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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File No. 0-17443
December 31, 1997
IDS MANAGED FUTURES II, L.P.
(Exact name of registrant as specified in its charter)
Delaware 06-1207252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification #)
233 South Wacker Drive, Suite 2300, Chicago, IL 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312)460-4000
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Units of Limited Partnership Interest
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K: [X]
The aggregate market value of the voting and non voting common
equity held by non affiliates of the Registrant as of February
28, 1998: $11,839,182
Index to exhibits on page 22
Documents Incorporated by Reference
Incorporated by reference in Part IV, Item 14 is Post Effective
Amendment No. 2 to the Registration Statement declared effective
on May 4, 1988.
Part I
Item 1. Business
IDS Managed Futures II, L.P. (the "Partnership") is a limited
partnership organized on April 21, 1987 under the Delaware
Revised Uniform Limited Partnership Act. The Partnership was
formed to speculatively trade commodity interests, including
futures contracts, forward contracts, physical commodities and
related options thereon pursuant to the trading instructions of
independent trading advisors. The General Partners of the
Partnership are CIS Investments, Inc. ("CISI") and IDS Futures
Corporation ("IDS Futures") (collectively, the "General
Partners"). The General Partners are registered commodity pool
operators under the Commodity Exchange Act, as amended (the "CE
Act"), and are responsible for administering the business and
affairs of the Partnership exclusive of trading decisions. CISI
is an affiliate of Cargill Investor Services, Inc. ("CIS"), the
clearing broker for the Partnership. IDS Futures is an
affiliate of American Express Financial Advisors Inc. ("AXP
Advisors"), formerly IDS Financial Services Inc., which acts as
the Partnership's introducing broker and selling agent.
CIS is a "Futures Commission Merchant," the General Partners
are "Commodity Pool Operators," AXP Advisors is an "Introducing
Broker" and the trading advisors to the Partnership are
"Commodity Trading Advisors" as those terms are used in the CE
Act. As such, they are registered with and subject to
regulation by the Commodity Futures Trading Commission ("CFTC")
and the National Futures Association ("NFA"). AXP Advisors and
CIS are also registered as broker-dealers with the National
Association of Securities Dealers, Inc. ("NASD") and the
Securities and Exchange Commission ("SEC").
The General Partners each contributed $77,035 (a total of
$154,070) in cash to the capital of the Partnership, which was
approximately 1.05% of the total contributions to the
Partnership (less selling commissions) by all Partners. The
General Partners received in exchange for such contribution
644.4502 Units (322.2251 Units each).
Under the terms of the Limited Partnership Agreement, the
General Partners may not select Partnership transactions
involving the purchase or sale of any commodity interests, but
must select one or more trading advisors to direct the
Partnership's trading with respect thereto. Initially, the
General Partners chose and caused the Partnership to enter into
an Advisory Contract with each of Commodity Monitors, Inc., John
W. Henry and Company, Inc., Mint Investment Management Company,
Neims-Stoken Partnership and Sabre Fund Management Limited
(collectively, the "Advisors"). Commencing on March 1, 1988,
after the conclusion of the initial offering period with respect
to the Partnership's Limited Partnership Units, the Advisors
began to provide commodity trading instructions to CIS on behalf
of the Partnership. Mint Investment Management Company gave
notice to the Fund that they were withdrawing as an Advisor due
to a restructuring of their business. After February 28, 1989
Mint Investment Management Company no longer traded assets of
the Partnership. Further, Neims-Stoken Partnership was closed
out on October 13, 1989 due to poor trading performance. The
assets remaining from both Mint Investment Management Company
and Neims-Stoken Partnership were allocated among the remaining
Advisors. The assets formerly managed by John W. Henry &
Company, Inc. pursuant to its Original Trading Method were
allocated to another program operated by John W. Henry &
Company, Inc., the Financial and Metals Portfolio, as of
February 1989. Further, Commodity Monitors, Inc. ceased trading
assets of the Partnership due to poor trading performance in
April 1991 and Chang Crowell Management Corporation began
trading assets in August 1991. As of November 16, 1994 Chang
Crowell Management Corporation was terminated as an Advisor to
the Partnership and on December 12, 1994 the assets formerly
managed by Chang Crowell Management Corporation were allocated
to Sabre Fund Management Limited. On July 8, 1997 the General
Partners entered into an agreement to add Welton Investment
Corporation as an additional independent commodity trading
advisor for the Partnership and effective August 1, 1997 the
assets of the Partnership were re-allocated among John W. Henry
& Company, Inc., Sabre Fund Management Limited and Welton
Investment Corporation. The General Partners elected not to
renew the Advisory Contract of Sabre Fund Management Limited and
it expired on December 31, 1997. Effective January 1,1998, all
of the assets of the Partnership are managed by John W. Henry &
Company, Inc. and Welton Investment Corporation.
The General Partners are responsible for the preparation of
monthly and annual reports to the Limited Partners; filing
reports required by the CFTC, the NFA, the SEC and any other
Federal or State agencies having jurisdiction over the
Partnership's operations; calculation of the Net Asset Value
(meaning the total assets less total liabilities of the
Partnership) and directing payment of the management and
incentive fees payable to the Advisors under the Advisory
Contracts. The General Partners provide suitable facilities and
procedures for handling redemptions, transfers, distributions of
profits (if any) and orderly liquidation of the Partnership.
Although CIS, an affiliate of CISI (one of the General Partners)
acts as the Partnership's clearing broker, the General Partners
are responsible for selecting another clearing broker in the
event CIS is unable or unwilling to continue in that capacity.
The General Partners are further authorized, on behalf of the
Partnership (i) to enter into the brokerage clearing agreement
and related customer agreements with their affiliates, CIS and
AXP Advisors, pursuant to which those firms render clearing and
introducing brokerage services to the Partnership; (ii) to cause
the Partnership to pay brokerage commissions at the rates
provided for in the brokerage agreement (the Partnership pays
commissions on trades executed on its behalf by John W. Henry &
Company, Inc. and Sabre Fund Management Limited at a rate of
$58.75 per round turn contract to CIS which in turn reallocates
$37.25 per round turn contract to AXP Advisors, an affiliate of
IDS Futures; the Partnership pays commissions on trades executed
on its behalf by Welton Investment Corporation at a rate of
$43.75 per round turn contract to CIS which in turn reallocates
$27.15 per round turn contract to AXP Advisors) and NFA,
exchange, clearing, delivery, insurance, storage, service and
other fees and charges incidental to the Partnership's trading.
The Partnership shall not pay brokerage commissions to CIS and
AXP Advisors at rates higher than those established in the
Prospectus for a period of 60 months from the date the
Partnership commences trading except for trades placed at
certain foreign exchanges for which the Partnership is charged a
surcharge equal to the increased incremental cost to CIS;
thereafter, such brokerage commissions may be increased at rates
equivalent to increases in the Consumer Price Index or other
comparable measure of inflation.
The original Advisory Contract between the Partnership and each
of the Advisors provides that the Advisors shall each have sole
discretion in and responsibility for the selection of the
Partnership's commodity transactions with respect to the portion
of the Partnership's assets allocated to it. The Advisory
Contracts with John W. Henry & Company, Inc. ("JWH") and Sabre
Fund Management Limited ("Sabre") were amended on April 30, 1996
(but made effective back to the date of March 31, 1996) to
extend the term of each Advisory Contract through December 31,
1996 with the automatic renewal for three additional
twelve-month terms (beginning January 1 and ending December 31
of each year) through December 1999, unless earlier terminated
in accordance with the termination provisions contained therein.
The General Partners elected not to renew the Advisory
Contract for Sabre and it expired on December 31, 1997. The
Advisory Contract with Welton Investment Corporation ("Welton")
commenced on July 8, 1997 and will continue until December 31,
1998, with automatic renewal for three additional twelve-month
terms (beginning January 1 and ending December 31 of each year)
through December 2001, unless earlier terminated in accordance
with the termination provisions contained therein. The renewal
right is applicable irrespective of any change in trading
advisors of the Partnership or any reallocation of Partnership
assets among the trading advisors or to other trading advisors.
The Advisory Contracts shall terminate automatically in the
event that the Partnership is terminated in accordance with the
Limited Partnership Agreement. The Advisory Contracts may be
terminated by the Partnership with respect to any Advisor
individually upon written notice to the Advisor in the event
that (i) the Partnership assets allocated to the Advisor has
trading losses in excess of 30% of the assets originally
allocated to the Advisor; (ii) the Advisor is unable, to any
material extent, to use its agreed upon Trading Approach; (iii)
the Advisor's registration is revoked or not renewed; (iv) there
is unauthorized assignment of the Advisory Contract by the
Advisor; (v) the Advisor dissolves, merges, consolidates with
another entity, sells a substantial portion of its assets,
changes control, becomes bankrupt or insolvent or has a change
in executive officer; or (vi) the General Partners determine in
good faith that such termination is necessary for the protection
of the Partnership.
An Advisor may terminate the Advisory Contract at any time upon
written notice to the Partnership in the event that (i) its
continued trading on behalf of the Partnership would require the
Advisor to become registered as an investment advisor under the
Investment Advisors Act of 1940; (ii) assets in excess of 50% of
the initially allocated assets are reallocated from the Advisor;
(iii) the registration of either General Partner is revoked,
suspended, terminated or not renewed; (iv) the General Partners
elect to have the Advisor use a trading approach which is
different from that initially used; (v) the General Partners
override a trading instruction or impose additional trading
limitations; (vi) there is an unauthorized assignment of the
Advisory Contract by the General Partners; or (vii) other good
cause is shown to which the written consent of the General
Partners is also obtained. An Advisor may also terminate the
Advisory Contract on 60 days written notice to the General
Partners during any renewal term.
