict of
interest in causing the Managing General Partner, as the Trading Advisor, to
actively trade the Partnership's account to generate brokerage commissions for
Refco. However, as a limited partner, the sole limited partner of RanDelta does
not have the authority to participate in the management and control of RanDelta
or render management or investment advice thereto. Furthermore, while the
potential for such a conflict of interest exists, there is a disincentive for
the Trading Advisor to generate excessive brokerage commissions since its own
compensation from the Partnership would be adversely affected.
Arrangements With Futures Commission Merchant and Others. The Managing
General Partner has in the past sold to its principals and/or associated persons
a variety of technical and other commodity market information. Some of the data
utilized by the Managing General Partner concerning commodity accounts managed
by it is maintained on and provided from computer equipment owned by the Futures
commission merchant. The Managing General Partner currently subleases office
space from Sparks Companies, Inc. ("SCI"), has offices adjacent to SCI in
Memphis and utilizes SCI's commodity research services and other research
capabilities. Also, the Managing General Partner and its principals participate
in investments in other ventures with persons associated with the Futures
Commission Merchant and have had personal and business relationships with such
persons over a period of 15 years. However, no officer, director, employee or
associated person of the Futures Commission Merchant has any direct or indirect
interest in the Managing General Partner or their income or profits and no
officer, director or employee of the Managing General Partner have any interest,
direct or indirect, in the Futures Commission Merchant. An affiliate of Refco is
the sole limited partner in the Financial General Partner and has provided the
assets necessary to enable that General Partner to act as Financial General
Partner; therefore, the General Partners of the Partnership may be reluctant to
terminate Refco as the Futures Commission Merchant.
Compensation of the General Partners. BECAUSE THE MANAGING GENERAL
PARTNER MANAGES THE PARTNERSHIP AND IS ITS TRADING ADVISOR, IT HAS A
DISINCENTIVE TO REPLACE ITSELF IF IT PERFORMS POORLY FOR THE PARTNERSHIP. THE
MANAGING GENERAL PARTNER IS ALSO A GENERAL PARTNER IN THE FINANCIAL GENERAL
PARTNER. IN ADDITION, THE TERMS OF THE GENERAL PARTNERS' COMPENSATION HAVE NOT
BEEN SET BY ARMS LENGTH BARGAINING. HOWEVER, THE GENERAL PARTNERS HAVE A LEGAL
FIDUCIARY RESPONSIBILITY TO THE PARTNERSHIP TO EXERCISE GOOD FAITH AND FAIRNESS
IN ALL DEALINGS AFFECTING THE PARTNERSHIP. IN ADDITION, THE GENERAL PARTNERS'
COMPENSATION DECREASES IF THE PARTNERSHIP PERFORMS POORLY. See "Fiduciary
Responsibility of the General Partners."
Independence of Counsel. The Partnership, the General Partners and the
Memphis branch of Refco are represented by a single law firm. To the extent that
the Partnership and this offering would benefit by further
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independent review, such a benefit will not be available in this offering. There
is also an absence of arm's-length negotiation with respect to the terms of this
offering. No other party will provide fully independent review of this offering
or the conduct of the Partnership's business.
Other Relationships. The sole shareholder of the parent of Randell
Commodity Corporation, the Managing General Partner, is a partner in the law
firm which is counsel to the Partnership, the General Partners, the Memphis
branch of Refco, the affiliate of Refco which is the sole limited partner in the
Financial General Partner, and the Commodity Broker. The General Partners and
Refco receive compensation from the Partnership in various forms as described
herein. See "Description of Charges to the Partnership." There are no other
relationships among the General Partners, the Futures Commission Merchant or any
principal of them which are believed may result in any conflict of interest.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS
In evaluating potential conflicts of interest, an investor should be
aware that the General Partners have a responsibility to the Limited Partners to
exercise good faith and fairness in all dealings affecting the Partnership. This
is a rapidly developing and changing area of the law, and Limited Partners who
have questions concerning the responsibilities of the General Partners should
consult their counsel. In the event that a Limited Partner believes the General
Partners have violated their responsibility, such Limited Partner may seek legal
relief for himself and all other similarly situated Limited Partners or on
behalf of the Partnership under applicable laws, including partnership and
securities laws, to recover damages from or to require an accounting by the
General Partners. In addition, a Limited Partner may institute legal proceedings
or initiate reparation proceedings before a CFTC administrative law judge
against the General Partners or the Futures Commission Merchant for violations
of the anti-fraud and other provisions of the CEA. The CFTC has issued a
statement of policy relating to indemnification of officers and directors of a
futures commission merchant and its controlling persons under which it has taken
the position that whether such an indemnification is consistent with the
policies expressed in the CEA, as amended, in each instance will be determined
by the CFTC on a case-by-case basis. Prospective Limited Partners should be
aware that the broad authority given to the General Partners, and the nature of
the commodities markets, the limited judicial decisions providing standards
defining violations of the CEA, and the exculpatory provisions of the
Partnership Agreement may make it difficult to establish a violation of the CEA.
The General Partners and certain of their affiliates, directors and
controlling persons may not be liable to the Partnership or any Limited Partner
for errors in judgment or other acts or omissions not amounting to misconduct or
negligence, as a consequence of the indemnification and exculpatory provisions
described in the following paragraph. Purchasers of Units may have more limited
rights of action than they would absent such provisions.
The General Partners and their affiliates shall have no liability to
the Partnership or to any Limited Partner for any loss suffered by the
Partnership which arises out of any action or inaction of the General Partners
or their affiliates if the General Partners or their affiliates, in good faith,
determined that such course of conduct was in the best interest of the
Partnership and such course of conduct did not constitute negligence or
misconduct of the General Partners or their affiliates. The Partnership has
agreed to indemnify the General Partners and certain of their affiliates,
officers, directors and controlling persons against claims, losses or
liabilities based on their conduct relating to the Partnership, provided that
the conduct resulting in the claims, losses or liabilities for which indemnity
is sought did not constitute negligence or misconduct or breach of any fiduciary
obligation of the Partnership, and was done in good faith and in a manner
reasonably believed to be in the best interests of the Partnership. Affiliates
of the General Partners are entitled to indemnity only for losses resulting from
claims against such affiliates due solely to their relationship with the General
Partners or for losses incurred by such affiliates in performing the duties of
the General Partners. For purposes of the exculpation and indemnification
provisions of the Partnership Agreement, the term "affiliates" means any person
performing services on behalf of the Partnership who (i) directly or indirectly
controls, is controlled by, or is under common control with the General
Partners; or (ii) owns or controls 10% or more of the outstanding voting
securities of the General Partners; or (iii) is an officer or director of either
General Partner; or (iv) if either of the General Partners is an officer,
director, partner or trustee, is any company for which such General Partner acts
in any such capacity.
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The Partnership will not indemnify the General Partners or any of the
foregoing persons for any liability arising from securities law violations in
connection with the offering of the Units unless the General Partners or such
persons prevail on the merits or obtain a court approved settlement which
includes court approved indemnification as described in Section 8.05(b) of the
Partnership Agreement.
Under the exculpatory provisions of the Partnership Agreement, none of
the General Partners or their affiliates will be liable to the Partnership or to
any of the Partners except by reason of acts or omissions constituting bad
faith, misconduct or negligence, and that were not taken in good faith and in
the reasonable belief that such actions were in the best interests of the
Partnership. Purchasers of Units may have a more limited right of action then
they would absent such limitations. See "Conflicts of Interest" and "The
Partnership Agreement."
DESCRIPTION OF CHARGES TO THE PARTNERSHIP AND PARTNERS
The Partnership will be subject, directly or indirectly, to substantial
charges, all of which are described in detail below:
Form of Amount of
Recipient Compensation Compensation
- --------- ------------- -------------
General Partners Monthly Management Allocation 1/3 of 1% per month of Adjusted
Asset Value attributable to
Units held by Limited Partners
(4% annual rate).
Quarterly Incentive Allocation 15% of any Net New Appreciation
attributable to Units held by
Limited Partners.
Redemption Charges Units held by Limited Partners
will be charged a 4%, 3% and 2%
redemption fee, not to exceed 5%
of the gross purchase price
per Unit on all redemptions
made on or prior to the end of
the sixth, ninth and twelfth
month, respectively, after the
purchase of such Units.
Futures Commission Brokerage Commissions $32.50 per roundturn, estimated
Merchant to aggregate 30% of the
Partnership's average Net Asset
Value, determined annually.
Selling Agents Sales Commission 4% sales commission to the
Selling Agent responsible for
a sale of Units.
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Brokerage Commissions Selling Agents who are also
appropriately registered or
exempt from registration as
futures commission merchants,
will be paid by Refco from its
Brokerage Commissions as of the
first day of each month .4167%
(5% per annum) of the Net Asset
Value of the Units as a
continuing ("trail") commission
for continuing services related
to the purchase of Units.
This fee is payable monthly.
Other Periodic legal, accounting, Estimated to aggregate 1.5% of
auditing, postage, and other the Partnership's average Net
communication expenses, and Asset Value per year,
all extraordinary and filing adjusted periodically.
fees of the Partnership.
GENERAL PARTNERS
Management Allocation. For acting as General Partners, commodity pool
operator and trading advisor, the General Partners will receive a monthly
management special allocation under the Partnership Agreement equal to 1/3 of 1%
(4% per annum) of the Adjusted Asset Value of the Partnership attributable to
the Units of limited partnership interest ("Management Allocation"). Adjusted
Asset Value generally means the market value of all of the assets of the
Partnership less certain expenses and liabilities, but before deduction for the
Management Allocation, the Incentive Allocation and accrued brokerage
commissions on open trades. See "Adjusted Asset Value and Net Asset Value." The
Management Allocation will be calculated and added to the General Partners'
capital accounts each month regardless of whether the Partnership has any
profits. The burden of the Management Allocation will be charged entirely
against the Units of the Limited Partners.
Incentive Allocation. The General Partners will also receive a
quarterly incentive allocation ("Incentive Allocation") under the Partnership
Agreement equal to 15% of Net New Appreciation achieved by Units as of the end
of any calendar quarter. The Incentive Allocation will be charged only against
the Units of those Limited Partners whose Units have achieved Net New
Appreciation as of the end of each calendar quarter. "Net New Appreciation"
means the increase, if any, in the Adjusted Asset Value attained by such Unit as
of the end of any quarter (after reduction for the Management Allocation
chargeable to such Unit) over the highest Net Asset Value of the Unit as of the
end of any prior quarter, adjusted for distributions and redemptions. The
Incentive Allocation will be calculated and added to the General Partners'
capital accounts each quarter; however, the Incentive Allocation will not be
paid to the General Partners unless there is Net New Appreciation with respect
to any individual Unit as of the end of each calendar quarter. Subject to the
foregoing, if any payment is made to the General Partners in respect of
quarterly appreciation experienced by the Limited Partner, and the Limited
Partner thereafter incurs a decline in his respective Net Asset Value per Unit
for any subsequent calendar quarter, the General Partners will retain the amount
previously paid with respect to the prior appreciation. However, no subsequent
quarterly Incentive Allocation would be paid with respect to any Units which
have increased in value until all of the declines for such Units are recovered,
and the Net Asset Value of such Units reaches a quarterly value in excess of any
prior highest quarterly value.
For example, assume that as of January 1, 1997, the Net Asset Value per
Unit of Limited Partner #1 ("LP1") was $100, and that on March 31, 1997, the
Adjusted Asset Value of the Partnership attributable to LP1's Units, after
subtraction of the Management Allocation, was $110. LP1 has experienced $10 in
Net New Appreciation, and would be charged an Incentive Allocation of $1.50,
resulting in a Net Asset Value per Unit for LP1 of $108.50. Assume also that
during the quarter ending June 30, 1997, the Partnership experienced losses such
that the Adjusted Asset Value of the Partnership attributable to LP1's Units,
after subtraction of the Management Allocation, was $105. LP1 would be charged
no Incentive Allocation for the quarter and his Net Asset Value per Unit
likewise would be $105. Further assume that Limited Partner #2 ("LP2") was
admitted to the Partnership as of July 1, 1997, at the Partnership's Average
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Net Asset Value per Unit of $105 (again, an assumed figure). As of the end of
the quarter ending September 30, 1997, assume also that the Adjusted Asset Value
of the Partnership attributable LP1's and LP2's Units was $112, again after
subtraction of the Management Allocation. LP1 has experienced $3.50 of Net New
Appreciation ($112 less $108.50, the highest prior Net Asset Value per Unit for
LP1), and would be charged an Incentive Allocation of $.525, resulting in a Net
Asset Value per Unit for LP1 of $111.475. LP2, on the other hand, has
experienced $7 of Net New Appreciation, and would be charged an Incentive
Allocation of $1.05, resulting in a Net Asset Value per Unit for LP2 of $110.95.
Therefore, because the Incentive Allocation is computed separately for each
Partner's Units, each Partner's respective Net Asset Value per Unit will differ
depending upon when such Partner enters the Partnership. "See "Adjusted Asset
Value and Net Asset Value."
Redemption Charges. Units will be charged a 4%, 3%, and 2% redemption
fee, not to exceed 5% of the gross purchase price per Unit, on all redemptions
made on or prior to the end of the sixth, ninth and twelfth month, respectively,
after the purchase of such Units. These redemption charges will be paid to the
General Partners.
FUTURES COMMISSION MERCHANT (REFCO)
Brokerage Commissions. Brokerage commissions will be charged to the
Partnership and paid to Refco at a rate (which includes pit brokerage fees)
equal to $32.50 per roundturn plus any applicable NFA and exchange fees. 50% of
such brokerage commissions will be paid to Refco upon the opening of a position
and 50% will be paid upon the closing of a position. See "Futures Commission
Merchant." These commissions are estimated to equal 30% of average Partnership
net assets per year, but depending upon the volume of trading and market
conditions, may equal or exceed the average Net Asset Value of the Partnership
in any year. Depending on the volume of trading and market conditions, brokerage
commissions could be as much as average Net Asset Value. For example, if the
Partnership were averaging brokerage commissions equal to 50% of Net Asset Value
and suffered at 50% loss in a given period of time, the brokerage commissions
could, accordingly equal 100% of such Net Asset Value. Refco will pay continuing
("trail") commissions to those Selling Agents who are also appropriately
registered or exempt from registration as futures commission merchants,
introducing brokers or associated persons as a commission for continuing
services related to the purchases of Units.
SELLING AGENTS
Sales Commissions. The Partnership will pay Selling Agents who sell
Units a commission equal to 4% of the subscription price for such Units.
Continuing ("Trail") Commissions. Refco will pay to those Selling
Agents who are also appropriately registered or exempt from registration as
futures commission merchants, introducing brokers or associated persons a
monthly commission for continuing services related to the purchases of Units.
Crescent Futures Corporation, an independent introducing broker, may introduce
investors to the Partnership. The amount of such continuing ("trail") commission
will be equal to .4167% (5% per annum) of Net Asset Value of those Units sold by
such Selling Agents that remain issued and outstanding.
OTHER
Periodic legal, accounting, auditing, postage and other communication
expenses, and all extraordinary expenses and filing fees will be paid by the
Partnership. The Partnership will pay actual expenses incurred, estimated at
1.5% of average Net Asset Value per year, to be adjusted periodically. None of
the General Partners' "overhead" expenses incurred in connection with the
administration of the Partnership (including but not limited to, salaries, rent,
and travel expenses) will be charged to the Partnership. Any loans made by the
General Partners to the Partnership will not bear interest in excess of their
interest costs or in excess of the rate charged by unrelated banks on comparable
loans.
Refco has paid all offering expenses of the Partnership relating to the
Offering, including legal, accounting and auditing fees, printing costs,
solicitation and marketing costs, and other related fees and expenses. Other
than the payment of sales commissions on a continuous basis, the Partnership
will not reimburse Refco for any such organizational and offering costs.
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The items described above represent all the compensation the General
Partners or their affiliates will receive either directly or indirectly as
charges to the Partnership or the Limited Partners.
OPERATING EXPENSES
THE FOLLOWING SUMMARY DOES NOT CONSTITUTE A REPRESENTATION BY THE
PARTNERSHIP AS TO THE ACTUAL OPERATING EXPENSES OF THE PARTNERSHIP. FURTHERMORE,
THERE CAN BE NO ASSURANCE THAT THE EXPENSES TO BE INCURRED BY THE PARTNERSHIP
WILL NOT EXCEED THE AMOUNTS AS PROJECTED OR THAT THERE WILL BE NO OTHER
EXPENSES.
PROJECTED OPERATING EXPENSES
Attributable to Limited Partner Units
for the Current 12-Month Period of Operations
(January 1 - December 31, 1998)
Item Dollar Amount(1)
---- ----------------
Management Allocations(2) $ 270,000
Incentive Allocations(3) --
Brokerage Commissions(4) 835,000
Exchange, clearing fees and NFA charges 38,000
Administrative Expenses(5) 72,000
----------
Total $1,215,000
- --------------
(1) All dollar amounts calculated based on the average Partnership's Net
Asset Value attributable to Limited Partner Units January through April
1998, and pro-rated for the remainder of the 12-month period.
(2) Fixed at 1/3 of 1% per month (a 4% annual rate) of the Partnership's
Adjusted Asset Value attributable to Limited Partner Units at
month-end.
(3) Since the incentive fee is based on a formula (15% of Net New
Appreciation attributable to Limited Partner Units) which depends upon
Partnership trading performance and since Partnership trading
performance is incapable of projection, the General Partner has
determined not to estimate these amounts.
(4) Based on roundturn brokerage commissions of $32.50 estimated to be 2.5%
per month (30% per year).
(5) Based on the ordinary administrative expenses to be incurred by the
Partnership estimated at 1% per year of the Partnership's average
month-end Net Assets. Assumes that the Partnership's Net Assets
attributable to Limited Partnership Units remain unchanged throughout
the 12-month period. Of the Administrative Expenses, 15% is estimated
to be used for postage and mailing supplies, 60% is estimated to be
used for audit and tax services (including preparation of the
Partnership's tax return, required audits by CFTC regulations,
accounting reviews for Form 10-K's and 10-Qs), and 25% is estimated to
be used for legal fees.
A Unit subscribed for at the Net Asset Value of $100 must earn gross
trading profits plus interest income of $42.00 from the Partnership's trading
operations in order for an investor, upon redemption of such Unit at the end one
year, to receive $104 (representing the beginning Net Asset Value of such a Unit
at the commencement of trading operations plus the 4% sales commission) after
payment by the Partnership of its expenses and 2% redemption fee.
If a limited Partner subscribed for a Unit at the Net Asset Value of
$104 per Unit and immediately redeemed the Unit prior to the commencement of
trading operations (assuming that the Partnership Agreement would allow such an
immediate redemption), the Limited Partner would receive $96 after reduction for
the 4% sales commission and a 4% redemption charge.
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ACTUAL OPERATING EXPENSES
Attributable to Limited Partnership Units
for the Previous 12-Month Period of Operations
(January 1 - December 31, 1997)
Item Dollar Amount
----- -------------
Management Allocations(1) $ 223,279
Incentive Allocations(2) 3,091
Brokerage Commissions(3) 797,000
Exchange, clearing fees and NFA charges 41,772
Administrative Expenses(4) 58,403
----------
Total $1,123,545
- ---------------
(1) Fixed at 1/3 of 1% per month (a 4% annual rate) of the Partnership's
Adjusted Asset Value attributable to Limited Partner Units at
month-end.
(2) The incentive fee is based on a formula equal to 15% of Net New
Appreciation attributable to Limited Partner Units.
(3) Based on roundturn brokerage commissions of $32.50.
(4) Based on the ordinary administrative expenses to be incurred by the
Partnership estimated at 1% per year of the Partnership's average
month-end Net Assets.
The General Partner will furnish to each Limited Partner a monthly
account statement describing the performance of the Partnership and setting
forth the aggregate Management Allocation, Incentive Allocation, brokerage
commissions, administrative expenses, and other fees and expenses incurred or
accrued by the Partnership during the month and certain other information. See
"The Partnership Agreement -- Reports and Accounting."
BREAK EVEN ANALYSIS
The following analysis takes into account all fees and expenses
enumerated above and is expressed in a dollar amount and as a percentage of a
$2,000 investment.
Percentage of
Description of Charges $2,000 Investment $2,000 investment
---------------------- ----------------- -----------------
Syndication and Selling Expense $ 80 4%
Management Fee 80 4
Incentive Fee (15% of Net 27 1.35
New Appreciation)
Fund Operating Expense 40 2
Brokerage Commission 600 30
and Trading Fee
Less Interest Income (100) (5)
------ -----
Redemption Charges 100 5
------ -----
Estimated Break Even Level after
Redemption Charges $ 827 41.35%
====== =====
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Percentage of
Description of Charges $2,000 Investment $2,000 investment
---------------------- ----------------- -----------------
Estimated Break Even Level
No Redemption Charges $ 714 35.70%
===== =====
BUSINESS OF THE PARTNERSHIP
The Partnership was organized as a limited partnership under the laws
of the State of Tennessee on September 19, 1990. The Partnership will engage in
speculative trading of commodity futures contracts, forward contracts, commodity
options and other interests in commodities including, without limitation futures
contracts and options on financial instruments, physical commodities and stock
indices on organized exchanges in the United States and abroad. As of April 30,
1998, approximately 100% of the Partnership's assets were invested in commodity
futures and commodity options traded on U.S. exchanges and approximately 90% of
those investment activities were in agricultural commodities. See "Use of
Proceeds," "Commodity Futures Market-- Regulation," "Trading Approach" and
"Trading Policies."
USE OF PROCEEDS
The net proceeds from the offering will be deposited in the
Partnership's trading account at Refco to be used for trading in futures
contracts and other commodity interests in accordance with the trading
techniques and policies described under "Trading Approach" and "Trading
Policies." Funds not required to be held by Refco in the Partnership's trading
account may be invested by the Managing General Partner for the benefit of the
Partnership in short term interest bearing obligations, primarily in
governmental obligations and obligations of commercial banks. Approximately 50%
of the Partnership's assets could be committed as original margin for futures
contracts, but from time to time the percentage of assets committed as margin
may be more or less than such amount. The balance of the Partnership's assets
will be retained in the Partnership's commodity account with Refco to apply as
additional margin, if needed, or for operating purposes. The Partnership will
make no loans. Pursuant to Section 4d(2) of the CEA, the Partnership's commodity
account with Refco will be segregated and neither commingled with the assets of
any other entity, nor used as margin for any other account. The assets of the
Partnership may be invested, from time to time, in other entities engaged in
commodity investments, but only if the commission burden on such assets does not
exceed that which such assets would have borne had they been invested directly
by the Partnership as described herein; however, no such investment shall be
made if such investment will be deemed to be an impermissible co-mingling of
assets under applicable laws and regulations. Deposit of assets with a futures
commission merchant as margin does not constitute commingling.
CAPITALIZATION
The capitalization of the Partnership is set forth in the most recent
financial statements of the Partnership prepared by its independent accounting
firm and included herein beginning at page F-1.
DISTRIBUTIONS TO PARTNERS
Distributions of profits, if any, will be made solely at the discretion
of the Managing General Partner. The Managing General Partner intends to make
distributions only if substantial profits are realized by the Partnership and
only if the Average Net Asset Value per Unit is at least $100 after the
distribution. See "Adjusted Asset Value and Net Asset Value." Subject to the
foregoing, the Managing General Partner intends to make annual cash
distributions in such amounts as will approximate a Partner's tax liability with
respect to Partnership income for the fiscal year immediately preceding such
distribution. However, there can be no assurances that such distributions can be
made at such times or in such amounts and it is possible that no distributions
will be made in some years in which profits are realized. Also,
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each Limited Partner will be required to include his share of profits into
income for tax purposes regardless of whether any distributions are made. See
"Certain Federal Income Tax Aspects."
GENERAL PARTNERS
DESCRIPTION OF THE FINANCIAL GENERAL PARTNER
RanDelta Capital Partners, L.P. ("RanDelta"), the Financial General
Partner, is a Tennessee limited partnership organized on September 19, 1990.
Randell Commodity Corporation, the Managing General Partner is the general
partner of RanDelta. The sole limited partner of RanDelta is an affiliate of
Refco, the Futures Commission Merchant for the Partnership.
DESCRIPTION OF THE MANAGING GENERAL PARTNER
Randell Commodity Corporation, the Managing General Partner, is a
Tennessee corporation organized on January 10, 1983, and is the commodity pool
operator and the Commodity Trading Advisor for the Partnership. Randell
Commodity Corporation has been registered with the CFTC as a commodity pool
operator since May 5, 1983, and as a commodity trading advisor since July 1,
1984, and has been a member of the NFA since March 24, 1984. The Managing
General Partner is a wholly owned subsidiary of Randell Corporation, a Delaware
corporation, which is wholly owned by Frank L. Watson, Jr. Mr. Watson is
Chairman of the Managing General Partner and a shareholder in the law firm of
Baker, Donelson, Bearman & Caldwell, Memphis, Tennessee, which is counsel to the
Partnership, the General Partner and the Memphis branch of Refco in connection
with this Offering. Mr. Watson will make the Partnership's commodities trading
decisions. Randell Corporation was registered with the CFTC as a commodity pool
operator from July 1, 1982, to June 29, 1992, and as a commodity trading advisor
from July 1, 1982, to July 23, 1994.
The officers and directors of the Managing General Partner and their
business experience for the past 5 years is set forth below.
Frank L. Watson, Jr., Chairman. Mr. Watson, 57, received a Bachelor of
Arts degree from the University of Arkansas and a J. D. degree from Tulane
University. He is the sole shareholder of Randell Corporation, the parent of
Randell Commodity Corporation, the Managing General Partner, and has been a
Director of Randell Commodity Corporation since its inception. From 1973, to
March 1998, Mr. Watson was an active partner in the law firm of Waring Cox, PLC.
In March 1998, Mr. Watson became a shareholder in Baker, Donelson, Bearman &
Caldwell, Memphis, Tennessee, where he is engaged in the active practice of law.
Carol V. Watson, Vice President. Mrs. Watson, 51, is the wife of Mr.
Watson. Mrs. Watson was elected Vice President of Randell Corporation and
Randell Commodity Corporation in March 1989.
Marty Morgan, Secretary/Compliance Officer. Ms. Morgan, 54, received a
Bachelor of Arts degree in Professional Studies from the University of Memphis.
She was elected Secretary of Randell Corporation and Randell Commodity
Corporation in July 1989, and elected Compliance Officer in May 1998. Since
1989, she has been employed as legal secretary to Mr. Watson but has continued
to retain her duties for both companies.
Billy F. Dutton Jr., Treasurer. Mr. Dutton, 40, received a Bachelor of
Science degree in Business Administration and an M.B.A. with a major in
Accounting from Memphis State University. On February 1, 1984, he was elected
treasurer of Randell Commodity Corporation and Randell Corporation. Mr. Dutton
graduated from the Southern College of Optometry in May of 1990. Since June
1990, he has maintained a full time practice but has continued to retain his
duties as treasurer.
ADMINISTRATIVE, CIVIL OR CRIMINAL ACTIONS
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During the past 5 years, there have been no administrative, civil or
criminal actions against the General Partners or any principal or affiliate of
the General Partners.
DUTIES OF THE MANAGING GENERAL PARTNER
The Managing General Partner is responsible for the (i) preparation of
monthly and annual reports to the limited partners; (ii) filing reports required
by the CFTC, the SEC and any other federal or state agencies; (iii) calculation
of Adjusted Asset Value, Net Asset Value and all Management and Incentive
Allocations; and (iv) preparation of all accounting information. The Managing
General Partner will provide suitable facilities and procedures for handling
redemptions, transfers, distributions of profits (if any) and orderly
liquidation of the Partnership. Although Refco will act as the Partnership's
initial futures commission merchant, the Managing General Partner is responsible
for selecting other futures commission merchants in the event Refco is unable or
unwilling to continue in its capacity, and the Managing General Partner will
review, not less often than annually, the brokerage commission rates charged to
comparable commodity pools by major futures commission merchants who acted as
their sponsors to determine that the commission rates paid by the Partnership
are fair and consistent and competitive with such other rates. Although the
Managing General Partner will act as the Partnership's initial commodity trading
advisor, if it becomes unable or unwilling to act as such with respect to all or
any portion or the Partnership's assets, it may in its discretion select another
qualified advisor or advisors. The Managing General Partner will seek to avoid
any excessive trading in the Partnership's trading accounts.
In the event of a decline as of the close of business on any day in the
Average Net Asset Value per Unit to 50% (or less) of the highest Average Net
Asset Value at which Units were purchased (after adjusting for all
distributions), the Managing General Partner will cause the Partnership to cease
trading and within seven business days thereof will so notify the Limited
Partners and set a Special Redemption Date. Included in such notification will
be a description of the Limited Partner's voting and redemption rights. See "The
Partnership Agreement - Reports to Limited Partners," and "Redemptions."
For a discussion of the General Partners' legal duties and obligations
as a fiduciary of the Partnership, see "Fiduciary Responsibility of the General
Partners."
MINIMUM NET WORTH AND PURCHASE REQUIREMENTS
The Managing General Partner is registered as a commodity pool operator
with the CFTC. At present, the CFTC itself imposes no minimum net worth or "net
capital" requirements on commodity pool operators. However, certain state
securities administrators, as a condition to approving the sale of units in a
commodity pool within their jurisdictions, require that the General Partners and
other commodity pool operators maintain a minimum net worth. See "Risk
Factors-General Partners' Financial Condition" and "Conflicts of
Interest-Brokerage Charges."
The Partnership Agreement required the General Partners to contribute
to the Partnership the lesser of $100,000 or 3% of the total capitalization of
the Partnership. As of April 30, 1998, the Managing General Partner beneficially
owned approximately $4,000, or .05%, and the Financial General Partner
beneficially owned approximately $408,000 or 5.72% of the Partnership. The above
to the contrary notwithstanding, in no event will the General Partners' interest
be less than an amount which will entitle them to an interest of at least 1% in
each material item of Partnership income, gain, loss, deduction or credit
represented by units of general partnership interest. The General Partners will
share Partnership losses and profits with the Limited Partners pro rata to the
extent of their investment. The General Partners may not transfer their
interests so long as they are acting as the General Partners. There are no
arrangements or commitments for any of the General Partners or their affiliates
to purchase Units in the Partnership. At the end of any month, the General
Partners may withdraw funds from their Partnership capital accounts, so long as
the aggregate investment of the General Partners in the Partnership meets the
minimum investment requirements for the General Partners set forth above and
does not impair the ability of the Partnership to fulfill its obligations to the
Limited Partners under the Partnership Agreement or to the creditors of the
Partnership. The General Partners, Refco and/or their affiliates may purchase up
to five percent (5%) of the 100,000 Units offered for investment purposes.
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DEPARTURE OF DELTA INTERNATIONAL, INC.
On May 9, 1994, transactions were consummated pursuant to which Delta
International, Inc. terminated its services as a trading advisor to the
Partnership and withdrew as a co-general partner of RanDelta Capital Partners,
L.P. (the Financial General Partner) effective March 31, 1994. These
transactions were effected without any cost or expense to the Partnership.
PAST PERFORMANCE OF THE PARTNERSHIP
The following table presents the performance history for Ceres Fund,
L.P., a Tennessee Limited Partnership that commenced operations in December
1991. The Managing General Partner is the commodity pool operator. Ceres Fund,
L.P. provides for a monthly management fee equal to 1/3 of 1% (4% per annum) of
partnership net assets, a quarterly incentive fee of 15% of new trading gains
and brokerage commissions equal to $32.50 per roundturn (plus applicable
exchange and NFA fees).
IT SHOULD NOT BE ASSUMED THAT PARTICIPANTS IN THE PARTNERSHIP WILL
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE
PAST. THE RESULTS SET FORTH BELOW ARE NOT INDICATIVE OF, AND HAVE NO BEARING ON,
ANY RESULTS THAT MAY BE OBTAINED BY THE PARTNERSHIP NOR ARE THE PAST RESULTS OF
THE OFFERED POOL. A GUARANTEE OF THE FUTURE PERFORMANCE OF THE PARTNERSHIP. THIS
IS DUE IN LARGE PART TO THE FACT THAT THE RESULTS CONTAINED IN THESE TABLES
DERIVE TO AN EXTENT FROM THE UNCERTAIN NATURE AND FUNCTION OF THE COMMODITIES
MARKETS AS WELL AS THE DIVERGENT TRADING STRATEGIES, POLICIES AND METHODS OF THE
ADVISORS DIRECTING THE VARIOUS FUNDS.
The Managing General Partner and its officers, directors, employees and
affiliates have in the past traded and plan to continue to trade, commodity
interests for their own accounts. The records of any such trading of proprietary
accounts will not be made available for inspection by any Limited Partner.
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CAPSULE PERFORMANCE OF CERES FUND, L.P.
Type of Pool: Publicly Offered (Continuous)
Date of Inception of Trading: December 1991
Aggregate Gross Capital Subscriptions to the Pool: $8,074,806
Current Net Asset Value: $7,778,279
Largest Monthly Drawdown: $1,050,806 / (16%) - 6/97
Worst Peak to Valley Drawdown: $1,226,003 / (43.7%) - 1/94-8/94
PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS.