The Advisors will continue to advise other futures trading
accounts. The Advisors and their officers, directors and
employees also will be free to trade commodity interests for
their own accounts provided such trading is consistent with the
Advisors' obligations and responsibilities to the Partnership.
To the extent that the Advisors recommend similar or identical
trades to the Partnership and other accounts which they manage,
the Partnership may compete with those accounts for the execution
of the same or similar trades.
The Partnership pays JWH a monthly management fee of 1/3 of 1%
of the Partnership's Net Asset Value ("NAV") under management as
of the end of the month. Initially the Partnership paid Sabre a
monthly management fee of 1/3 of 1% of the month-end net assets
under management. Effective December 1, 1991, the Advisory
Contract with Sabre was changed to reduce management fees paid
to them to 1/6 of 1% of month-end net assets until such time as
the assets allocated to Sabre showed a profit of 25%. The
Partnership raised Sabre's management fee to 1/3 of 1% on
September 1, 1993 because the 25% profit was achieved.
Pursuant to an agreement between the Partnership and Sabre dated
December 26, 1995 and effective January 1, 1996, Sabre's monthly
management fee was again reduced from 1/3 of 1% to 1/6 of 1% of
the Partnership's Net Asset Value subject to Sabre's trading
performance. This reduction in management fees was to continue
until such time that the cumulative trading performance of Sabre
reached 40%. The General Partners elected not to renew the
Advisory Contract of Sabre and it expired on December 31, 1997.
Pursuant to an agreement between the Partnership and Welton, the
Partnership pays Welton a monthly management fee of 1/4 of 1% of
the month-end net asset value of the Partnership under its
management. The Partnership pays JWH (and Sabre up until
December 31, 1997) a quarterly incentive fee of 15% and pays
Welton a quarterly incentive fee of 18% of trading profits
achieved on the NAV of the Partnership allocated by the General
Partners to such Advisor's management. The calculation and
payment of such incentive fees shall not be affected by the
performance of any other Advisor.
The incentive fee is paid to an Advisor only when the
cumulative trading profits for assets allocated to that Advisor
at the end of a quarter exceed the highest previous cumulative
trading profits at the end of a quarter for which an incentive
fee was paid to that Advisor.
The Limited Partnership Agreement provides that (i) funds will
be invested only in futures contracts which are traded in
sufficient volume to permit, in the opinion of each Advisor,
ease of taking and liquidating positions; (ii) no Advisor will
establish futures positions in a commodity interest such that
the margin required for those positions, when added to that
required for existing positions for the same commodity interest,
would exceed 15% of the Partnership assets allocated to that
Advisor; (iii) it is expected that 20% to 60% of the Net Assets
of the Partnership will normally be committed to initial margin,
however, no Advisor may commit more that 66 2/3% of the assets
under its management to initial margins; (iv) the Partnership
will not generally
enter into an open position for a particular commodity interest
during a delivery month; (v) the Partnership may not trade in
securities or options on securities, commodity futures
contracts, or physical commodities unless such options have been
approved for trading on a designated contract market by the
CFTC; the Partnership may trade in foreign options if permitted
under the CE Act and CFTC regulations; the Partnership may
trade in futures contracts, futures contracts on foreign
currencies through foreign and domestic commodity exchanges and
forward contracts on foreign currencies; (vi) the Partnership
may not engage in pyramiding, but may employ spreads or
straddles; (vii) the Partnership's assets will not be commingled
with the assets of any other person; (viii) no Advisor will be
permitted to engage in churning the assets of the
Partnership; and (ix) no rebates or no give-ups may be paid to
or received by the General Partners. The Partnership will not
generally utilize borrowing except for short-term borrowing when
the Partnership takes delivery of a physical commodity.
Material changes in these trading policies must be approved by a
vote of a majority of the outstanding Limited Partnership Units.
The Partnership's net assets were deposited in the
Partnership's account with CIS, the Partnership's clearing
broker. CIS credits the Partnership at month end with interest
income on 100% of the Partnership's average monthly cash balance
at a rate equal to 80% of the average 90-day Treasury Bill rate
for Treasury Bills issued during the month. The organization
and offering expenses for the Partnership were advanced by the
General Partners. The General Partners began being reimbursed
for these expenses in March 1989 with payments at the end of
each month from interest income credited to the Partnership by
CIS.
The Partnership currently has no salaried employees and all
administrative services performed for the Partnership are
performed by the General Partners. The General Partners have no
employees other than their officers and directors, all of whom
are employees of the affiliated companies of the General
Partners.
The Partnership's business constitutes only one segment for
financial reporting purposes; it is a limited partnership whose
purpose is to trade, buy, sell, spread or otherwise acquire,
hold or dispose of commodity interests including futures
contracts, forward contracts, physical commodities and related
options thereon. The Partnership does not engage in the
production or sale of any goods or services. The objective of
the Partnership business is appreciation of its assets through
speculative trading in such commodity interests. Financial
information about the Partnership's business as of December 31,
1997 is set forth under Items 6 and 7 herein.
For a description of commodity trading and its regulation, see
the Registration Statement on Form S-1 included in the exhibits
hereto.
Competition
Each Advisor and its principals, affiliates and employees are
free to trade for their own accounts and to manage other
commodity accounts during the term of the Advisory Contract and
to use the same information and trading strategy which the
Advisor obtains, produces or utilizes in the performance of
services for the Partnership. To the extent that the Advisor
recommends similar or identical trades to the Partnership and
other accounts which it manages, the Partnership may compete
with those accounts for the execution of the same or similar
trades.
In addition, other trading advisors who are not affiliated with
the Partnership may utilize trading methods which are similar in
some respects to those methods used by the Partnership's
Advisors. These other advisors could also be competing with the
Partnership for the same or similar trades as requested by the
Partnership's Advisors.
Item 2. Properties
The Partnership does not utilize any physical properties in the
conduct of its business. The General Partners use the offices
of CIS and AXP Advisors, at no additional charge to the
Partnership, to perform their administration functions and the
Partnership uses the offices of CIS, at no additional charge to
the Partnership, as its principal administrative offices.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II
Item 5. Market for the Registrant's Units and Related Security
Holder Matters
(a) There is no established public market for the Units and
none is expected to develop.
(b) As of December 31, 1997, there were 18,556.44 Units held
by Limited Partners and 644.45 Units held by the General
Partners. A total of 1,617.25 Units had been redeemed by
Limited Partners during the period from January 1, 1997 to
December 31, 1997 (41,617.73 Units were redeemed prior to
calendar year 1997). The Partnership's Limited Partnership
Agreement (Exhibit 3.1 hereto) contains a full description of
purchase, redemptions and distribution procedures.
(c) To date no distributions have been made to partners in
the Partnership.
The Limited Partnership Agreement does not provide for regular
or periodic cash distributions, but gives the General Partners
sole discretion in determining what distributions, if any, the
Partnership will make to its partners. The General Partners
have not declared any such distributions to date and do not
currently intend to declare such distributions.
Item 6. Selected Financial Data
Year ended December 31,
1993 1994 1995 1996 1997
1. Operating Revenues(000) $4,715 $(508) $3,731 $3,870 $1,742
2. Income (Loss) From
Continuing Operations(000)3,312 (1,544) 2,690 2,566 657
3. Income (Loss) Per Unit 118.26 (61.10) 112.27 120.48 33.22
4. Total Assets(000) 11,883 9,434 11,190 13,360 12,558
5. Long Term Obligations 0 0 0 0 0
6. Cash Dividend Per Unit 0 0 0 0 0
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
Most United States commodity exchanges limit the amount of
fluctuation in commodity futures contract prices during a single
trading day by regulations. These regulations specify what are
referred to as "daily price fluctuation limits" or "daily
limits". The daily limits establish the maximum amount the price
of a futures contract may vary either up or down from the
previous day's settlement price at the end of a 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. Because the
"daily limit" rule only governs price movement for a particular
trading day, it does not limit losses. In the past, futures
prices have moved the daily limit for numerous consecutive
trading days and thereby prevented prompt liquidation of futures
positions on one side of the market, subjecting commodity
futures traders holding such positions to substantial losses for
those days.
It is also possible for an exchange or the CFTC to suspend
trading in a particular contract, order immediate settlement of
a particular contract, or direct that trading in a particular
contract be for liquidation only.
The Partnership's net assets are deposited in cash with CIS and
as long as CIS acts as the Partnership's clearing broker, the
Partnership will earn interest on 100% of the Partnership's
average monthly cash balance at a rate equal to 80% of the
average yield on the 90-day U.S. Treasury Bills issued during
that month. For the calendar year ended December 31, 1997 CIS
had paid or accrued to pay interest of $505,885 to the
Partnership. Similarly, for the calendar year ended December
31, 1996, CIS had paid or accrued to pay interest of $452,869 to
the Partnership.
The General Partners each contributed a total of $77,035 for
which they each received 322.2251 Units of Partnership interest.
The purchase of Units was set forth in the Prospectus to meet
the 1% minimum investment by the General Partners. The total
amount subscribed was contributed to the capital of the
Partnership.