Ceres - Percentage rate of return [computed on a compounded monthly basis]
Month 1998 1997 1996 1995 1994 1993
- ----- ---- ---- ----- ---- ---- ----
Jan -1.74% 1.5% 1.3% -1.7% -8.8% -3.6%
Feb 1.07 -2.6 1.4 1.6 -0.6 -5.7
Mar 8.84 -1.0 4.8 -8.3 -5.2 -6.3
April 5.00 -1.0 50.6 6.8 -4.0 6.3
May -- 3.8 8.7 3.0 -18.0 0.0
June -- -15.6 -3.5 19.5 -12.4 9.6
July -- 4.8 6.3 -0.5 -0.4 -1.6
Aug -- -1.5 2.2 5.6 -2.2 0.0
Sept -- 2.2 2.4 25.0 5.8 -0.9
Oct -- 0.2 2.3 18.1 -3.4 -0.4
Nov -- 1.3 2.9 -5.7 -1.3 13.1
Dec -- 1.0 -0.9 11.4 9.8 2.3
---- ----- ---- ---- ---- -----
Annual% 13.50% -8.19% 97.35% 96.17% -36.06% 11.52%
----------------------------------
"Drawdown" means losses experienced by the pool over a specified period.
"Largest Monthly Drawdown" means greatest decline in net asset value due to
losses sustained by the pool from the beginning to the end of a calendar month.
"Largest Peak to Valley Drawdown" means greatest cumulative decline in month-end
net asset value of the pool due to losses sustained during a period in which the
initial month-end net asset value of the pool is not equaled or exceeded by a
subsequent month-end net asset value.
"Rate of Return" is calculated each month by dividing net performance by
beginning net asset value. The monthly returns are then compounded to arrive at
the annual Rate of Return.
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FUTURES COMMISSION MERCHANT
DESCRIPTION OF THE FUTURES COMMISSION MERCHANT
General. Refco will act as the Partnership's Futures Commission
Merchant pursuant to the Customer Agreement described below. Refco, organized in
1969, is primarily engaged in the commodity brokerage business. Its principal
office is located at 111 W. Jackson Blvd., Suite 1800, Chicago, Illinois 60604,
and it has over 100 offices and agents located in the United States, Canada,
Europe, Australia and Singapore. It is a clearing member of the Chicago Board of
Trade, the Chicago Mercantile Exchange, and all other major United States
commodity exchanges.
Certain officers, directors and employees of Refco and its associated
persons trade commodity futures contracts for their own accounts. It is possible
that such persons may take positions either similar or opposite to positions
taken by the Partnership and that the Partnership and such persons may from time
to time be competing for similar positions in the futures markets. Furthermore,
it is possible that Refco will effect transactions for the Partnership in which
the other party to such transaction is an employee of, or otherwise associated
with, Refco. In addition, such persons may purchase Units in the Partnership.
See "Risk Factors" and "Conflicts of Interest."
Customer Agreement. The Partnership and Refco have entered into a
non-exclusive Customer Agreement, which provides that Refco executes trades on
behalf of the Partnership pursuant to the instructions of the Managing General
Partner. Under the Customer Agreement, the Partnership pays Refco brokerage
commissions on trades executed by it on behalf of the Partnership at a rate
(including pit brokerage fees) equal to $32.50 per round turn, plus applicable
exchange fees and NFA fees. The Managing General Partner reviews the brokerage
commission rates charged to the Partnership by Refco at least annually to assure
itself that such rates are reasonable in relation to rates charged by other
futures commission merchants for similar services to commodity pools comparable
to the Partnership. In no event will the Partnership pay brokerage commissions
in excess of 80% of the Futures Commission Merchant's (or its successor's)
published retail rate, plus pit brokerage fees. The Customer Agreement is
cancelable by either the Partnership or Refco at any time on 5 days' notice.
While the Customer Agreement is non-exclusive and the Partnership has the right
to seek lower commission rates from other brokers at any time, the General
Partners do not intend to negotiate with any other brokerage firms for brokerage
services for the Partnership so long as the rates and services charged and
provided by Refco are reasonable in relation to the rates charged by other
futures commission merchants for comparable services. See "Conflicts of
Interest" and "Fiduciary Responsibility of the General Partners." Although the
General Partners believe that Refco's rates are generally competitive with those
charged by other major futures commission merchants, certain non-member
customers of Refco pay and will continue to pay commissions at rates which are
both substantially below and substantially higher than those to be charged to
the Partnership. No assurance is given that the commission rates to be charged
to the Partnership will be as low as rates which might be charged by other
futures commission merchants for similar trades.
Refco assumes no responsibility under the Customer Agreement except for
rendering in good faith the services required of it thereunder. The Customer
Agreement provides that Refco, its stockholders, directors, officers, employees
and associated persons shall not be liable to the Partnership, its partners or
any of their successors or assigns, except by reason of acts or omissions due to
misconduct, negligence or not having acted in good faith in the reasonable
belief that their actions were taken in, or not opposed to, the best interests
of the Partnership.
Selling Agreement. Pursuant to the Selling Agreements between the
Partnership and its various selling agents, Refco has agreed to pay to qualified
Selling Agents commissions on a continuing basis for services to be rendered by
the Selling Agents to purchasers of Units in an amount equal to .4167% per month
(5% per annum) so long as the Units for which they are responsible remain
outstanding.
RELATIONSHIP WITH FINANCIAL GENERAL PARTNER
An affiliate of Refco is the sole limited partner in the Financial
General Partner. That affiliate has provided the asset which permits the
Financial General Partner to act as such. See "Conflicts of Interest."
ADMINISTRATIVE, CIVIL OR CRIMINAL ACTIONS
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Neither Refco nor any of its principals have been the subject of any
administrative, civil, or criminal action, whether pending, on appeal, or
concluded, within the preceding five years that Refco would deem material for
purposes of Part 4 of the Regulations of the Commodity Futures Trading
Commission ("CFTC") except as follows:
On December 20, 1994, Refco settled a CFTC administrative proceeding
(In the Matter of Refco, Inc., CFTC Docker No. 95-2) in which Refco was alleged
to have violated certain financial reporting, recordkeeping and segregation
provisions of the Commodity Exchange Act and CFTC regulations as a result of
some reporting and investment practices of Refco during 1990 and 1991. Without
any hearing on the merits of the CFTC allegations and without admitting any of
the allegations, Refco settled the matter and agreed to payment of $1.25 million
civil penalty, entry of a cease and desist order, and appointment of an
independent consultant to review Refco's financial manual.
On January 23, 1996, Refco settled a CFTC administrative proceeding (In
the Matter of Refco, Inc., CFTC Docket No. 96-2) in which Refco was alleged to
have violated certain segregation and supervision requirements and prior cease
and desist orders. The CFTC allegations concerned Refco's consolidated margining
of certain German accounts which were maintained at Refco from 1989 through
April 1992. Refco simply executed and cleared transactions for these accounts in
accordance with client instructions; Refco had no role in raising funds from
investors or in the trading decisions for these account. Refco had received what
it considered appropriate authorization from the controlling shareholder of the
account's promoters to margin the accounts and transfer funds between and among
the accounts on a consolidated basis. The CFTC maintained that Refco should not
have relied upon such authorizations for the final consolidation of the
accounts. Without admitting any of the CFTC allegations or findings, Refco
settled the proceeding and agreed to payment of a $925,000 civil penalty, entry
of a cease and desist order, and implementation of certain internal controls and
procedures.
Refco does not believe that any of the foregoing matters are material
to the clearing and execution services that it will render.
OTHER
Refco acts only as the clearing broker for the Partnership and as such
will receive compensation from the Partnership for execution of orders on behalf
of the Partnership. Refco is not involved in the offering of the Partnership or
solicitation of limited partners, but, has advanced funds for the organization
of the Partnership and the offering of Units. Refco is not affiliated with the
Partnership in any way, is not a promoter or underwriter, and has not reviewed
this document or any other statements by the General Partners or any of its
employees or agents to determine their accuracy. Refco does not accept any
responsibility for any trading decisions made on behalf of the Partnership, any
statement in this document, any claim made by a representative of the General
Partners or the Partnership, or any monies or property of the Partnership not
maintained with Refco.
TRADING APPROACH
TRADING APPROACH AND THEORY
The Trading Advisor will make the Partnership's trading decisions. The
Trading Advisor believes that the greatest profits are realized by futures
traders who identify and concentrate on major moves in a particular commodity or
commodity complex. The Trading Advisor intends to attempt to identify these
opportunities through the utilization of registered commodity representatives
who concentrate on a single commodity or commodity complex ("Market Specialist")
and by the application of the fundamental approach described below to determine
whether to undertake a particular opportunity. The timing of market entry and
exit and the amount of risk to be taken with respect to a particular opportunity
are to be determined using the technical approaches described below, and "stop
loss" trading policies developed by the Trading Advisor. The Market Specialists
will not have discretion to open or liquidate commodity positions on behalf of
the Partnership. The Trading Advisor believes that Market Specialists, by virtue
of their specialization or concentration on a particular commodity or commodity
complex have special insights into the trading opportunities presented from time
to time and that such Market Specialists will assist the Trading Advisor in
realizing such opportunities. The Trading Advisor intends to trade accounts
through these Market Specialists, who will receive commissions thereon;
therefor, a conflict of interest between the Market Specialist and the
Partnership may be
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deemed to exist. However, the Trading Advisor believes that its Base Capital
Asset Management System and Campaign Strategies Trading System, which are
designed to limit losses and drawdowns, will provide incentives to the Market
Specialists to recommend only the most promising trading opportunities.
THE BASE CAPITAL ASSET MANAGEMENT SYSTEM (B-CAM)
The Base Capital Asset Management System is a money management system
which acts as a filter with respect to (i) the allocation of capital to a
particular futures trading opportunity, (ii) the amount of margin utilized in a
futures position, (iii) the amount of loss realized in a futures position, (iv)
the preservation of profits achieved in a particular futures position, and (v)
the termination of a particular futures position.
THE CAMPAIGN STRATEGIES TRADING SYSTEM
The Campaign Strategies Trading System has two basic aspects - (i) the
"overview", which is based on fundamental analysis, and (ii) the technical
trading model, which is a primary analysis component of the system incorporated
in an analytical model in an attempt to anticipate the direction of futures
prices and to establish positions which will capitalize on price trends. For the
"overview", the Advisor segregates futures into two major groups: agriculture
commodities such as grains, livestock & meats, and other foods; and financial
futures such as currencies, financial instruments and metals. Generally
speaking, the Trading Advisor has a bias towards holding contracts in
agricultural commodities.
The Campaign Strategies Trading System will monitor over 50 distinct
commodity futures contracts traded on recognized commodity exchanges. These
contracts may, however, be summarized into separate futures groupings within two
major categories, i.e. -- "Agricultural" and "Financial", as follows:
Agricultural: (1) Grains
(2) Soybean Complex
(3) Fiber & Forest Products
(4) Livestock & Meats
(5) Foods & Imports
For example, Grains would include Corn, Oats and Wheat. Soybean Complex
would include Soybeans, Soybean Meal and Soybean Oil. Fibers & Forest products
represent Cotton and Lumber. Livestock & Meats include Live Cattle, Live Feeder
Cattle, Hogs and Pork Bellies. Foods and Imports (sometimes referred to as
"exotics") include Cocoa, Coffee, Orange Juice and Sugar.
Financial: (1) Currencies
(2) Financial Instruments
(3) Stock Index
(4) Metals
(5) Energy
Examples of Currencies are British Pound, Deutsche Mark, Japanese Yen,
Swiss Franc and U.S. Dollar Index. Financial Instruments would include T-Bills,
T-Bonds and Eurodollars. Stock Index futures include NYSE Composite, S&P 500
Index and Dow Jones Industrials. Metals Futures contain Copper, Gold, Platinum
and Silver. Energy futures include Heating Oil, Light Crude Oil, Natural Gas and
Unleaded Gas.
After analyzing these two major futures groups from a fundamental
standpoint to determine which commodities or commodity complexes produce the
most promising opportunities, the Trading Advisor then applies technical
analysis to confirm which of the opportunities should be undertaken and the size
of the positions to be taken. The technical factors used by the Trading Advisor
are statistically generated, sometimes computer generated and involve, among
other things, weighted moving averages, stochastics, directional movement
indicators, Fibonacci analysis and trend analysis. The utilization of these
factors may be qualitative and not quantitative; therefore, the Trading Advisor
will exercise a
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significant degree of discretion in connection with the application of the
Campaign Strategies Trading System. The intended result of this process is to
take only those positions which appear to provide the most promising
opportunities from both a fundamental and a technical standpoint.
The B-CAM and Campaign Strategies Trading Systems are the result of a
joint development effort between the Trading Advisor and Delta International,
Inc., a Tennessee corporation (until March 31, 1994, a trading advisor to the
Partnership), and are proprietary systems to each of them, and will not be made
available to the Limited Partners. No assurance can be given that these systems
will result in profits for the Partnership. These systems are dynamic and will
undergo significant changes and adjustments from time to time.
TRADING POLICIES
The objective of the Partnership is to achieve capital appreciation of
its assets through speculative trading in commodity futures contracts, forward
contracts, commodity options and other interests in commodities including,
without limitation, futures contracts and options on financial instruments,
physical commodities and stock indices on organized exchanges in the United
States and abroad.
The Partnership will not (i) borrow (except as stated below) or loan
money; (ii) permit commission rebates or give-ups to be received by the Managing
General Partner; (iii) invest in securities (other than those in which
customers' funds are permitted to be invested under the Commodity Exchange Act
and regulations thereunder); (iv) commingle Partnership assets except as
permitted by law; or (v) permit churning of Partnership commodity trading
accounts.
In general, and subject to the foregoing prohibitions, the Partnership
will attempt to operate within the following trading policies, but no
representation can be or is made that such policies will be adhered to at all
times:
1. The Partnership will take positions in futures contracts which are
traded in sufficient volume to permit, in the opinion of the Trading Advisor,
ease of taking and liquidating positions.
2. In an effort to limit the risk, the Managing General Partner will
seek (within certain limitations) to diversify the Partnership's portfolio among
several commodities. This is expected to substantially reduce the effect of any
single commodity on the portfolio's overall risk. In addition, diversification
is expected to contribute to consistency of performance by reducing the
variability of overall returns relative to variability of returns from any
single commodity.
3. The Partnership may occasionally make or accept delivery of a
commodity in order to take advantage of market anomalies. Normally, such
deliveries accepted will be disposed of promptly by retendering to the
appropriate clearing house the warehouse receipt representing the delivery. If
such retendering does not promptly occur, the Partnership's position in the
physical commodity will be fully hedged. For example, one such anomaly, known as
a "cash and carry" situation (which is analogous to an arbitrage situation in
the securities or foreign exchange markets), enables a trader to establish a
long futures position in a nearby delivery month offset by a short position in a
more distant delivery month at a price differential virtually guaranteeing a
profit. The profit, however, might only be realizable by a trader having
sufficient capital to accept delivery of (and pay for) the commodities and
redeliver them against the open short futures position. The Partnership expects
that it may engage in such transactions and to utilize portions of the reserves
to carry the cash commodities. Although not often available, the General
Partners consider such "cash and carry" situations to be comparatively low risk
transactions.
4. The Partnership will not acquire additional positions in any futures
or forward contract for any contract month or option if such additional
positions would result in a net long or short position for that futures or
forward contract or option for that month requiring as margin or premium more
than 15% of the Partnership's Adjusted Asset Value. For purposes of implementing
this policy, soybean oil and soybean meal will be treated as one commodity.
5. The Partnership will not acquire additional positions in any futures
or forward contract or option if such additional positions would result in the
aggregate net long or short positions for all futures or forward contracts
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and options requiring as margin or premium for all outstanding positions more
than 80% of the Partnership's Adjusted Asset Value.
6. The Partnership generally will avoid entering into an open position
in a futures contract in any commodity after delivery has commenced in the
commodity for the contract month of the contract.
7. In connection with ownership of cash commodities, the Partnership
may, when the Managing General Partner deems it advisable, borrow from banks or
other sources using the cash commodities as collateral. Such borrowings could be
used to finance the acquisition of such cash commodities or to supply variation
margin as required for any offsetting short futures positions.
8. In furtherance of Partnership trading policies, the Partnership will
not:
(a) Loan money to, or guarantee the obligations of, any
Partner, except open account indebtedness incurred for goods or
services rendered in the ordinary course of the Partnership's commodity
trading business;
(b) Commingle its assets with those of any other person,
except to the extent permitted under applicable law, including the
Commodity Exchange Act, as amended, and regulations promulgated
thereunder;
(c) Trade in cash commodities unless the commodity is, in
general, hedged;
(d) Engage in the pyramiding of its positions (i.e., the use
of unrealized profits on existing positions to provide margins for
additional commodity futures contracts of the same or a related
underlying commodity). However, the Partnership's open trade equity on
existing positions will be taken into account in determining whether to
acquire additional commodity contracts on behalf of the Partnership;
(e) Permit trading of the Partnership's commodity trading
account for the purpose of generating excessive brokerage commissions;
or
(f) Trade in coin futures.
COMMODITY FUTURES MARKETS
COMMODITY FUTURES CONTRACTS
Commodity futures contracts are standardized contracts made on a
commodity exchange which provide for the future delivery of specified quantities
of various agricultural commodities, industrial commodities, currencies,
financial instruments or metals at a specified date, time and place. The
contractual obligations may be satisfied either by taking or making physical
delivery of an approved grade of the commodity or by making an offsetting sale
or purchase of an equivalent, but opposite, commodity futures contract on the
same exchange prior to the designated date of delivery. As an example of an
offsetting transaction in which the physical commodity is not delivered, the
contractual obligations arising from the sale of one contract of March 1997
wheat on a commodity exchange may be fulfilled at any time before delivery of
the commodity is required by the purchase of one contract of March 1997 wheat on
the same exchange. In such instance the difference between the price at which
the futures contract was sold and the price paid for the offsetting purchase,
after allowance for the brokerage commission, represents the profit or loss to
the trader. Certain futures contracts such as those for stock or other financial
or economic indices approved by the CFTC settle in cash (irrespective of whether
any attempt is made to offset such contracts) rather than delivery of any
physical commodity.
Commodity futures prices are highly volatile and are influenced by,
among other things, changing supply and demand relationships, governmental,
agricultural, commercial and trade programs and policies, national and
international political and economic events, weather and climate conditions,
insects and plant disease and purchases by
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foreign countries. In the case of stock index futures, prices are highly
volatile and are influenced by a wide, variety of related and random factors
such as interest rates, currency exchange rates, the relationship of stock
prices to dividends, price earnings ratios, the supply of purchasable stock
relative to available cash, program trading, governmental activities and
regulations, political and economic events, and prevailing psychological
characteristics of the market place, as well as the impact of the trading
policies and decisions of institutions, individual investors and other mutual
fund and pool operators and trading advisors.
Two broad classifications of persons who trade in commodity futures are
"hedgers" and "speculators." Commercial interests, including farmers, that
market or process commodities, use the futures markets primarily for hedging.
Hedging is a protective procedure designed to minimize losses which may occur
because of price fluctuations. Commodity markets enable the hedger to shift the
risk of price fluctuations to the speculator. The usual objective of the hedger
is to protect the profit which he expects to earn from his farming,
merchandising or processing operations, rather than to profit from his futures
trading.
The speculator, unlike the hedger, generally expects neither to deliver
nor receive the physical commodity. Instead, the speculator risks his capital
with the hope of profiting from price fluctuations in commodity futures
contracts. The speculator is, in effect, the risk bearer who assumes the risks
which the hedger seeks to avoid. Speculators rarely take delivery of the cash
commodity but usually close out their futures positions by entering into
offsetting purchases or sales of futures contracts. Because the speculator may
take either long or short positions in the commodity futures market, it is
possible for him to make profits or incur losses regardless of the direction of
price trends. All trades made by the Partnership will be speculative rather than
for hedging purposes because the Partnership will not own any underlying stocks
upon which the stock price index, futures and options are based.
FORWARD TRADING
Two additional categories of commodity transactions other than futures
contracts are "spot" contracts and "forward" contracts. Both of these are
varieties of cash commodity transactions, as they relate to the purchase and
sale of specific physical commodities and may differ from each other with
respect to quantity, payment, grade, mode of shipment, penalties, risk of loss
and the like. The terms of certain forward contracts have become more
standardized and may, in lieu of requiring actual delivery and acceptance,
provide a right of offset or cash settlement. For example, foreign currencies
may also be purchased or sold for future delivery in the international foreign
exchange market among banks, money market dealers and brokers. The bank or other
institution generally acts as a principal in such forward contract transactions
and includes its anticipated profit and cost in the price it quotes for such
contract. Such forward contracts generally are not regulated by the CFTC.
Although United States banks, which are major participants in the forward
market, are regulated in various ways by the Federal Reserve Board, the
Comptroller of the Currency and other federal and state banking officials, such
banking authorities do not regulate forward trading in foreign currencies. In
addition, forward trading in foreign currencies is not regulated by any foreign
governmental agency, although exchange control restrictions on the movement of
foreign currencies are in effect in many nations. While the United States
currently does not impose restrictions on the movement of currencies, it could
choose to do so, and the imposition or relaxation of exchange controls in
various jurisdictions significantly could affect the market for that and other
jurisdictions' currencies.
CASH TRANSACTIONS
Cash commodity transactions may arise in conjunction with futures
transactions. For example, if the holder of a long contract satisfies his
obligations under the contract by taking delivery of the commodity, such holder
is said to have a cash commodity position. This cash position, if it is not to
be used or processed by the holder, may be sold through spot or forward
contracts or delivered in satisfaction of a futures contract.
OPTIONS
Pursuant to its options program, the CFTC has designated contract
markets for trading options on commodity futures including options on U.S.
Treasury Bond futures and gold futures as well as stock index futures. The
Partnership
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trades only in stock index futures options as are established on domestic
exchanges. Trading policies of the Partnership place no limitation on the
percentage of Net Assets which may be invested in options, and the Partnership
may write options.
The risks involved in trading commodity options are similar to those
involved in trading futures contracts, in that options are speculative and
highly leveraged. Specific market movements of the commodity or futures contract
underlying an option cannot be predicted. Options are bought and sold on the
trading floor of a commodity exchange. The purchaser of an option pays a premium
and may be charged commissions and other fees. The writer of an option must make
margin deposits and may be charged commissions and other fees. Exchanges provide
trading mechanisms so that an option once purchased can later be sold and an
option once written can later be liquidated by an offsetting purchase. However,
there can be no assurance that a liquid offset market will exist for any
particular option or at any particular time. In such case, it might not be
possible to effect offsetting transactions in particular options. Thus, in the
case of an option on a future, to realize any profit, a holder would have to
exercise his option and comply with margin requirements for the underlying
futures contract. A writer could not terminate his obligation until the option
expired or he was assigned an exercise notice.
REGULATION
Commodity exchanges in the United States are subject to regulation by
the CFTC under the CEA. The function of the CFTC is to implement the objectives
of the CEA preventing price manipulation and excessive speculation and promoting
orderly and efficient commodity futures markets. Such regulation, among other
things, provides that futures trading in commodities must be upon exchanges
designated as "contract markets", and that all trading on such exchanges must be
done by or through exchange members. Futures trading in all commodities traded
on domestic exchanges and in stock index futures is regulated.
The CFTC also has exclusive jurisdiction to regulate the activities of
"commodity trading advisors", "commodity pool operators", "futures commission
merchants" and "introducing brokers." Registration as a commodity pool operator
requires annual filings with the CFTC and NFA setting forth the organization,
capital structure and identity of the management and controlling persons of the
commodity pool operator. In addition, the CFTC has authority under the CEA to
require and review books and records of, and review documents prepared by, the
commodity pool operator. The CFTC has adopted regulations which impose reporting
and recordkeeping requirements on commodity pool operators and commodity trading
advisors. The CFTC is authorized to suspend registration of a commodity pool
operator if the CFTC finds that the pool's trading practices tend to disrupt
orderly market conditions, or that any controlling person is subject to an order
of the CFTC denying such person trading privileges on any exchange, and in
certain other specified circumstances. The CFTC imposes similar requirements on
commodity trading advisors.
In recent years, significant regulatory responsibilities under the CEA
have been transferred from the CFTC to the NFA, which was approved in 1982 as a
"registered futures association" under the CEA. The NFA, a not-for-profit
membership corporation, now acts as a general self-regulatory body for the
commodities industry, performing a role similar to that played by the NASD with
respect to the securities industry. Membership in the NFA is mandatory for
certain commodity trading professionals, and therefore the Managing General
Partner and Refco are all members of the NFA. However, neither membership in the
NFA nor registration with the CFTC of the Managing General Partner and Refco
implies that the NFA or the CFTC has passed upon or approved their
qualifications to perform in accordance with the terms and objectives of this
offering.
The CEA requires all futures commission merchants to meet and maintain
specified fitness and financial requirements, account separately for all
customers' funds and positions, and maintain specified books and records on
customer transactions open to inspection by the staff of the CFTC. The CEA
authorizes the CFTC to regulate trading by futures commission merchants and
their officers and directors, permits the CFTC to require exchange action in the
event of market emergencies, and establishes an administrative procedure under
which commodity (and stock index futures) traders may institute complaints for
damages arising from alleged violations of the CEA.
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All exchanges (but generally not Foreign Markets or banks in the case
of forward contracts) normally have regulations which limit the amount of
fluctuation in commodity and stock index futures contract prices during a single
trading day. These regulations specify what are referred to as "daily price
fluctuation limits" or, more commonly, "daily limits." The daily limits
establish the maximum amount the price of a futures contract may vary from the
previous day's settlement price at the end of the trading session. Once the
daily limit has been reached in a particular commodity, no trades may be made at
a price beyond the limit. Positions in the commodity could then be taken or
liquidated only if traders are willing to effect trades at or within the limit
during the period for trading on such day. The "daily limit" rule does not limit
losses which might be suffered by a trader because it may prevent the
liquidation of unfavorable positions. Also, commodity futures prices have
occasionally moved the daily limit for several consecutive trading days, thus
preventing prompt liquidation of futures positions and subjecting the commodity
futures trader to substantial losses. See "Risk Factors-Commodity Futures
Trading may be Illiquid."
The CFTC and certain exchanges have established limits, referred to as
"position limits", on the maximum net long or net short position which any
person may hold or control in particular commodities (and stock index futures).
The CFTC has jurisdiction to establish position limits with respect to all
commodities (and stock index futures).
The above described regulatory structure may be modified at any time by
rules and regulations promulgated by the CFTC, the various commodity exchanges,
or by legislative changes enacted by Congress. Furthermore, the registration
with the CFTC of the Managing General Partner, Refco or any Selling Agent does
not imply that the CFTC has passed upon or approved this offering or their
qualifications to act as described in this Prospectus.
SIMILARITIES AND CONTRASTS BETWEEN FUTURES CONTRACTS AND OPTIONS THEREON FOR
COMMODITIES AND FOR STOCK PRICE INDICES
Stock index futures and options thereon share many features in common
with futures contracts and options thereon relating to agricultural commodities,
industrial commodities, foreign currencies and money market instruments.
Therefore, the following information has been included with respect to non-stock
index futures contracts and options thereon in order to provide the prospective
investor with an understanding of the general market system and regulatory
environment for futures contracts and options generally. Stock index futures
contracts differ from other commodity futures contracts in that settlement is in
cash, and not by delivery of an underlying physical commodity or monetary
instrument, and in that there is no transfer of the full value of the contract
but only charging of gains and losses to the margin accounts of holders.
Likewise, ultimate settlement of an option on a stock index futures contract on
the settlement day of the underlying futures contract will result in such a
credit of gain or loss, and not the delivery of an underlying commodity or
financial instrument. Stock index futures contracts and options thereon are
similar to other commodity futures contracts and options thereon in that they
are traded primarily on commodity exchanges which are regulated by the CFTC,
have a duration of a quarter or one month, have a set settlement procedure, are
subject to limits on the number of contracts or options which may be owned by
one entity and its affiliates ("position limits"), are subject to limits on
daily price movements ("daily price fluctuation limits" or "daily limits"), and
may be sold only by regulated persons and entities.
FORWARD MARKETS
No regulatory scheme currently exists in relation to the interbank
currency forward market, except for regulation of general banking activities and
exchange controls in the various jurisdictions where trading occurs or in which
the currency originates. While the U.S. Government does not currently impose any
restrictions on the movements of currencies, it could choose to do so, and the
imposition or relaxation of exchange controls in various jurisdictions could
significantly affect the market for that and other jurisdictions' currencies.
Trading on the interbank market also exposes the Partnership to a risk of
default, as the failure of a bank with which the Partnership had forward
contracted would likely result in a default.
FOREIGN MARKETS
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Foreign Markets, on which the Partnership may trade, differ in certain
respects from their U.S. counterparts and are not subject to regulation by any
U.S. Governmental agency. Therefore, the protections afforded by such
regulations will not be available to the Partnership to the extent it trades on
such exchanges. For example, some Foreign Markets, in contrast to domestic
exchanges, are "principals' markets" in which performance is the responsibility
only of the individual member with whom the trader has entered into a commodity
transaction and not of the exchange or clearing corporation. On such exchanges,
the Partnership will be subject to the risks of the bankruptcy or other
inability of, or refusal by, such member or the counter-party to perform with
respect to such transactions. For example, in the past, certain members of the
tin market on the London Metal Exchange ("LME") failed to perform their
obligations under outstanding tin contracts, resulting in a prolonged suspension
of trading, and ultimately, a closing of that market and settlement of
outstanding positions at an artificial price level dictated by the LME. As a
result, a number of commodity traders suffered substantial losses and other
substantial reductions of the profits which they would have otherwise realized.
Due to the absence of a clearinghouse system on many foreign markets, such
markets are significantly more susceptible to disruptions (such as that which
occurred on the LME's tin market) than on the United States exchanges. On the
other hand, futures contracts for the Partnership traded on certain foreign
exchanges (including LME for certain commodities) will be registered with the
International Commodity Clearing House, Ltd. ("ICCH"), which performs a clearing
function similar to a clearing corporation on a domestic commodity exchange.
London exchanges do not generally have "daily limits" on commodity
price movements or speculative position limits. Minimum margin requirements on
the London exchanges (other than the LME, the Grain and Feed Trade Association
and the London Meat Futures Exchange) are established by the ICCH for exchange
members, which then may determine the margin amounts required to their customers
and the manner in which the margin requirements may be met. On the LME, the
Grain and Feed Trade Association and the London Meat Futures Exchange, each
dealer establishes the margin he will require; no margins are required by the
exchange itself. Trading on the London exchanges is in pounds sterling and U.S.
Dollars. The London exchanges are not regulated by the CFTC or any governmental
agency of the U.S. or Great Britain. Trading on other Foreign Markets may differ
from trading on U.S. Markets in a variety of ways and, accordingly, may subject
the Partnership to a variety of additional risks, including, among others,
special risks relating to bankruptcy, insolvency, jurisdiction and lack of
proximity of the Foreign Markets. See "Risk Factors-Trading on Foreign Markets
and Currency Exchange Rate Fluctuations."
MARGINS
Commodity futures contracts are customarily bought and sold on margins
which range upward from as little as one percent of the purchase price of the
contract being traded. Because of these low margins, price fluctuations
occurring in commodity (and stock index) futures markets may create profits and
losses which are greater than are customary in other forms of investment or
speculation. Margin is the minimum amount of funds which must be deposited by
the commodity (and stock index) futures trader with his futures commission
merchant in order to initiate futures trading or to maintain his open positions
in futures contracts. A margin deposit is not a partial payment as it is in
connection with the trading of securities, but is like a cash performance bond;
it helps assure the trader's performance of the futures contract. Since the
margin deposit is not a partial payment of the purchase price, the trader does
not pay interest to his broker on a remaining balance. The minimum amount of
margin required in regard to a particular futures contract is set from time to
time by the exchange upon which such futures contract is traded and may be
modified from time to time by the exchange during the term of the contract.
Under the regulations of the Chicago Board of Trade, the Partnership may be
required to maintain margin deposits equal to 125% of the minimum margin levels
applicable to commodity futures contracts traded on that exchange. Brokerage
firms carrying accounts for traders in commodity futures contracts may increase
the amount of margin required as a matter of policy in order to afford further
protection for themselves. The General Partner does not anticipate that banks
will require margin from the Partnership with respect to bank forward contracts.
Margins with respect to transactions on certain foreign exchanges
generally are established by member firms rather than by the exchanges
themselves. However, in the case of ICCH cleared transactions, ICCH (as the
independent clearing house) requires margins and deposits from its members and
such members generally require their clients to furnish/pay amounts at least
equal to the ICCH charges.
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When the market value of a particular open futures position changes to
a point where the margin on deposit does not satisfy the maintenance margin
requirements, a margin call will be made by the trader's broker. If the margin
call is not met within a reasonable time, the broker is required to close out
the trader's position. Margin requirements are computed each day by the trader's
broker. With respect to the Partnership's trading, the Partnership, and not the
Limited Partners personally, will be subject to the margin calls, if any.
As a result of the stock market declines during October 1987, and
October 1989, there is substantial debate concerning whether the authority to
set margins should continue to rest with exchanges and whether, in any such
event, such margins should be increased significantly. If changes in margins
requirements are effected, it is likely that they will relate to stock index
futures, but it is possible that they could relate to other commodity interests
as well. Any such changes could have a significant impact upon the Partnership.
ADJUSTED ASSET VALUE AND NET ASSET VALUE
The Adjusted Asset Value of the Partnership is its assets less certain
of its liabilities determined in accordance with generally accepted accounting
principles, including any unrealized profits and any unrealized losses on open
commodity positions. More specifically, Adjusted Asset Value of the Partnership
shall mean the sum of all cash, United States Treasury bills and other
securities (valued at cost plus accrued interest and discount), the liquidating
value (or cost of liquidation, as the case may be) of all futures positions and
the fair market value of all other assets of the Partnership less all
liabilities of the Partnership, in each case as determined by the General
Partner in accordance with generally accepted accounting principles; provided,
however, that Adjusted Asset Value shall not include a reduction for the monthly
Management Allocation for the month of determination or the quarterly Incentive
Allocation for the quarter of determination; provided, further, that Adjusted
Asset Value shall not include any unamortized organizational and offering
expenses or related liabilities of the Partnership. The liquidating or market
value of a commodity futures contract or option shall be based upon the
settlement price on the commodity exchange on which the particular commodity
futures contract or option is traded by the Partnership; provided, that if a
contract could not be liquidated on the day with respect to which Adjusted Asset
Value is being determined, due to the operation of daily limits or other
rules of the commodity exchange upon which that contract is traded or otherwise,
the settlement price on the first subsequent day on which the contract could be
liquidated shall be the basis for determining the liquidating value of such
contract for the day of determination, or such other value as the General
Partner may deem fair and reasonable. In calculating unrealized profit or loss
on open futures position, the commission, if any, which would be incurred in
liquidating the open position will not be taken into account, nor will any
accrued brokerage fees.
The Net Asset Value of the Partnership is determined by subtracting the
Management Allocation for the month of determination, and, if such month is the
last month of a calendar quarter, the Incentive Allocation for the quarter of
determination, from the Adjusted Asset Value of the Partnership.
Net Asset Value per Unit for each Unit owned by a respective Limited
Partner is calculated as of the end of each month in the following manner:
Step 1 - The aggregate Adjusted Asset Value allocable to Limited
Partnership Units is determined by multiplying (A) the aggregate Adjusted Asset
Value of the Partnership (Limited Partnership Units and the interest of the
General Partner) as of the end of the month in question by (B) the ratio of (i)
the aggregate Net Asset Value of the Limited Partnership Units at the beginning
of the month in question, to (ii) the aggregate Net Asset Value of the
Partnership (Limited Partnership Units and the interest of the General Partner)
at the beginning of the month in question.
Step 2 - The Adjusted Asset Value allocable to the Limited Partnership
Units owned by each respective Limited Partner is determined by multiplying the
result determined in Step 1 above by the ratio of (A) the aggregate Net Asset
Value of the individual Limited Partner's respective Units at the beginning of
the month in question, to (B) the aggregate Net Asset Value of all Limited
Partnership Units in the Partnership at the beginning of the month in question.
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Step 3 - The Adjusted Asset Value allocable to each Unit owned by a
Limited Partner is determined by dividing the result in Step 2 by the number of
Units owned by the respective Limited Partner.
Step 4 - The Net Asset Value per Unit for each Unit owned by a
respective Limited Partner is determined by subtracting (A) the Management
Allocation allocable to each Unit for such month, and (B) if such month is the
ending month of a calendar quarter, the quarterly Incentive Allocation (if any)
allocable to each such Unit, from the result determined under Step 3 above.
In the event a Limited Partner acquires Units on different dates, for
purposes of the above determinations, such Limited Partner will be treated as a
separate Limited Partner with respect to the Units acquired on each such date.
Since the amount of the Management Allocation and Incentive Allocation
chargeable to a Limited Partner's respective Units will depend upon the timing
of the Limited Partner's purchase of such Units and the Partnership's income,
the Net Asset Value per Unit of each respective Limited Partner's Units may
differ.
With respect to Units purchased during the Offering, the Average Net
Asset Value per Unit is determined on the last day of the month preceding the
entry of the Limited Partner to the Partnership by dividing (A) the difference
between (i) the result from Step 1 above, and (ii) the sum of (a) the aggregate
of the Management Allocation chargeable to all Units during such preceding
month, and (b) if such month is the ending month of a calendar quarter the
Incentive Allocation (if any) chargeable to all Units as of the end of such
quarter, by (B) the number of Units outstanding at the end of the month.
The Net Asset Value of the General Partner's interest in the
Partnership is calculated by subtracting the aggregate Net Asset Value allocable
to the Units from the aggregate Net Asset Value of the Partnership.
Upon request, the General Partner will advise any Limited Partner of
the current Adjusted Asset Value per Unit, the Net Asset Value per Unit and the
number of Units credited to such Limited Partner's account, as well as the
current Average Net Asset Value per Unit.
ALLOCATION OF PROFITS AND LOSSES
FINANCIAL ALLOCATIONS
Each Limited Partner and the General Partner (the General Partner and
the Limited Partners, collectively, are considered to be "Partners" for purposes
of the following explanation of the Partnership's accounting and tax
allocations) will have a capital account, the initial balance of which will
consist of such Partner's cash contribution to the Partnership.
FEDERAL TAX ALLOCATIONS
At the end of each fiscal year, the Partnership's taxable income,
expense, capital gain and loss will be allocated among the Partners, and each
Partner will be required to include in his personal income tax return his share
of such items.
The Management Allocation will be specially allocated each month to
each Unit in proportion to the Limited Partner's respective Adjusted Asset Value
as determined in Step 3 in "Adjusted Asset Value and Net Asset Value" above. The
Incentive Allocation (if any) for each Unit will be calculated and specially
allocated each quarter to those Units that have Net New Appreciation for the
quarter of determination.
Items of ordinary income and expense (excluding the Management
Allocation and the Incentive Allocation), such as interest income, brokerage
fees and expenses incidental to trading, will be allocated pro rata among the
Partners based on their respective capital accounts (referred to in the
Partnership Agreement as the Partner's respective "Partnership Percentage
Interest") as of the beginning of each month in which the items of ordinary
income and expense accrue.
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Capital gain will be allocated first to each Limited Partner who has
redeemed a Unit during the fiscal year up to any excess of the amount received
upon redemption of the Unit over the tax basis account maintained for the
redeemed Unit. See Section 6.01 of the Limited Partnership Agreement. If the
capital gain to be so allocated is less than the excess of all amounts received
for redeemed Units over all corresponding tax basis accounts, the entire amount
of such capital gain will be allocated among the Limited Partners who redeemed
Units at a value in excess of such Units' respective tax basis accounts in the
ratio that each such Limited Partner's excess bears to the aggregate excesses of
all such Limited Partners.
Any capital gain remaining after the allocation described in the
previous paragraph will be allocated among all Limited Partners whose capital
accounts are in excess of their tax basis accounts (after increasing such
accounts in the amount of the allocations described in the previous paragraph)
in the ratio that each such Limited Partner's amount of such additional excess
bears to all such Limited Partners' excess. If the gain to be so allocated is
greater than the excess of all such Limited Partners' capital accounts over all
such tax basis accounts, the amount of such additional gain will be allocated
among all Limited Partners in the ratio that each Limited Partner's capital
account bears to all Limited Partners' capital accounts.
Capital loss will be allocated first to each Limited Partner who has
redeemed a Unit during the fiscal year up to any excess of the tax basis account
maintained for the redeemed Unit over the amount received upon redemption of the
Unit. If the aggregate capital loss to be so allocated is less than the excess
of all tax basis accounts for redeemed Units over the amount received upon
redemption of such Units, the entire amount of such loss shall be allocated
among the Limited Partners which redeemed Units at a value less than such Units'
respective tax basis accounts in proportion to the respective amounts by which
the redemption value for each Unit was less than the applicable tax basis.
Any capital loss remaining after the allocation described in the
previous paragraph will be allocated among the Limited Partners whose tax basis
accounts are in excess of their capital accounts (after decreasing such tax
basis accounts in the amount of the allocations described in the previous
paragraph) in ratio that each such Limited Partner's excess bears to all such
Limited Partners' excesses. If the loss to be so allocated is greater than the
excess of all such Limited Partners' tax basis accounts over all such capital
accounts, the amount of such additional loss will be allocated among all Limited
Partners in the ratio that each Limited Partner's capital account bears to all
Limited Partners' capital accounts.
Any gain or loss required to be taken into account in accordance with
the "mark-to-market" provisions of Section 1256 of the Code will be considered
capital gain or loss for purposes of the foregoing allocations. See "Certain
Federal Income Tax Aspects-Taxation of Partners on Profits or Losses of the
Partnership." The General Partner's interest in the Partnership will be treated
on a Unit-equivalent basis for purposes of such allocation.
In the event that future tax legislation restores the distinction,
generally eliminated in the Tax Reform Act of 1986, between short and long-term
capital gain, the allocations of capital gain described above shall be pro rata
between short and long-term capital gain.
The allocation of profit and loss for federal income tax purposes set
forth herein is intended to eliminate, to the extent possible, any disparity
between a Partner's capital account and his tax basis account in a manner that
is consistent with principles set forth in Section 704(c) of the Code.
REDEMPTIONS
A Limited Partner, on 10 days' written notice to the Managing General
Partner, may cause any or all of his Units to be redeemed by the Partnership as
of the last day of any calendar quarter at the Redemption Net Asset Value per
Unit thereof less any amount owing by such Partner to the Partnership; provided,
that a Limited Partner will not be entitled to redeem any Unit until after 6
full months from the time such Unit was purchased. The "Redemption Net Asset
Value per Unit" is calculated in the same manner as the Net Asset Value per Unit
except that Partnership Adjusted Asset Value is determined by also subtracting
the commissions which would be incurred to liquidate an open futures
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position, as well as any accrued brokerage fees. See "Adjusted Asset Value and
Net Asset Value." Redemptions made on or prior to the end of the sixth, ninth
and twelfth month after the purchase of such Units will be charged a 4%, 3%, and
2% redemption fee, respectively; however, the redemption fee will not exceed 5%
of the gross purchase price of such Units. These redemption charges will be paid
to the General Partners.
Except as otherwise noted herein, all requests for redemption in proper
form will be honored, and the Partnership's commodity positions will be
liquidated to the extent necessary to effect redemptions. The right to obtain
redemption is contingent upon the Partnership having property sufficient to
discharge its liabilities on the date of redemption. It is also contingent on
receipt by the Managing General Partner of a request for redemption in the form
attached to the Partnership Agreement (or any other form approved by the
Managing General Partner) at least 10 days prior to the date on which redemption
is requested. Payment will be made within 15 days after the date of redemption,
except that under special circumstances, including, but not limited to, the
inability on the part of the Partnership to liquidate commodity positions as of
such date or default or delay in payments due the Partnership from futures
commission merchants, banks or other persons, the Partnership may delay payments
to Partners requesting redemption of Units in amounts equal to the proportionate
part of the Net Asset Value of the Units represented by the sums which are the
subject of such default or delay.
The Partnership Agreement also provides for a mandatory Special
Redemption Date if at any time the Average Net Asset Value per Unit declines to
50% or less than the highest Average Net Asset Value per Unit at which Units
have been purchased (after adjusting downward for all distributions), as of the
close of business on any day. In the event of such a decrease, all trading will
be suspended and all open positions liquidated as promptly as practicable. The
Managing General Partner must then either withdraw from the Partnership (which
would likely cause its termination) or declare a Special Redemption Date
pursuant to which Limited Partners would be given an opportunity to redeem their
Units before trading would be permitted to recommence. There can be no
assurance, in the event that a Special Redemption Date is called, that the
Partnership's open positions could be liquidated in a timely manner or without
substantial additional losses. However, the Special Redemption feature is
intended to provide Limited Partners with the opportunity to limit the
percentage of their initial investment which they are at risk of losing by
attempting to assure them of a suspension of trading and an opportunity to
redeem after a certain level of losses has been incurred.
If trading resumes after a Special Redemption Date, subsequent Special
Redemption Dates will occur if the Average Net Asset Value per Unit has
decreased to 50% or less of the highest Average Net Asset Value per Unit at
which Units have been purchased since the previous Special Redemption Date (or
the Average Net Asset Value per Unit at such previous Special Redemption Date,
if higher), after adjusting downward for all distributions.
The Managing General Partner may, in its discretion, declare a Special
Redemption Date at any time, if the Managing General Partner determines that
doing so would be in the best interests of the Partnership. A Special Redemption
Date, unlike routine quarterly redemptions, involves a suspension of trading and
liquidation of open positions.
The Managing General Partner may, in its sole discretion, effect a
redemption of any Units held by any Limited Partner, without such Partner's
consent, at the Redemption Net Asset Value per Unit thereof, if it considers
doing so to be desirable for the protection of the Partnership or its Partners.
Any such redemption may be effected upon ten days notice and, if effected other
than at the end of a calendar month or quarter, will not include a reduction for
any accrued Management or Incentive Allocation that would otherwise be payable.
The liability of Limited Partners, including the possible liability of
a person who had Units redeemed, for liabilities of the Partnership which arose
before such redemption, is described under "The Partnership Agreement-Nature of
the Partnership."
See "Certain Federal Income Tax Aspects" for information concerning
federal income tax aspects of redemptions.
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CERTAIN FEDERAL INCOME TAX ASPECTS
THE FOLLOWING IS A SUMMARY OF SOME OF THE FEDERAL INCOME TAX
CONSEQUENCES TO LIMITED PARTNERS RESULTING FROM AN INVESTMENT IN THE PARTNERSHIP
BASED UPON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), AND
RULES, REGULATIONS AND EXISTING INTERPRETATIONS RELATING THERETO, ANY OF WHICH
COULD BE CHANGED AT ANY TIME. A COMPLETE DISCUSSION OF ALL FEDERAL, STATE AND
LOCAL TAX ASPECTS OF AN INVESTMENT IN THE PARTNERSHIP IS BEYOND THE SCOPE OF
THIS SUMMARY, AND PROSPECTIVE INVESTORS MUST CONSULT THEIR OWN TAX ADVISERS ON
SUCH MATTERS. PROSPECTIVE INVESTORS WHO ARE GENERALLY EXEMPT FROM TAX SHOULD
CAREFULLY REVIEW THE SECTION ENTITLED "EMPLOYEE BENEFIT PLANS" HEREIN.
PARTNERSHIP STATUS
The General Partners have been advised by their counsel, Baker,
Donelson, Bearman & Caldwell, that, in the opinion of such counsel, if the
Partnership is organized and operated in accordance with the provisions of the
Partnership Agreement and applicable state law, then under present laws,
regulations and judicial interpretations thereof (all of which are subject to
change), and subject to 90% or more of the Partnership's gross income being
"qualifying income" as discussed below in this section, the Partnership will be
classified as a partnership for federal income tax purposes and not as an
association taxable as a corporation. No ruling has been obtained from the
Internal Revenue Service confirming this tax treatment, and the General Partners
do not intend to request such a ruling.
If the Partnership should at any time be classified as an association
taxable as a corporation, the Limited Partners would not be treated as partners
for tax purposes, income or loss of the Partnership would not be passed through
to the Limited Partners and the Partnership would be subject to tax on its
income at the rates applicable to corporations. In addition, all or a portion of
distributions made by the Partnership to the Limited Partners could be taxable
to them as dividends (to the extent of current or accumulated earnings and
profits) or capital gains, while none of those distributions would be deductible
by the Partnership in computing its taxable income.
Certain "publicly traded partnerships" are taxed as corporations.
Publicly traded partnerships are defined in Code Section 7704 as partnerships
the interests in which are traded on an established securities market or are
readily tradeable on a secondary market (or the substantial equivalent thereof).
Although Units will not be traded on an established securities market or a
secondary market, the legislative history to Section 7704 states that the
substantial equivalent of a secondary market is indicated if the partnership has
a "regular plan of redemptions ... so that the holders of interests have readily
available, regular and ongoing opportunities to dispose of their interests...."
Furthermore, under applicable authorities, an open-ended partnership (e.g., one
that has a continuous offering feature such as the Partnership) that has a
redemption feature will be classified as a publicly-traded partnership unless,
among other things, the partnership agreement requires at least 60 days prior
written notice of the partner's intent to redeem. In the instant case, the
Partnership Agreement only requires 10 days notice. Accordingly, it is likely
that the Partnership will be classified as a publicly-traded partnership.
Nevertheless, even if the Partnership is classified as a
publicly-traded partnership, an exception from tax treatment as a corporation is
provided if 90% or more of the Partnership's gross income for the taxable year
is "qualifying income." Qualifying income is defined to include certain kinds of
passive income, such as (i) interest, (ii) dividends, and (iii) in the case of a
partnership whose principal activity is the buying and selling of commodity
interests, income and gains (other than as a dealer) from commodities or
futures, options or forward contracts with respect to such commodities
(including foreign currency transactions of a commodity pool).
It is the intention of the General Partners that all of the income of
the Partnership will constitute "qualifying income" within one or more of the
foregoing categories. In addition, the Partnership Agreement prohibits the
General Partners from causing the Partnership to fail the 90% qualifying income
safe harbor. Accordingly, while the offering and redemption features of the
Partnership may cause the Partnership to be classified as a publicly-traded
partnership,
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it is unlikely that the Partnership would be treated as a corporation for
federal income tax purposes, although there can be no assurance to this effect.
The remainder of the Summary assumes that the Partnership will be
classified as a partnership for federal income tax purposes.
TAXATION OF PARTNERS ON PROFITS OR LOSSES OF THE PARTNERSHIP
The Partnership, as an entity, will not be subject to federal income
tax. In general, each Partner is required for federal income tax purposes to
take into account, in his taxable year with which or within which a taxable year
of the Partnership ends, his distributive share of all items of Partnership
income, gain (including unrealized gain from futures contracts and options
"marked-to-market"), loss or deduction for such taxable year of the Partnership.
A Partner must take such items into account even if the Partnership does not
make any distributions to such Partner during his taxable year.
A Partner's distributive share of such items for federal income tax
purposes generally is determined by the allocations made pursuant to the
Partnership Agreement, unless such items as so allocated do not have
"substantial economic effect" or are not in accordance with the Partners'
interests in the Partnership. Under the Partnership Agreement, allocations are
generally made in proportion to Partners' capital accounts and therefore have
"substantial economic effect." However, the allocations required by the
Partnership Agreement with respect to the Management Allocation and the
Incentive Allocation, and when redemptions or purchases or Units occur,
generally will not be in proportion to capital accounts. See "Allocations of
Profits and Losses." Nonetheless, the General Partners believe such allocations
are permitted for tax purposes, and the income tax regulations seem to support
that belief. If such allocations were not to be sustained, each Partner's
distributive share of the items that are the subject of such allocations would
be redetermined based upon his interest in the Partnership by taking into
account all relevant facts and circumstances. Such a redetermination might
result in a larger share of Partnership income being allocated (solely for tax
purposes) to Partners who had not redeemed or purchased Units during a given
taxable year than was allocated to them pursuant to the Partnership Agreement.
The amount of any Partnership loss (including capital loss) that a
Partner is entitled to include in his personal income tax return is limited to
his tax basis for his interest in the Partnership as of the end of the
Partnership's taxable year in which such loss occurred. Generally, a Partner's
adjusted tax basis for his interest in the Partnership is the amount paid for
such interest reduced (but not below zero) by his share of any Partnership
distributions, losses and expenses and increased by his share of the
Partnership's income, including gain.
Assuming that the Partnership meets the requirements to be treated as a
"qualified fund" and elects to be so treated (as discussed below), the General
Partners anticipate that gain or loss recognized with respect to all futures
contracts, forward contracts and options traded on domestic exchanges by the
Partnership will be characterized as capital gain or loss, of which 60 percent
will be treated as long-term and 40 percent will be treated as short-term,
regardless of the holding period of the individual contracts (the "60/40 rule").
Income derived by the Partnership from investing funds not required for trading
in interest-bearing obligations will generally be ordinary income.
In general, long-term capital gain is subject to tax at the same rate
as ordinary income, but is subject to a maximum effective tax rate of 28 percent
(legislation is currently pending which could reduce the maximum long-term
capital gains tax rate). For corporations, such gain likewise is taxed as
ordinary income, but is subject to a maximum effective corporate tax rate of 35
percent. Net capital losses are deductible by individuals only to the extent of
capital gains (whether long-term or short-term) for the taxable year plus
$3,000. As an example, under these rules if a Partner's distributive share of
Partnership interest income (which constitutes ordinary income for tax purposes)
was $5,000, the Partner's distributive share of Partnership trading losses
(which constitute capital losses for tax purposes) was $5,000 and the Partner
had no other capital gains, the Partner would have $2,000 of income subject to
tax despite having derived no economic gain from his investment in the
Partnership. Corporations may deduct capital losses only to the extent of
capital gains.
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The Partnership will meet the requirements to elect "qualified fund"
status if (i) the Partnership has at all time at least 20 partners and no single
partner owns more than 20% of the interests in the capital or profits of the
Partnership, (ii) the principal activity of the Partnership at all times
consists of buying and selling futures contracts, forward contracts and options
with respect to commodities, (iii) at least 90% of the gross income of the
Partnership consists of interest, dividends, income and gains from futures
contracts, forward contracts or options with respect to commodities and certain
other capital gains and (iv) no more than a de minimis amount of the gross
income of the Partnership consists of income from trading in "spot" commodities.
The Partnership has met these requirements for all prior years and has elected
"qualified fund" status. The General Partners anticipate that the Partnership
will continue to meet these requirements in future years. If the Partnership
fails to meet any of the above requirements in a taxable year (i) a net loss
recognized by the Partnership in such taxable year with respect to all futures
contracts, forward contracts and options with respect to foreign currencies
traded by the Partnership will be characterized as a capital loss, subject to
the limitations described in the preceding paragraph, and (ii) a net gain
recognized by the Partnership in such taxable year with respect to such
contracts will be characterized as ordinary income. If the Partnership did not
elect such status, the Partnership's trading of certain bank forward contracts,
with respect to foreign currencies, foreign currency futures contracts traded on
foreign exchanges and certain similar instruments would result in ordinary
income (or loss) against which the capital losses, if any, from the
Partnership's other trading activities might not be fully deductible, as
described in the preceding paragraph.
The "mark-to-market" system of taxation and the 60/40 rule will apply
to most, if not all, futures contracts, forward contracts and options which the
Partnership will trade. Under the mark-to-market system, any unrealized profit
or loss on positions in such contracts which are open as of the end of the
Partnership's taxable year will be treated as if such profit or loss had been
realized for tax purposes as of such time (even though the positions in fact
remain open). If an open position on which profit or loss has been recognized as
of the end of a taxable year declines in value after such year-end and before
the position is in fact offset, a loss will be recognized for tax purposes
(irrespective of the fact that the trader may have actually realized a gain on
the position considered from the time that such position was initiated). The
converse is the case with an open position on which a mark-to-market loss was
recognized for tax purposes as of the end of a taxable year but which
subsequently increases in value prior to being offset.
TREATMENT OF INCOME AND LOSS UNDER THE PASSIVE LOSS RULES
The Code contains rules (the "Passive Loss Rules") designed to prevent
the deduction of losses from "passive activities" against income not derived
from such activities, including income from investment activities not
constituting a trade or business, such as interest and dividends ("Portfolio
Income") and salary. In accordance with Temporary Treasury Regulations
promulgated under the Code relating to the Passive Loss Rules, the ownership of
Units will not constitute a "passive activity", with the result that income
derived from the Partnership's trading activities will constitute Portfolio
Income or other income not from a passive activity. This means that losses
resulting from a Partner's "passive activities" (including most "tax shelter"
limited partnerships) cannot be offset against such income and net losses from
Partnership operations will be deductible in computing the taxable income of a
Limited Partner (subject to other limitations on the deductibility of such
losses).
LIMITED DEDUCTION FOR CERTAIN EXPENSES
Under prior law, individual taxpayers who itemized deductions were
permitted to deduct expenses of producing income, including investment advisory
fees, when computing taxable income. The Code now provides that such expenses
are to be aggregated with unreimbursed employee business expenses and other
expenses of producing income (collectively the "Miscellaneous Itemized
Deductions"), and the aggregate amount of such Miscellaneous Itemized Deductions
will be deductible only to the extent such amount exceeds 2% of a taxpayer's
adjusted gross income. The General Partners intend, in the absence of further
clarification by legislation, the promulgation of regulations or judicial or
administrative interpretation, not to treat any part of the Management or
Incentive Allocations payable to the General Partner as a Miscellaneous Itemized
Deduction subject to the 2% floor limitation described above. If the Internal
Revenue Service were to successfully assert that the Partnership should have
treated all or any portion of the Partnership's expenses as Miscellaneous
Itemized Deductions, Limited Partners could be required to file amended tax
returns and to pay additional taxes plus interest and penalties. The General
Partners reserve the right at any time,
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without consulting with the Limited Partners, to determine the treatment of the
Partnership's expenses for federal income tax purposes.
CASH DISTRIBUTIONS AND REDEMPTIONS OF UNITS
Cash received from the Partnership as a distribution with respect to
his interest in the Partnership or in redemption of less than all of such
interest generally does not result in taxable income to a Partner, except as
described below. Rather, such distribution reduces (but not below zero) the
total tax basis of all of the Units held by the Partner after the distribution
or redemption. Any cash distribution in excess of a Partner's adjusted tax basis
for his interest in the Partnership is treated as gain from the sale or exchange
of such interest. Because a Partner's tax basis in his Units is not increased on
account of his distributive share of the Partnership's income until the end of
the Partnership's taxable year, distributions during the taxable year could
result in taxable gain to a Partner even though no gain would result if the same
distributions were made at the end of the taxable year. Furthermore, the share
of the Partnership's income allocable to a Partner at the end of the
Partnership's taxable year would also be includable in the Partner's taxable
income and would increase his tax basis in his remaining interest in the
Partnership as of the end of such taxable year.
Redemption for cash of the entire interest in the Partnership held by a
Partner will result in the recognition of gain or loss for federal income tax
purposes. Such gain or loss will be equal to the difference between the amount
of the cash distribution and the Partner's adjusted tax basis for such interest.
A Partner's adjusted tax basis for his interest in the Partnership includes for
this purpose his distributive share of the Partnership's income or loss for the
year of such redemption.
LIMITATION ON DEDUCTIBILITY OF INTEREST ON INVESTMENT INDEBTEDNESS
Interest paid or accrued on indebtedness properly allocable to property
held for investment is investment interest. Interest expense incurred by a
Limited Partner that is allocable to such Limited Partner's investment in Units
generally will be investment interest. In addition, a Limited Partner's
allocable share of interest expense incurred by the Partnership, if any, will be
investment interest. Such interest is generally deductible by noncorporate
taxpayers only to the extent that it does not exceed net investment income. A
Limited Partner's distributive share of net Partnership income and any gain from
the disposition of Units will be treated as investment income, except that a
Limited Partner's net capital gain from the disposition of Units is not
investment income unless the Limited Partner waives the benefit of the lower
preferred tax rate on such gains. It is not clear whether a Limited Partner's
distributive share of Partnership net capital gain constitutes investment income
where such gain is taxed at the maximum lower preferred rate. Interest expense
incurred by a Limited Partner to acquire his Units generally will be investment
interest expense. Any investment interest expense disallowed as a deduction in a
taxable year solely by reason of the above limitation is treated as investment
interest paid or accrued in the succeeding taxable year.
SYNDICATION EXPENSES
Expenditures made in connection with the syndication of a partnership
must be capitalized and cannot be amortized. Syndication expenditures include
amounts incurred to promote the sale of, or to sell, Units in the Partnership,
such as any offering fees, sales commissions, legal fees incident to the
syndication and printing costs related thereto.
The Internal Revenue Service could take the position that (i) a portion
of the Management Allocation and Incentive Allocation paid to the General
Partners constitutes non-deductible syndication expenses, and (ii) a portion of
the General Partner's distributive share of Partnership income, gains or cash
distributions constitutes non-deductible syndication expenses. The General
Partners believe that no portion of the fees or distributive share payable to it
constitute non-deductible syndication expenses. The General Partners anticipate
devoting a substantial amount of time to the management of the Partnership and
its trading activities which should support a finding that such allocations are
proper. However, there can be no assurance that the Internal Revenue Service
will agree with this position.
Finally, the Internal Revenue Service may contend that a portion of the
brokerage commissions paid by the Partnership to Refco constitute nondeductible
syndication expenses under the theory that such commissions are to
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reimburse Refco for its advance of the Partnership's organizational and offering
expenses, or because Selling Agents may receive compensation from Refco on an
ongoing basis from a portion of the commodity brokerage commissions paid by the
Partnership. If the Service were successful in this regard, the Partnership
would be required to capitalize such amounts, thereby increasing the amount of
gain (or reducing the amount of loss) allocable to the Partners with respect to
the Partnership's trading activities.
PARTNERSHIP AUDITS; PENALTIES
The tax treatment of Partnership-related items is determined at the
Partnership level rather than at the Partner level. The General Partner has been
appointed as "tax matters partner" with the authority to determine the
Partnership's response to an audit, except that the General Partner does not
have the authority to settle tax controversies on behalf of any Limited Partner
who files a statement with the Internal Revenue Service stating that the General
Partner has no authority to settle Partnership tax controversies on such Limited
Partner's behalf. The limitations period for assessment of deficiencies and
claims for refunds with respect to items related to the Partnership is three
years after the Partnership's return for the taxable year in question is filed,
and the General Partner has the authority to, and may, extend such period with
respect to all Limited Partners. If an audit results in an adjustment, all
Partners may be required to file amended tax returns which may themselves also
be subject to audit, additional taxes, interest and penalties. There can be no
assurance that the Partnership's or a Limited Partner's tax return will not be
audited by the Internal revenue Service or that no adjustments to such returns
will be made as a result of such an audit.
Section 6662 of the Code imposes a 20% penalty for any substantial
understatement of income tax liability, or for any negligent or, among other
things, disregard of tax rules or regulations. A "substantial understatement"
exists if the total understatement of tax liability for the taxable year exceeds
the greater of 10% of the tax required to be shown on the return or $5,000.
"Negligence" includes any failure to make a reasonable attempt to comply with
the tax laws, and "disregard" includes any careless, reckless or intentional
disregard. If a Partner makes a substantial understatement of personal tax
liability, the Partner may be subject to this penalty for any disallowed item
unless (i) it is supported by "substantial authority" or (ii) the relevant facts
affecting the tax treatment of such items are disclosed in the return or in a
statement attached to the return. A special rule is applicable if an item is
attributable to a "tax shelter." In order to avoid the penalty for
understatement of tax liability for a tax shelter item, in addition to the
"substantial authority" requirement, the taxpayer must reasonably believe that
the tax treatment was more likely than not the proper treatment. Based on the
expected activities of the Partnership, the General Partners do not believe that
the Partnership is a "tax shelter" for this purpose. However, no assurance can
be given that the Internal Revenue Service or the courts will agree with this
position.
STATE AND LOCAL TAXES
In addition to the federal income tax consequences described above, the
Partnership and the Partners may be subject to various state and local taxes.
Certain of such taxes could, if applicable, have a significant effect on the
amount of tax payable with respect to an investment in the Partnership. A
Partner's distributive share of the profits of the Partnership may be required
to be included in determining reportable income for state or local tax purposes,
and state and local taxation of gains and losses from certain of the
Partnership's activities may be inconsistent with the treatment of such gains
and losses for federal income tax purposes. LIMITED PARTNERS MUST CONSULT THEIR
OWN TAX ADVISERS REGARDING THE POSSIBLE APPLICABILITY OF STATE OR LOCAL TAXES TO
AN INVESTMENT IN THE PARTNERSHIP.
---------------
Except as otherwise set forth, the foregoing statements regarding the
federal income tax consequences to the Partners of an investment in the
Partnership are based upon the provisions of the Code as currently in effect and
the existing administrative and judicial interpretations thereunder. No
assurance can be given that administrative, judicial or legislative changes
(other than those discussed above) will not occur that would make the foregoing
statements incorrect or incomplete.
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The foregoing discussion is not intended as a substitute for careful
tax planning, particularly since certain of the income tax consequences of an
investment in the Partnership may not be the same for all taxpayers.
ACCORDINGLY, PROSPECTIVE INVESTORS IN THE PARTNERSHIP ARE URGED TO CONSULT THEIR
TAX ADVISERS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION UNDER FEDERAL
LAW AND THE PROVISIONS OF APPLICABLE STATE AND LOCAL LAWS BEFORE SUBSCRIBING FOR
UNITS.
PURCHASES BY EMPLOYEE BENEFIT PLANS
The purchase of Units by an employee benefit plan is subject to certain
additional considerations because investments of such plans are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), as well
as certain restrictions imposed by Section 4975 of the Code. The term "employee
benefit plan" refers to any plan or account of various types (including the
related trusts) which provides for accumulation of assets or benefits in respect
of an individual's compensation, free from federal income tax until such time as
assets or benefits are distributed from the plan. Such plans include corporate
pension and profit sharing plans, "simplified employee pension plans," KEOGH
plans for self-employed individuals (including partners), employee welfare plans
and, for purposes of this discussion, individual retirement accounts as
described in Section 408 of the Code.