The Limited Partners contributed a total of $15,406,999 for
which they received 61,791.42 Units of Partnership interest.
For the year ended December 31, 1997, investors redeemed a
total of 1,617.25 Units for $1,005,098. In 1996 investors
redeemed a total of 1,710.65 Units for $894,587.
On December 31, 1997, the Partnership had unrealized profits of
$636,775 and cash on deposit at CIS of $11,875,917. These
positions required margin deposits at CIS of $1,289,365. The
total balance of the Partnership's account was $12,512,692.
These figures compare to unrealized profits of $365, 959, cash
on deposit of $12,950,198, margin requirement of $906,578 and
total balance of the Partnership's account of $13,316,157 as of
December 31, 1996. On December 31, 1995, the Partnership had
unrealized profits of $565,658 and cash on deposit of
$10,585,211. These positions required margin requirements at
CIS of $1,204,662. The total balance of the Partnership's
account was $11,150,869.
During the fiscal year ended December 31, 1997, the Partnership
had no credit exposure to a counterparty which is a foreign
commodities exchange which was material.
The Partnership currently only trades on recognized global
futures exchanges. In the event the Partnership begins trading
over the counter contracts, any credit exposure to a
counterparty which exceeds 10% of the Partnership's total assets
will be disclosed.
See Footnote 5 of the Financial Statements for procedures
established by the General Partners to monitor and minimize
market and credit risks for the Partnership. In addition to the
procedures set out in Footnote 5, the General Partners review on
a daily basis reports of the Partnership's performance,
including monitoring of the daily net asset value of the
Partnership. The General Partners also review the financial
situation of the Partnership's Clearing Broker on a monthly
basis. The General Partners rely on the policies of the
Clearing Broker to monitor specific market risks. The Clearing
Broker does not engage in proprietary trading and thus has no
direct market exposure which provides the General Partners
assurance that the Partnership will not suffer trading losses
through the Clearing Broker.
Year 2000 Issue
The Partnership does not have any anticipated costs, problems
or uncertainties associated with the Year 2000 issue. The
Partnership relies on the General Partners to provide the
Partnership with certain calculations and reports, so if the
Year 2000 issue is material to the General Partners, then it may
impact the Partnership. However, the Year 2000 issue is not
material for the General Partners since the administration
software is currently being replaced and will be in compliance
with Y2000 prior to the end of 1998. In addition, the Clearing
Broker is undergoing an intensive review to determine what areas
(if any) are not in compliance with Y2000, and expects to be in
compliance by the end of 1998. Neither the software replacement
nor the compliance review are expected to be material or to
yield noncompliance issues that are material.
Results of Operations
The Partnership posted positive returns for 1997, 1996 and 1995.
In 1997 the global futures markets showed a great deal of
volatility and the Advisors were well positioned to profit from
several of these moves. The Partnership produced a net gain of
5.45% for the calendar year. The year 1997 was marked by
declining gold prices and interest rates around the globe and a
rising U.S. dollar relative to the German mark and Japanese yen.
The strength of these market moves proved beneficial to the
Partnership. The price of gold declined to the lowest level in
over a decade reflecting its declining value as an alternative
monetary asset as central banks increased their willingness to
sell or lease the precious metal. Solid gains were generated in
the global interest rate markets, particularly in the Japanese
Government bond where yields plummeted to historic lows as the
nation sank relentlessly into a recession. Strong gains were
also recorded in Australian 10-year bonds and 3-year notes and
in German and Italian bonds. Gains were realized in positions
in the German mark, which weakened in world markets as hopes for
European monetary union rose. The U.S. dollar dominated the
world currencies reflecting sound economic fundamentals in the
U.S. The Partnership benefited from the upward price movement
in natural gas during the summer and fall. However, energy
markets were disappointing as ample world inventories and mild
weather kept supply and demand in balance. In addition, losses
were incurred in agricultural markets, despite strong
performance by coffee futures earlier in the year. The
Partnership ended the year with a profit of $657,271.
In 1996 there were numerous opportunities in the global futures
markets and the Advisors were well-positioned to profit from
many of them. The Partnership produced a net gain of 24.6% for
the calendar year. The profits for the Partnership were made in
the latter part of the year in currencies, global interest
rates, energies and precious metals. The U.S. dollar reached a
ten-week high against the Japanese yen, the German mark and the
Swiss franc in September as sound economic fundamentals kept the
U.S. dollar strong against most of the major currencies. The
British pound was even stronger than the U.S. dollar as Europe
debated European Monetary Union issues and viewed the pound as a
safe haven. These factors led to excellent trends in the
currency markets and profitable trading. Signs of a slowing
U.S. economy drove the 30-year Treasury bond to its highest
level in six and one-half years. Foreign central banks were
heavy buyers of U.S. bonds, producing a nice profit for the
Partnership. In Asia, investors flocked to the higher-yielding
Australian bond as the yield on the Japanese Government bond was
at its lowest level in the nation's history. The Partnership
benefited handsomely from opposite positions in both the
Australian and Japanese bonds. The Partnership ended the year
with a profit of $2,566,229.
In 1995 the Advisors were well-positioned to capitalize on
many trading opportunities, especially in the financial sector,
which produced a net gain of 29.8% for the year. The first
quarter of the year was the most profitable for the Partnership.
The February collapse of Barings PLC created opportunities,
especially in the Far Eastern markets. The Barings demise had
a global effect, sending stock prices falling around the world
and driving investors toward the safety of German marks and U.S.
Treasury bonds. The German mark benefited substantially from
the uncertain state of many world economies and gained steadily
versus the U.S. and other European currencies. Long positions
in foreign exchange generated sizable gains, with positions in
the Japanese yen, yen bond and the Nikkei 225 being the most
favorable. The balance of the year was much quieter in terms of
market opportunities, trends and profits. The Partnership ended
the year with a profit of $2,690,340.
In addition to the above general analysis of the markets that
resulted in the trading gains of the Partnership, following is
an analysis of the changes in the various line items of the
financial statements which should enhance the readers
understanding of the results of the past fiscal year.
Both realized and unrealized trading gains contributed to the
profits of $657,000 recorded by the Partnership during 1997.
Despite these gains, however, redemptions during the year caused
the "Cash on deposit with the Clearing Broker" to decrease $1.1
million. This situation was different in 1996, however, when
trading gains exceeded redemptions by $1.7 million resulting in
a like increase in "Cash on deposit with the Clearing Broker".
Timing of the redemptions during 1997 was different than 1996,
so redemptions payable at the end of 1997 were $120,000 less
than at the end of 1996.
Due to the smaller gains enjoyed by the Partnership during the
year, and because the gains recorded in the last quarter of 1997
were significantly less than those in the last quarter of 1996,
"Accrued incentive fees" were $310,000 less in 1997 than in
1996. Total "Incentive fees" expense in 1997 was $280,000 less
than 1996 and $85,000 less than 1995. In addition to lower
incentive fees, the smaller profits earned by the Partnership
during the year allowed for lower "Operating expenses" and
"Accrued operating expenses" because there was a smaller income
tax liability for the state of Illinois from 1997 and there was
a reversal of an overaccrual of the tax liability from 1996.
The Partnership realized significantly less trading gains in
1997 when compared to 1996. Realized profits were reduced by
$2.5 million in those two periods and were reduced by $2 million
from the realized gains for the year of 1995. Unrealized
profits, however, were greater at the end of 1997 compared to
the end of 1996, showing a positive swing of $470,000 and even
showing a swing of a positive $250,000 from the 1995 results.
The dollar continued to strengthen compared to the other
currencies traded by the Partnership through 1997, causing a
loss of $205,000 during the year, compared to a loss of $34,000
in 1996 and a gain of $86,000 in 1995.
Inflation
Inflation does have an effect on commodity prices and the
volatility of commodity markets; however, continued inflation is
not expected to have a material adverse effect on the
Partnership's operations or assets.
Item 7(A). Quantitative and Qualitative Disclosures About Market
Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data
Reference is made to the financial statements and the notes
thereto appearing on Pages 24 through 33 of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
The Partnership is managed by its General Partners, IDS Futures
Corporation and CIS Investments, Inc. The officers and
directors of the General Partners as of December 31, 1997 were
as follows:
IDS Futures Corporation
Lori J. Larson (born in August 1958), President and Director.
Ms. Larson was elected President of IDS Futures Corporation
effective November 14, 1996, replacing Wendell L. Halvorson who
resigned as President. She has been employed by American
Express Financial Corporation since 1981 and currently holds the
title of Vice President. Since August 1988 she has been
responsible for day-to-day management of vendor relationships,
due diligence review and operational aspects for the limited
partnerships distributed by AXP Advisors. In addition, she has
responsibility for the product development of publicly offered
mutual funds in the IDS Mutual Fund Group. Ms. Larson has held
a variety of management positions with Axerican Express
Financial Corporation throughout her career. She is a graduate
of and has an M.B.A. from the University of Minnesota.
Lori J. Larson resigned as President and Director of IDS
Futures Corporation on January 20, 1998. Peter L. Slattery, a
Director of IDS Futures Corporation, replaced Ms. Larson as
President effective the same date.
Michael L. Weiner (born in July 1946), Vice President,
Secretary and Treasurer. Mr. Weiner is the Vice
President-Corporate Tax Operations of American Express Financial
Corporation. He has been employed by American Express Financial
Corporation since 1975. His responsibilities include research,
planning and compliance for the American Express Financial
Corporation corporate tax group. Mr. Weiner is also an officer
of AXP Advisors. Mr. Weiner graduated from the University of
Minnesota Law School in 1974 and completed the Masters of
Business Administration program at St. Thomas College of
Minnesota in 1979.
John M. Knight (born in February 1952), Vice President. Mr.
Knight has been employed by American Express Financial
Corporation since July 1975. He is currently
Controller-Variable Assets and Services, thus charged with
overall finance responsibilities for Mutual Funds, Limited
Partnerships, Variable Annuities, Retail Retirement Plans,
Personal Trust and Wealth Management Services. From 1981 to
March 1994 he held a number of positions in the IDS Certificate
Company, including Controller of that organization. Mr. Knight
is a graduate of the University of Wisconsin-Eau Claire and a
FLMI.
Peter J. Anderson (born in March 1942), Director. Mr. Anderson
is Chairman and Chief Investment Officer of IDS Advisory Group
Inc., as well as Senior Vice President - Investments and a
member of the board of directors of American Express Financial
Advisors Inc. Mr. Anderson joined IDS Advisory Group Inc. in
April 1982 as Senior Vice President - IDS Equity Advisors, a
division of IDS Advisory Group Inc. He became President of IDS
Advisory Group in January 1985. In July 1987 Mr. Anderson was
named Senior Vice President of American Express Financial
Advisors Inc. and at that point assumed responsibility for
common stock mutual funds. In January 1993 Mr. Anderson assumed
responsibility for the portfolio management, research and
economic functions of American Express Financial Advisors Inc.
Mr. Anderson has a B.A. from Yale University and an M.B.A. with
a major in finance from Wharton Graduate School.
Peter L. Slattery (born in July 1965), Director. Mr. Slattery
is the Director of Non-Proprietary Products for American Express
Financial Advisors, Variable Assets division. During his tenure
at AEFA, he has led the transition to multiple classes for the
IDS mutual fund line, developed five new retail funds and led
the creation of the flagship Flexible Portfolio Annuity. He
currently is responsible for all Non-proprietary relationships
involving products sold through AEFA's various distribution
channels. Mr. Slattery holds a BS from Babson College and an
MBA from the University of Colorado.
CIS Investments, Inc.
Hal T. Hansen (born in November 1936), President and Director.
Mr. Hansen has been President of Cargill Investor Services, Inc.
since November 1978. He serves on the Executive Committees of
the Board of Directors of the NFA and the Futures Industry
Association ("FIA") and is Chairman of the NFA. Mr. Hansen
graduated from the University of Kansas in 1958. He started
work at Cargill, Incorporated in 1958 and was employed by
Cargill S.A.C.I. in Argentina from 1965 to 1969. Mr. Hansen has
been employed by Cargill Investor Services, Inc. since 1974 and
has been President and Director of CISI since June 1983.
L. Carlton Anderson (born in August 1937), Vice President and
Director. Mr. Anderson is a graduate of Northwestern
University, Evanston, Illinois. He started working at Cargill,
Incorporated in 1959 in the Commodity Marketing Division. He
served as President of Stevens Industries Inc., Cargill's peanut
shelling subsidiary, from 1979 to 1981. He has been employed by
Cargill Investor Services, Inc. since 1981, is currently Vice
President of Cargill Investor Services, Inc., and has been Vice
President and Director of CISI since June 1983. Mr. Anderson
recently served on the Board of Directors of the Managed Futures
Association.
Richard A. Driver (born in September 1947), Vice President,
Treasurer and Director. Mr. Driver has served as Vice President
and Director of CISI since June 1993 and was elected Treasurer
of CISI in August 1997. Mr. Driver graduated from the
University of North Carolina in 1969 and received a Masters
Degree from American Graduate School of International Management
in 1973. Mr. Driver began working for Cargill, Incorporated in
1973 and joined Cargill Investor Services, Inc. in 1977 as Vice
President of Operations. Mr. Driver currently serves as Vice
President, Controller, Treasurer and Director of Cargill
Investor Services, Inc.
Jan R. Waye (born in June 1948), Senior Vice President. Mr.
Waye assumed the position of Senior Vice President of Cargill
Investor Services, Inc. in September 1996, after returning from
London where he held various management positions for Cargill
Investor Services, Ltd. including most recently Managing
Director for CIS Europe. He was appointed Senior Vice President
of CISI in June 1997. Mr. Waye joined Cargill, Incorporated in
1970 and served in various commodity trading and management
positions in Chesapeake, VA; Winnipeg, Manitoba; and Vancouver,
BC. In 1978 he moved to New York and shortly thereafter
Minneapolis as head of Foreign Exchange for Cargill's metals
trading business. This unit formed the nucleus of Cargill's
Financial Markets Group as it started operations in 1983. Mr.
Waye served in various management positions in the Financial
Markets Group until 1988 when he assisted in the management and
sale of Cargill's life insurance business in Akron, Ohio. He
moved to London in late 1988. Mr. Waye has served as a member
of the Board of LIFFE, the London International Financial
Futures and Options Exchange, and as Vice Chairman of its
Membership and Rules Committee. He also Served on the Board of
the London Commodity Exchange up to its merger with LIFFE. Mr.
Waye graduated from Concordia College, Moorhead, MN, with a B.A.
degree in Communications and Economics in 1970.
Christopher Malo (born in August 1956), Vice President. Mr.
Malo graduated from Indiana University in 1976. He started
working at Cargill, Incorporated in June 1978 as an internal
auditor. He transferred to Cargill Investor Services, Inc. in
August 1979 and served as Secretary/Treasurer from November 1983
until July 1991. He was elected as a Vice President in July
1991. He is a member of the FIA Operations Division and has
served as Chairman of the FIA Finance Committee.
Barbara A. Pfendler (born in May 1953), Vice President. Ms.
Pfendler graduated from the University of Colorado in 1975. She
has held various merchandising and management positions within
Cargill's Oilseed Processing Division before transferring to CIS
in 1986 as the Sales Manager for the Fund Services Group. She
was appointed Vice President of CISI in May 1990 and Vice
President of Cargill Investor Services, Inc. in June 1996. Ms.
Pfendler is currently the manager in charge of all activities of
the Fund Services Group at Cargill Investor Services, Inc.
Rebecca S. Steindel (born in April 1965), Secretary. Ms.
Steindel graduated from the University of Illinois in 1987. She
began working at Cargill Investor Services, Inc. in August 1987.
She has held various financial and risk management positions at
Cargill Investor Services, Inc. and was elected Risk and
Compliance Officer and Secretary of Cargill Investor Services,
Inc. in August 1997. Ms. Steindel was elected Secretary of CISI
in September 1997. She currently serves on the Board of
Directors and Executive Committee of the FIA Financial
Management Division.
Bruce H. Barnett (born in June 1947), Assistant Secretary. Mr.
Barnett graduated in 1968 from Southern Connecticut State
College. New York University Law School awarded Mr. Barnett a
J.D. in 1971 and an LL.M. in 1973. He started working at
Cargill, Incorporated in 1990 as Vice President, Taxes. From
1987 to 1990, Mr. Barnett was employed in various positions at
Unilever, a European based multinational corporation.
Henry W. Gjersdal, Jr. (born in May 1954), Assistant Secretary.
Mr. Gjersdal received a bachelor of arts degree from Gustavus
Adolphus College in 1976 and a J.D. degree from the University
of Michigan in 1979. He is a member of the American Bar
Association and the Tax Executives Institute. He joined the Law
Department of Cargill, Incorporated in April 1981. He had
previously been an associate with Doherty, Rumble and Butler,
Minneapolis, Minnesota. In June 1985 he was named European Tax
Manager for Cargill, International, Geneva, and in 1987 was
named Senior Tax Attorney for the Law Department. He became
Assistant Tax Director in the Tax Department in December 1990.
Mr. Gjersdal was named Assistant Vice President of Cargill,
Incorporated's Administrative Division in April 1994 with
responsibility for the audit and international groups in
Cargill's Tax Department and became Assistant Secretary of CISI
in June 1996.
Patrice H. Halbach (born in August 1953), Assistant Secretary.
Ms. Halbach graduated phi beta kappa from the University of
Minnesota with a bachelor of arts degree in history. In 1980
she received a J.D. degree cum laude from the University of
Minnesota. She is a member of the Tax Executives Institute, the
American Bar Association and the Minnesota Bar Association. Ms.
Halbach joined the Law Department of Cargill, Incorporated in
February 1983. She had previously been an attorney with
Fredrikson & Byron, Minneapolis, Minnesota. In December 1990
she was named Senior Tax Manager for Cargill, Incorporated's Tax
Department and became Assistant Tax Director in March 1993 and
was responsible for the oversight of federal audits and
international compliance. She was named Assistant Vice
President of Cargill, Incorporated's Administrative Division in
April 1994. She became Assistant Secretary of CISI in June
1996.
Each officer and director holds such office until the election
and qualification of his or her successor or until his or her
earlier death, resignation or removal.
Item 11. Executive Compensation
The Partnership has no officers or directors. The General
Partners, IDS Futures and CISI administer the business and
affairs of the Partnership (exclusive of Partnership trading
decisions which are made by independent commodity trading
advisors). The officers and directors of the General Partners
receive no compensation from the Partnership for acting in their
respective capacities with the General Partners.