In general, the person with investment discretion with respect to an
employee benefit plan should consult with his or her attorney or other advisor
with regard to (i) whether the investment is prudent in accordance with the
requirements of section 404(a) of ERISA; (ii) whether the investment satisfies
the diversification requirements of section 404(a)(1)(C) of ERISA; (iii) whether
the investment is in accordance with the documents and instruments covering the
plan; (iv) whether a prohibited transaction in violation of section 406 of ERISA
or section 4975 of the Internal Revenue Code will occur; (v) whether the
investment provides sufficient liquidity; (vi) the need to value the assets of
the plan annually pursuant section 103(d)(5) of ERISA; (vii) whether all of the
assets of the Partnership will be considered as "plan assets" of the employee
benefit plan, rather than just the Units; and (viii) whether all or any portion
of the income attributable to the Units will be taxable as "unrelated business
taxable income" ("UBTI").
The United States Department of Labor ("DOL") Regulation 2510.3-101
(the "Regulation") provides certain rules for determining whether an investment
in the Partnership by employee benefit plans will be treated as an investment by
such plans in the underlying assets of the Partnership. If the Partnership were
deemed to hold "plan assets", the General Partners would most likely become an
ERISA fiduciary with respect to the Partnership assets and, therefore,
co-fiduciaries with the person making the investment decision to purchase Units,
and the assets of the Partnership would be subject to the prohibited transaction
rules of ERISA and the Code.
The Regulation provides that assets of an entity in which an employee
benefit plan invests will not be deemed for purposes of ERISA to be assets of
such plan if the class of "equity" interests held by the plan are (i) held by
100 or more investors independent of the Partnership and of each other, (ii)
"freely transferable" and (iii) sold to employee benefit plans as a part of an
offering of Units to the public pursuant to (a) an effective registration
statement under the Securities Act of 1933 and then the Units are registered
under the Securities Act of 1934, or (b) an effective registration statement
under Section 12(b) or 12(g) of the Securities Exchange Act of 1934.
The General Partners believe that the Units will meet the foregoing
tests. However, the determination of whether the Units will be "freely
transferable" is a subjective test under the Regulation based on all relevant
facts and circumstances. Accordingly, there is a risk that the Partnership could
be deemed to hold "plan assets" under the Regulation. In this regard, it should
be noted that the Partnership Agreement permits the General Partner to compel
the redemption of some or all Units held by employee benefit plans or accounts.
While the Partnership will likely be classified as a "publicly traded
partnership" (subject to the 90% qualifying income exception), recent amendments
to the Code eliminated certain unfavorable tax consequences of investments made
by tax-exempt entities in "publicly traded partnerships." Accordingly, income
from the Partnership's expected activities will not be of a character that
produces UBTI.
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Units may not be purchased with the assets of an employee benefit plan
if the General Partners, any trading advisor or any of their respective
affiliates, either: (a) has investment discretion with respect to the investment
of such plan assets; (b) has authority or responsibility to give or regularly
gives investment advice with respect to such plan assets, for a fee, and
pursuant to an agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such plan assets and that
such advice will be based on the particular investment needs of the plan; or (c)
is an employer maintaining or contributing to such plan.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF INDIVIDUAL RETIREMENT ACCOUNTS
OR OTHER EMPLOYEE BENEFIT PLANS IS IN NO RESPECT A REPRESENTATION BY THE
PARTNERSHIP, THE GENERAL PARTNERS, ANY TRADING ADVISOR, OR ANY OTHER PARTY THAT
THIS INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO
INVESTMENTS BY ANY PARTICULAR PLAN OR THAT THIS INVESTMENT IS APPROPRIATE FOR
ANY PARTICULAR PLAN. THE PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT WITH
HIS ATTORNEY AS TO THE PROPRIETY OF SUCH AN INVESTMENT IN LIGHT OF THE
CIRCUMSTANCES OF THE PARTICULAR PLAN AND CURRENT TAX LAW.
THE PARTNERSHIP AGREEMENT
The Partnership was formed in September, 1990. Upon the further
amendment of the Partnership Agreement, those investors whose Subscriptions are
accepted will be admitted as Limited Partners. The Partnership will be governed
by and operated in accordance with the Agreement of Limited Partnership as set
forth in Exhibit A hereto. See "Allocation of Profits and Losses" for a
description of allocations of profits and losses. See "Use of Proceeds" and
"Capitalization" for a description of the Partners' capital contributions. See
also "Adjusted Asset Value and Net Asset Value."
A prospective Limited Partner should carefully review the Partnership
Agreement. The following statements summarize certain provisions of the
Partnership Agreement, but do not purport to be a complete description and are
qualified in their entirety by express reference to the Partnership Agreement.
NATURE OF THE PARTNERSHIP
The Partnership has been formed under the Tennessee Revised Uniform
Limited Partnership Act ("TRULPA"). The General Partners have been advised by
counsel that Units purchased and paid for pursuant to and in accordance with
this offering will be fully paid and nonassessable. The General Partners will be
liable for all obligations of the Partnership to the extent that assets of the
Partnership are insufficient to discharge such obligations. If the assets of the
Partnership and the General Partners are insufficient to discharge the
obligations of the Partnership, a Limited Partner will be liable for Partnership
liabilities only to the extent of the Limited Partner's capital contributions,
plus any profits or distributions (including any undistributed profits and
redemptions), together with interest thereon.
MANAGEMENT OF PARTNERSHIP AFFAIRS
The Limited Partners will not participate in the management or
operations of the Partnership. Any participation by a Limited Partner in the
management of the Partnership may jeopardize the limited liability of such
Limited Partner. Responsibility for managing the Partnership is vested solely in
the Managing General Partner. Responsibilities of the Managing General Partner
include, but are not limited to, the following: determining whether the
Partnership will make distributions of profits to partners; administering
redemptions of Limited Partners' Units; preparing monthly, quarterly and annual
reports to the Limited Partners; executing various documents on behalf of the
Partnership and the Limited Partners pursuant to powers of attorney; and
supervising the liquidation of the Partnership if an event causing termination
of the Partnership occurs. The Partnership Agreement prohibits the General
Partners from engaging in any action which would have a material adverse effect
on the Partnership except in its reasonable business judgment.
REPORTS AND ACCOUNTING
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The Partnership will keep its books on an accrual basis with a calendar
year end. The Partnership will retain for at least six years all records
necessary to determine the Limited Partners' suitability. The Limited Partners,
in person or by an authorized agent, have the right at all times during
reasonable business hours to have access to, and copies mailed of (at the
expense of the Limited Partner), the Partnership's books and records (including
a list of the names and addresses of all Partners and the number of Units
owned). The financial statements of the Partnership shall be audited at least
annually at Partnership expense by independent public accountants to be
designated by the Managing General Partner and each Limited Partner shall be
furnished with an annual report, certified by an independent certified public
accountant, containing such information as the CFTC requires (the "Annual
Report"). Presently, the CFTC requires that the Annual Report be provided not
later than 90 days after the end of each fiscal year. In addition the Managing
General Partner will report monthly to the Limited Partners, inter alia, the
Average Net Asset Value per Unit, the brokerage com missions, Management and
Incentive Allocations, the value of each individual Limited Partner's Units and
administrative expenses incurred by the Partnership during the month. Tax
information will be provided by March 15 each year. The Managing General Partner
will notify each Limited Partner within 7 business days from the date of (i) any
material change related to the brokerage commissions paid by the Partnership,
(ii) any material change in any contract with a trading advisor, including any
change in trading advisors, or (iii) any modification in connection with the
method of calculating any incentive fee. Any such notice shall include a
description of any material effect such changes may have on the interests of the
Limited Partners, the Limited Partners' voting rights and their redemption
rights under the Partnership Agreement.
ADDITIONAL PARTNERS
Since the completion of the Initial Offering in which 13,471.6805 Units
were sold, the Partnership has continued to offer and sell Units in this
Offering. All Units are offered by the Partnership at the Partnership's current
Average Net Asset Value per Unit plus 4%. After 100,000 Units have been sold,
the Managing General Partner may, in its discretion, increase the number of
Units to 500,000 and make additional public or private offerings of Units
provided that the net proceeds to the Partnership of any such sales shall in no
event be less than the Average Net Asset Value per Unit at the time of sale. The
Managing General Partner may, in addition, issue Units in series. The Managing
General Partner, and not the Partnership, will bear, or cause others to bear,
all expenses related to the Offering or any additional offering thereafter. No
Limited Partner will have any preemptive, preferential or other rights with
respect to the issuance or sale of any additional Units. The Managing General
Partner has the sole discretion to admit additional Limited Partners.
RESTRICTIONS ON TRANSFER
The Partnership Agreement specifies the various conditions which must
be met before a purported transfer of all or part of a Limited Partner's
interest shall be valid as to the Partnership and the General Partners. The
conditions include a determination that the transfer will not terminate the
Partnership for federal income tax purposes, satisfaction of applicable
securities laws, and other matters. A transferor may be required to furnish a
satisfactory opinion of counsel to the effect that neither the contemplated
transfer nor any offering in connection therewith violates any provision of any
federal or state securities or comparable law. Except for transfers by gift,
inheritance, intra-family transfers, family dissolutions, and transfers to
affiliates, no transfer may be made of less than all of the Units owned by the
Limited Partner where, after the transfer, either the transferee or the
transferor would hold less than the minimum number of Units equal an initial
minimum purchase. The consent of the Managing General Partner is required for
transfer of a Unit, which consent can be withheld for any reason.
DISSOLUTION AND LIQUIDATION
The Partnership will be dissolved upon the happening of any of the
following events: (i) the term of the Partnership expires on December 31, 2020;
(ii) the affirmative vote of a simple majority in interest of the Limited
Partners; (iii) the failure of any person or corporation to qualify as a
successor General Partner within ninety days after the last remaining General
Partner ceases to be a General Partner; (iv) an event occurs which makes it
unlawful for the business, as conducted by the Partnership or the General
Partners, to be continued; (v) the disposition of all or substantially all of
the property of the Partnership; or (vi) any other event which, under the laws
of the State of
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Tennessee, would cause the Partnership's dissolution. On dissolution resulting
from the withdrawal, bankruptcy, dissolution, incapacity or death of the last
remaining General Partner, the Limited Partners may, by a unanimous vote within
90 days of dissolution, elect a successor General Partner to continue the
business of the Partnership. However, there is no assurance that the Limited
Partners will be able to find or agree upon a new General Partner in such event.
Furthermore, the Limited Partners may elect by a simple majority vote
to remove any General Partner in accordance with the Partnership Agreement,
which provides that if there is no remaining General Partner, a new General
Partner must be elected by a majority in interest of the Units (or such higher
percentage as required under TRULPA).
Upon dissolution of the Partnership, the affairs of the Partnership
will be wound up and its assets distributed, as provided in the Partnership
Agreement. Prospective investors are urged to study the Partnership Agreement in
detail for information with respect to the accounting upon dissolution, and the
application of the cash proceeds of the Partnership upon liquidation. The
Partnership Agreement provides that in the event of dissolution or liquidation,
after the payment of creditors and the establishment of reserves, the Partners
will receive cash proceeds equal to their respective capital accounts (or pro
rata to their capital accounts if cash proceeds are less than the Partners'
aggregate capital accounts) and the balance, if any, will be distributed to the
Limited Partners and General Partners in accordance with their respective
interests.
AMENDMENTS, MEETINGS, VOTING AND REMOVAL
The General Partners may amend the Partnership Agreement without notice
to, or consent of, the Limited Partners, if the amendment does not have a
material effect upon the Limited Partners or the Partnership. Limited Partners
holding a simple majority in interest of the Units may amend the Partnership
Agreement, except that no amendment may be made which will change the
Partnership to a general partnership or change the Partnership interest of any
Partner, or increase the liabilities or obligations of any Partner.
Notwithstanding this, the General Partners without the consent of, but with
notice to, the Limited Partners may amend the Partnership Agreement to the
minimum extent necessary to comply with any amendment to Internal Revenue Code
sections 704 or 7704 or the Regulations thereunder or any judicial or
administrative interpretation thereof.
Meetings of the Limited Partners may be called by the General Partners
or Limited Partners having more than 10% of the voting power of the Limited
Partners by delivering written notice of such call to the Managing General
Partner. Such meetings shall be at a time and place fixed by the Managing
General Partner which is not less than 30 nor more than 60 days after the call
of the meeting.
The voting power of a Limited Partner on any matter will be equal to
the number of Units owned by him. Action may be taken by written consent without
a meeting of the Partnership upon written consent of Limited Partners holding
the same number of Units as would have been required had an actual meeting been
held. For purposes of obtaining written consent, the Managing General Partner
may require a written response by a Limited Partner within not less than 30
days. If the Limited Partner does not respond within the stated time period, the
Limited Partner will be deemed to have abstained from the matter specified in
the written consent.
Any General Partner may be removed by a simple majority in interest of
all the Limited Partners if: (i) if there is no remaining General Partner, a
Successor General Partner is elected; and (ii) the removed General Partner shall
be entitled to a redemption of its general partnership interest at its
Unit-equivalent basis; and (iii) the removal of the General Partner would not
result in the Partnership's ceasing to be treated as a partnership for purposes
of the applicable provisions of the Code; and (iv) Successor General Partner
assumes the removed General Partner's obligations of the Partnership for claims
arising prior to removal and agrees to indemnify the removed General Partner for
such claims in a form satisfactory to the removed General Partner.
INDEMNIFICATION
The General Partners and certain of their affiliates, directors and
controlling persons may not be liable to the Partnership or any Limited Partner
for errors in judgment or other acts or omissions not amounting to misconduct or
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negligence, as a consequence of the indemnification and exculpatory provisions
described in the following paragraph. Purchasers of Units may have more limited
rights of action than they would absent such provisions.
The General Partners and their affiliates shall have no liability to
the Partnership or to any Limited Partner for any loss suffered by the
Partnership which arises out of any action or inaction of the General Partners
or their affiliates if the General Partners or their affiliates, in good faith,
determined that such course of conduct was in the best interest of the
Partnership and such course of conduct did not constitute negligence or
misconduct of the General Partners or their affiliates. The Partnership has
agreed to indemnify the General Partners and certain of their affiliates,
officers, directors and controlling persons against claims, losses or
liabilities based on their conduct relating to the Partnership, provided that
the conduct resulting in the claims, losses or liabilities for which indemnity
is sought did not constitute negligence or misconduct or breach of any fiduciary
obligation of the Partnership, and was done in good faith and in a manner
reasonably believed to be in the best interests of the Partnership. Affiliates
of the General Partners are entitled to indemnity only for losses resulting from
claims against such affiliates due solely to their relationship with the General
Partners or for losses incurred by such affiliates in performing the duties of
the General Partners. For purposes of the exculpation and indemnification
provisions of the Partnership Agreement, the term "affiliates" means any person
performing services on behalf of the Partnership who (i) directly or indirectly
controls, is controlled by, or is under common control with the General
Partners; or (ii) owns or controls 10% or more of the outstanding voting
securities of the General Partners; or (iii) is an officer or director of either
General Partner; or (iv) if either of the General Partners is an officer,
director, partner or trustee, is any company for which such General Partner acts
in any such capacity.
The Partnership will not indemnify the General Partners or any of the
foregoing persons for any liability arising from securities law violations in
connection with the offering of the Units unless the General Partners or such
persons prevail on the merits or obtain a court approved settlement which
includes court approved indemnification as described in Section 8.05(b) of the
Partnership Agreement.
Under the exculpatory provisions of the Partnership Agreement, none of
the General Partners or their affiliates will be liable to the Partnership or to
any of the Partners except by reason of acts or omissions constituting bad
faith, misconduct or negligence, and that were not taken in good faith and in
the reasonable belief that such actions were in the best interests of the
Partnership. Purchasers of Units may have a more limited right of action then
they would absent such limitations. See "Conflicts of Interest" and "Fiduciary
Responsibility of the General Partners."
GENERAL
In compliance with the Statement of Policy of the North American
Securities Administrators Association, Inc. relating to the registration to
commodity pool programs under state securities or "Blue Sky" laws, the
Partnership Agreement provides that: (i) the Partnership will make no loans;
(ii) no rebates or give-ups, among other things, may be received from the
Partnership by any of the General Partners, the futures commission merchant or
any affiliate of the foregoing, and any such restriction may not be circumvented
by reciprocal business arrangements among any of the General Partners, the
futures commission merchant or any of their respective affiliates and the
Partnership; (iii) any agreements between the Partnership and the General
Partners or any of their affiliates will not exceed one year and must be
terminable by the Partnership upon no more than 60 days' written notice; (iv)
the funds of the Partnership will not be commingled with the funds of any other
person (deposit of assets with a futures commission merchant, clearing house or
forward dealer does not constitute commingling for these purposes); (v) no
person is permitted to receive, directly or indirectly, any advisory, management
or incentive fees or profit-sharing allocation from the Partnership or any joint
ventures, partnerships, or similar arrangements in which the Partnership
participates, for investment advice or management who shares or participates in
any commodity brokerage commissions paid by the Partnership; (vi) no sponsors
shall directly or indirectly pay or award any commissions or other compensation
to any person engaged to sell Units or give investment advice to a potential
participant (provided, however, that this clause shall not prohibit the payment
to a registered broker/dealer or other properly licensed person of normal sales
commissions for selling Units); and (vii) no affiliate of any trading advisor or
manager of the Partnership shall be permitted to participate, directly or
indirectly, in any commodity brokerage commissions paid by the Partnership.
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PLAN OF DISTRIBUTION
The Units will be offered by the Partnership through its Selling Agents
who are members of National Association of Securities Dealers ("NASD") pursuant
to a Selling Agreement between the Partnership, the Selling Agents and Refco.
The Units will be offered on a best efforts basis without any firm underwriting
commitment. See "Risk Factors - No Assurance That Units Will be Sold." The
compensation to the Selling Agents is described in detail in "Description of
Charges to the Partnership." Selling Agents may pay a portion of such
compensation to their respective employees.
The Partnership will offer Units for sale valued as of the first
business day of each month at the then current Average Net Asset Value per Unit,
plus a selling commission of 4%, until the maximum number of Units offered
hereby have been sold. Purchasers of Units during the Offering will be admitted
on the first business day of the month following the month in which their
subscription is received. Subscriptions must be received by the General Partners
not later than the fifth day prior to the end of a month in order for a
subscriber to be admitted on the first business day of the next month. Proceeds
from the sale of Units during the Offering will be added to the Partnership's
trading account. Interest earned on such proceeds prior to closing applicable to
such Units will be retained by the Partnership. The number of Units subscribed
for will be determined for each subscriber by dividing the Average Net Asset
Value per Unit on the first day of such month, plus 4% selling commission, into
the amount tendered by such subscriber. Fractional Units will be issued. The
Partnership is registering 100,000 Units for sale under this prospectus.
However, after all 100,000 Units have been sold, the Managing General Partner
may, in its discretion, subsequently register an additional 400,000 Units and
increase the number of Units to 500,000 and make additional public or private
offerings of Units provided that the net proceeds to the Partnership of any such
sales shall in no event be less than the Average Net Asset Value per Unit at the
time of sale. The Managing General Partner, and not the Partnership, will bear,
or cause others to bear, all expenses related to the Offering or any additional
offering thereafter. No Limited Partner will have any preemptive, preferential
or other rights with respect to the issuance or sale of any additional Units.
The Managing General Partner may reject any subscription in whole or in
part for any reason. All subscriptions are irrevocable.
LEGAL MATTERS
The legality of the Units offered hereby will be passed upon by Baker,
Donelson, Bearman & Caldwell of Memphis, Tennessee.
EXPERTS
The financial statements of Ceres Fund, L.P. as of December 31, 1997
and 1996, and for the three years ended December 31, 1997 have been included
herein in reliance upon the reports of KPMG Peat Marwick, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Partnership has filed with the Securities and Exchange Commission
(the "Commission") in Washington, D.C., a Registration Statement under the
Securities Act of 1933, as amended, with respect to the securities offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information
regarding the Partnership and the securities offered hereby, reference is made
to the Registration Statement, and to the exhibits and schedules thereto, which
may be inspected without charge at the public reference facilities maintained by
50
58
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C., and
copies of which may be obtained from the Commission at prescribed rates by
writing to the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is hereby made to the exhibit for a more
complete description of the matter involved and each such statement shall be
deemed qualified in its entirety by such reference.
The Partnership is subject to the informational requirements of the
Securities Exchange Act of 1934 (the "Exchange Act") and in accordance therewith
will file reports and other information with the Commission which can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission at 75 Park Place, 14th Floor, New York, New
York 10007 and Everett McKinley Dirkson Building, 219 South Dearborn Street,
Room 1204, Chicago, Illinois 60604. Copies of such material can also be obtained
from the public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates.
GLOSSARY OF CERTAIN TERMS AND DEFINITIONS
The following glossary may assist the prospective investor in
understanding the terms used in this Prospectus.
Adjusted Asset Value. See the "Adjusted Asset Value and Net Asset
Value" section in this Prospectus.
Affiliate. See the "Fiduciary Responsibility of the General Partners"
section in this Prospectus.
Associated Persons. Any person who is associated with any futures
commissions merchant, commodity pool operator, commodity trading advisor or
introductory broker or with any agent thereof as a partner, officer or employee,
in any capacity which involves (i) solicitation or acceptance of customer orders
(other than a clerical capacity) or (ii) the supervision of any person or
persons so engaged.
Average Net Asset Value per Unit. See the "Adjusted Asset Value and
Net Asset Value" section in this Prospectus.
Capital Contributions. The total investment in a program by a
participant or by all participants, as the case may be. See the "Capitalization"
section in this Prospectus.
CFTC. The Commodity Futures Trading Commission.
Commission or Brokerage Commission. The fee charged by a broker for
executing a trade in a commodity account of a customer. Commissions are usually
charged on a "round-turn" basis, i.e., only upon the closing of an open
position.
Commodity. The term commodity refers to goods, wares, merchandise,
produce and in general everything that is bought and sold in commerce, including
financial instruments and foreign currencies. Out of this large class, certain
commodities, because of their wide distribution, universal acceptance, and
marketability in commercial channels, have been selected as appropriate vehicles
for trading on various national and international exchanges located in principal
marketing and commercial areas. Such commodities are traded according to
uniform, established grade standards, in convenient predetermined lots and
quantities, are fungible (allow free substitution of one lot for another to
satisfy a contract) and, with few exceptions, are storable over periods of time.
Commodity Contract. See "Futures Contract" in this glossary.
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Covered Option. A "covered" option is one in which the seller of the
option owns the underlying commodity or futures contract at all times when such
seller is obligated to deliver such underlying commodity or futures contract
upon the exercise of the option.
Daily Price Fluctuation Limit. The maximum permitted fluctuation
(imposed by an exchange and approved by the CFTC) in the price of a futures
contract for a given commodity or stock index that can occur on an exchange on a
given day in relation to the previous day's settlement price. Such maximum
permitted fluctuation is subject to change from time to time by the exchange.
Delivery. The process of satisfying a commodity futures contract by
transferring ownership of a specified quantity and grade of a commodity to the
purchaser thereof.
Forward Contract. A contract relating to the purchase and sale of a
physical commodity for delivery at a future date. It is distinguished from a
futures contract in that it is not traded on an exchange and it contains terms
and conditions specifically negotiated by the parties.
Futures Contract. Contracts made on or through a commodity exchange
which provide for future delivery of agricultural and industrial commodities,
foreign currencies and financial instruments, or for cash settlement in the case
of stock index futures. Such contracts are uniform for each commodity or
financial instrument and typically vary only with respect to price, delivery or
settlement time. A commodity futures contract to accept delivery (buy) is
referred to as a "long" contract; conversely a contract to make delivery (sell)
is referred to as a "short" contract. Until a commodity futures contract is
satisfied by delivery or offset it is said to be an "open" position.
Incentive Allocation. See the "Description of Charges to the
Partnership -- General Partner - Incentive Allocation" section in this
Prospectus.
Long or Short Position. A trader is long when he has bought a cash
commodity or a futures contract, in contrast to a trader being short, which
means he has sold a cash commodity or a futures contract.
Management Allocation. See the "Description of Charges to the
Partnership -- General Partner - Management Allocation" section in this
Prospectus.
Margin. Good faith deposits with a broker to assure fulfillment of a
purchase or sale of a futures contract. Margins do not involve the payment of
interest.
Margin Call. A demand for additional funds after the initial good faith
deposit required to maintain a customer's account in compliance with the
requirements of a particular commodity exchange or of a futures commission
merchant.
Net Asset Value and Net Asset Value per Unit. See the "Adjusted Asset
Value and Net Asset Value" section in this Prospectus.
Net Assets. See the "Adjusted Asset Value and Net Asset Value" section
in this Prospectus.
Net New Appreciation. See the "Description of Charges to the
Partnership -- General Partner - Incentive Allocation" section in this
Prospectus.
New Trading Profits. See Net New Appreciation.
NFA. The National Futures Association.
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Option or Option Contract. A contract giving the purchaser the right,
but not the obligation, to acquire or to dispose of the commodity or futures
contract underlying the option, or the seller of an option contract the
obligation to deliver or take delivery of the commodity or futures contract
underlying the option. See "Stock Index Futures Options."
Organizational and Offering Expenses. All expenses incurred by the
Partnership in connection with and in preparing the Partnership for registration
and subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriters, attorneys), expenses for printing,
engraving, mailing, salaries of employees engaged in sales activities, charges
of transfer agents, registrars, trustees, escrow holders, depositories, experts,
expenses of qualification of sale of its Units under Federal and state law,
including taxes and fees, accountants' and attorneys' fees. See "Description of
Charges to the Partnership and Partners -- Other" section in this Prospectus.
Pit Brokerage Fee. Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
Position Limit. The maximum number of futures contracts for a given
commodity that can be held or controlled at one time by one person or a group of
persons acting together. Such limitation is imposed by the CFTC or an exchange.
Pyramiding. A method of using all or part of an unrealized profit in a
commodity contract position to provide margin for any additional commodity
contract of the same or related commodities.
Redemption Net Asset Value per Unit. See the "Redemptions" section in
this Prospectus.
Round-turn. The opening and closing of a futures or option position
consisting of one contract.
Settlement Price. The closing price for futures contracts in a
particular commodity, financial instrument or stock index established by the
clearing house or exchange after the close of each day's trading.
Sponsor. Any person directly or indirectly instrumental in organizing a
program or any person who will manage or participate in the management of a
program, including a futures commission merchant who pays any portion of the
organizational expenses of the program, and the general partner(s) and any other
person who regularly performs or selects the persons who perform services for
the program. Sponsor does not include wholly independent third parties such as
attorneys, accountants and underwriters whose only compensation is for
professional services rendered in connection with the offering of the Units. The
term "sponsor" shall be deemed to include its affiliates.
Stock Price Index. A tool for measuring, with a single numerical value,
the current price level of the stocks of a composite of selected publicly-traded
companies, which tend to reflect the price level of all stocks in the market
from which the constituent corporations were selected. For example, the S&P 500
Stock Price Index is a capitalization- weighted index comprising 500 of the
largest and most actively traded domestic industrial stocks; the market value of
the 500 constituent companies is equal to approximately 80% of the value of all
stocks traded on the New York Stock Exchange. Other indices include the New York
Stock Exchange Composite Index, the Major Market Index, the Kansas City Value
Line Index and the CRB Index.
Stock Index Futures or Index Futures or Stock Index Futures Contracts
or Index Futures Contracts. A contract made on or through a commodity exchange
which provides for the future cash settlement of the contract in an amount equal
to a multiple of the stock price index upon which the particular futures
contract is based. For example, futures contracts based on the S&P 500 Stock
Price Index, which currently represent three-quarters of all domestic stock
index futures trading, are settled quarterly, in cash, with no delivery of
securities and without transferring the full value of the contract, by charging
final gains and losses to the margin accounts of holders based on the opening
value of the S&P 500 Stock Price Index on the settlement date. The major stock
index futures are based on the S&P 500 Index (traded on the Chicago Mercantile
Exchange), the New York Stock Exchange Composite Index (traded on the New York
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Futures Exchange), the Major Market Index (traded on the Chicago Board of Trade)
and the Kansas City Value Line Index (traded on the Kansas City Board of Trade).
Stock Index Futures Options or Index Futures Options or Futures
Options. A contract giving the purchaser the right, but not the obligation, to
acquire ("call") or to dispose ("put") of the Stock Index Futures contract
underlying the option, or the seller of a Stock Index Futures Option contract
the obligation to deliver (in the case of a "call" seller) or take delivery (in
the case of a "put" seller) of the futures contract underlying the option.
However, exercise of a Stock Futures Option on the settlement day of the
underlying futures contract results in cash settlement. On all other days,
exercise of a call results in a long futures position at the strike price in the
underlying contract months, and exercise of a put results in a short futures
position at the strike price in the underlying contract month. Any short
position open at the end of a trading day is liable to the assignment of a
futures position.
Trading Advisor. Any person who for any consideration engages in the
business of advising others, either directly or indirectly, as to the value,
purchase or sale of commodity contracts or commodity options. See the "Trading
Advisors" section in this Prospectus.
Unrealized Profit or Loss. The profit or loss which would be realized
on an open position if it were closed out at the current settlement price.
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(A TENNESSEE LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS AND SCHEDULE
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
To the best of my knowledge and belief, the information contained herein is
accurate and complete.
Frank L. Watson Jr., Chairman
Randell Commodity Corporation
General Partner and Commodity Pool Operator
Ceres Fund, L.P.
F-1
63
INDEPENDENT AUDITORS REPORT
The Partners
Ceres Fund, L.P.:
We have audited the accompanying statements of financial condition of Ceres
Fund, L.P. (a Tennessee Limited Partnership) as of December 31, 1997 and 1996
and summary of net asset values as of December 31, 1997, 1996 and 1995, and the
related statements of operations, changes in partners capital and cash flows for
each of the years in the three-year period ended December 31, 1997. These
financial statements are the responsibility of the Partnership's management. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Ceres Fund, L.P. (a Tennessee
Limited Partnership) as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information included in
Schedule 1 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Memphis, Tennessee
February 20, 1998
F-2
64
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
1997 1996
---------- ----------
ASSETS
Cash $ 155,155 108,554
Equity in commodity futures trading account:
U.S. government obligations at fair value (cost of
$6,269,786 and $3,050,931 at December 31, 1997
and 1996, respectively) 6,308,524 3,077,250
Cash 141,589 1,514,594
Unrealized gains on open futures contracts 27,202 186,032
Open option contracts, at market 10,780 --
Interest receivable 4,395 8,657
---------- ----------
TOTAL ASSETS $6,647,645 4,895,087
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued management fees $ 20,855 10,033
Accrued incentive fees 1,662 32,849
Other accrued expenses 60,387 42,544
Redemptions payable 80,700 32,572
---------- ----------
TOTAL LIABILITIES 163,604 117,998
---------- ----------
PARTNERS CAPITAL:
General partners 357,891 374,741
Limited partners 6,126,150 4,402,348
---------- ----------
TOTAL PARTNERS' CAPITAL 6,484,041 4,777,089
---------- ----------
$6,647,645 4,895,087
========== ==========
See accompanying notes to financial statements.
F-3
65
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
Net gains (losses) on trading of commodity futures and options contracts:
Realized gains on closed positions $ 472,553 3,457,913 1,877,265
Change in unrealized gains (losses) on open
futures contracts (158,830) (45,994) 164,872
Change in unrealized gains (losses)
on open options contracts 10,780 (1,840) 1,840
----------- ----------- -----------
NET GAINS ON INVESTMENTS 324,503 3,410,079 2,043,977
Investment income - interest (note 3) 294,507 187,206 112,821
----------- ----------- -----------
INCOME FROM OPERATIONS 619,010 3,597,285 2,156,798
----------- ----------- -----------
Brokerage commissions (note 3) 797,000 541,907 320,062
Exchange, clearing fees and NFA charges 41,772 23,322 13,615
Management fee allocations (note 2) 223,279 151,969 85,331
Incentive fee allocations (note 2) 3,091 384,117 108,815
Professional and administrative expenses 58,403 82,026 44,869
----------- ----------- -----------
1,123,545 1,183,341 572,692
----------- ----------- -----------
NET EARNINGS (LOSS) $ (504,535) 2,413,944 1,584,106
=========== =========== ===========
NET EARNINGS (LOSS) ALLOCATED TO
GENERAL PARTNER $ (16,850) 208,349 87,697
=========== =========== ===========
NET EARNINGS (LOSS) ALLOCATED TO
LIMITED PARTNERS $ (487,685) 2,205,595 1,496,409
=========== =========== ===========
AVERAGE NET EARNINGS (LOSS) PER UNIT $ (19.61) 115.23 69.57
=========== =========== ===========
See accompanying notes to financial statements.