All operating and administrative expenses attributable to the
Partnership are paid by the General Partners except for
brokerage commissions, NFA, clearing and exchange fees, advisory
fees, legal, accounting, auditing, printing, recording and
filing fees and postage charges which are paid directly by the
Partnership. All expenses other than brokerage commissions
incurred by the Partnership will be paid to persons not
affiliated with the Partnership.
CIS, an affiliate of CISI, is the Partnership's clearing
broker. During the year ended December 31, 1997, the
Partnership accrued and paid $496,134 in brokerage commissions
and exchange fees to CIS. Of these commissions, $37.25 per
round-turn trade is paid to AXP Advisors as the Partnership's
Introducing Broker and $21.50 is retained by CIS as Clearing
Broker.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
(a) As of December 31, 1997, no person was known to the
Partnership to own beneficially more than 5% of the
outstanding Units.
(b) As of December 31, 1997, the General Partners beneficially
owned 644.45 Units or approximately 3.36% of the Units
outstanding as of that date. In addition, Michael L. Weiner,
Vice President, Secretary and Treasurer of IDS Futures,
beneficially owned 1 of the outstanding Units.
(c) As of December 31, 1997, no arrangements were known to
the registrant, including any pledges by any person of
Units of the Partnership or shares of its General Partners
or the parents of the General Partners, such that a change
in control of the Partnership may occur at a subsequent date.
Item 13. Certain Relationships and Related Transactions
(a) None other than the compensation arrangements
described herein.
(b) None.
(c) None.
(d) Not Applicable.
Part IV
Item 14. Exhibits, Financial Statements Schedules and Reports on
Form 8-K
(a) The following documents are included herein:
(1) Financial Statements:
a. Report of Independent Public Accountants
b. Statements of Financial Condition as of
December 31, 1997 and 1996
c. For the years ended December 31, 1997, 1996
and 1995:
Statements of Operations
Statements of Changes in Partners' Capital
Statements of Cash Flows
d. Notes to Financial Statements
(2) All financial statement schedules have been omitted
either because the information required by the
schedules is not applicable or because the information
required is contained in the financial statements
included herein or the notes thereto.
(3) Exhibits:
See the Index to Exhibits annexed hereto.
(b) Reports on Form 8-K
(1) The following Form 8-K was filed with the Securities
and Exchange Commission on behalf of the
Partnership during the fiscal quarter ended December
31, 1997:
a) Form 8-K dated December 31, 1997 to report
that, in accordance with the terms of the
Advisory Contract between the Partnership
and Sabre Fund Management Limited, the
General Partners elected not to renew the
Advisory Contract and it expired on December
31, 1997.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: March 26, 1998 IDS Managed Futures II, L.P.
By: IDS Futures Corporation By: CIS Investments, Inc.
(General Partner) (General Partner)
By: /s/ Peter L. Slattery By: /s/ Hal T. Hansen
Peter L. Slattery Hal T. Hansen
President President
By: /s/ Michael L. Weiner By: /s/ Richard A. Driver
Michael L. Weiner Richard A. Driver
Vice President, Secretary and Vice President
Treasurer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
date indicated.
Date: March 26, 1998
/s/ Peter L. Slattery /s/ Hal T. Hansen
Peter L. Slattery Hal T. Hansen
Director and Presidet Director and President
/s/ Peter J. Anderson /s/ L. Carlton Anderson
Peter J. Anderson L. Carlton Anderson
Director Director and Vice President
/s/ Michael L. Weiner /s/ Richard A. Driver
Michael L. Weiner Richard A. Driver
Vice President, Secretary and Vice President and Treasurer
Treasurer
Index to Exhibits
Number Exhibit
3.1 Limited Partnership Agreement dated July 14, 1987.
(Incorporated by reference to the Post-Effective
Amendment No. 2 to the Registration Statement
No. 33-13939 declared effective on May 4, 1988).
10.1 Advisory Contract dated as of July 14, 1987 between
CIS Investments, Inc., IDS Futures Corporation,
IDS Managed Futures II, L.P., John W. Henry &
Company, Inc. and Sabre Fund Management Limited.
(Incorporated by reference to the Post-Effective
Amendment No. 2 to the Registration Statement No.
33-13939 declared effective on May 4, 1988).
10.2 Amended Advisory Contracts dated March 31, 1992
between CIS Investments, Inc., IDS Futures
Corporation, IDS Managed Futures II, L.P. and
each of John W. Henry & Company, Inc. and
Sabre Fund Management Limited.
10.3 Amended Advisory Contract dated April 30, 1996
between CIS Investments, Inc., IDS Futures
Corporation, IDS Managed Futures II, L.P., John W.
Henry & Company, Inc. and Sabre Fund Management
Limited.
10.4 Advisory Contract dated as of July 8, 1997 between
CIS Investments, Inc., IDS Futures Corporation,
IDS Managed Futures II, L.P. and Welton Investment
Corporation.
Index to Financial Statements
IDS Managed Futures II, L.P.
Report of Independent Public Accountants 24
Statements of Financial Condition as of
December 31, 1997 and 1996 25
Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 26
Statements of Changes in Partners' Capital for the
years ended December 31, 1997, 1996 and 1995 27
Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995 28
Notes to Financial Statements 29
Acknowledgment 33
Independent Auditors' Report
The Partners
IDS Managed Futures II, L.P.:
We have audited the accompanying statements of financial
condition of IDS Managed Futures II, L.P. (the Partnership) as
of December 31, 1997 and 1996, and the related statements of
operations, 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 IDS Managed Futures II, L.P. 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.
January 30, 1998
KPMG Peat Marwick LLP
IDS MANAGED FUTURES II, L.P.
Statements of Financial Condition
December 31, 1997 and 1996
Assets 1997 1996
------- -------
Equity in commodity futures trading accounts:
Cash on deposit with Clearing Broker $11,875,917 12,950,198
Unrealized gain on open futures and options contracts 636,775 365,959
---------- ----------
12,512,692 13,316,157
Interest receivable 45,359 43,968
----------- -----------
$12,558,051 13,360,125
========== ==========
Liabilities and Partners Capital
Liabilities:
Accrued commissions on open futures and options
contracts due to AXP Advisors and CIS 49,202 37,329
Accrued exchange, clearing, and NFA fees 932 775
Accrued management fees 37,769 40,724
Accrued incentive fees 44,664 356,409
Accrued operating expenses 47,272 75,887
Redemptions payable 38,606 161,568
---------- ----------
Total liabilities 218,445 672,692
Partners capital:
Limited partners (18,556.44 and 20,173.69 units outstanding
at December 31, 1997 and 1996, respectively) 11,925,442 12,294,671
General partners (644.45 units outstanding at December 31,
1997 and 1996) 414,164 392,762
---------- ----------
Total partners capital 12,339,606 12,687,433
----------- -----------
$12,558,051 13,360,125
========== ==========
See accompanying notes to financial statements.
IDS MANAGED FUTURES II, L.P.
Statements of Operations
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
------- ------- -------
Revenues:
Gain (loss) on trading of commodity futures contracts:
Realized gain on closed positions $1,170,528 3,650,325 3,155,319
Increase (decrease) in unrealized gain on open
futures contracts 270,816 (199,699) 19,036
Interest income 505,885 452,869 470,866
Foreign currency transaction gain (loss) (205,540) (33,881) 86,209
---------- ---------- ----------
Total revenues 1,741,689 3,869,614 3,731,430
Expenses:
Commission paid to AXP Advisors and CIS 496,134 443,885 340,999
Exchange, clearing, and NFA fees 11,108 9,629 6,116
Management fees 455,236 415,370 430,581
Incentive fees 101,866 384,059 185,847
Operating expenses 20,074 50,442 77,547
---------- ---------- ----------
Total expenses 1,084,418 1,303,385 1,041,090
---------- ---------- ----------
Net profit $657,271 2,566,229 2,690,340
========== ========== ==========
Profit per unit of limited partnership interest $33.22 120.48 112.27
Profit per unit of general partnership interest $33.22 120.48 112.27
See accompanying notes to financial statements.
IDS MANAGED FUTURES II, L.P.
Statements of Partners Capital
Years ended December 31, 1997, 1996, and 1995
Total
Limited General partners
Units* partners partners capital
---------- ---------- ---------- ----------
Balance at December 31, 1994 23,983.41 $9,034,378 242,763 9,277,141
Net profit 0 2,617,986 72,354 2,690,340
Redemptions (2,099.07) (951,690) 0 (951,690)
----------- ----------- ----------- -----------
Balance at December 31, 1995 21,884.34 10,700,674 315,117 11,015,791
Net profit 0 2,488,584 77,645 2,566,229
Redemptions (1,710.65) (894,587) 0 (894,587)
----------- ----------- ----------- -----------
Balance at December 31, 1996 20,173.69 12,294,671 392,762 12,687,433
Net profit 0 635,869 21,402 657,271
Redemptions (1,617.25) (1,005,098) 0 (1,005,098)
----------- ----------- ----------- -----------
Balance at December 31, 1997 18,556.44 $11,925,442 414,164 12,339,606
========== ========== ========== ==========
Net asset value per unit at December 31, 1997 $642.66 642.66
Net asset value per unit at December 31, 1996 $609.44 609.44
Net asset value per unit at December 31, 1995 $488.96 488.96
*Units of limited partnership interest
See accompanying notes to financial statements.
IDS MANAGED FUTURES II, L.P.
Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
1997 1996 1995
------- ------- -------
Cash flows from operating activities:
Net profit $657,271 2,566,229 2,690,340
Adjustments to reconcile net profit to net
cash provided by operating activities:
Change in assets and liabilities:
(Increase) decrease in unrealized gain on open
futures contracts (270,816) 199,699 (19,036)
Decrease in interest receivable (1,391) (4,380) (1,973)
Increase (decrease) in accrued liabilities (331,285) 356,365 44,556
----------- ----------- -----------
Net cash provided by operating activities 53,779 3,117,913 2,713,887
Cash flows used in financing activities:
Limited partner redemptions (1,128,060) (752,926) (978,820)
----------- ----------- -----------
Net increase (decrease) in cash (1,074,281) 2,364,987 1,735,067
Cash at beginning of year 12,950,198 10,585,211 8,850,144
----------- ----------- -----------
Cash at end of year $11,875,917 12,950,198 10,585,211
========== ========== ==========
See accompanying notes to financial statements.
(1) General Information and Summary
IDS Managed Futures II, L.P. (the Partnership), a limited
partnership organized in April 1987 under the Delaware Revised
Uniform Limited Partnership Act, was formed to engage in the
speculative trading of commodity interests including futures
contracts, forward contracts, physical commodities, and related
options thereon pursuant to the trading instructions of
independent trading advisors. The General Partners are IDS
Futures Corporation and CIS Investments, Inc. The clearing
broker is Cargill Investor Services, Inc. (Clearing Broker or
CIS), the parent company of CIS Investments, Inc.
The Partnership shall be terminated on December 31, 2007 if
none of the following occur prior to that date: (1) investors
holding more than 50% of the outstanding units notify the
General Partners to dissolve the Partnership as of a specific
date; (2) disassociation of the General Partners with the
Partnership; (3) bankruptcy of the Partnership; (4) decrease in
the net asset value to less than $1,500,000; (5) the Partnership
is declared unlawful; or (6) the net asset value per unit
declines to less than $125 per unit and the partners elect to
terminate the Partnership.
(2) Summary of Significant Accounting Policies
The accounting and reporting policies of the Partnership
conform to generally accepted accounting principles and to
general practices within the commodities industry. The
following is a description of the more significant of those
policies which the Partnership follows in preparing its
financial statements.
Revenue Recognition
Commodity futures contracts, forward contracts, physical
commodities, and related options are recorded on the trade date.
All such transactions are reported on an identified cost basis.
Unrealized gains and losses reflected in the statements of
financial condition represent the difference between original
contract amount and market value (as determined by exchange
settlement prices for futures contracts and related options and
cash dealer prices at a predetermined time for forward
contracts, physical commodities, and their related options) as
of the last business day of the year or as of the last date of
the financial statements.
The Partnership earns interest on 100% of the Partnership's
average monthly cash balance on deposit with the Clearing Broker
at a rate equal to 80% of the average 90-day treasury bill rate
for U.S. Treasury bills issued during that month.
Redemptions
A Limited Partner may cause any or all of his or her units to
be redeemed by the Partnership effective as of the last trading
day of any month. Redemptions are based on the Net Asset Value
per unit as of the last day of the month and require ten days'
written notice to the General Partners. Payment will be made
within ten business days of the effective date of the
redemption. The Partnership's Limited Partnership Agreement
contains a full description of redemption and distribution
procedures.
Commissions
Brokerage commissions and National Futures Association (NFA)
clearing and exchange fees are accrued on a round-turn basis on
open commodity futures contracts. The Partnership pays CIS
commissions on trades executed on its behalf at a rate of $58.75
per round-turn contract. For trades executed by Welton
Investment Corporation, the Partnership pays $43.75 per round
turn contract. The Partnership pays these commissions directly
to CIS and CIS then reallocates the appropriate portion to
American Express Financial Advisors Inc. (AXP Advisors).
Foreign Currency Transactions
Trading accounts in foreign currency denominations are
susceptible to both movements in underlying contract markets as
well as fluctuations in currency rates. Translation of foreign
currencies into U.S. dollars for closed positions are translated
at an average exchange rate for the year while year-end balances
are translated at the year-end currency rates. The impact of
the translation is reflected in the statements of operations.
Statements of Cash Flows
For purposes of the statements of cash flows, cash represents
cash and cash on deposit with the Clearing Broker in commodity
futures trading accounts.
Use of 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 increase and decrease in net assets from
operations during the period. Actual results could differ from
those estimates.
(3) Fees
Management fees are accrued and paid monthly and incentive fees
are accrued monthly and paid quarterly. Trading decisions for
the periods of these financial statements were made by the
following Commodity Trading Advisors (CTAs): Sabre Fund
Management Limited (Sabre); John W. Henry & Company, Inc. (JWH);
and Welton Investment Corporation (Welton).
Under signed agreement for the periods presented prior to
January 1, 1996, Sabre received a monthly management fee of 1/3
of 1% of the month-end net asset value of the Partnership under
their management and 15% of the Partnership's net trading
profits, if any, in each quarter attributable to their trading.
Effective January 1, 1996, the agreement with Sabre was changed
to reduce the management fees paid to them to 1/6 of 1% of the
month-end net assets. The agreement with Sabre, which expired
on December 31, 1997, was not renewed.
Under signed agreement, JWH will receive a monthly management
fee of 1/3 of 1% of the month-end net asset value of the
Partnership under its management and 15% of the Partnership's
net trading profits, if any, attributable to its management.
Under signed agreement dated July 8, 1997, Welton will receive
a monthly management fee of 1/4 of 1% of the month-end net asset
value of the Partnership under its management and 18% of the
Partnership's net trading profits, if any, attributable to its
management.
(4) Income Taxes
No provision for Federal income taxes has been made in the
accompanying financial statements as each partner is responsible
for reporting income (loss) based on the pro rata share of the
profits or losses of the Partnership. The Partnership is
responsible for the Illinois State Partnership Information and
Replacement Tax based on the operating results of the
Partnership. Such tax amounted to $9,828, $38,387, and $57,567
for the years ended December 31, 1997, 1996, and 1995
respectively, and is included in operating expenses in the
statements of operations.
(5) Financial Instruments with Off-balance Sheet Risk
The Partnership was formed to speculatively trade commodity
interests. The Partnership's commodity interest transactions
and related cash balances are on deposit with the Clearing
Broker at all times. In the event that volatility of trading of
other customers of the Clearing Broker impaired the ability of
the Clearing Broker to satisfy its obligations to the
Partnership, the Partnership would be exposed to off-balance
sheet risk. Such risk is defined in Statement of Financial
Accounting Standards No. 105 (SFAS 105) as a credit risk. To
mitigate this risk, the Clearing Broker, pursuant to the
mandates of the Commodity Exchange Act, is required to maintain
funds deposited by customers, relating to futures contracts in
regulated commodities, in separate bank accounts which are
designated as segregated customers' accounts. In addition, the
Clearing Broker has set aside funds deposited by customers
relating to foreign futures and options in separate bank
accounts which are designated as customer secured accounts.
Lastly, the Clearing Broker is subject to the Securities and
Exchange Commission's Uniform Net Capital Rule, which requires
the maintenance of minimum net capital at least equal to 4% of
the funds required to be segregated pursuant to the Commodity
Exchange Act. The Clearing Broker has controls in place to make
certain that all customers maintain adequate margin deposits for
the positions which they maintain at the Clearing Broker. Such
procedures should protect the Partnership from the off-balance
sheet risk as mentioned earlier. The Clearing Broker does not
engage in proprietary trading and thus has no direct market
exposure.
The contractual amounts of commitments to purchase and sell
exchange traded futures contracts were $35,623,858 and
$59,633,383, respectively, on December 31, 1997; and $57,080,833
and $75,253,183, respectively, on December 31, 1996. The
contractual amounts of these instruments reflect the extent of
the Partnership's involvement in the related futures contracts
and do not reflect the risk of loss due to counterparty
nonperformance. Such risk is defined by SFAS 105 as credit
risk. The counterparty of the Partnership for futures contracts
traded in the United States and most non-U.S. exchanges on which
the Partnership trades is the Clearing House associated with the
exchange. In general, Clearing Houses are backed by the
membership and will act in the event of nonperformance by one of
their members or one of the members' customers and as such
should significantly reduce this credit risk. In the cases
where the Partnership trades on exchanges on which the Clearing
House is not backed by the membership, the sole recourse of the
Partnership for nonperformance will be the Clearing House.
The average fair value of commodity interests was $720,402 and
$1,031,060 during 1997 and 1996, respectively. Fair value as of
December 31, 1997 and 1996 was $636,775 and $365,959. The net
gains or losses arising from the trading of commodity interests
are presented in the statement of operations.
The Partnership holds futures and futures options positions on
the various exchanges throughout the world. The Partnership
does not trade over the counter contracts. As defined by SFAS
105, futures positions are classified as financial instruments.
SFAS 105 requires that the Partnership disclose the market risk
of loss from all of its financial instruments. Market risk is
defined as the possibility that future changes in market prices
may make a financial instrument less valuable or more onerous.
If the markets should move against all of the futures positions
held by the Partnership at the same time, and if the markets
moved such that the CTAs were unable to offset the futures
positions of the Partnership, the Partnership could lose all of
its assets and the partners would realize a 100% loss. As of
December 31, 1997, the Partnership has contracts with two CTAs
who make the trading decisions. One of the CTAs trades a
program which is diversified among all commodity groups, while
the other is diversified among the various futures contracts in
the financial and metals group. Both traders trade on U.S. and
non-U.S. exchanges. Such diversification should greatly reduce
this market risk.