F-4
66
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
---------- ---------- ----------
Partners' capital at December 31, 1994 $ 78,695 1,607,410 1,686,105
Capital contributions (2,704 units) -- 191,647 191,647
Redemption of units (5,042 units) -- (464,238) (464,238)
Net earnings for the year 87,697 1,496,409 1,584,106
---------- ---------- ----------
Partners capital at December 31, 1995 166,392 2,831,228 2,997,620
Capital contributions (395 units) -- 96,154 96,154
Redemption of units (2,798 units) -- (442,122) (442,122)
Distributions -- (288,507) (288,507)
Net earnings for the year 208,349 2,205,595 2,413,944
---------- ---------- ----------
Partners capital at December 31, 1996 374,741 4,402,348 4,777,089
Capital contributions (13,552 units) -- 2,755,044 2,755,044
Redemption of units (1,555 units) -- (299,329) (299,329)
Distributions (1,862 units) -- (244,228) (244,228)
Net loss for the year (16,850) (487,685) (504,535)
---------- ---------- ----------
Partners capital at December 31, 1997 $ 357,891 6,126,150 6,484,041
========== ========== ==========
Average net asset value per limited partnership unit at:
December 31, 1995; 20,341.7718 units outstanding $ 139.18
==========
December 31, 1996; 17,938.6369 units outstanding $ 245.41
==========
December 31, 1997; 31,797.3173 units outstanding $ 192.66
==========
See accompanying notes to financial statements.
F-5
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CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (504,535) 2,413,944 1,584,106
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Net unrealized (gains) losses on open contracts 148,050 47,834 (166,712)
(Increase) decrease in operating assets:
Investments in commodities futures
trading account (1,858,269) (1,641,232) (1,278,932)
Interest receivable 4,262 (3,601) (1,977)
Increase (decrease) in operating liabilities:
Accrued management fees 10,822 (44) 4,531
Accrued incentive fees (31,187) (65,111) 97,960
Other accrued expenses 17,843 27,055 (1,922)
----------- ----------- -----------
TOTAL ADJUSTMENTS (1,708,479) (1,635,099) (1,347,052)
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (2,213,014) 778,845 237,054
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of limited partnership units 2,755,044 96,154 191,647
Redemptions of limited partnership units (251,201) (493,476) (431,227)
Distributions to limited partners (244,228) (288,507) --
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,259,615 (685,829) (239,580)
----------- ----------- -----------
Net increase (decrease) in cash 46,601 93,016 (2,526)
Cash at beginning of year 108,554 15,538 18,064
----------- ----------- -----------
Cash at end of year $ 155,155 108,554 15,538
=========== =========== ===========
See accompanying notes to financial statements.
F-6
68
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
SUMMARY OF NET ASSET VALUES
AT DECEMBER 31, 1997
NUMBER NUMBER NUMBER NUMBER NET ASSET TOTAL LIMITED
SUBSCRIBER OF UNITS OF UNITS OF UNITS OF UNITS VALUE PARTNER NET
ADMISSION DATE SUBSCRIBED WITHDRAWN DISTRIBUTED OUTSTANDING PER UNIT ASSET VALUE
-------------- ---------- --------- ----------- ----------- -------- -----------
January 1, 1996 20,341.7718 (4,288.1422) 1,793.0394 17,846.6690 $192.7624 3,440,167
November 1, 1996 239.4689 (65.0721) 41.3760 215.7728 192.7624 41,593
December 1, 1996 155.2598 - 27.5246 182.7844 192.7624 35,234
January 1, 1997 708.7734 - - 708.7734 192.7624 136,625
February 1, 1997 1,555.9517 - - 1,555.9517 192.7623 299,929
March 1, 1997 2,630.9876 - - 2,630.9876 192.7625 507,155
April 1, 1997 3,704.4494 - - 3,704.4494 192.7624 714,078
May 1, 1997 1,381.6388 - - 1,381.6388 192.7624 266,328
June 1, 1997 988.1934 - - 988.1934 192.7624 190,486
July 1, 1997 826.3808 - - 826.3808 190.5557 157,472
August 1, 1997 493.4459 - - 493.4459 191.8761 94,680
September 1, 1997 209.0262 - - 209.0262 191.4386 40,016
October 1, 1997 496.1560 - - 496.1560 192.0056 95,265
November 1, 1997 229.6653 - - 229.6653 192.0699 44,112
December 1, 1997 327.4226 - - 327.4226 192.4436 63,010
----------- ---------- ---------- ----------- --------- ---------
34,288.5916 (4,353.2143) 1,861.9400 31,797.3173 $192.6625 6,126,150
=========== ========== ========== =========== ========= =========
See accompanying notes to financial statements.
F-7
69
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
SUMMARY OF NET ASSET VALUES
AT DECEMBER 31, 1996
TOTAL
LIMITED
NUMBER NUMBER NUMBER NET ASSET PARTNER
SUBSCRIBER OF UNITS OF UNITS OF UNITS VALUE NET ASSET
ADMISSION DATE SUBSCRIBED WITHDRAWN OUTSTANDING PER UNIT VALUE
-------------- ---------- --------- ----------- -------- -----
January 1, 1996 20,341.7718 (2,797.8636) 17,543.9082 $ 245.38 4,304,987
November 1,1996 239.4689 -- 239.4689 246.28 58,977
December 1, 1996 155.2598 -- 155.2598 247.23 38,384
----------- ----------- ------------ ----------- ---------
20,736.5005 (2,797.8636) 17,938.6369 $ 245.41 4,402,348
=========== =========== ============ =========== =========
See accompanying notes to financial statements.
F-8
70
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
SUMMARY OF NET ASSET VALUES
AT DECEMBER 31, 1995
TOTAL
LIMITED
NUMBER NUMBER NUMBER NET ASSET PARTNER
SUBSCRIBER OF UNITS OF UNITS OF UNITS VALUE NET ASSET
ADMISSION DATE SUBSCRIBED WITHDRAWN OUTSTANDING PER UNIT VALUE
-------------- ---------- --------- ----------- -------- -----
December 1, 1991 13,471.6805 (9,382.9291) 4,088.7514 $139.71 571,255
January 1, 1992 1,868.7042 (308.5313) 1,560.1729 138.96 216,808
February 1, 1992 1,708.8416 (735.5574) 973.2842 140.16 136,412
March 1, 1992 2,122.9736 (1,387.6491) 735.3245 139.44 102,537
April 1, 1992 584.4999 (434.8956) 149.6043 140.20 20,975
May 1, 1992 918.3502 (329.6641) 588.6861 138.94 81,792
June 1, 1992 1,678.3638 (503.3093) 1,175.0545 139.86 164,344
July 1, 1992 2,002.6730 (306.3825) 1,696.2905 138.98 235,755
August 1, 1992 1,132.8673 (514.0451) 618.8222 139.33 86,223
September 1, 1992 1,820.2180 (788.3632) 1,031.8548 139.50 143,944
October 1, 1992 1,979.2928 (1,286.1599) 693.1329 140.02 97,054
November 1, 1992 543.6780 (392.5141) 151.1639 139.72 21,120
December 1, 1992 1,179.6235 (466.6253) 712.9982 139.18 99,237
January 1, 1993 2,314.5105 (1,258.8993) 1,055.6112 139.06 146,798
February 1, 1993 466.9657 (26.7688) 440.1969 139.81 61,543
March 1, 1993 2,393.2721 (1,049.9125) 1,343.3596 139.21 187,011
April 1, 1993 679.3648 (258.6136) 420.7512 139.00 58,483
May 1, 1993 243.4826 (32.4874) 210.9952 139.05 29,338
July 1, 1993 157.6181 (69.9852) 87.6329 140.68 12,328
August 1, 1993 328.7689 (113.4646) 215.3043 140.10 30,165
September 1, 1993 392.3815 (371.8211) 20.5604 143.61 2,953
October 1, 1993 246.6610 -- 246.6610 139.15 34,322
February 1, 1994 1,550.2812 -- 1,550.2812 137.11 212,552
March 1, 1994 693.0397 (191.8743) 501.1654 136.16 68,239
April 1, 1994 74.1121 -- 74.1121 135.47 10,040
January 1, 1995 2,704.0027 (2,704.0027) -- -- --
----------- ----------- ----------- ------- ---------
Total 43,256.2273 (22,914.4555) 20,341.7718 $139.18 2,831,228
=========== =========== =========== ======= =========
See accompanying notes to financial statements.
F-9
71
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
December 31, 1997 and 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Ceres Fund, L.P. (the Partnership) is a Tennessee limited partnership
organized on September 19, 1990 to engage in the speculative trading of
commodities futures contracts and other commodity interests. Randell
Commodity Corporation (Randell) and RanDelta Capital Partners, L.P.
(RanDelta) are the general partners. Randell serves as the managing
general partner and RanDelta serves as the financial general partner.
Randell acts as commodity trading advisor with respect to the
Partnership.
The Partnership solicited subscriptions for a maximum of 100,000 units
of limited partnership interest at $105 per unit ($100 net of
commission). During the initial offering period 13,471.6805 units were
sold and the Partnership commenced trading commodity futures contracts
on December 1, 1991. The Partnership continues to sell units as of the
end of each month at the then average net asset value per unit plus a
selling commission of 4% in accordance with the terms of the Limited
Partnership Agreement, and can continue selling units until the maximum
number of units offered have been sold.
Income and expenses of the Partnership (excluding the Management
Allocation and Incentive Allocation) are allocated pro rata among the
partners based on their respective capital accounts as of the beginning
of the month in which the items of income and expense accrue, except
that limited partners have no liability for partnership obligations in
excess of his or her capital account, including earnings. The
Management Allocation and Incentive Allocation are allocated to the
Limited Partners only in accordance with the terms of the Limited
Partnership Agreement.
Units may not be redeemed during the first six months after they are
purchased. Thereafter, limited partners may redeem their units at the
redemption net asset value per unit as of the end of any calendar
quarter upon ten days written notice to the managing general partner.
The redemption charge will be based on the redemption net asset value
on all units redeemed as more fully described in the offering
prospectus.
Under the terms of the partnership agreement, the Partnership will
terminate on the earlier of December 31, 2020, or the occurrence of
certain events as more fully described in the Limited Partnership
Agreement.
(Continued)
F-10
72
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
EQUITY IN COMMODITY FUTURES TRADING ACCOUNT
U.S. government obligations represent investments in U.S. Treasury
Bills with a maturity of 90 days or less and are carried at fair market
value and any unrealized gains and losses are reflected in income. Cash
represents deposits at brokers and funds temporarily held in interest
bearing accounts.
FUTURES CONTRACTS AND OPTIONS CONTRACTS
Futures contracts are required to be made on a commodity exchange and
call for the future delivery of various agricultural and
nonagricultural commodities, currencies or financial instruments at a
specified time and place. These contractual obligations, depending on
whether one is a buyer or a seller, may be satisfied either by taking
or making physical delivery of an approved grade of the particular
commodity (or, in the case of some contracts, by cash settlement) or by
making an offsetting sale or purchase of an equivalent commodity
futures contract on the same (or a linked) exchange prior to the
designated date of delivery. In market terminology, a trader who
purchases a futures contract is "long" in the futures market, and a
trader who sells a futures contract is "short" in the futures market.
Outstanding futures contracts (those that have not been closed out by
an offsetting purchase or sale or by delivery) are known as "open
trades" or "open positions."
Among the agricultural commodities for which there are futures
contracts are corn, oats, wheat, soybeans, soybean oil, soybean meal,
live cattle, live hogs, pork bellies, coffee, sugar, cocoa and cotton.
Nonagricultural commodities for which there are futures contracts
include copper, silver, gold, platinum, lumber, currency, Treasury
bonds and bills, mortgage-backed securities, Eurodollar deposits,
certain petroleum products and stock, inflation and interest rate
related indices.
An option on a futures contract gives the purchaser of the option the
right (but not the obligation) to take a position at a specified price
(the "striking", "strike" or "exercise" price) in the underlying
futures contract. Options have limited life spans, usually tied to the
delivery or settlement date of the underlying futures contract. Some
options, however, expire significantly in advance of such date. The
value of an option at any given point in time is a function of market
volatility and the price level of the underlying futures contract.
(Continued)
F-11
73
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Open futures contracts are valued at the settlement price on the date
of valuation as determined by the exchange on which the contract was
traded. Changes in the market value of open futures contracts, entered
into for speculative investing, are recorded as unrealized gains or
losses in the accompanying statement of operations. Realized gains and
losses (excluding commissions and other exchange related fees) are
recognized when such contracts are closed.
INCOME TAXES
No provision for income taxes has been made in the accompanying
financial statements since, as a partnership, income and losses for tax
purposes are allocated to the partners for inclusion in their
respective tax returns.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATIONS
Certain 1996 and 1995 amounts have been reclassified to conform to
their 1997 presentation.
AVERAGE NET EARNINGS (LOSS) PER UNIT
The average net earnings (loss) per unit as reported on the statement
of operations was calculated as earnings (loss) allocated to the
limited partners divided by average outstanding units during the year.
(2) MANAGEMENT AGREEMENT
The Partnership has entered into a Management Agreement in
consideration of and as compensation for the services to be rendered by
the General Partners and trading advisors. The Partnership pays a
monthly Management Allocation equal to 1/3 of 1% (4% per annum) of the
Adjusted Net Asset Value of units at month end, plus a quarterly
Incentive Allocation of 15% of any net new appreciation in the adjusted
net asset value of units for the quarter. Such fees were as follows:
(Continued)
F-12
74
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1997 1996 1995
-------- ------- -------
Management fees $223,279 151,969 85,331
Incentive fees 3,091 384,117 108,815
(3) CUSTOMER AGREEMENT WITH REFCO, INC.
The Partnership entered into a customer agreement with Refco, Inc.
(Refco), pursuant to which the Partnership deposits its assets in a
commodity trading account with Refco who executes trades on behalf of
the Partnership. The Partnership agrees to pay such brokerage and
commission charges and fees as Refco may establish and charge from time
to time. Refco charges the Partnership commissions on commodity trades
at the rate of $32.50 per round-turn. Total commissions charged to the
Partnership by Refco in 1997, 1996 and 1995 were $797,000, $541,907 and
$320,062, respectively. The Partnership earns interest on Treasury
Bills held in its account, on interest-bearing accounts and on 80% of
the average daily equity maintained as cash in the Partnership's
trading account at a rate that approximated the average yield on
13-week United States Treasury Bills. Total interest earned by the
Partnership in 1997, 1996 and 1995 was $294,507, $187,206 and $112,821,
respectively.
(4) RELATED PARTIES
The sole shareholder of the parent of the managing General Partner is
an active partner in the law firm which is the counsel to the
Partnership, the General Partners and the Memphis branch of Refco, the
Partnership's commodity broker.
(5) DISTRIBUTION TO LIMITED PARTNERS
On January 16, 1997, the General Partner declared a distribution to the
limited partners equal to the difference between the December 31, 1996
net asset value per unit and $210 per unit. This distribution, totaling
$244,228 in cash (approximately $13.61 per unit) and 1,861.94 in units,
resulted in each unit holder having a net asset value of $210 per unit
on January 1, 1997.
On January 15, 1996, the General Partner declared a distribution to the
limited partners equal to the difference between the December 31, 1995
net asset value per unit and $125 per unit. This distribution, totaling
$288,507 (approximately $14.18 per unit) resulted in each unit holder
having a net asset value of $125 per unit on January 1, 1996.
(Continued)
F-13
75
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(6) Off-Balance-Sheet Risk
In the normal course of business, the Partnership enters into
transactions in financial instruments with off- balance-sheet risk.
These financial instruments include financial futures contracts and
option contracts. Futures contracts provide for the delayed delivery of
commodities, which the seller agrees to make delivery at a specified
future date, at a specified price. Futures contracts and options on
such contracts are held for trading and arbitrage purposes. The
notional value of these contracts reflect the extent of involvement the
Partnership has in particular types of contracts. Risk arises from
movements in commodities' values. At December 31, 1997, the underlying
notional value of open contract commitments were long $14,147,983 and
short $(8,270,190).
The Partnership trades in a variety of futures and options financial
instruments, and all open positions are reported at fair value. Trading
revenue, including realized and unrealized gains and losses, from
financial futures contracts and options transactions for the year ended
December 31, 1997 was $324,503. The average market value of open
commodity financial instruments, and the year-end market value of open
commodities are as follows:
AVERAGE MARKET MARKET VALUE
VALUE OF OPEN OF OPEN POSITIONS AT
POSITIONS DURING 1997 DECEMBER 31, 1997
--------------------- -----------------
Assets (Long Positions) $ (203) (266,834)
Liabilities (Short Positions) (284,382) 304,816
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosure About
Fair Value of Financial Instruments, extends existing fair value
disclosure practices for some instruments by requiring all entities to
disclose the fair value of financial instruments, both assets and
liabilities recognized and not recognized in the statement of financial
condition, for which it is practicable to estimate fair value. If
estimating fair value is not practicable, this Statement requires
disclosures of descriptive information pertinent to estimating the
value of a financial instrument. At December 31, 1997, substantially
all of the Partnership's financial instruments, as defined in the
Statement, are carried at fair value.
F-14
76
Schedule 1
CERES FUND, L.P.
(A TENNESSEE LIMITED PARTNERSHIP)
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
PAR OR
NUMBER OF FAIR
DESCRIPTION CONTRACTS VALUE
----------- --------- ----------
United States Treasury Bill due January 29, 1998 3,700,000 $3,685,482
United States Treasury Bill due February 12, 1998 400,000 397,563
United States Treasury Bill due March 19, 1998 2,250,000 2,225,479
---------
6,308,524
---------
Net cash balances from futures trading 141,589
---------
Open options contracts in futures trading accounts:
February 8 Live Cattle (6,000)
April 8 Live Cattle (1,220)
June 8 Live Cattle (24,600)
March 8 Feeders (25,500)
April 8 Feeders (8,625)
May 8 Feeders (4,500)
March 8 NY Cotton 296
March 8 US Treasury Bond Future 1,406
March 8 NY Coffee (7,969)
March 8 Dollar Index 600
March 8 Corn 156,000
December 8 Corn (86,000)
March 8 Soybeans 2,250
March 8 Soybean Meal 3,600
March 8 Soybean Oil 2,640
May 8 Soybean Oil 25,824
May 8 Wheat 87,500
July 8 Wheat (88,500)
March 8 Corn Option 17,500
March 8 Soybean Option 7,200
March 8 Soybean Option (3,120)
March 8 Soybean Option (10,800)
----------
37,982
---------
Total equity in futures trading accounts 179,571
---------
Total investments $6,488,095
==========
F-15
77
CERES FUND, L.P.
UNAUDITED FINANCIAL INFORMATION
Financial Statements
The accompanying interim consolidated financial statements are unaudited and
have been prepared in accordance with the accounting policies in effect as of
December 31, 1997, as set forth in the annual consolidated financial statements
of Ceres Fund, L.P. as of such date. In the opinion of management, all
adjustments necessary for a fair presentation of the consolidated condensed
financial statements have been included and all such adjustments were of a
normal recurring nature. The results of operations for the three-month period
ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year.
These financial statements do not purport to contain complete disclosures in
conformity with generally accepted accounting principles and should be read in
conjunction with the Registrant's audited consolidated financial statements at
and for the period ended December 31, 1997.
The results reflected for the three month period ended March 31, 1998, are not
necessarily indicative of the results for the entire fiscal year which will end
December 31, 1998.
F-16
78
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Financial Condition
March 31, 1998 and December 31, 1997
(Unaudited)
March 31, 1998 December 31, 1997
-------------- -----------------
Assets:
Cash $ 55,939 $ 155,155
U. S. Treasury obligations at
cost plus accrued interest 6,555,356 6,308,524
Equity in commodity trading account:
Cash 585,372 141,589
Unrealized gain (loss) of
open futures contracts 240,397 27,202
Market Value of open option
contracts 9,110 10,780
Other assets 4,082 4,395
---------- ----------
$7,450,256 $6,647,645
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accrued management fees $ 23,516 $ 20,855
Accrued incentive fees 13,932 1,662
Other accrued expenses 31,540 60,387
Redemptions payable 124,849 80,700
---------- ----------
193,837 163,604
---------- ----------
Partners' capital:
General partners 391,253 357,891
Limited partners 6,865,166 6,126,150
---------- ----------
Total partners' capital 7,256,419 6,484,041
---------- ----------
$7,450,256 $6,647,645
========== ==========
See accompanying notes to financial statements
F-17
79
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Operations
(Unaudited)
Three Months Ended March 31,
1998 1997
-------- ---------
Income
Net gains (losses) on trading of commodity
futures and option contracts:
Realized gain (losses) on closed
positions $554,172 $ 783,692
Change in unrealized gain (losses) on
open positions 207,576 (687,918)
Interest 83,131 59,498
-------- ---------
Income (Loss) From Operations $844,879 $ 155,272
-------- ---------
Expenses
Brokerage commissions, exchange,
clearing fees and NFA charges 193,052 197,418
Management fee allocations 64,352 46,918
Incentive fee allocations 13,932 --
Professional and administrative
expenses 18,000 25,377
-------- ---------
289,336 269,713
-------- ---------
Net Income (Loss) $555,543 $(114,441)
======== =========
Aggregate Income (Loss)
Allocated to General Partners $ 33,362 $ (4,356)
Aggregate Income (Loss)
Allocated to Limited Partners $522,181 $(110,085)
Net Income (Loss) per Limited
Partnership Unit (Average) $ 16.12 $ (5.24)
See accompanying notes to financial statements.
F-18
80
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Statements of Cash Flows
Three Months Ended March 31,
1998 1997
--------- -----------
Cash flows from operating activities:
Net Income (Loss) $ 555,543 $ (114,441)
Adjustments to reconcile net Income (Loss) to net
cash provided by operating activities:
Net unrealized gain (loss) on open contracts 207,576 (687,918)
(Increase) decrease in operating assets:
U. S. Treasury obligation (246,832) (1,482,484)
Investments in commodities fund (443,783) (312,974)
Unrealized gain (loss) on open futures and
options contracts (420,771) 1,326,860
Market Value of open option contracts 1,670 499,100
Other Assets 313 (156)
Increase (decrease) in operating liabilities:
Accrued management fees 2,661 7,031
Accrued incentive fees 12,270 (32,849)
Other accrued expenses (28,853) 22,850
Amounts received for future subscriptions 6 202,435
Redemptions payable 44,149 96,957
--------- -----------
Total Adjustments (871,594) (361,148)
--------- -----------
Net Cash from (used in) in operating activities (316,051) (475,589)
Cash Flows from (used in) financing activities:
Net proceeds from sale of limited partnership units 341,684 1,026,809
Redemption of limited partnership units (124,849) (129,529)
Distribution to limited partners -- (244,228)
Contributions received from general partners -- --
--------- -----------
Net increase (decrease) in cash (99,216) 177,463
Cash at the beginning of the year 155,155 108,554
--------- -----------
Cash at the end of the quarter $ 55,939 $ 286,017
========= ===========
See accompanying notes to financial statements.
F-19
81
CERES FUND, L.P.
(A Tennessee Limited Partnership)
Notes to Financial Statements
March 31, 1998
(1) Summary of Significant Accounting Policies
Organization
Ceres Fund, L.P. (the Partnership) is a Tennessee limited partnership organized
on September 19, 1990 to engage in the speculative trading of commodities
futures contracts and other commodity interests. Randell Commodity Corporation
("Randell") and RanDelta Capital Partners, L.P. ("RanDelta") are the general
partners. Randell serves as the managing general partner and RanDelta serves as
the financial general partner. Randell will act as commodity trading advisor
with respect to the Partnership.
The Partnership solicited subscriptions for a maximum of 100,000 units of
limited partnership interest at $105 per unit. During the initial offering
period 13,471.6805 units were sold and the Partnership commenced trading
commodity futures contracts on December 1, 1991. The Partnership continues to
sell units as of the end of each month at the then average net asset value per
unit plus a selling commission of 4% in accordance with the terms of the Limited
Partnership Agreement, and can continue selling units until the maximum number
of units offered have been sold. At March 31, 1998, a total of 59,285.5298 units
have been sold, 1,861.9400 units have been distributed in lieu of a cash
distribution, and 28,162.1240 units have been redeemed, leaving an outstanding
balance at March 31, 1998, of 32,985.3458 units.
The general partners agreed to make a capital contribution of the lesser of
$100,000 or 3% of total partnership capitalization and made an initial capital
contribution of $45,000 and has made additional capital contributions during the
period of $55,000 to meet its investment commitment in the Partnership. In no
event will the general partners' interest in the Partnership be less than 1% of
total partnership capitalization.
Income and expenses of the Partnership (excluding the Management Allocation and
Incentive Allocation) will be allocated pro rata among the partners based on
their respective capital accounts as of the beginning of the month in which the
items of income and expense accrue, except that limited partners have no
liability for partnership obligations in excess of his or her capital account,
including earnings. The Management Allocation and Incentive Allocation are
allocated to the Limited Partners only in accordance with the terms of the
Limited Partnership Agreement.
The Partnership is not liable for any organizational and offering expenses in
connection with the issuance and distribution of the units. Refco, Inc., the
Partnership's commodity broker, paid the organizational expenses of the
Partnership and the expenses of offering the units to the public. The
Partnership will not reimburse Refco, Inc. for any portion of the costs so
incurred and will not be liable for any such costs at any time.
Units may not be redeemed during the first six months after they are purchased.
Thereafter, limited partners may redeem their units at the redemption net asset
value per unit as of the end of any calendar quarter upon ten days written
notice to the managing general partner. The redemption charge will be based on
the redemption net asset value on all units redeemed as more fully described in
the offering prospectus.
Under the terms of the partnership agreement, the Partnership will terminate on
the earlier of December 31, 2020, or the occurrence of certain events as more
fully described in the Limited Partnership Agreement.
Valuation of Futures Contracts
Open commodity futures contracts are valued at market daily and unrealized gains
and losses are reflected in income.
F-20
82
Income Taxes
No provision for income taxes has been made in the accompanying financial
statements since, as a partnership, income and losses for tax purposes are
allocated to the partners for inclusion in their respective tax returns.
(2) Management Agreement
The Partnership has entered into a Management Agreement in consideration of and
as compensation for the services to be rendered by the General Partners and
trading advisors. The Partnership will pay to the general partners a monthly
Management Allocation equal to 1/3 of 1% (4% per annum) of the adjusted net
asset value of units at month end, plus a quarterly Incentive Allocation of 15%
of any net new appreciation in the adjusted net asset value of units for the
quarter. During the three months ended March 31, 1998, management fees totaled
$64,352 and incentive fees totaled $13,932.
(3) Customer Agreement with Refco, Inc.
The Partnership entered into a customer agreement with Refco, Inc. (Refco),
pursuant to which the Partnership deposits its assets in a commodity trading
account with Refco who executes trades on behalf of the Partnership. The
Partnership agrees to pay such brokerage and commission charges and fees as
Refco may establish and charge from time to time. During 1998, Refco charged the
Partnership commissions on commodity trades at the rate of $32.50 per
round-turn. Total commissions charged to the Partnership by Refco during this
three month period were $184,649. The Partnership earns interest on 80% of the
average daily equity maintained as cash in the Partnership's trading account at
a rate equal to the average yield on 13-week United States Treasury Bills. Total
interest earned by the Partnership from this source during this three month
period amounted to $83,131.
(4) Related Parties
The sole shareholder of the parent of the managing General Partner is an active
partner in the law firm which is the counsel to the Partnership, the General
Partners, the Memphis branch of Refco and the Partnership's commodity broker.
(5) Distribution to Limited Partners.
On January 16, 1997, the General Partner declared a distribution to the limited
partners equal to the difference between the December 31, 1996 net asset value
per unit and $210 per unit. This distribution, totaling $244,228 in cash and
1,861.94 in units, resulted in each unit holder having a net asset value of $210
per unit on January 1, 1997.
(6) Calculation of Net Income (Loss) per Limited Partnership Unit
The Net Income (Loss) per Limited Partnership Unit for the period from January
1, 1998 through March 31, 1998 of $16.12 was calculated by dividing the
Aggregate Income (Loss) Allocated to Limited Partners of $522,181 by the Average
Units outstanding between December 31, 1997 and March 31, 1998 (32,391.3316
Units).
The Net Income (Loss) per Limited Partnership Unit for the period from January
1, 1997 through March 31, 1997 of $(5.24) was calculated by dividing the
Aggregate Income (Loss) Allocated to Limited Partners of $110,085 by the Average
Units outstanding between December 31, 1996 and March 31, 1997 (20,999.0393
Units).
F-21
83
CERES FUND, L.P.
(A Tennessee Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
for the Quarter Ended March 31, 1998.
RESULTS OF OPERATIONS
The Three Months Ended March 31, 1998, compared to the Three Months Ended March
31, 1997.
Trading results were more profitable during the three months ended March 31,
1998, as compared to the same period in 1997. The Partnership had income from
trading activities of $844,879 for the three months ended March 31, 1998, as
compared to income from trading activities of $155,272 for the three months
ended March 31, 1997. The gains during this period are primarily attributable to
gains in connection with the trading of grain contracts. As a result of such
gains from trading activities, the Partnership had a net income of $555,543 for
the three months ended March 31, 1998, compared to net loss of $114,441 for the
same period in 1997; and a net income per limited partnership Unit of $16.12 for
the three months ended March 31, 1998, compared to a net loss per limited
partnership Unit of $5.24 for the same period in 1997.
F-22
84
RANDELL COMMODITY CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF RANDELL CORPORATION)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-23
85
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Randell Commodity Corporation:
We have audited the accompanying balance sheets of Randell Commodity Corporation
(a wholly-owned subsidiary of Randell Corporation) as of December 31, 1997 and
1996. These balance sheets are the responsibility of the Company's management.
Our responsibility is to express an opinion on these balance sheets 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 balance sheets are free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audits of the balance sheets
provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Randell Commodity Corporation as of
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
March 13, 1998
F-24
86
RANDELL COMMODITY CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF RANDELL CORPORATION)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1997 1996
----------- ----------
Assets
Current assets:
Cash $ -- 3,953
Accounts receivable - affiliate 21,595 31,366
Due from related party 244,610 100,000
Commodity futures trading account 154,004 165,681
----------- ----------
TOTAL CURRENT ASSETS 420,209 301,000
Investment in commodity partnerships (note 2) 21,584 19,278
Property and equipment, net (notes 3 and 4) 412,864 432,221
----------- ----------
TOTAL ASSETS $ 854,657 752,499
=========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Cash overdraft $ 230 --
Accounts payable and accrued expenses 32,811 6,091
Current installments of long-term debt (note 4) 49,632 50,769
Due to affiliate 4,475 4,475
----------- ----------
TOTAL CURRENT LIABILITIES 87,148 61,335
Long-term debt, excluding current
installments (note 4) 194,305 150,028
----------- ----------
TOTAL LIABILITIES 281,453 211,363
----------- ----------
STOCKHOLDER'S EQUITY:
Common stock, $1 par value, 100,000 shares
authorized, 1,033 shares issued and outstanding 1,033 1,033
Additional paid-in capital 1,227,041 1,227,041
Accumulated deficit (654,870) (686,938)
----------- ----------
TOTAL STOCKHOLDER'S EQUITY 573,204 541,136
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 854,657 752,499
=========== ==========
See accompanying notes to balance sheets.
F-25
87
RANDELL COMMODITY CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF RANDELL CORPORATION)
NOTES TO BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT POLICIES
Randell Commodity Corporation (the Company) is a wholly-owned
subsidiary of Randell Corporation. The Company is a registered
commodity trading adviser and commodity pool operator. The Company also
owns and operates a ranch located in Mississippi.
The following sets forth the Company's significant accounting policies.
COMMODITY FUTURES TRADING ACCOUNT
The Company's commodities futures trading account is reported at fair
value. These funds are invested in a customer's segregated account
under the Commodities Exchange Act.
INVESTMENT IN PARTNERSHIPS
During 1997, the Company was the general partner in two commodity
partnerships. The Company accounts for its interest in these
partnerships using the equity method of accounting. In addition to
serving as general partner, the Company receives management fees from
these partnerships.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated over their
estimated lives using straight-line and accelerated methods.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
F-26
88
RANDELL COMMODITY CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF RANDELL CORPORATION)
NOTES TO BALANCE SHEETS
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
RECENT PRONOUNCEMENT
Effective December 31, 1997, the Partnership adopted the provisions of
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information About Capital Structure." This statement specifies the
disclosure requirements about the capital structure of an entity that
has issued securities addressed by the statement. The adoption of this
statement did not have a material effect on the balance sheets.
(2) INVESTMENT IN COMMODITY PARTNERSHIPS
The following is a summary of the Company's investment in commodity
partnerships:
1997 1996
---------- ---------
The Pyramid Fund, L.P. $ 5,451 5,144
RanDelta Capital Partners, L.P. 13,993 14,134
Ceres Fund, L.P. 2,140 --
---------- ---------
$ 21,584 19,278
========== =========
The following summarizes the aggregate assets and liabilities of the
partnerships for which the Company serves as a general partner at
December 31, 1997 and 1996:
1997 1996
---------- ---------
Assets $8,327,220 6,594,240
Liabilities 173,899 148,480
---------- ---------
$8,153,321 6,445,760
========== =========
As a general partner, the Company is contingently liable for
liabilities of the partnerships.
F-27
89
RANDELL COMMODITY CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF RANDELL CORPORATION)
NOTES TO BALANCE SHEETS
(3) PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at December 31,
1997 and 1996:
1997 1996
-------- -------
Farmland $351,972 351,972
Farm buildings and improvements 89,115 88,577
Farm machinery and equipment 109,672 102,553
Trucks and autos 53,182 53,182
Computer and office equipment 55,070 54,019
-------- -------
659,011 650,303
Less accumulated depreciation 246,147 218,082
-------- -------
$412,864 32,221
======== =======
(4) LONG-TERM DEBT
The following is a summary of long-term debt at December 31, 1997 and
1996:
1997 1996
-------- -------
Mortgage note payable in monthly installments of
$3,425, including interest at 9%, with a maturity
date of October 2000, secured by real property $197,348 132,681
9.75% note payable due in monthly
installments of $714 through
August 1999, secured by an
automobile 10,050 17,258
8.25% note payable due in monthly installments of
$573 through February 1998, secured by an
automobile 573 6,880
10.40% note payable due in yearly installments of
$11,444 through March 2001, secured by farm
equipment 35,966 43,978
-------- -------
243,937 200,797
Less current installments 49,632 50,769
-------- -------
$194,305 150,028
======== =======
F-28
90
RANDELL COMMODITY CORPORATION
(A WHOLLY-OWNED SUBSIDIARY OF RANDELL CORPORATION)
NOTES TO BALANCE SHEETS
Maturities of long-term debt at December 31, 1997 are as follows:
1998 $ 49,632
1999 47,163
2000 49,367
2001 54,097
2002 43,678
--------
$243,937
========
(5) OFF-BALANCE-SHEET RISK
In the normal course of business, the Company enters into transactions
in financial instruments with off-balance-sheet risk. These financial
instruments include financial futures contracts and option contracts.
Futures contracts provide for the delayed delivery of commodities,
which the seller agrees to make delivery at a specified future date, at
a specified price. Futures contracts and options on such contracts are
held for trading and arbitrage purposes. The notional value of these
contracts reflects the extent of involvement the Company has in
particular types of contracts. Risk arises from movements in
commodities' values. At December 31, 1997, the underlying notional
value of open contract commitments were long $-0- and short ($55,020).
The Company trades in a variety of futures and options financial
instruments, and all open positions are reported at market. The average
market value of open commodity financial instruments, and the year-end
market value of open commodities are as follows:
AVERAGE MARKET VALUE MARKET VALUE
OF OPEN POSITIONS OF OPEN POSITIONS AT
DURING 1997 DECEMBER 31, 1997
----------- -----------------
Assets (Long Positions) $ 967 --
Liabilities (Short Positions) (967) 100
(6) RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1996, the Company was due approximately
$244,610 and $100,000, respectively, from Randell Corporation. At
December 31, 1997 and 1996 the Company, as general partner of Ceres
Fund L.P. (the Fund), was due approximately $22,000 and $31,000,
respectively, from the Fund.
F-29
91
RANDELTA CAPITAL PARTNERS, L.P.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
F-30
92
INDEPENDENT AUDITORS' REPORT
The Partners
RanDelta Capital Partners, L.P.:
We have audited the accompanying balance sheets of RanDelta Capital Partners,
L.P. as of December 31, 1997 and 1996. These balance sheets are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these balance sheets 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 balance sheets are free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audits of the balance sheets
provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of RanDelta Capital Partners, L.P. as
of December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
March 13, 1998
F-31
93
RANDELTA CAPITAL PARTNERS, L.P.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1997 1996
----------- ----------
ASSETS
CURRENT ASSETS:
Cash $ 7,861 2,157
Fees receivable 831 16,425
Due from affiliates 33,975 33,975
----------- ----------
TOTAL CURRENT ASSETS 42,667 52,557
Investment in partnership (note 3) 397,328 417,731
----------- ----------
$ 439,995 470,288
=========== ==========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES - distribution payable $ 823 16,260
----------- ----------
PARTNERS' EQUITY:
General partners 13,993 14,134
Limited partners (note 2) 1,175,179 1,189,894
----------- ----------
1,189,172 1,204,028
Less: note receivable (note 2) (750,000) (750,000)
----------- ----------
TOTAL PARTNERS' EQUITY 439,172 454,028
----------- ----------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 439,995 470,288
=========== ==========
See accompanying notes to balance sheets.
F-32
94
RANDELTA CAPITAL PARTNERS, L.P.
NOTES TO BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
RanDelta Capital Partners, L.P. (RanDelta) is a Tennessee limited
partnership organized on September 19, 1990. Randell Commodity
Corporation is the general partner of RanDelta. The partnership
agreement requires that the net income of the partnership be allocated
on a pro rata basis to the limited and general partners based on their
capital contributions.
RanDelta was formed to serve as the financial general partner of CERES
Fund, L.P. (CERES), a limited partnership involved in speculative
commodities and futures trading, which commenced operations on December
1, 1991.
INCOME TAXES
No provision for income taxes has been made in the accompanying balance
sheets since, as a partnership, income and losses for tax purposes are
allocated to the partners for inclusion in their respective tax
returns.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATION
Certain 1996 amounts have been reclassified to conform to 1997
presentation.
F-33
95
EXHIBIT "A"
AGREEMENT OF LIMITED PARTNERSHIP
OF
CERES FUND, L.P.
96
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS.................................... 1
ARTICLE II
FORMATION, NAME AND PRINCIPAL PLACE OF BUSINESS
2.01 Formation.................................................................. 5
2.02 Name....................................................................... 5
2.03 Principal Office........................................................... 5
2.04 Address of Limited Partners................................................ 5
2.05 Registered Agent and Registered Office..................................... 5
ARTICLE III
PURPOSE OF PARTNERSHIP
3.01 Purpose.................................................................... 5
3.02 Powers..................................................................... 5
3.03 Limitations................................................................ 5
ARTICLE IV
TERM OF PARTNERSHIP................................ 6
ARTICLE V
CAPITAL CONTRIBUTIONS
5.01 Limited Partners........................................................... 6
5.02 General Partner............................................................ 7
5.03 Interest On Contributions.................................................. 7
5.04 Capital Accounts........................................................... 7
5.05 Sale of Units.............................................................. 7
5.06 Manner of Sale............................................................. 8
ARTICLE VI
ALLOCATION OF PROFITS AND LOSSES AND DISTRIBUTIONS
6.01 Monthly Allocations-Profit or Loss......................................... 9
6.02 Distributions............................................................. 13
ARTICLE VII
STATUS OF LIMITED PARTNERS
7.01 Liability................................................................. 14
7.02 Defaults.................................................................. 14
7.03 Management................................................................ 14
7.04 Withdrawals............................................................... 14
7.05 Limitation on Right to Indemnification.................................... 15
7.06 Additional Information.................................................... 15
ARTICLE VIII
STATUS OF GENERAL PARTNER
8.01 Responsibility............................................................ 15
8.02 Rights and Powers......................................................... 15
8.03 Limitations............................................................... 16
8.04 Time Devoted to Business.................................................. 16
8.05 Scope of Liability and Indemnity.......................................... 16
8.06 Compensation and Reimbursement............................................ 18
97
8.07 Tax Matters Partner....................................................... 19
8.08 Managing General Partner.................................................. 19
ARTICLE IX
COVENANTS OF GENERAL PARTNER
9.01 Tax Classification........................................................ 19
9.02 Records, Books of Accounts and Reports to Limited Partners................ 19
9.03 Bank Accounts and Other Assets............................................ 20
9.04 Tax Returns............................................................... 20
9.05 Brokerage Fees............................................................ 20
9.06 Incentive Fees and Other Compensation..................................... 20
ARTICLE X
TRANSFER AND REDEMPTION OF UNITS
10.01 General Prohibition on Transfer.......................................... 21
10.02 Redemption............................................................... 22
10.03 Designation of Substituted Limited Partners.............................. 23
10.04 Effect of Assignment..................................................... 23
10.05 Death, Incapacity or Bankruptcy of Limited Partner....................... 23
ARTICLE XI
POWER OF ATTORNEY
11.01 Designation.............................................................. 24
11.02 Special Provisions....................................................... 24
ARTICLE XII
CESSATION OF GENERAL PARTNER
12.01 Cessation................................................................ 25
12.02 Transfer................................................................. 25
12.03 Withdrawal............................................................... 25
12.04 Removal.................................................................. 25
12.05 Partnership Continues.................................................... 26
12.06 Election of New General Partners......................................... 26
12.07 Surrender of Interest.................................................... 26
ARTICLE XIII
DISSOLUTION AND TERMINATION
13.01 Dissolution of Partnership............................................... 26
13.02 Termination.............................................................. 27
13.03 Distribution Upon Dissolution............................................ 27
13.04 Possibility of Economic Loss............................................. 28
ARTICLE XIV
AMENDMENTS
14.01 Permitted Amendments..................................................... 28
14.02 Prohibited Amendments.................................................... 28
ARTICLE XV
CONTRACTS WITH AFFILIATED PERSONS
15.01 General.................................................................. 29
15.02 Limitation on Affiliated Person.......................................... 30
98
ARTICLE XVI
MEETINGS OF AND ACTION BY LIMITED PARTNERS
16.01 Notice of Meetings....................................................... 30
16.02 Quorum, Adjournment...................................................... 30
16.03 Proxy, Telephone Attendance.............................................. 30
16.04 Voting................................................................... 30
16.05 Written Consent.......................................................... 30
ARTICLE XVII
OUTSIDE ACTIVITIES............................... 31
ARTICLE XVIII
MISCELLANEOUS
18.01 Addresses and Notices.................................................... 31
18.02 Captions................................................................. 31
18.03 Entire Agreement......................................................... 31
18.04 Tax Elections............................................................ 31
18.05 Governing Law............................................................ 31
18.06 Binding Effect........................................................... 31
18.07 Identification........................................................... 32
18.08 Severability............................................................. 32
18.09 Counterparts............................................................. 32
Schedule A - List of Limited Partners
Schedule B - Form of Redemption Request
99
AGREEMENT OF LIMITED PARTNERSHIP
OF
CERES FUND, L.P.
THIS AGREEMENT made and entered into as of the 19th day of September, 1990
by and among RANDELTA CAPITAL PARTNERS, L.P., a Tennessee limited
partnership (the "Financial General Partner"), RANDELL COMMODITY
CORPORATION, a Tennessee corporation (the "Managing General Partner", and
collectively with the Financial General Partner, the "General Partner"),
and the person(s) executing this Agreement as limited partner(s)
(collectively the "Limited Partner(s)") of CERES FUND, L.P. (the
"Partnership").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to form a limited partnership under the
Act (as defined below), and
WHEREAS, the parties hereto desire to provide for the governance of the
limited partnership and to set forth in detail their respective rights and
duties relating to the limited partnership;
NOW, THEREFORE, in consideration of the mutual promises made herein, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS
1.01 As used herein, the following terms shall have the meaning ascribed
thereto below:
"Act" shall mean the Tennessee Revised Uniform Limited Partnership Act
(pursuant to Tennessee Code Annotated Section 61-2-101 et seq. or as
amended from time to time).
"Adjusted Asset Value" shall mean, except as set forth below, the total
assets of the Partnership less its liabilities, determined in accordance
with generally accepted accounting principles, including any unrealized
profits and any unrealized losses on its open futures and options
positions. More specifically, the Adjusted Asset Value of the Partnership
shall equal the sum of all cash, United States Treasury bills and other
securities (valued at cost plus accrued interest), the liquidating value
(or cost of liquidation, as the case may be) of all futures and options
positions and the fair market value of all other assets of the Partnership,
less all liabilities of the Partnership (including accrued liabilities
irrespective of whether such liabilities may, in fact, never be paid), in
each case as determined by the General Partner in accordance with generally
accepted accounting principles, except as described herein; provided,
however, that Adjusted Asset Value shall not include (i) a reduction for
the Management Allocation for the month of determination, (ii) a reduction
for the Incentive Allocation for the quarter of determination, and (iii)
any unamortized organizational and offering expenses and related
liabilities of the Partnership. The liquidating value of a futures contract
or option traded on a United States exchange shall be based
1
100
upon the settlement price on the exchange on which the particular futures
contract or option is traded by the Partnership; provided that if a
contract could not be liquidated on the day with respect to which Adjusted
Asset Value is being determined, due to the operation of daily limits or
other rules of the exchange upon which that contract is traded or
otherwise, the settlement price on the first subsequent day on which the
contract could be liquidated shall be the basis for determining the
liquidating value of such contract for such day, or such other value as the
General Partner may deem fair and reasonable. The liquidating value of a
futures or option contract not traded on a United States exchange shall
mean its liquidating value as determined by the General Partner on a basis
consistently applied for each different variety of contract. In calculating
unrealized profit or loss on an open futures position, the commission, if
any, which would be incurred in liquidating the open position shall not be
taken into account, nor shall any accrued brokerage fees.
"Adjusted Capital Account Deficit" shall mean, with respect to any Limited
Partner, the deficit balance, if any, in such Limited Partner's Capital
Account as of the end of the relevant fiscal year, after giving effect to
the following adjustments:
(i) Credit to such Capital Account for any amounts which such Limited
Partner is obligated to restore pursuant to the provisions of this
Agreement or is deemed to be obligated to restore pursuant to the
penultimate sentences of Regulation Sections 1.704-1T(b)(4)(iv)(f) and
1.704-1T(b)(4)(iv)(h)(5); and
(ii) Debit to such Capital Account for the items described in Sections
1.704-1(b)(2)(ii)(b)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704- 1(b)(2)(ii)(d) of the
Regulations and shall be interpreted consistently therewith.
"Affiliated Persons" shall mean any person performing services on behalf of
the Partnership who (i) directly or indirectly controls, is controlled by,
or is under common control with the General Partner; or (ii) owns or
controls 10% or more of the outstanding voting securities of the General
Partner; or (iii) is an officer or director of the General Partner; or (iv)
if the General Partner is an officer, director, partner or trustee, is any
company for which the General Partner acts in any such capacity.
"Agreement" shall mean this Agreement of Limited Partnership, as amended,
modified, supplemented or restated from time to time.
"Average Net Asset Value per Unit" shall mean, with respect to Units
purchased during the Continuous Offering, the result determined on the last
day of the month preceding the entry of the Limited Partner to the
Partnership by dividing (A) the difference between (i) the result
determined under Section 6.01(a)(2)(A), and (ii) the sum of (a) the
aggregate of the Management Allocation chargeable to all Units during such
preceding month, and (b) if such month is the ending month of a calendar
quarter, the aggregate Incentive Allocation, if any, chargeable to all
Units as of the end of such quarter, by (B) the number of Units outstanding
at the end of such preceding month.
"Capital Account" shall mean the accounts established pursuant to Section
5.04 hereof.
"Capital Gain" or "Capital Loss" shall mean gain or loss characterized as
gain or loss from the sale or exchange of a capital asset, as determined
under the Code, including gain or loss required to be taken into account
pursuant to Section 1256 of the Code.
2
101
"Code" shall mean the Internal Revenue Code of 1986, as amended (or any
corresponding provisions of succeeding law).
"Commodity Broker" shall mean Refco, Inc., and its successors or the party
or parties then acting in such capacity.
"CFTC" shall mean the Commodity Futures Trading Commission.
"Continuous Offering" shall mean the period following the Initial Closing
Date during which the Partnership will offer Units for sale as of the first
business day of each month at the then current Average Net Asset Value per
Unit, plus the 5% Sales Commission.
"Financial General Partner" shall mean RANDELTA CAPITAL PARTNERS, L.P., and
its successors or the party or parties then acting in such capacity, as
provided in Section 8.08(b) hereof.
"General Partner" shall mean RANDELTA CAPITAL PARTNERS, L.P., a Tennessee
limited partnership, and RANDELL COMMODITY CORPORATION, a Tennessee
corporation, and their successors or the party or parties then acting in
such capacity.
"Initial Closing Date" shall mean the date occurring at or prior to the end
of the Initial Offering Period when the General Partner has accepted
subscriptions for the purchase of at least 10,000 Units and terminated the
Initial Offering Period.
"Initial Offering Period" shall mean the period extending to May 31, 1991
(or 90 days thereafter, if extended in the discretion of the General
Partner) during which the General Partner must accept subscriptions for the
purchase of at least 10,000 Units.
"Incentive Allocation" shall mean the quarterly special allocation to the
General Partner under Section 6.01(b)(2) hereof, equal to 15% of Net New
Appreciation with respect to each Unit as of the end of the calendar
quarter of determination. The Incentive Allocation shall be calculated and
credited to the General Partner's Capital Account each quarter.
"Limited Partners" shall mean the parties who acquire Units and are
admitted to the Partnership as limited partners (except the "Original
Limited Partner", as such), and any party admitted as a substituted limited
partner as provided herein.
"Management Allocation" shall mean the monthly special allocation to the
General Partner under Section 6.01(b)(1) hereof equal to 1/3% (4% per
annum) of the Adjusted Asset Value of the Partnership attributable to Units
owned by the Limited Partners, as determined pursuant to Section
6.01(a)(2)(A), as of the end of the calendar month of determination,
calculated without reduction for distributions and/or redemptions during
such month. The Management Allocation shall be calculated and credited to
the General Partner's Capital Account each month.
"Managing General Partner" shall mean RANDELL COMMODITY CORPORATION, and
its successors or the party or parties then acting in such capacity, as
provided in Section 8.08(a) hereof.
"Net Asset Value" shall mean Adjusted Asset Value reduced by the aggregate
Management Allocation chargeable to all Units for the month of
determination, and the aggregate Incentive Allocation chargeable to all
Units for the quarter of determination.
"Net Asset Value per Unit" shall mean, with respect to each Limited
Partner's respective Units, the figure determined pursuant to the
calculation set forth in Section 6.01(a)(2) hereof.
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"Net New Appreciation" shall mean the excess, if any, of (A) the Adjusted
Asset Value with respect to such Unit, as determined in accordance with
Section 6.01(a)(2)(C), reduced by the Management Fee allocable to such Unit
under Section 6.01(a)(2)(D) for the month of determination, over (B) the
highest Net Asset Value per Unit attained by such Unit as of the end of any
prior quarter, plus all distributions and/or redemptions during such
quarter and all distributions made during any prior quarter with respect to
such Unit.
"Original Limited Partner" shall mean the person consenting to be the
initial Limited Partner of the Partnership for purposes of the formation of
the Partnership under Tennessee law.
"Partners" shall mean both the General Partner and the Limited Partners.
"Partnership" shall mean the limited partnership hereby formed.
"Partnership Percentage Interest" shall mean, with respect to any Partner,
the ratio of his Capital Account as of any Valuation Date to the aggregate
of the Capital Accounts of all Partners as of such date.
"Principal Office" shall mean 889 Ridge Lake Boulevard, Suite 320, Memphis,
Tennessee 38120.
"Redemption Fee" shall mean the fee charged to Limited Partners who redeem
Units prior to a specified date, as provided in Section 10.02 hereof.
"Redemption Date" shall mean any date for redemption of Units as provided
in Section 10.02 hereof.
"Redemption Net Asset Value per Unit" shall mean, with respect to each
Limited Partner's respective Units, the figure determined pursuant to the
calculation set forth in Section 6.01(a)(2) hereof, except that in
calculating the Adjusted Asset Value of the Partnership under Section
6.01(a)(1) hereof, unrealized profit or loss on an open futures position
shall be determined by also subtracting the commission, if any, which would
be incurred in liquidating the open futures position, as well as any
accrued brokerage fees .
"Registered Agent" shall mean John W. McArtor.
"Registered Office" shall mean 889 Ridge Lake Boulevard, Suite 320,
Memphis, Tennessee 38120.
"Regulations" shall mean the Income Tax Regulations promulgated under the
Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Sales Commission" shall mean (A) during the Initial Offering, $5 per Unit
payable to those Selling Agents who sell Units during the Initial Offering
Period, and (B) during the Continuous Offering, 5% of the Average Net Asset
Value per Unit, payable to Selling Agents until August 31, 1991, and
thereafter to the Managing General Partner to compensate it for bearing (or
causing others to bear) all expenses related to the Continuous Offering.
The General Partner, in its discretion, may (i) remit a portion of the
Sales Commission it receives during the Continuous Offering to those
Selling Agents who participate in the sale of Units during the Continuous
Offering, or (ii) waive or reduce all or any portion of the Sales
Commission.
"Selling Agents" shall mean those members of the National Association of
Securities Dealers, Inc. as may participate in the sale of Units hereunder.
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"Special Redemption Date" shall mean the date for special redemptions of
Units as provided in Section 10.02 hereof.
"Tax Basis Account" shall mean the accounts established pursuant to Section
6.01(b)(4) hereof.
"Unit" shall mean a unit of limited partnership interest in the
Partnership, there being a maximum of 100,000 such Units.
"Valuation Date" shall mean the last day of each month.
ARTICLE II
FORMATION, NAME AND PRINCIPAL PLACE OF BUSINESS
2.01 Formation. The Partners hereby form a limited partnership under the
Act to carry on the business purposes provided for herein.
2.02 Name. The name of the Partnership shall be as set forth in the initial
paragraph hereof. The General Partner shall have the right and power from
time to time to use a trade or fictitious name or to change the name of the
Partnership, but shall give written notice of any change to all the Limited
Partners.
2.03 Principal Office. The Principal Office of the Partnership shall be the
address identified in Section 1.01 hereof. The Partnership may relocate
such office from time to time, or may have such additional offices, as the
General Partner may determine, but the General Partner shall give written
notice of any relocation to all the Limited Partners.
2.04 Address of Limited Partners. The address of a Limited Partner shall be
that stated after his name on the Subscription Agreement executed by him. A
Limited Partner may change his address by written notice to the
Partnership, which notice shall become effective upon receipt. The name,
address, initial capital contribution and number of Units purchased by each
Limited Partner shall be set forth in Schedule A hereto, as amended from
time to time, which is made a part hereof as fully as if set forth herein.
2.05 Registered Agent and Registered Office. The Registered Agent and
Registered Office required pursuant to the Act shall be as identified in
Section 1.01 hereof. The Partnership may change the Registered Agent or the
Registered Office from time to time, as the General Partner may determine,
but the General Partner shall give written notice of any change to all
Limited Partners.
ARTICLE III
PURPOSE OF PARTNERSHIP
3.01 Purpose. The Partnership's business and purpose is to trade, buy, sell
or otherwise acquire, hold or dispose of forward contracts, futures
contracts for commodities, financial instruments and currencies, any rights
pertaining
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thereto and any options thereon or on physical commodities, and to engage
in all activities necessary or incidental thereto. The Partnership may also
engage in "hedge", arbitrage and cash trading of commodities, futures and
options. The objective of the Partnership's business is the appreciation of
its assets through speculative trading.
3.02 Powers. Subject to the terms of this Agreement, the Partnership shall
be authorized to engage in any and all activities related or incidental to
any of its purposes.
3.03 Limitations. Notwithstanding anything herein to the contrary, the
Partnership shall not:
(a) Make any loans;
(b) Commingle funds of the Partnership with the funds of any other
person (provided, however, that deposit of funds with a commodity broker,
clearinghouse or forward dealer shall not be deemed to constitute
"commingling" for these purposes);
(c) Permit any person to receive, directly or indirectly, any
advisory, management or incentive fees or profit-sharing allocation from
the Partnership for investment advice or management who shares or
participates in any commodity brokerage commissions paid by the
Partnership;
(d) Permit any rebates or give-ups to be received, directly or
indirectly, from the Partnership by any of the General Partner, any trading
advisor, the Commodity Broker or any of their Affiliated Persons, including
any reciprocal business arrangements which may circumvent such
prohibitions;
(e) Enter into an exclusive (as opposed to nonexclusive) customer
agreement with any Commodity Broker;
(f) Enter into any agreement covering a period in excess of one year;
(g) Employing the trading technique commonly known as "pyramiding", in
which a speculator uses unrealized profits on existing positions as margin
for the purchase or sale of additional positions in the same futures
contract;
(h) Permit any sponsor to directly or indirectly pay or award any
commissions or other compensation to any person engaged to sell Units or
give investment advice to a potential participant; provided, however, that
this clause shall not prohibit the payment to a registered broker/dealer or
other properly licensed person of normal sales commissions for selling
Units; and
(i) Permit an Affiliate of any trading advisor or manager of the
Partnership to share or participate, directly or indirectly, in any
commodity brokerage commissions paid by the Partnership.
ARTICLE IV
TERM OF PARTNERSHIP
The Partnership shall commence on the filing of a Limited Partnership
Certificate in the appropriate public office and shall continue until
December 31, 2020 unless sooner terminated by operation of law, or as
otherwise provided herein.
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ARTICLE V
CAPITAL CONTRIBUTIONS
5.01 Limited Partners.
(a) The Limited Partners shall contribute capital to the Partnership
by purchasing up to 100,000 Units. The Partnership may issue whole or
fractional Units in the discretion of the General Partner. During the
Initial Offering Period, a Limited Partner shall contribute $105 (including
the Sales Commission) to the Partnership for each Unit purchased. Limited
Partners purchasing Units during the Continuous Offering shall contribute
to the Partnership for each Unit purchased an amount equal to the Average
Net Asset Value per Unit as of the close of business on the last day of the
month preceding the effective date of such purchase, plus the 5% Sales
Commission (provided that the General Partner shall have discretion to
waive or reduce all or any portion of the Sales Commission).
(b) Payment for Units shall be made in the form of a lump-sum cash
payment upon submission of an executed subscription agreement. For Units
purchased during the Continuous Offering, such payment must be received by
the Partnership not later than the fifth day prior to the end of the
calendar month in order for a subscriber to be admitted on the first
business day of the next calendar month.
(c) The Original Limited Partner shall contribute $100 to the capital
of the Partnership upon formation hereof. Following the admission of the
investor Limited Partners, the Original Limited Partner shall withdraw from
the Partnership and his previous capital contribution of $100 shall be
returned to him. The Original Limited Partner shall have no interest in
profits or other compensation by way of income by reason of his
contribution.
5.02 General Partner. As of the close of the Initial Offering Period, the
General Partner shall immediately contribute to the capital of the
Partnership, as a general partner's interest, the lesser of (i) $100,000,
or (ii) an amount not less than that which is necessary to cause the
General Partner's Capital Account to equal three percent (3%) of the total
positive Capital Account balances of all Partners (taking the interests of
the Managing General Partner and the Financial General Partner on an
aggregate basis). So long as it is a General Partner of the Partnership,
the General Partner shall maintain a minimum investment of not less than
that amount necessary to cause the General Partner's Capital Account to
equal one percent (1%) of the total positive Capital Account balances of
all Partners (again taking the interests of the Managing General Partner
and the Financial General Partner on an aggregate basis). The General
Partner shall make any additional capital contributions necessitated by the
purchase of Units during the Continuous Offering as soon as practicable,
but in no event later than the fifteenth day of the month following the
effective date of the purchase of such Units. The General Partner may
contribute any greater amount to the Partnership as it in its sole
discretion shall determine. The General Partner may withdraw any interest
it may have as General Partner in excess of such required minimum
investment. At all times during the term of the Partnership, the General
Partner shall maintain an interest of at least one percent (1%) in each
material item of Partnership income, gain, loss, deduction or credit. The
General Partner or any officer or affiliate thereof may acquire Units, and
to the extent that a General Partner purchases or becomes a transferee of
any Units, the General Partner shall, as to the other Partners, be treated
in all respects as a Limited Partner with respect to such Units.
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5.03 Interest On Contributions. No Partner shall be entitled to interest on
any capital contributions.
5.04 Capital Accounts.
(a) A Capital Account shall be established on the books of the
Partnership for each Partner. Notwithstanding anything to the contrary
contained in this Agreement, the Capital Account of each Partner shall be
determined and maintained throughout the full term of the Partnership in
accordance with the capital accounting rules of Regulation Section
1.704-1(b)(2)(iv). In general, each Partner's Capital Account shall be
credited with the amount of each Partner's contributions to the Partnership
as and when made and with that Partner's share, determined as provided
herein, of Partnership income, gains, and profits; each Partner's Capital
Account shall be debited with his share, determined as provided herein, of
Partnership losses and with the amount of all distributions made by the
Partnership to that Partner.
(b) Upon the transfer by any Partner of any part or all of his
interest in the Partnership, the proportionate amount of his respective
Capital Account, determined as provided herein, shall be transferred to the
transferee of such interest; provided, however, that no transfer of any
Units of interest in the Partnership shall, in and of itself and to the
extent permitted by law, relieve the transferor of any obligation to the
Partnership, including, but not limited to, any such transferor's
obligation to contribute to the capital of the Partnership.
(c) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Regulation Section 1.704-1(b), and shall be interpreted and
applied in a manner consistent with such Regulation. In the event the
General Partner shall determine that it is prudent to modify the manner in
which the Capital Accounts, or any debits or credits thereto, are computed
in order to comply with such Regulation, the General Partner may make such
modification, provided that it is not likely to have a material effect on
the amounts distributable to any Partner pursuant to Section 14.03 hereof
upon the dissolution of the Partnership.
5.05 Sale of Units. The General Partner is hereby authorized to raise
capital for the Partnership by purchasing for itself or by offering and
selling up to 100,000 Units and by admitting the purchasers of same as
Limited Partners. No sale of Units shall be consummated unless the
Partnership has received and accepted subscriptions for the purchase of at
least 10,000 Units prior to the close of the Initial Offering Period
(including extensions). The proceeds of the subscriptions shall be
deposited into the Partnership's interest bearing general bank account at
National Bank of Commerce, Memphis, Tennessee, and held therein unless and
until the Partnership has received and accepted subscriptions for at least
10,000 Units prior to the close of the Initial Offering Period (including
extensions). At such time as the aforesaid conditions shall have been
satisfied, the General Partner shall declare the Initial Closing Date, and
the subscription proceeds shall be deposited into the Partnership's
commodity trading account at the Commodity Broker and used by the General
Partner for such other proper Partnership purposes as the General Partner
shall determine. If for any reason whatsoever, the Partnership has not
satisfied the aforesaid conditions prior to the close of the Initial
Offering Period (including extensions), the General Partner shall terminate
the offering and all moneys theretofore paid in for Units shall be refunded
in full to the subscribers within 10 days, unless a subscriber wishing to
purchase Units confirms his willingness to subscribe and agrees in writing
to a further extension. Interest earned, if any, on such subscriptions
during the Initial Offering Period shall be paid pro rata to each
subscriber at the close of the Initial Offering Period, taking into account
both the time and amount of the subscription. The General Partner may
reject any subscription in whole or in part for any reason. All
subscriptions are otherwise irrevocable by the subscriber, except as
required by applicable state law.
5.06 Manner of Sale. Subject to the provisions of Sections 5.01, 5.05 and
this Section 5.06, the General Partner shall have sole and complete
discretion in determining the terms and conditions of the offering and sale
of Units,
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including the sale of Units during the Continuous Offering; provided,
however, that the net proceeds to the Partnership of any such sales during
the Continuous Offering Period shall be no less than the Average Net Asset
Value per Unit then in effect, plus the 5% Sales Commission (unless the
Sales Commission is waived or reduced in the discretion of the General
Partner), and that the Partnership shall not pay any costs or expenses
related to either its organization, the Initial Offering Period or the
Continuous Offering. Subject to the provisions of this Section 5.06, if the
initial 100,000 Units provided for in this Agreement are sold, the General
Partner shall have sole and complete discretion to amend the Agreement to
provide for a maximum of 400,000 additional Units for sale in the
Continuous Offering. It is understood that the offering shall be made in a
manner which is subject to the registration requirements of the Securities
Act of 1933, as amended, and the General Partner is authorized and directed
to do all things it deems necessary, convenient, appropriate or advisable
in connection therewith, including but not limited to the preparation and
filing on behalf of the Partnership of any required documents with the
Securities and Exchange Commission and the securities commissioners (or
similar agencies or officers) of such jurisdictions as the General Partner
shall determine, and the execution or performance of agreements with
underwriters or others concerning the marketing of Units on such basis and
upon such terms as the General Partner shall determine. The General
Partner, and not the Partnership, shall bear, or cause others to bear, all
expenses related to the Continuous Offering, and as compensation the
General Partner shall receive all or a portion of the Sales Commission with
respect to Units sold during the Continuous Offering. No Limited Partner
shall have any preemptive, preferential or other rights with respect to the
issuance or sale of any additional Units. A purchaser of the Units
acknowledges by such purchase that the offering price of the Units during
the Initial Offering Period has been determined arbitrarily by the General
Partner and not by negotiations at arm's length.
ARTICLE VI
ALLOCATION OF PROFITS AND LOSSES AND DISTRIBUTIONS
6.01 Monthly Allocations-Profit or Loss.
(a) Monthly Allocations. As of the close of business (as determined by
the General Partner) on the last day of each calendar month during each
fiscal year of the Partnership, the following determinations and
allocations shall be made:
(1) The Adjusted Asset Value of the Partnership shall be
determined.
(2) Each Limited Partner's respective Net Asset Value per Unit
shall be calculated in the following manner:
(A) Step 1 - the aggregate Adjusted Asset Value allocable
to Units owned by Limited Partners is determined by
multiplying (i) the aggregate Adjusted Asset Value of
the Partnership as of the end of the month of
determination, by (ii) the ratio of (a) the aggregate
Net Asset Value of all Units owned by Limited Partners
at the beginning of the month of determination, to (b)
the Net Asset Value of the Partnership at the beginning
of the month of determination.
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(B) Step 2 - the Adjusted Asset Value allocable to Units
owned by each respective Limited Partner is determined
by multiplying the result determined in Section
6.01(a)(2)(A) above by the ratio of (i) the aggregate
Net Asset Value of the individual Limited Partner's
respective Units at the beginning of the month of
determination, to (ii) the aggregate Net Asset Value of
all Units owned by Limited Partners at the beginning of
the month of determination.