At December 31, 1997, the cash requirement of the commodity
interests of the Partnership was $1,289,365. This cash
requirement is met by $10,885,627 held in segregated funds and
$1,627,065 held in secured funds. At December 31, 1996, the
cash requirement of the commodity interests of the Partnership
of $906,578 was met by $11,641,297 being held in segregated
funds and $1,674,860 being held in secured funds. At December
31, 1997 and 1996, cash was on deposit with the Clearing Broker
which exceeded the cash requirement amount.
The following chart discloses the dollar amount of the
unrealized gain or loss on open contracts related to exchange
traded contracts for the Partnership at December 31, 1997 and
1996:
Commodity Group 1997 1996
Agricultural $ 77,847 6,550
Currency 57,907 279,087
Stock Indices 67,958 51,489
Energies 13,762 5,057
Metals 318,096 108,338
Interest 101,205 (84,562)
Total $ 636,775 365,959
The range of maturity dates of these exchange traded open
contracts is January 1998 to December 1998.
Acknowledgment
To the best of my knowledge and belief, the information
contained herein is accurate and complete.
/s/ Richard A. Driver
Richard A. Driver
Treasurer, CIS Investments, Inc.,
one of the General Partners and
Commodity Pool Operators of
IDS Managed Futures II, L.P.
EXHIBIT 10.2
Amendment to the IDS Managed Futures II, L.P.
Advisory Contract Dated July 14, 1987
John W. Henry & Co, Inc., a California corporation (JWH), IDS
Managed Futures II, L.P., a Delaware limited partnership (the
Partnership), CIS Investments, Inc., a Delaware corporation
(CISI) and IDS Futures Corporation, a Minnesota corporation (IDS
Futures), hereby agree to the following amendments to that
certain Advisory Contract dated July 14, 1987 (the Agreement) by
and among JWH, the Partnership, CISI, IDS Futures, Sabre Fund
Management, Ltd. and certain other parties who shall not be
parties to this Amendment as of this 31st day of March, 1992.
All terms and conditions of the Agreement shall remain in full
force and effect after adoption of this Amendment unless
expressly and specifically amended hereby, and all references
hereafter to the Agreement shall be deemed references to the
Agreement as amended hereby. The purpose of this Amendment is
to institute the changes contained herein for the purpose of
continuing the service of JWH for the Partnership after March
31, 1992. Any capitalized terms used herein and not
specifically defined herein shall have the meanings ascribed to
such terms in the Agreement.
1. Under Section 1., Duties of the Advisors, with respect to
JWH, the sixth paragraph shall be deleted and a new sixth
paragraph shall be inserted to replace the deleted paragraph and
shall read as follows:
Neither JWH nor any employee, director, officer or shareholder
of JWH or any person who controls or who is controlled by JWH,
shall be liable to the General Partners, their officers,
directors, shareholders or employees, or the Partnership, its
partners or any of their successors or assigns under this
Agreement, except by reason of acts or omissions in
contravention of the express terms of this Agreement or due to
their misconduct or negligence or by reason of not having acted
in good faith in the reasonable belief that such actions or
omissions were in, or not opposed to, the best interest of the
Partnership; provided, however, that John W. Henry shall have no
liability to the Partnership or the General Partners under this
Agreement or in connection with the transactions contemplated by
this Agreement except for fraud or willful misconduct by John W.
Henry; it being further understood that, without limiting JWH's
liability hereunder, trading profits or losses incurred on
behalf of the Partnership shall be for the account of the
Partnership and JWH shall not incur any liability for such
profits or losses provided JWH would not otherwise be liable to
the Partnership under the terms hereof.
2. Under Section 1., Duties of the Advisors, with respect to
JWH, a new paragraph shall be added which shall immediately
follow the second paragraph and shall read as follows:
Should the General Partners, in their sole discretion, override
any trading instructions issued by JWH for any reason other than
a determination that the trading instructions issued by JWH
violate the Partnership's trading policies or limitations, the
General Partners agree that any trading profits or losses
incurred on behalf of the Partnership as a result of the actions
of the General Partners to override JWH's trading instructions
shall be for the account of the Partnership and JWH shall incur
no liability for such profits and losses.
2. Under Section 4., Commodity Broker, with respect to JWH,
the first paragraph shall be modified by the addition of the
following:
Notwithstanding the foregoing, JWH may place trading orders for
the Partnership with floor brokers selected by JWH; any trades
so executed for the benefit of the Partnership shall be given-up
to such broker or brokers as the General Partners shall approve.
Expenses of give-ups shall be borne by the Partnership up to a
maximum of $ per round-turn on average or a reasonable amount
mutually agreed to.
3. Under Section 5., Fees, with respect to JWH, the following
paragraph shall be added as the last paragraph in this Section:
In addition, if the amount of assets allocated to JWH's
management is reduced, whether due to redemptions, distributions
or reallocations, there will be a proportionate reduction in the
related loss carryforward amount, the amount of which shall be
determined by multiplying the amount of the loss carryforward by
a fraction, of which the numerator shall be the amount of the
reduction in the assets allocated to JWH's management and the
denominator shall be the amount of the assets allocated to JWH's
management immediately prior to the reduction.
4. Under Section 6., Terms and Termination, the first
paragraph shall be deleted and a new first paragraph shall be
inserted to replace the deleted paragraph and shall read as
follows:
The term of the Agreement as hereby amended shall commence on
the date that the Agreement would have expired had this
amendment not been executed, and unless sooner terminated, shall
continue in effect until the close of business on the last day
of the month ending twelve full months thereafter. This
Agreement shall automatically renew with respect to each Advisor
on the same terms as set forth herein for three additional
twelve month terms unless the Partnership shall give to an
Advisor written notice that it does not elect to renew the
Agreement at least 45 days prior to the termination of the
then-current twelve-month period. This renewal right shall be
applicable irrespective of any change in Advisors or any
reallocation of Partnership assets among Advisors or to other
trading advisors by the Partnership.
5. Under Section 6., Terms and Termination, with respect to
JWH, the third paragraph shall be modified by the addition of
the following:
In addition, JWH has the right to terminate this Agreement as to
itself (without affecting the continuation of this Agreement
with the other Advisor) at any time, upon written notice to the
Partnership in the event (i) of the receipt by JWH of an opinion
of independent counsel that solely by reason of JWH's activities
with respect to the Partnership, it is required to register as
an investment advisor under the Investment Advisers Act of 1940;
(ii) that the Net Asset Value of Partnership assets under JWH's
management decreases by more than 50% from the time trading
commences solely as a result of a reallocation of Partnership
assets pursuant to Section 7 of this Agreement (i.e., not
including any decrease attributable to losses on commodity
interest transactions directed by such Advisor) immediately
following any such reallocation; (iii) that the registration of
either General Partner as a commodity pool operator under the CE
Act, or its NFA membership as a commodity pool operator is
revoked, suspended, terminated or not renewed; (iv) that the
General Partners elect (pursuant to Section 1 of this Agreement)
to have JWH use a different Trading Approach in such Advisor's
management of its allocable share of Partnership assets from
that which JWH is then using and JWH objects to using such
different Trading Approach; (v) that the General Partners
override a trading instruction to JWH pursuant to Section 1 of
this Agreement for reasons unrelated to a determination by the
General Partners that JWH has violated the Partnership's trading
policies or limitations; (vi) that the General Partners impose
additional trading limitation(s) pursuant to Section 1 of this
Agreement which JWH does not agree to follow in the management
of its allocable share of partnership assets; (vii) that JWH has
the right to terminate this Agreement pursuant to Section 7 of
the Representation Agreement; (iii) there is an unauthorized
assignment of this Agreement by the General Partners of the
Partnership; or (ix) other good cause shown to which the written
consent of the General Partners is obtained. JWH may also
terminate this Agreement at any time upon 60 days' written
notice to the General Partners.
6. Under Section 8., Other Accounts of the Advisors, with
respect to JWH, the third paragraph, as stated below, shall be
deleted from the Agreement:
Each Advisor agrees that it will (i) notify the General Partners
of any net additional capital contributions placed under such
Advisor's management during any period that such Advisor is
acting as an Advisor, at such time as the aggregate amount of
such additional capital contributions, since the time of the
immediately preceding notice given pursuant to this paragraph,
exceeds $10,000,000 monthly in total (exclusive of the
Partnership) or (ii) provide the General Partners with updated
monthly reports as promptly as practicable.
7. With respect to JWH, a new Section 24 titled
Acknowledgments shall be added to the Agreement and shall read
as follows:
The General Partners acknowledge that they have received the
commodity trading advisor disclosure document of JWH. The
General Partners further acknowledge that JWH uses different
proprietary trading programs and that these different trading
programs may achieve different trading results.
8. The parties restate and confirm the accuracy as of the date
hereof of the representations made by each of them in Sections
11 or 12 of the Agreement.
9. This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original and all of which, when
taken together, shall constitute one original instrument.
10. This Amendment and the applicable provisions of the
Agreement not expressly and specifically amended hereby together
constitute the entire agreement among the parties with respect
to the matters referred to herein and therein, and no other
agreement, verbal or otherwise, shall be binding upon the
parties hereto.
IDS Managed Futures II, L.P.
CIS Investments, Inc.
General Partner
By:
Title:
IDS Futures Co.,
General Partner
By:
Title:
John W. Henry & Co., Inc.