(C) Step 3 - the Adjusted Asset Value allocable to each
Unit owned by a Limited Partner is determined by
dividing the result in Section 6.01(a)(2)(B) above by
the number of Units owned by the respective Limited
Partner.
(D) Step 4 - the Management Allocation allocable to the
General Partner shall be calculated and allocated
against and among the Units owned by all Limited
Partners in proportion to their respective Adjusted
Asset Value as determined pursuant to Section
6.01(a)(2)(B)(C) above.
(E) Step 5 - if such month is the ending month of a
calendar quarter, the Incentive Allocation (if any)
allocable to the General Partner shall be calculated
and allocated against those Units owned by Limited
Partners which have achieved Net New Appreciation for
the quarter of determination.
(F) Step 6 - the Net Asset Value per Unit for each Unit
owned by a respective Limited Partner is determined by
subtracting the Management Allocation and the Incentive
Allocation allocable to each such Unit from the result
determined under Section 6.01(a)(2)(C) above.
(G) In the event a Limited Partner acquires Units on
different dates, for the purposes of this Article VI,
such Limited Partner shall be treated as a separate
Limited Partner with respect to the Units acquired on
each such date.
(3) The Net Asset Value of the General Partner's interest in the
Partnership shall be determined by subtracting the aggregate
Net Asset Value allocable to the Units owned by the Limited
Partners from the Net Asset Value of the Partnership.
(4) The Average Net Asset Value per Unit shall be determined.
(b) Federal Income Tax Allocations. Except as otherwise provided
herein, as of the end of each fiscal year, the Partnership's income and
expense and Capital Gain or Capital Loss shall be allocated among the
Partners pursuant to the following subparagraphs for federal income tax
purposes. Allocations of short-term Capital Gain or Loss and long-term
Capital Gain or Loss (to the extent the federal income tax law
distinguishes between long-and short-term Capital Gain or Loss) shall be
pro rata.
(1) The burden of the Management Allocation allocable to the
General Partner shall be allocated against each Limited
Partner's respective Units in accordance with Section
6.01(a)(2)(D) hereof.
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(2) The burden of the Incentive Allocation (if any) allocable to
the General Partner shall be allocated against those Units
which have experienced Net New Appreciation for the quarter
of determination in accordance with Section 6.01(a)(2)(E)
hereof.
(3) Items of ordinary income and expense (excluding the
Management Allocation and the Incentive Allocation), such as
interest income and brokerage fees, shall be allocated pro
rata among the Partners based on their respective
Partnership Percentage Interests as of the beginning of each
month in which the items of ordinary income and expense
accrue.
(4) Capital Gain or Capital Loss shall be allocated as follows:
(A) There shall be established a Tax Basis Account with
respect to each outstanding Unit. The initial balance
of each Tax Basis Account shall be the amount paid to
the Partnership for each Unit, respectively (and the
amount of the General Partner's contribution as
described in subparagraph (b)(6) below). As of the end
of each fiscal year:
(i) Each Tax Basis Account shall be increased by the
amount of income allocated to each Partner
pursuant to subparagraph (b)(3) above and
subclauses (B), (C) and (D) below.
(ii) Each Tax Basis Account shall be decreased by the
amount of expense or loss allocated to each
Partner pursuant to subparagraph (b)(1), (2) and
(3) above and subclauses (B), (E) and (F) below
and by the amount of any distribution received by
each Partner with respect to the Unit or interest
other than upon redemptions.
(iii) When a Unit is redeemed, the Tax Basis Account
attributable to such Unit (or redeemed portion of
such Unit) shall be eliminated.
(B) Except as otherwise provided in this Section 6.01(b)
(4), Capital Gain and Capital Loss realized during any
calendar month shall be allocated to those Partners who
were Partners during such month (including Partners who
redeem Units as of the last day of such month).
(C) Notwithstanding subparagraph (B) hereof, each Partner
who redeems a Unit on any Redemption Date shall be
allocated Capital Gain, if any, realized on or prior to
such Partner's Redemption Date, in excess of the
Capital Loss allocable to such Partner under
subparagraph (B) hereof, up to the amount of the excess
if any, of the amount received upon redemption of the
redeemed Unit over the Tax Basis Account maintained for
such Unit (an "Excess") In the event the aggregate
amount of Capital Gain available to be allocated
pursuant to this subparagraph (C) is less than the
aggregate amount of Capital Gain required to be so
allocated, (i) the aggregate amount of available
Capital Gain shall be
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allocated among all such Partners and (ii) each Partner
who has not been allocated the full amount of such
Partner's Excess, pursuant to the first sentence of
this subparagraph (C) and clause (i) of this sentence,
shall be allocated, after any allocations required by
the first sentence of this subparagraph (C) in respect
of Partners who redeem on subsequent Redemption Dates,
Capital Gain realized after such Partner's Redemption
Date up to the amount of such Partner's Excess which
has not otherwise been allocated.
(D) Notwithstanding subparagraph (B) hereof, Capital Gain
remaining after the allocations in subparagraph (C)
shall be allocated among all Partners whose Capital
Accounts are in excess of their Tax Basis Accounts,
after the adjustments in subparagraph (C), in the ratio
that each such Partner's Excess (as defined in
subparagraph (C) hereof) bears to the aggregate Excess
of all such Partners.
(E) Notwithstanding subparagraph (B) hereof, each Partner
who redeems a Unit on any Redemption Date shall be
allocated Capital Loss, if any, realized on or prior to
such Partner's Redemption Date, in excess of the
Capital Gain allocable to such Partner under
subparagraph (B) hereof, up to the amount of the
excess, if any, of the Tax Basis Account maintained for
the redeemed Unit over the amount received upon
redemption of such Unit (a "Negative Excess"). In the
event the aggregate amount of Capital Loss available to
be allocated pursuant to this subparagraph (E) is less
than the aggregate amount of Capital Loss required to
be so allocated, (i) the aggregate amount of Capital
Loss shall be allocated among all such Partners in the
ratio which each such Partner's Negative Excess bears
to the aggregate Negative Excess of all such Partners,
and (ii) each Partner who has not previously been
allocated the full amount of such Partner's Negative
Excess, pursuant to the first sentence of this
subparagraph (E) and clause (i) of this sentence, shall
be allocated, after any allocations required by the
first sentence of this subparagraph (E) in respect of
Partners who redeem on subsequent Redemption Dates,
Capital Loss realized after such Partner's Redemption
Date up to the amount of such Partner's Negative Excess
which has not previously been allocated.
(F) Capital Loss remaining after the allocation in
subparagraph (E) shall be allocated among all Partners
whose Tax Basis Accounts are in excess of their Capital
Accounts after the adjustments in subparagraph (E) in
the ratio that each such Partner's Negative Excess (as
defined in subparagraph (E) hereof) bears to the
aggregate Negative Excess of all such Partners.
(5) The allocation of income, gain, expense and loss for federal
income tax purposes set forth herein is intended to allocate
taxable income, gain, expense and loss among the Partners
generally in the ratio and to the extent that income, gain,
expense and loss are allocated to such Partners so as to
eliminate, to the extent possible, any disparity between a
Partner's Capital Account and his Tax Basis Account,
consistent with principles set forth in Section 704(c) of
the Code.
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(6) For purposes of this Section 6.01(b), tax allocations shall
be made to the General Partner's general partnership
interest on a Unit-equivalent basis, and shall be split
between the Managing General Partner and the Financial
General Partner as they shall mutually determine.
(7) The allocations of income, gain, expense and loss to the
Partners in respect of the Units shall not exceed the
allocations permitted under Subchapter K of the Code, as
determined by the General Partner, whose determination shall
be binding.
(c) Notwithstanding the foregoing:
(1) In the event any Partner unexpectedly receives any
adjustments, allocations or distributions described in
Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the
Regulations, items of Partnership income and gain shall be
specially allocated to each such Partner in an amount and
manner sufficient to eliminate, to the extent required by
the Regulations, the Adjusted Capital Account Deficit of
such Partner as quickly as possible.
(2) In the event any Partner has a deficit Capital Account at
the end of any Partnership fiscal year which is in excess of
the sum of (1) the amount such Partner is obligated to
restore pursuant to any provision of this Agreement, and (2)
the amount such Partner is deemed to be obligated to restore
pursuant to the penultimate sentences of Regulation Sections
1.704-1(b)(4)(iv)(f) and 1.704-1(b)(4)(iv)(h)(5), each such
Partner shall be specially allocated items of Partnership
income and gain in the amount of such excess as quickly as
possible.
(3) To the extent an adjustment to the adjusted tax basis of any
Partnership asset pursuant to Code sections 734(b) or 743(b)
is required, pursuant to Regulation Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining
Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall
be specially allocated to the Partners in a manner
consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the
Regulations.
(4) The allocations set forth in Sections 6.01(c)(1) through (3)
hereof (the "Regulatory Allocations") are intended to comply
with certain requirements of Regulation Section 1.704-1(b).
Notwithstanding any other provision of this Section 6.01
(other than the Regulatory Allocations), the Regulatory
Allocations shall be taken into account in allocating other
items of income, gain, loss and expense among the Partners
so that, to the extent possible, the net amount of such
allocations of other items of income, gain, loss and expense
and the Regulatory Allocations to each Partner shall be
equal to the net amount that would have been allocated to
each such Partner if the Regulatory Allocations had not
occurred.
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(d) In the event of a transfer of any interest in the Partnership,
and/or in the event of any increase or decrease in the interest of any
Partner in the Partnership, whether arising out of or in connection with
the entry of a new Partner, the liquidation or redemption, partial or
whole, of any Partner's interest or otherwise, after the admission of any
Limited Partner, the share of the Profits, Losses and gains or losses from
the disposition of partnership assets, and each item of income and expense
pertaining thereto, of the respective Partners shall be fixed and
determined by reference to the income and expenses reflected on the books
and records of the Partnership according to the following convention:
Partners shall be deemed admitted to the Partnership as of the first
business day of the first month subsequent to the effective date of such
purchase or transfer (as provided herein), and Partners who are redeemed or
liquidated shall be deemed a withdrawn Partner as of the end of the
calendar quarter after the General Partner has received at least 15 days
prior written notice of redemption; provided, however, that if this
convention is not permitted under applicable Regulations, a convention
permitted under Regulations approximating the foregoing as closely as
possible will be used.
(e) The allocations hereunder are intended to have substantial
economic effect and/or be in accordance with the Partners' interests in the
Partnership as such terms are defined in Section 704(b) of the Code and the
Regulations promulgated thereunder.
6.02 Distributions.
(a) The General Partner shall have sole discretion in determining what
distributions (other than on redemption of Units pursuant to Section 10.02
hereof), if any, the Partnership will make to its Partners. All
distributions other than with respect to the Management Allocation and the
Incentive Allocation shall be pro rata in accordance with the respective
Partnership Percentage Interests of the Partners. The General Partner may
withdraw funds (including funds attributable to the Management and
Incentive Allocations) at the end of any month so long as such distribution
does not reduce the General Partner's Capital Account below the minimum
balance required by Section 5.02 hereof. All distributions to the General
Partner shall be split between the Managing General Partner and the
Financial General Partner as they shall mutually determine.
(b) Notwithstanding any other provision of this Agreement, the General
Partner is authorized to take any action that it determines to be necessary
or appropriate to cause the Partnership to comply with any withholding
requirements established under the Code or any other federal, state or
local law including, without limitation, pursuant to Sections 1441, 1442,
1445 and 1446 of the Code. To the extent that the Partnership is required
to withhold and pay over to any taxing authority any amount resulting from
the allocation or distribution of income to the Partner or assignee
(including by reason of Section 1446 of the Code), the amount withheld
shall be treated as a distribution of cash in the amount of such
withholding to such Partner.
(c) It is intended that all distributions made to Partners hereunder
shall properly take into account the relative balances of their Capital
Accounts. Thus, the foregoing shall be modified, if, as, and to the extent
necessary to assure that distributions made do properly take into account
such relative Capital Accounts.
ARTICLE VII
STATUS OF LIMITED PARTNERS
7.01 Liability.
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(a) Each Limited Partnership Unit when purchased and paid for in full
by a Limited Partner shall be fully paid and non-assessable, and no Limited
Partner shall be obligated to provide any contribution to the capital other
than as specified in Section 5.01 hereof. A Limited Partner shall not be
bound by, nor be personally liable for, the expenses, liabilities, or
obligations of the Partnership except to the extent provided for in
subsection (b) immediately following and Section 5.01 hereof, and where a
Limited Partner participates in the control of the business of the
Partnership (as such phrase is used under the Act).
(b) The capital contribution of a Limited Partner and his share of
distributed and undistributed profits, proceeds, or funds of the
Partnership shall be subject to the risks of the Partnership and subject to
the claims of its creditors.
7.02 Defaults. All Units subscribed for upon transfer of funds from a
subscriber's account (or receipt of a check) in the subscription amount are
issued subject to the collection of the funds represented by such transfer
(or check). In the event that a transfer (or check) of a subscriber is not
honored, the Partnership shall cancel the Units issued to such subscriber
in consideration of such dishonored transfer (or check); provided that the
General Partner may waive such cancellation upon receipt of what it
believes to be reasonable assurances that such transfer (or check) will be
honored or replaced by another transfer (or check) which will be honored
within 10 business days of original dishonor. Any losses or profits
sustained by the Partnership in connection with the Partnership's trading
allocable to canceled Units shall be deemed an increase or decrease in
Adjusted Asset Value and allocated as described in Section 6.01. Each
subscriber agrees to reimburse the Partnership for any expense or losses
incurred in connection with any such cancellation of Units issued to him.
7.03 Management. A Limited Partner, as such, shall not participate in the
control of the business (as such phrase is used under the Act) of the
Partnership, or the conduct thereof, and shall have no right or authority
to act for or bind the Partnership in any manner whatsoever.
7.04 Withdrawals. No Limited Partner shall have the right to withdraw (but
the Original Limited Partner shall withdraw as such, and shall be entitled
to, a return of his capital contribution, if any, following admission of
the investor Limited Partners to the Partnership) or reduce his
contribution to the capital of the Partnership except with respect to
redemption of Units under Section 10.02 hereof, or as a result of the
dissolution of the Partnership, or as otherwise provided by and in
accordance with law. No Limited Partner shall have the right to demand or
receive property other than cash in return for his contribution, and no
Limited Partner, as such, shall have priority over any other Limited
Partner, either as to the return of contributions of capital or as to
profits, losses or distributions. Notwithstanding the foregoing, no part of
the capital contribution of any Limited Partner shall be withdrawn unless
all liabilities of the Partnership (except liabilities to Partners on
account of their capital contributions) have been paid or unless the
Partnership has assets sufficient to pay the same.
7.05 Limitation on Right to Indemnification. A Limited Partner shall have
no right of, or right to apply for, indemnification pursuant to the terms
of this Agreement or otherwise, except where a right of indemnification or
right to apply for indemnification is otherwise expressly and
unconditionally provided under the Act without regard to the terms of the
Agreement.
7.06 Additional Information. Each Limited Partner hereby undertakes to
furnish to the General Partner such additional information as may be deemed
by the General Partner to be required or appropriate to open and maintain
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an account or accounts with commodity brokerage firms for the purpose of
trading in futures contracts and options thereon or to comply with federal
or state laws or regulations.
ARTICLE VIII
STATUS OF GENERAL PARTNER
8.01 Responsibility. The General Partner shall have exclusive management
and control of the business of the Partnership, and make all decisions
regarding the management and affairs of the Partnership. However, the
General Partner may delegate its power of decision (but not responsibility)
in whole or in part to any person, whether or not such person is a Partner.
The General Partner shall be under a fiduciary duty to conduct the affairs
of the Partnership in the best interests of the Limited Partners. The
Limited Partners shall under no circumstance be deemed to have contracted
away the fiduciary obligations owed to them by the General Partner under
common law.
8.02 Rights and Powers. Subject to the limitations herein, the General
Partner shall have the right, power and authority to do on behalf of the
Partnership all things which, in its sole judgment, are necessary, proper
or desirable to carry out the provisions of this Agreement in a manner
consistent with the objectives of the Partnership or under law, including:
(a) to select and limit individual subscriptions for Units;
(b) to execute this Limited Partnership Agreement;
(c) to open bank accounts;
(d) to engage in the speculative trading of the Partnership's assets;
(e) to engage such persons, firms or entities, including (except as
set forth in Article XV) the General Partner, the Commodity Broker and any
Affiliated Person, as the General Partner in its sole judgement shall deem
advisable for the conduct and operation of the business of the Partnership,
and to determine the compensation of such persons, firms, or entities,
including an agreement to share profits and losses from the Partnership's
trading operations; provided, that no such compensation arrangements shall
allow any Commodity Broker, trading advisor or manager to receive any
brokerage fees, or incentive or management compensation from the
Partnership which circumvents the provisions of this Agreement or which is
in excess of the amount described in the prospectus utilized in connection
with the offering of the Units;
(f) to make or refrain from making, in its sole discretion, the
election contemplated by Section 754 of the Code on behalf of the
Partnership, and to determine how to classify items of income, gain,
expense or profit for federal or state income tax purposes on the
Partnership tax returns and the Form K-1s (or any successor form)
transmitted to the Limited Partners;
(g) to execute a customer agreement between the Partnership and the
Commodity Broker;
(h) to execute selling agreements related to the sale of Units and to
take all such actions necessary or convenient with respect thereto;
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(i) to agree to indemnify trading advisors and managers, commodity and
forward brokers and others providing services on behalf of the Partnership;
(j) to pay or authorize the payment of, distributions to the Partners
and expenses of the Partnership, such as brokerage commissions, legal and
accounting fees, and registration and other fees of governmental agencies;
and
(k) to invest or direct the investment of funds of the Partnership not
being utilized as cash margin deposits.
8.03 Limitations. Notwithstanding any other provision herein, the General
Partner shall not:
(a) take any action which shall have a materially adverse effect upon
the Partnership;
(b) commingle assets of the Partnership with assets of any other
entity; provided, however, the deposit of assets with a commodity broker,
clearinghouse or forward merchant or entering into joint ventures or
partnerships shall not constitute commingling for these purposes;
(c) fail to conform to the Partnership's trading policies as set forth
in the prospectus utilized in connection with the sale of Units, or as
subsequently amended thereafter;
(d) receive any rebates or give-ups or participate in any reciprocal
business arrangements which would circumvent the provisions of the
Guidelines for the Registration of Commodity Pool Programs promulgated by
the North American Securities Administrators Association, Inc., or Article
XV; and
(e) cause the Partnership to fail the "qualifying income" tests of
Sections 7704 (c) and (d) of the Code.
8.04 Time Devoted to Business. The General Partner shall devote such time
to the Partnership business as it, in its sole discretion, shall deem to be
necessary to supervise the Partnership business and affairs in an efficient
manner.
8.05 Scope of Liability and Indemnity.
(a) Standard of Liability for the General Partner. The General Partner and
its Affiliated Persons shall have no liability to the Partnership or to any
Partner for any loss suffered by the Partnership which arises out of any
action or inaction by the General Partner or its Affiliated Persons if the
General Partner, in good faith, determined that such course of conduct was
in the best interest of the Partnership and such course of conduct did not
constitute negligence or misconduct of the General Partner or its
Affiliated Persons.
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(b) Indemnification of the General Partner by the Partnership.
(1) The General Partner and its Affiliated Persons shall be
indemnified by the Partnership against any losses, judgments, liabilities,
expenses and amounts paid in settlement in any claims sustained by them in
connection with the Partnership; provided that such claims were not the
result of negligence or misconduct on the part of the General Partner or
its Affiliated Persons and has been determined in good faith by the General
Partner or its Affiliated Persons to be in the best interests of the
Partnership; and further provided that Affiliated Persons of the General
Partner shall be entitled to indemnification only for losses incurred by
such Affiliated Persons in performing the duties of the General Partner and
acting wholly within the scope of the authority of the General Partner.
Notwithstanding the above, the General Partner and its Affiliated Persons
and any person acting as a Selling Agent for the Units shall not be
indemnified for any losses, liabilities or expenses arising from or out of
an alleged violation of federal or state securities laws unless (i) there
has been a successful adjudication on the merits of each count involving
alleged securities law violations as to the particular indemnitee and the
court approves indemnification of the litigation costs, or (ii) such claims
have been dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee and the court approves
indemnification of the litigation costs, or (iii) a court of competent
jurisdiction approves a settlement of the claims against a particular
indemnitee and finds that indemnification of the settlement and related
costs should be made.
(2) In any claim for indemnification for federal or state securities
law violations, the party seeking indemnification shall place before the
court the position of the Securities and Exchange Commission, the
Massachusetts Securities Division and the Pennsylvania Securities
Commission and any other applicable regulatory authority with respect to
the issue of indemnification for securities law violations.
(3) The Partnership shall not incur the cost of that portion of any
insurance which insures any party against any liability the indemnification
of which is herein prohibited.
(4) Advances from Partnership funds to a General Partner and its
Affiliated Persons for legal expenses and other costs incurred as a result
of any legal action initiated against the General Partner by a Limited
Partner are prohibited. Advances from Partnership funds to a General
Partner and its Affiliated Persons for legal expenses and other costs
incurred as a result of legal action will be made only if the following
conditions are satisfied: (i) the legal action relates to the performance
of duties or services by the General Partner or its Affiliated Persons on
behalf of the Partnership; (ii) the legal action is initiated by a third
party who is not a Limited Partner; and (iii) the General Partner or its
Affiliated Persons undertake to repay the advanced funds, with interest
from the initial date of such advance, to the Partnership in cases in which
they would not be entitled to indemnification under this Section 8.05(b).
(5) In no event shall any indemnity or exculpation provided for herein
be more favorable to the General Partner or any Affiliated Person than that
permitted pursuant to Regulation 950 CMR 13.305 of the Commonwealth of
Massachusetts or contemplated by the Guidelines for the Registration of
Commodity Pool Programs promulgated by the North American Securities
Administrators Association, Inc., in each case as in effect on the date of
this Agreement.
(6) In no event shall any indemnification permitted by this Section
8.05(b) be made by the Partnership unless all provisions herein for the
payment of indemnification have been complied with in all respects.
Furthermore, it shall be a precondition of any such indemnification that
the Partnership receive a determination of independent legal counsel in a
written opinion that the party which seeks to be indemnified hereunder has
met the applicable standard of conduct set forth herein. Receipt of any
such opinion shall not, however, in itself, entitle any
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such party to indemnification unless indemnification is otherwise proper
hereunder. Any indemnification payable by the Partnership hereunder shall
be made only as provided in the specific case.
(7) In no event shall indemnification obligations of the Partnership
under this Section 8.05(b) subject a Limited Partner to any liability in
excess of that contemplated by Section 7.01.
(c) Indemnification of the Partnership by the Partners. In the event the
Partnership is made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative or otherwise incurs any loss or expense as a result of or in
connection with any Partner's activities, obligations or liabilities
unrelated to the Partnership's business, such Partner shall indemnify and
reimburse the Partnership against all losses, damages or expenses
(including attorneys' fees, judgments, fines and amounts paid in
settlement) actually and reasonably incurred by the Partnership in
connection with such action, suit or proceeding.
8.06 Compensation and Reimbursement.
(a) Compensation. The General Partner shall be entitled to receive as
compensation:
(1) The Management Allocation and the Incentive Allocation; and
(2) The Sales Commission with respect to Units sold during the
Continuous Offering;
(3) The Redemption Fees; and
(4) Reimbursement from the Commodity Broker for organizational
and offering expenses in connection with the Initial
Offering Period.
Except for the foregoing, and except for its interest in income, gains,
expenses, losses and cash distributions, the General Partner shall not be
entitled to any compensation for its services to the Partnership other than
as permitted by subparagraph (b) following and Section 15.01.
(b) Reimbursements. The General Partner shall be entitled to reimburse
itself out of Partnership assets or cause the Partnership to pay directly
for all reasonable costs, and expenses (including extraordinary expenses)
incurred by it directly to third parties on behalf of the Partnership in
connection with or by reason of doing those things which, in its sole
judgment, are necessary, proper, or desirable to carry out the provisions
of this Agreement, including postage and other expenses related to
communications with Limited Partners, reimbursements to the Tax Matters
Partner pursuant to Section 8.07(e) hereof, and the fees and disbursements
of counsel, auditors or other professionals employed by the General Partner
and/or the Partnership incurred in connection with or related to any of the
foregoing. Reimbursement for the above-mentioned expenses, except for those
expenses relating to the actual cost of legal and audit services and
extraordinary expenses, shall not exceed 2% of the Partnership's Average
Net Asset Value, determined annually. If necessary, the General Partner
shall reimburse the Partnership, no less frequently than quarterly, for the
amount by which such aggregate fees and expenses (excluding the actual cost
of legal and audit services and extraordinary expenses) paid by the
Partnership exceed 1/6th of 1% of Partnership Net Asset Value per month
(not to exceed 2% annually). If reimbursement is required or extraordinary
expenses are incurred, the General Partner shall include in the
Partnership's next regular report to the Partners a discussion of the
circumstances or events which resulted in the reimbursement or
extraordinary expenses. However, none of the General Partner's "overhead"
expenses incurred in connection with the administration of the Partnership
(including, but not limited to, salaries, rent and travel expenses) shall
be charged to the Partnership.
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8.07 Tax Matters Partner.
(a) The General Partner shall be the "Tax Matters Partner",
hereinafter the "TMP", for all administrative and judicial proceedings for
the assessment and collection of tax deficiencies and for the refund of tax
overpayments arising out of a Partner's distributive share of items of
income, deduction, credit and/or of any other Partnership item allocated to
the Partners affecting any Partner's tax liability.
(b) The TMP shall promptly notify all Partners of any administrative
or judicial proceeding pending before the Service involving any Partnership
item and the progress of any such proceeding. Such notice shall be in
compliance with such regulations as are issued by the Treasury Department.
(c) The TMP shall have all the powers provided for in Sections 6223
through 6231 of the Code, including the specific power to extend the
statute of limitations with respect to any matter which is attributable to
any Partnership item or affecting any item pending before the Service, and
to select the forum to litigate any tax issue or liability arising from
Partnership items.
(d) The General Partner may resign his position as TMP by giving
thirty (30) days' written notice to all Partners. The General Partner
having the largest or next largest interest in the profits of the
Partnership at the close of the taxable year immediately preceding such
resignation shall become the successor TMP with all the rights and duties
as provided for herein; provided, however, should the General Partner
transfer its interest as a General Partner, such transferee or successor in
interest shall become the TMP.
(e) The TMP shall be entitled to reimbursement for any and all
reasonable expenses incurred with respect to any administrative and/or
judicial proceedings affecting the Partnership.
8.08 Managing General Partner. RANDELL COMMODITY CORPORATION is hereby
designated as the Managing General Partner, and except as otherwise
specifically required under the terms of this Agreement, it is intended
that in such capacity as Managing General Partner, RANDELL COMMODITY
CORPORATION shall have primary responsibility for carrying out the duties
and exercising the powers and discretion herein granted to the General
Partner. Any determination made or act done by the Managing General Partner
alone, and any agreement, document or instrument made or executed for or in
the name of Partnership by the Managing General Partner, alone and without
the joinder of any other Partner, shall be as binding and as effective, and
shall bind the applicable entity as fully and completely, as if all General
Partners had joined therein.
ARTICLE IX
COVENANTS OF GENERAL PARTNER
9.01 Tax Classification. The General Partner covenants and agrees that it
will use its best efforts to meet all future requirements set by Congress,
any agency of the federal government or the courts necessary to insure that
the Partnership will be classified as a partnership for federal income tax
purposes and not as an association taxable as a corporation.
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9.02 Records, Books of Accounts and Reports to Limited Partners.
(a) True and complete records and books of account of the business of
the Partnership, in which shall be entered fully and accurately all
Partnership transactions, shall be kept at the Principal Office of the
Partnership. Such books, together with a certified copy of the Certificate
of Limited Partnership, this Agreement, and a list of the names and
addresses of all Partners and the number of Units owned, shall be open to
inspection, and copy and mailing (at his expense), by any then existing
Partner or his representatives at any reasonable time during business
hours. Upon written request, the General Partner will mail a list of the
names and addresses of all the Limited Partners for the cost of postage and
duplication. The Partnership books and records shall be kept using the
calendar year in accordance with generally accepted accounting principles
consistently applied on the accrual basis. The Partnership shall maintain
and preserve for at least six years all books and records, and all records
necessary to determine Limited Partner suitability.
(b) The Partnership books will be audited annually by independent
certified public accounts. The Partnership will cause each Partner to
receive by March 15 of each succeeding year an annual report containing
audited financial statements of the Partnership for the fiscal year then
ended and such other information as the CFTC may from time to time require,
and such tax information as is necessary for Partners to complete their
respective federal income tax returns. The General Partner shall timely
report or cause to be reported to the Limited Partners or regulatory
authority any such information as required to comply with 17 C.F.R.
ss.4.22, or as otherwise required by the CFTC or other regulatory
authority. The General Partner shall compute Adjusted Asset Value on a
daily basis, and shall furnish the respective Net Asset Value per Unit to
each Limited Partner upon request.
9.03 Bank Accounts and Other Assets. All funds of the Partnership not
invested shall be deposited in its name in such bank accounts or bank
certificates or instruments as the General Partner elects. Withdrawals
therefrom shall be made upon such signature or signatures as the General
Partner may designate. The General Partner shall have the fiduciary
responsibility for the safekeeping of all funds and assets of the
Partnership, whether or not in its immediate possession or control and
shall not employ, or permit another person or entity to employ, such funds
or assets in any manner except for the exclusive benefit of the
Partnership.
9.04 Tax Returns. The General Partner shall cause income tax returns for
the Partnership to be prepared and filed with the appropriate authorities
on a timely basis.
9.05 Brokerage Fees. The General Partner will make an annual review of the
commodity brokerage arrangements applicable to the Partnership. The
Partnership's commission rates will be effected at competitive rates.
Notice shall be sent to each Limited Partner within seven business days
from the date of any material change related to the brokerage commissions
paid by the Partnership, and such notice shall include a description of any
material effect such changes may have on the interests of the Limited
Partners, the Limited Partners' voting rights, and their redemption rights
pursuant to Section 10.02.
9.06 Incentive Fees and Other Compensation. The General Partner shall
notify each Limited Partner within seven business days from the date of any
material change in any contract with a trading advisor, including any
change in trading advisors, or any modification in connection with the
method of calculating any incentive fee. The General Partner also shall
notify each Limited Partner within seven business days from the date of any
material change in the compensation of any other party. Such notice shall
include a description of any material effect such changes may have on the
interests of the Limited Partners, the Limited Partners' voting rights, and
their redemption rights pursuant to Section 10.02.
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ARTICLE X
TRANSFER AND REDEMPTION OF UNITS
10.01 General Prohibition on Transfer. Units may not be freely transferred.
No Partner shall have the right or power to assign, transfer, encumber, or
otherwise dispose of all or any of his Units except in accordance with this
Article X, and no other purported assignment, transfer, encumbrance or
other disposition shall be effective for any purpose.
Each transfer of a Unit shall require strict compliance with the following
requirements:
(a) prior to the consummation thereof, all assignees and/or
transferees with respect thereto shall have delivered to the Partnership a
writing making all of the representations set out in the agreement
governing subscriptions for Units and shall have executed an appropriate
power of attorney;
(b) the Partnership is provided with an opinion of its counsel, or of
other counsel satisfactory to its counsel, whose opinion shall be
satisfactory in form and substance to the Partnership's counsel, stating
that such assignment, transfer, encumbrance or other disposition is exempt
from registration under the Securities Act of 1933 and is permissible under
all applicable federal and state securities laws without registration or
qualification of any security or any person; however, such opinion of
counsel will not be at the expense of the Assigning Limited Partner;
(c) such assignment, transfer, encumbrance or other disposition would
not (in the opinion of the Partnership's legal counsel) result in the
termination of the Partnership's status as a partnership for purposes of
the then applicable provisions of the Code;
(d) such assignment, transfer, encumbrance or other disposition is to
a person who is not a minor or incompetent, and consists of all Units owned
by the transferor; provided, however, except for transfers or assignments
by gift, inheritance, intrafamily transfers and assignments, family
dissolutions, and transfers and assignments to Affiliates, if fewer than
all Units are being transferred or assigned, no transfer or assignment will
be effective or recognized by the Partnership if the transferee or
assignee, or the transferor or assignor would, by reason of such transfer
or assignment, own fewer than the minimum number of Units required in an
initial purchase, as described in the Prospectus relating to the offering
of the Units;
(e) the fully executed and acknowledged written instrument of
assignment (the terms of which must be consistent with the provisions of
this Agreement and satisfactory to the General Partner in form and
substance) is filed with the Partnership and sets forth the intention of
the Partner making such assignment (the "Assigning Partner") that the
assignee become a substituted Limited Partner in his place;
(f) the Certificate of Limited Partnership (if required under the Act)
and this Agreement are amended to reflect such assignment and substitution;
(g) each Assigning Limited Partner and assignee shall execute and
acknowledge such instruments, in form and substance satisfactory to the
General Partner, as the General Partner shall reasonably deem necessary or
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desirable to effectuate such admission and to confirm the agreement of the
assignee to be bound by all the terms and provisions of this Agreement with
respect to the Unit(s) acquired;
(h) all expenses, including attorneys' fees, incurred by the
Partnership in this connection, are paid by such substituted Limited
Partner; and
(i) the General Partner consents thereto in writing, which consent may
be withheld for any reason.
Any transfer of Units which is permitted hereunder shall be effective as of the
first day of the month succeeding the month in which the General Partner
receives at least 30 days prior written notice of such transfer.
10.02 Redemption.
(a) A Limited Partner (or any assignee thereof) may cause the
Partnership to redeem any or all of his Units at the end of any calendar
quarter on 10 days written notice to the General Partner; provided that a
Limited Partner shall not be entitled to redeem any Unit until after 6 full
months from the time such Unit was purchased. Units which have been
redeemed may not be resold by the Partnership. Except in the case of a
redemption of all Units owned by a Limited Partner, or in the discretion of
the General Partner, no redemptions may be made of fractions of Units.
Redemptions shall be effective as of the calendar end of the quarter (the
"Redemption Date") during which the General Partner has received 10 days
prior written notice of redemption in the form attached hereto as Exhibit
B; provided that no redemption shall be effective unless or until all
liabilities, contingent or otherwise, of the Partnership, except any
liability to Partners on account of their capital contributions, have been
paid or there remains property of the Partnership sufficient to pay them.
Upon redemption, a Limited Partner (or any assignee thereof) shall receive,
per Unit redeemed, an amount equal the Redemption Net Asset Value per Unit
thereof as of the Redemption Date, less any amount owing by such Partner
(and his assignee, if any) to the Partnership. Units redeemed on or prior
to the end of the 6th, 9th and 12th full calendar month after the purchase
of such Units shall be charged a 4%, 3%, and 2% redemption fee,
respectively (the "Redemption Fee"), not to exceed 5% of the gross purchase
price (e.g., without reduction for the Sales Commission) of such Units.
These redemption charges shall be paid to the Managing General Partner. If
redemption is requested by an assignee, all amounts owed to the Partnership
by the Partner to whom such Unit was sold as well as all amounts owed by
all assignees of such Unit shall be deducted from the Redemption Net Asset
Value of such Unit upon redemption by any assignee. An assignee shall not
be entitled to redemption until the General Partner has received written
notice of the assignment, transfer or disposition under which the assignee
claims an interest in the Unit to be redeemed and shall have no claim
against the Partnership or the General Partner with respect to
distributions or amounts paid on redemption of Units prior to the receipt
by the General Partner of such notice. Payment will be made within 15
business days after the Redemption Date, except that, under special
circumstances, including, but not limited to, the inability of the
Partnership to liquidate commodity positions as of such Redemption Date or
default or delay in payments due the Partnership from commodity brokers,
banks or other persons, the Partnership may delay payment to Partners
requesting redemption of Units of the proportionate part of the Redemption
Net Asset Value of the Units represented by the sums which are the subject
of such default or delay.
(b) If at the close of business (as determined by the General Partner)
on any day, the Average Net Asset Value per Unit has decreased to 50% or
less of the highest Average Net Asset Value per Unit at which Units have
been purchased, after adjusting downward for all distributions, the
Partnership will liquidate all open positions as expeditiously as possible
and suspend trading. Within 7 business days after such decline, the General
Partner shall declare a Special Redemption Date, and mail notice of such
date to each Limited Partner and assignee of Units of whom it has received
written notice as described above (of the assignment, transfer or
disposition under which the assignee claims an interest in the Units to be
redeemed), together with instructions as to the procedure such
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Limited Partner or assignee must follow to have his interest (only entire,
not partial interests may be so redeemed unless otherwise determined by the
General Partner) in the Partnership redeemed on such date. Such Special
Redemption Date, if declared, shall be a business day within 30 business
days from the date of such decline. Upon redemption pursuant to a Special
Redemption Date, a Partner or any other assignee of whom the General
Partner has received written notice as described above, shall receive from
the Partnership an amount equal to the Redemption Net Asset Value per Unit
of his interest in the Partnership, determined as of the close of business
(as determined by the General Partner) on such Special Redemption Date.
After such Special Redemption Date, the Partnership may resume trading. If
the General Partner declares a Special Redemption Date, and the Partnership
thereafter resumes trading, subsequent Special Redemption Dates shall occur
if the Average Net Asset Value per Unit has decreased to 50% or less of the
highest Average Net Asset Value per Unit at which Units have been purchased
since the previous Special Redemption Date (or the Average Net Asset Value
Per Unit at such previous Special Redemption Date, if higher), after
adjusting downward for all distributions. The General Partner may at any
time and in its discretion declare a Special Redemption Date should the
General Partner determine that it is in the best interests of the
Partnership to do so. The General Partner may also, in its discretion,
declare additional regular redemption dates for Units and permit Limited
Partners to redeem at other than quarter-ends.
(c) The General Partner may, in its sole discretion, redeem any Units
if it considers doing so to be desirable for the protection of the
Partnership or its Partners. Any such redemption may be effected upon ten
days notice as to part (from time to time) or all of any Limited Partner's
or assignee's interest in the Partnership. If any redemption under this
Section 10.02(c) is effected at other than the end of a calendar month or
quarter, the Redemption Net Asset Value per Unit shall not be reduced for
any Management or Incentive Allocation that would have been allocable to
such Units as if the redemption was effected at the end of a month or
quarter.
10.03 Designation of Substituted Limited Partners. Upon compliance with all
of the conditions set forth in Section 10.01 hereof, the General Partner
will appoint an assignee or transferee (whether such assignee or transferee
has acquired his interest by virtue of a voluntary assignment, an
involuntary transfer or a transfer by operation of law) of the Unit(s) of
an assigning Partner to be and become a substituted Limited Partner in the
Partnership entitled to all the rights and benefits of the Assigning
Partner under this Agreement.
10.04 Effect of Assignment.
(a) In the event a vote of the Limited Partners shall be taken
pursuant to this Agreement for any reason, an assignee will not be entitled
to vote with respect to any Unit(s) assigned to him in respect of which the
assignee has not become a substituted Limited Partner.
(b) To the extent specified in the assignment, an assignee of any
Unit(s), subject to Section 6.01(d), will be entitled to receive and/or be
credited with his share, from and after the effective date of such written
assignment, of income, gains, expenses, losses and cash distributions
allocable or distributable in respect to the Unit(s) assigned.
10.05 Death, Incapacity or Bankruptcy of Limited Partner. The death, legal
incapacity or bankruptcy of a Limited Partner shall not cause a dissolution
of the Partnership, but the rights of such Limited Partner to receive
and/or be credited with his share of Profits, Losses and cash distributions
allocable or distributable in respect of his Unit(s) and his right to
assign Units shall, on the happening of such an event, devolve on his
authorized representative, or in
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the event of the death of one whose Units are held in joint tenancy, pass
to the surviving joint tenant(s), subject to the terms and conditions of
this Agreement, and the Partnership shall continue as a limited
partnership. However, in no event (except upon compliance with Section
10.01) shall such authorized representative thereby become a substituted
Limited Partner.
ARTICLE XI
POWER OF ATTORNEY
11.01 Designation. The Limited Partners, jointly and severally, hereby
irrevocably constitute and appoint each General Partner, and their
respective duly authorized officers and general partners, severally, as
their true and lawful attorney-in-fact, in their name, place and stead to
make, execute, sign, acknowledge, record and file, on behalf of them and on
behalf of the Partnership, the following:
(a) A Certificate of Limited Partnership, a Certificate of Doing
Business Under an Assumed Name, and any other certificates or instruments
which may be required to be filed by the Partnership or any of the Partners
under the laws of the State of Tennessee and any other jurisdiction the
laws of which may be applicable;
(b) A Certificate of Cancellation of the Partnership and such other
instruments as may be deemed necessary or desirable by the General Partner
upon the termination of the Partnership;
(c) Subject to the other provisions of this Agreement, amendments to
this Agreement;
(d) Any and all amendments of the instruments described in
subparagraphs (a), (b) and (c) above, provided such amendments are either
required by law to be filed, or are consistent with this Agreement
(including, without limitation, any amendments admitting or substituting
holders of Units as Limited Partners), or have been authorized by the
particular Limited Partner or Limited Partners; and
(e) Customer agreements (including amendments thereto) with any
Commodity Broker;
(f) Selling agreements (including amendments thereto) with Selling
Agents;
(g) Advisory or management contracts (including amendments thereto)
with trading advisors and managers for the Partnership; and
(h) Subject to the other provisions of this Agreement, documents
necessary to file, prosecute, defend, settle or compromise litigation,
claims or arbitrations on behalf of the Partnership.
11.02 Special Provisions. The foregoing grant of authority:
(a) Shall survive the delivery of an assignment by a Limited Partner
of the whole or any portion of his Units for the purpose of enabling the
General Partner to execute, acknowledge and file an amended Limited
Partnership Certificate;
(b) Is a special power of attorney coupled with an interest, is
irrevocable and shall survive the death or incapacity of the Limited
Partner granting the power;
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(c) May be exercised by any General Partner or any successor General
Partner on behalf of each Limited Partner by a facsimile signature or by
listing all of the Limited Partners executing any instrument with a single
signature as attorney-in-fact for all of them; and
(d) Shall in no way cause a Limited Partner to be liable in any manner
for the acts or omissions of the General Partner or any successor General
Partner and is granted only to permit any General Partner or his
representatives to carry out the provisions of this Agreement.
ARTICLE XII
CESSATION OF GENERAL PARTNER
12.01 Cessation. A person shall cease to be a General Partner upon the
transfer of its entire interest in the Partnership pursuant to Section
12.02 hereof, upon its withdrawal in accordance with Section 12.03 hereof,
upon its removal pursuant to Section 12.04 hereof, upon its death,
incapacity or bankruptcy, or upon the occurrence of any other event
specified in the Act. Except as provided in Section 12.03 (relating to
withdrawal), Section 12.04 (relating to removal) and Section 12.07
(relating to bankruptcy), upon the occurrence of any of the foregoing
events, such person or its transferee shall have the right to receive
distributions and allocations with respect to its Partnership interest,
shall be treated as the transferee of a Limited Partner, and shall have the
right to become a Substituted Limited Partner with the consent of the
remaining General Partners (if there is no remaining General Partner, then
with the consent of any General Partners elected pursuant to Section 12.06
hereof).
12.02 Transfer. The interest of a General Partner, as such, in the
Partnership shall not be transferable to any other person except upon
consent of a simple majority in interest of all Limited Partners. Such
interest may be pledged, hypothecated or otherwise encumbered, subject to
the provisions hereof.
12.03 Withdrawal. Any General Partner may withdraw from the Partnership
without thereby incurring any liability to the Partnership or to any
Partner, upon giving 120 days prior notice to the Partnership and other
Partners, so long as:
(a) if after such withdrawal there would remain at least one General
Partner, and such withdrawal would not in the opinion of the Partnership's
legal counsel result in the Partnership's ceasing to be treated as a
partnership for purposes of the then applicable provisions of the Code; or
(b) if after such withdrawal there would be no remaining General
Partner, and
(i) within 90 days of such notice all of the Limited Partners
shall have elected in writing (A) to continue the Partnership, and (B)
another person or entity to succeed such withdrawing General Partner (or
Partners) pursuant to Section 12.06 (hereinafter "Successor General
Partner"), and this Agreement and the Certificate of Limited Partnership
are properly amended to reflect this result; and
(ii) such withdrawal would not in the opinion of the Partnership's
legal counsel result in the Partnership's ceasing to be treated as a
partnership for purposes of the then applicable provisions of the Code.
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In the event of withdrawal of a General Partner, the withdrawn General Partner
shall be entitled to a redemption of its general partnership interest at
its Unit-equivalent basis (computed pursuant to Section 6.01(b)), and
payment of all amounts due under Section 8.06, as of the end of the
calendar quarter following such withdrawal. Any withdrawn General Partner
must pay all expenses incurred by the Partnership as a result of its
withdrawal.
12.04 Removal.
(a) General. A simple majority in interest of all Limited Partners may
elect to remove any General Partner if:
(i) There is no remaining General Partner, a Successor General
Partner is elected within ninety days thereafter pursuant to Section 12.06,
and this Agreement and the Certificate of Limited Partnership are properly
amended to effect this result; and
(ii) The removed General Partner shall be entitled to a redemption
of its general partnership interest at its Unit-equivalent basis (computed
pursuant to Section 6.01(b)), and payment of all amounts due under Section
8.06, as of the end of the calendar quarter following such removal; and
(iii) Such removal would not (in the opinion of the Partnership's
legal counsel) result in the Partnership's ceasing to be treated as a
partnership for purposes of the then applicable provision of the Code; and
(iv) The Successor General Partner assumes the removed General
Partner's obligations to the Partnership for claims arising prior to
removal and agrees to indemnify the removed General Partner for such claims
in a form satisfactory to the removed General Partner.
(b) Termination of Interest. If a General Partner is removed on the
basis of fraud (as determined by a court of competent jurisdiction) his
interest in the Partnership as a General Partner shall terminate and he
shall not be entitled to any compensation therefor from the Partnership,
any of the Partners, or from any other person or entity.
(c) Subsequent Events. No removed General Partner shall be liable to
the remaining Partners for causes of action or events occurring after the
termination of such General Partner's former status.
12.05 Partnership Continues. In the event any person ceases to be a General
Partner pursuant to Section 12.01 hereof (other than the last remaining or
sole General Partner), all Limited Partners hereby consent that any
remaining General Partners shall have the right and power to continue the
Partnership and its business without dissolution, any last remaining or
sole General Partner hereby agrees to continue the Partnership and its
business without dissolution for a reasonable time.
12.06 Election of New General Partners. In the event any person ceases to
be a General Partner pursuant to Section 12.01 hereof, and as a consequence
thereof the Partnership has no General Partner, the Partnership shall
dissolve unless within 90 days thereafter the Limited Partners shall elect
a Successor General Partner and agree in writing to continue the business
of the Partnership. The election of a new General Partner shall require (a)
an affirmative vote of a simple majority in interest of the Limited
Partners (or such greater percentage as may be required pursuant to the
Act, as determined by an opinion of counsel to the Partnership) if the
former General Partner ceased to be a General Partner by reason of removal
under Section 12.04, or (b) an affirmative vote of all of the Limited
Partners, if the former General Partner ceased to be a General Partner for
any other reason.
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12.07 Surrender of Interest. The interest of any bankrupt General Partner
shall be surrendered to the Partnership.
ARTICLE XIII
DISSOLUTION AND TERMINATION
13.01 Dissolution of Partnership. The Partnership shall be dissolved upon
the happening of any of the following events:
(a) Expiration of its term;
(b) By vote of the Limited Partners holding Units representing a
simple majority in interest of the Units;
(c) The failure of any person or corporation to qualify as a Successor
General Partner within 90 days after the last remaining General Partner
ceases, for any reason, to be a General Partner;
(d) By any event which makes it unlawful for the business, as
conducted by the Partnership, to be continued;
(e) Upon disposition of all or substantially all of the Partnership's
assets and distribution of the proceeds; or
(f) Any other event which, under the laws of the State of Tennessee,
would cause its dissolution.
13.02 Termination. A reasonable time as determined by the General Partner,
not to exceed eighteen months, shall be allowed for the orderly liquidation
of the assets of the Partnership and the discharge of all liabilities to
the creditors so as to enable the General Partner to minimize any losses
attendant upon liquidation. Each of the Partners shall be furnished with a
statement prepared by the Partnership's certified public accountant, which
shall set forth the assets and liabilities of the Partnership as of the
date of complete liquidation and the manner in which the assets of the
Partnership are to be distributed. Upon the General Partner' complying with
the foregoing distribution plan, the Limited Partners shall cease to be
such and the General Partner shall execute, acknowledge, and cause to be
filed, a Certificate of Cancellation of the Partnership, provided, however,
the Limited Partners hereby agree to join in executing such document, if
such joinder is required or is requested by the General Partner.
13.03 Distribution Upon Dissolution. Upon dissolution and termination of
the Partnership, the General Partner (or in the event the dissolution is
caused by the cessation of the last remaining General Partner, such person
as a majority in interest of the Limited Partners shall designate as a
liquidating trustee) shall make or cause to be made a full accounting of
the Partnership assets and liabilities, and shall liquidate all open
positions as expeditiously as possible and the proceeds therefrom, to the
extent sufficient therefor, shall be applied and distributed in the
following order:
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(a) To the payment of creditors (including the General Partner to the
extent provided in Section 8.06 hereof), in the order of priority as
provided by law, except any claims of creditors whose obligations will be
assumed or otherwise transferred on the liquidation of the Partnership
assets;
(b) To the setting up of any reserves which the General Partner deem
reasonably necessary for any contingencies or unforeseen liabilities or
obligations of the Partnership. Such reserves shall be paid over by the
General Partner to a bank or an attorney-at-law as escrow agent to be held
for the purpose of disbursing such reserves in payment of any of the
aforementioned contingencies. At the expiration of such period as the
General Partner shall deem advisable, the escrow agent shall distribute the
balance thereof in the manner and order as provided in this Section; and
(c) To the Partners in accordance with the positive balances of their
respective Capital Accounts, as adjusted pursuant to Section 5.04 hereof.
In the event the proceeds are less than the total of the Capital Accounts
of the Partners, said proceeds shall be distributed among the Partners
based on the ratio that each Partner's individual Capital Account (as
adjusted) bears to the total Capital Accounts of all Partners.
13.04 Possibility of Economic Loss. The Partners acknowledge and agree that
if the Partnership should be dissolved and wound up without the Partnership
realizing sufficient gain on the sale of its assets for the Partners to
recoup the prior losses allocated to them, the amount of such losses will
reduce the amount of distributions to which the Partners will be entitled
on the liquidation of the Partnership.
ARTICLE XIV
AMENDMENTS
14.01 Permitted Amendments. This Agreement may be amended by the General
Partner, without any approval of the Limited Partners being required, in
order to:
(a) change the name or the principal place of business of the
Partnership;
(b) subject to Articles X and XII, substitute and admit a Partner;
(c) change the name or residence of any Partner;
(d) add to the representations, duties or obligations of the General
Partner or surrender any right or power granted to the General Partner
herein, for the benefit of the Limited Partners;
(e) cure any ambiguity, or correct or supplement any provision herein
which may be inconsistent with any other provision herein;
(f) delete or add any provision of this Agreement required to be so
deleted or added by any state, federal, or national official in the United
States or in any other Country, which addition or deletion is deemed by
such official to be for the benefit or protection of the Limited Partners;
(g) delete or add any provision of or to this Agreement required to be
deleted or added by the Staff of the Securities Exchange Commission or any
other federal agency or any state "Blue Sky" official or similar official
or in order to opt to be governed by any amendment or successor to the Act,
or to comply with applicable law;
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(h) comply with the provisions of the Act, as amended, and any
successor statute, as well as the laws of any other state or country;
(i) subject to the provisions of Section 5.06 hereof, increase the
number of Units to a maximum of 500,000; and
(j) amend, upon notice to all Limited Partners, the provisions of
Article VI and any other applicable provision of this Agreement to the
minimum extent necessary to take account any amendment to Sections 704 or
7704 of the Code or the Regulations thereunder or any judicial or
administrative interpretation thereof.
Except as otherwise provided herein, and except for amendments affecting the
liabilities, obligations, rights, powers, interests or compensation of
General Partner (which, except as provided in Section 14.01(d), shall be
made only with the consent of all Limited Partners), Limited Partners
holding Units representing a simple majority in interest may act to amend
this Agreement (including any amendment constituting a material change in
the basic investment policies or structure of the Partnership) in the
manner set forth in Article XVI to the extent permitted by Tennessee law.
14.02 Prohibited Amendments. Notwithstanding any provision herein to the
contrary, no amendment shall without the consent of all Partners:
(a) change the Partnership to a general partnership;
(b) change the term of the Partnership;
(c) change the liabilities, obligations, rights, powers, interests or
compensation of the General Partner (except as set forth in Section
14.01(d) hereof) or the limited liability of the Limited Partners;
(d) change the interest of any class of Partners;
(e) permit Limited Partners, as such, to share in the control or
management of the Partnership's business;
(f) change the provisions of Article X or Article XII hereof; or
(g) change the provisions hereof in any manner which would result in
the Partnership ceasing to be treated as a partnership, or the Partnership
being taxable as a corporation, for purposes of the then applicable
provisions of the Code.
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ARTICLE XV
CONTRACTS WITH AFFILIATED PERSONS
15.01 General. The Partnership may acquire property or services from, and
have other transactions with, persons or entities who are Partners or
Affiliated Persons, subject to the following conditions:
(a) Any transaction, other than routine clerical, administrative,
accounting, legal and miscellaneous services which are on the whole not
material in amount between the Partnership and Affiliated Persons is
prohibited. Any such routine clerical, administrative, accounting, legal
and miscellaneous services shall be provided at cost, limited to the extent
of ss.8.06(b), and fully disclosed in writing in advance to all Partners
and shall be on terms comparable and competitive with those which may be
obtained from unaffiliated persons. The Affiliated Persons must be engaged
in the business of rendering such services, independently of the
Partnership as an ordinary and ongoing business. Any such transaction must
be pursuant to a written contract which precisely describes the
transaction, which does not cover a period in excess of one year, and which
may be canceled without penalty by a majority in interest of the Limited
Partners on 60 days' written notice, except for the compensation and
reimbursements payable to the General Partner pursuant to Section 8.06
hereof. The General Partner and its Affiliated Persons shall be prohibited
from providing unspecified services to the Partnership without first
specifying such services in writing in advance in the manner set forth in
this Section 15.01(a).
(b) The Partnership shall make no loans to any Partner or Affiliated
Persons.
(c) No property shall be purchased, directly or indirectly, from any
General Partner or Affiliated Person.
(d) On any loans made to the Partnership by a General Partner, the
General Partner will not receive any interest or other financing charges or
fees in excess its interest costs or of the amounts which would be charged
at and during the time of the loan by unrelated lending institutions on
comparable loans for the same purpose in the same locality as such General
Partner, and no prepayment charges or penalties shall be imposed on the
Partnership. No General Partner will charge a finder's or placement fee for
loans or other financing secured for the Partnership from other sources.
15.02 Limitation on Affiliated Person. An Affiliated Person shall have no
right or authority to represent or bind the Partnership in connection with
the terms, interpretation, enforcement or any other matter related to any
agreement between the Partnership and such Affiliated Person. All rights
and powers of the Partnership with respect to such agreement shall be
exercised on its behalf solely by the General Partner.
ARTICLE XVI
MEETINGS OF AND ACTION BY LIMITED PARTNERS
16.01 Notice of Meetings. Meetings of the Limited Partners to vote upon
such matters as Limited Partners are authorized to act herein may be called
at any time by the General Partner or by Limited Partners having more than
10 per cent of the voting power of the Limited Partners by delivering
written notice of such call to the General Partner. Within 10 days after
the call of a meeting, the General Partner shall cause notice to be given
to the Limited Partners entitled to vote on such matters that a meeting
will be held at a time and place fixed by the General Partner which is not
less than 30 nor more than 60 days after the call of the meeting. If the
General Partner fails to give such notice, then the Limited Partners
calling the meeting may give notice of the meeting and fix the time and
place thereof. Meetings of Limited Partners shall be held in Memphis,
Tennessee, at the time and place designated by the persons calling the
meeting.
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16.02 Quorum, Adjournment. Any Limited Partners' meeting, whether or not a
quorum is present, may be adjourned from time to time by the vote of
Limited Partners having a majority of the voting power of the Limited
Partners attending the meeting, but in the absence of a quorum no other
business may be transacted at such meeting.
16.03 Proxy, Telephone Attendance. There shall be deemed to be a quorum at
any meeting of the Limited Partners at which Limited Partners holding
Limited Partnership Units representing a majority in interest are present
in person, by telephone or by proxy. Any Limited Partner may attend the
meeting in person, by telephone or by proxy.
16.04 Voting. The voting power of a Limited Partner on any matter shall be
equal to the number of Units owned by him.
16.05 Written Consent. Any action which may be taken by vote may be taken
on written consent without a meeting of the Partnership being held or
called upon written consent of Limited Partners holding the same number of
Units in the Partnership as would have been required had such meeting been
held. For purposes of obtaining a written consent under this Agreement, the
General Partner may require a written response by a Limited Partner within
a specified time, but not less than 30 days after the date of such notice.
In such event, if the Limited Partner does not respond within the stated
time period, the Limited Partner shall be deemed to have abstained from the
matter specified in the written consent.
ARTICLE XVII
OUTSIDE ACTIVITIES
Any of the Partners (and any of the officers, directors, shareholders or
affiliates of any Partner which is a corporation and any partner of a
Partner which is a partnership), General or Limited, may engage in or
possess any interest in other business venture of any kind, independently
or with others, including but not limited to the ownership, financing,
leasing, operating management, syndication, brokerage or development of
real property. The fact that a Partner may encounter opportunities to
purchase, otherwise acquire, lease, sell or otherwise dispose of real or
personal property and may take advantage of such opportunities himself or
introduce such opportunities to entities in which he has or has not any
interest, shall not subject such Partner to liability to the Partnership or
any of the other Partners on account of the lost opportunity. Neither the
Partnership nor any Partner shall have any right by virtue of this
Agreement or the Partnership relationship created hereby in or to such
ventures, or to the income or profits derived therefrom, and the pursuit of
such ventures, even though competitive with the business of the
Partnership, shall not be deemed wrongful or improper.
ARTICLE XVIII
MISCELLANEOUS
18.01 Addresses and Notices. The addresses for each Limited Partner for all
purposes shall be the address stated after his name on the subscription
agreement executed by him, or such other address of which the General
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Partner has received written notice. Unless written notice is given to all
Limited Partners, the address of the General Partner shall be the same as
that of the principal office of the Partnership set forth in Section 2.03
hereof. Any notice, demand or request required or permitted to be given or
made hereunder shall be in writing and shall be deemed given or made when
delivered or sent by certified or registered mail, return receipt
requested, to each Partner at such address.
18.02 Captions. Section titles or captions contained in this Agreement are
inserted for convenience only. They shall not be deemed part of this
Agreement and in no way define, limit, extend or describe the scope or
intent of any provision hereof.
18.03 Entire Agreement. This Agreement constitutes the entire agreement
among the parties; it supersedes any prior agreement or understandings
among them, and it may not be modified or amended in any manner other than
pursuant to Article XIV hereof.
18.04 Tax Elections. All elections required or permitted to be made by the
Partnership under applicable tax laws shall be made by the General Partner
in its sole discretion.
18.05 Governing Law. This Agreement and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the laws (excluding
conflict of laws provisions) of the State of Tennessee.
18.06 Binding Effect. Except as herein otherwise provided, this Agreement
shall be binding upon and inure to the benefit of the parties, their legal
representatives, heirs, administrators, executors, successors and assigns.
18.07 Identification. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the
singular and the plural, and pronouns stated in either the masculine or the
neuter gender shall include the masculine, the feminine and the neuter.
18.08 Severability. If any provision of this Agreement, or the application
of such provision to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to
persons or circumstances other than those to which it is held invalid,
shall not be affected thereby and shall continue to be binding and in
force.
18.09 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original but all of which shall constitute
one and the same instrument. In addition, this Agreement may contain more
than one counterpart of the signature page, and this Agreement may be
executed by the affixing of the signature of each of the Partners to one of
such counterpart signature pages; all of such counterpart signature pages
shall be read as though one, and they shall have the same force and effect
as though all of the signers had signed a single signature page.
IN WITNESS WHEREOF, the Partners have executed this Agreement as of the day
and year first hereinabove set forth.
AS ORIGINAL LIMITED PARTNER: AS GENERAL PARTNER:
RANDELTA CAPITAL PARTNERS, L.P.,
General Partner
/s/ Marty Morgan By: DELTA INTERNATIONAL, INC.,
- ----------------------------- General Partner
Marty Morgan
By: /s/ John W. McArtor
----------------------------
John W. McArtor.,
President
RANDELL COMMODITY CORPORATION,
General Partner
By: /s/ Frank L. Watson, Jr.
----------------------------
Frank L. Watson, Jr.,
Chairman
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SCHEDULE A
TO
AGREEMENT OF LIMITED PARTNERSHIP
OF
CERES FUND, L.P.
NAME AND ADDRESS INITIAL CAPITAL NO. OF
OF LIMITED PARTNERS CONTRIBUTION UNITS
------------------- --------------- ------
133
SCHEDULE "B"
TO LIMITED PARTNERSHIP AGREEMENT
CERES FUND, L.P.
REQUEST FOR REDEMPTION
, 19
------------------ ----
--------------------------
Account Number
Ceres Fund, L.P.
c/o RANDELTA CAPITAL PARTNERS, L.P.
889 Ridge Lake Boulevard, Suite 320
Memphis, Tennessee 38120
Dear Sirs:
I hereby request redemption, as defined in and subject to all of the terms
and conditions of the Limited Partnership Agreement of Ceres Fund, L.P.
(the "Partnership"), of _________________ (insert number of Units to be
redeemed)* of my Units of Limited Partnership Interest in the Partnership.
Redemption shall be effective as of the last day of the month ending at
least 10 days after receipt of this Request by the General Partner. I
(either in my individual capacity or as an authorized representative of an
entity, if applicable) hereby represent and warrant that I am the true,
lawful and beneficial owner of the Units of Limited Partnership Interest of
the Partnership to which this Request relates, with full power and
authority to request redemption of such Units. Such Units are not subject
to any pledge or otherwise encumbered in any fashion. My signature has been
guaranteed by a commercial bank or by a member of the National Association
of Securities Dealers, Inc., other than a sole proprietor.
- --------------------------------------------
Name
- --------------------------------------------
Street
- --------------------------------------------
City State Zip
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
- --------------------------------------------
- --------------------------------------------
Signature(s)
PARTNERSHIP, TRUST OR CORPORATE PARTNER
- --------------------------------------------
Name of Entity
By:
-----------------------------------------
Partner, Trustee or authorized officer
Signature(s) guaranteed by:
- --------------------------
THIS REQUEST MUST BE MAILED TO THE PARTNERSHIP'S OFFICE BY REGISTERED MAIL
134
EXHIBIT "B"
CERES FUND, L.P.
REQUEST FOR REDEMPTION
, 19
------------------ ----
--------------------------
Account Number
Ceres Fund, L.P.
c/o RANDELTA CAPITAL PARTNERS, L.P.
889 Ridge Lake Boulevard, Suite 320
Memphis, Tennessee 38120
Dear Sirs:
I hereby request redemption, as defined in and subject to all of the terms
and conditions of the Limited Partnership Agreement of Ceres Fund, L.P.
(the "Partnership"), of _________________ (insert number of Units to be
redeemed)* of my Units of Limited Partnership Interest in the Partnership.
Redemption shall be effective as of the last day of the month ending at
least 10 days after receipt of this Request by the General Partner. I
(either in my individual capacity or as an authorized representative of an
entity, if applicable) hereby represent and warrant that I am the true,
lawful and beneficial owner of the Units of Limited Partnership Interest of
the Partnership to which this Request relates, with full power and
authority to request redemption of such Units. Such Units are not subject
to any pledge or otherwise encumbered in any fashion. My signature has been
guaranteed by a commercial bank or by a member of the National Association
of Securities Dealers, Inc., other than a sole proprietor.
- --------------------------------------------
Name
- --------------------------------------------
Street
- --------------------------------------------
City State Zip
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
- --------------------------------------------
- --------------------------------------------
Signature(s)
PARTNERSHIP, TRUST OR CORPORATE PARTNER
- --------------------------------------------
Name of Entity
By:
-----------------------------------------
Partner, Trustee or authorized officer
Signature(s) guaranteed by:
- --------------------------
THIS REQUEST MUST BE MAILED TO THE PARTNERSHIP'S OFFICE BY REGISTERED MAIL
135
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
(1) Form of Selling Agreement Among the Partnership,Refco, Inc. and Selling
Agents is incorporated by reference to Exhibit (1) to the Post-Effective
Amendment No. 4 to the Registration Statement of the Partnership dated June 30,
1994 (SEC File No. 33-37802.)
(2)(b) Agreement of Limited Partnership of the Partnership is incorporated by reference
to Exhibit (2)(b) to thePost-Effective Amendment No. 1 to the Registration
Statement of the Partnership dated April 26, 1991 (SEC File No. 33-37802)
(5) Opinion of Waring Cox is incorporated by reference to Exhibit 5 to the
Post-Effective Amendment No. 1to the RegistrationStatement of thePartnership
dated April 26, 1991 (SEC File No. 33-37802.)
(10)(a) Amendment No. 1 to the Management Agreement among the Partnership,
Randell Commodity Corporation and Delta International, Inc. is incorporated by
reference to Exhibit 10(a) to the Post-Effective Amendment No. 4 to the
Registration Statement of the Partnership dated June 15, 1994 (SEC File No.
33-37802)
(23)(a) Consent of accountants for the Partnership.
(23)(c) See Exhibit 5.
(b) Financial Statement Schedules
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post Effective Amendment No. 7 of the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Memphis, State of Tennessee on May 30, 1998.
CERES FUND, L.P.
By: RANDELL COMMODITY CORPORATION,
Managing General Partner
By: /s/ Frank L. Watson, Jr.
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Frank L. Watson, Jr.,
Chairman and Sole Director