By:
Title:
CIS Investments, Inc.
By:
Title:
IDS Futures Corporation
By:
Title:
EXHIBIT 10.2
Amendment to the IDS Managed Futures II, L.P.
Advisory Contract Dated July 14, 1987
Sabre Fund Management, Ltd., a limited liability company
organized under the laws of England (Sabre), IDS Managed Futures
II, L.P., a Delaware limited partnership (the Partnership), CIS
Investments, Inc., a Delaware corporation (CISI) and IDS Futures
Corporation, a Minnesota corporation (IDS Futures), hereby agree
to the following amendments to that certain Advisory Contract
dated July 14, 1987 (the Agreement) by and among Sabre, the
Partnership, CISI, IDS Futures, John W. Henry & Co., Inc. and
certain other parties who shall not be parties to this Amendment
as of this 31st day of March, 1992. All terms and conditions of
the Agreement shall remain in full force and effect after
adoption of this Amendment unless expressly and specifically
amended hereby, and all references hereafter to the Agreement
shall be deemed references to the Agreement as amended hereby.
The purpose of this Amendment is to institute the changes
contained herein for the purpose of continuing the service of
Sabre for the Partnership after March 31, 1992. Any capitalized
terms used herein and not specifically defined herein shall have
the meanings ascribed to such terms in the Agreement.
1. Under Section 5., Fees, with respect to Sabre, the first
paragraph shall be deleted and a new first paragraph shall be
inserted to replace the deleted paragraph and shall read as
follows:
In consideration of and in compensation for the performance of
Sabre's services under this Agreement, the Partnership agrees
that it will pay the following: (i) a monthly management fee
equal to 1/6 of 1% of the Partnership's Net Asset Value (as
hereinafter defined) under the management of Sabre as of the end
of each month until such time that the Trading Profits achieved
on the Partnership's Net Asset Value under the management of
Sabre reaches 25% of the sum of the Net Asset Value of the
Partnership's funds allocated to Sabre by the Partnership on the
date the Partnership commenced trading plus the Net Asset Value
of any funds allocated to Sabre thereafter (after adding back
all redemptions and distributions in respect of such assets),
and, thereafter a monthly management fee equal to 1/3 of 1% of
the Partnership's Net Asset Value under the management of Sabre
as of the end of each month; and (ii) a quarterly incentive fee
of fifteen percent (15%) of Trading Profits (as hereinafter
defined) on the Net Asset Value (as hereinafter defined) of the
Partnership assets allocated by the General Partners to Sabre's
management. Trading Profits shall be computed as of the close
of trading on the last day of each calendar quarter (March 31,
June 30, September 30, and December 31). Trading Profits shall
be computed solely on the performance of Sabre and shall not
include or be affected by the performance of any other Advisor.
Payment of the management fee and of the incentive fee shall be
made as soon as practicable following the end of the period to
which they relate. The management fee shall be paid monthly and
deducted prior to the calculation of the quarterly incentive fee.
2. Under Section 6., Terms and Termination, the first paragraph
shall be deleted and a new first paragraph shall be inserted to
replace the deleted paragraph and shall read as follows:
The term of the Agreement as hereby amended shall commence on
the date that the Agreement would have expired had this
Amendment not been executed, and unless sooner terminated, shall
continue in effect until the close of business on the last day
of the month ending twelve full months thereafter. This
Agreement shall automatically renew with respect to each Advisor
on the same terms as set forth herein for three additional
twelve month terms unless the Partnership shall give to an
Advisor written notice that it does not elect to renew the
Agreement at least 45 days prior to the termination of the
then-current twelve-month period. This renewal right shall be
applicable irrespective of any change in Advisors or any
reallocation of Partnership assets among Advisors or to other
trading advisors by the Partnership.
3. Under Section 16., Notices, with respect to Sabre, the
final paragraph of the Section is hereby amended as follows:
For purposes of this Agreement, Sidley & Austin, Chicago,
Illinois shall be the agent of Sabre for accepting delivery and
service of any notice required to be delivered under this
Agreement and for services or process in any proceeding arising
hereunder. Any such notice or service or process shall be
deemed given by the party required to provide notice to Sabre
when received by Sidley & Austin, Chicago, Illinois, and shall
be delivered personally or by registered mail, postage prepaid,
return receipt requested, as follows (or to such other agent as
Sabre shall hereafter designate by written notice to the other
parties, provided, however, that such other agent is located in
the continental United States):
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: David Sawyier
4. The parties restate and confirm the accuracy as of the date
hereof of the representations made by each of them in Sections
11 or 12 of the Agreement.
5. This Amendment may be executed in one or more counterparts,
each of which shall be deemed an original and all of which, when
taken together, shall constitute one original instrument.
6. This Amendment and the applicable provisions of the
Agreement not expressly and specifically amended hereby together
constitute the entire agreement among the parties with respect
to the matters referred to herein and therein, and in no other
agreement, verbal or otherwise, shall be binding on the parties
hereto.
IDS Managed Futures II, L.P.
CIS Investments, Inc.
General Partner
By:
Title:
IDS Futures Corporation,
General Partner
By:
Title:
CIS Investments, Inc.
By:
Title:
IDS Futures Corporation
By:
Title:
Sabre Fund Management, LTD.
By:
Title:
EXHIBIT 10.3
Amendment to the IDS Managed Futures II, L.P.
Advisory Contract Dated July 14, 1987
John W. Henry & Co., Inc., a California corporation (JWH),
Sabre Fund Management, Ltd., a limited liability company
organized under the laws of England (Sabre), IDS Managed Futures
II, L.P., a Delaware limited partnership (the Partnership), IDS
Futures Corporation, a Minnesota corporation (IDS Futures) and
CIS Investments, Inc., a Delaware corporation (CISI), hereby
agree to the following amendment to that certain Advisory
Contract dated July 14, 1987, as amended by those certain
Amendments to the IDS Managed Futures II, L.P. Advisory Contract
dated as of March 31, 1992 (the Advisory Contract and the
Amendments thereto are hereinafter referred to as the Agreement)
by and among JWH, Sabre, the Partnership, IDS Futures and CISI
as of this day April 30, 1996. All terms and conditions of the
Agreement shall remain in full force and effect after adoption
of this Amendment unless expressly and specifically amended
hereby, and all references to the Agreement shall be deemed
references to the Agreement as amended hereby. The purpose of
this Amendment is to extend the term of the Agreement. Any
capitalized terms used herein and not specifically defined
herein shall have the meanings ascribed to such terms in the
Agreement.
1. Under Section 6, Terms and Termination, the first
paragraph shall be deleted and a new first paragraph shall be
inserted to replace the deleted paragraph and shall read as
follows:
The term of the Agreement as hereby amended shall be deemed to
have commenced on the date that the Agreement would have expired
had this Amendment not been executed, and unless sooner
terminated, shall continue in effect until December 31, 1996.
This Agreement shall automatically renew with respect to each
Advisor on the same terms as set forth herein for three
additional twelve month terms beginning January 1 and ending
December 31 unless the Partnership shall give to an Advisor
written notice that it does not elect to renew the Agreement at
least 45 days prior to the termination of the then-current
twelve-month period. This renewal right shall be applicable
irrespective of any change in Advisors or any reallocation of
Partnership assets among Advisors or to other trading advisors
by the Partnership.
2. This Amendment may be signed in multiple counterparts, all
of which, when taken together shall constitute one document.
3. The parties restate and confirm the accuracy as of the date
hereof of the representations made by each of them in Section 11
and Section 12 of the Agreement.
4. This Amendment and the applicable provisions of the
Agreement not expressly and specifically amended hereby together
constitute the entire agreement among the parties with respect
to the matters referred to herein and therein, and no other
agreement, verbal or otherwise, shall be binding upon the
parties hereto.
IDS Managed Futures II, L.P.
CIS Investments, Inc.
General Partner
By
Its
IDS Futures Corporation
General Partner
By
Its
CIS Investments, Inc. .
By
Its
IDS Futures Corporation
By
Its
Sabre Fund Management Limited
By
Its
John W. Henry & Company, Inc.
By
Its
Exhibit 10.4
Advisory Contract
This Advisory Contract is made and entered into as of the 8th
day of July, 1997 (the Agreement), by and among IDS Managed
Futures II, L.P., a Delaware limited partnership (the
Partnership), IDS Futures Corporation, a Minnesota corporation
(IDS Futures), CIS Investments, Inc., a Delaware corporation
(CISI) (IDS Futures and CISI are collectively referred to as the
General Partners and individually referred to as a General
Partner) and Welton Investment Corporation, a Delaware
corporation (Welton);
Witnesseth:
Whereas, the Partnership was organized primarily for the purpose
of trading, buying, selling, spreading or otherwise acquiring,
holding or disposing of commodity futures contracts on U.S.
exchanges and, in addition, from time to time the Partnership
also may engage in transactions in futures contracts on foreign
exchanges, forward contracts, options on commodity futures
contracts and physical commodities on U.S. exchanges and other
commodity interests (collectively Commodities); and
Whereas, the General Partners desire to utilize the services of
Welton in connection with the commodity trading activities of
the Partnership; and
Whereas, Welton is registered as a commodity trading advisor
under the Commodity Exchange Act, as amended (CE Act), and is a
member of the National Futures Association (NFA) as a commodity
trading advisor (CTA) and will maintain such registration and
membership for the term of this Agreement; and
Whereas, the Partnership and Welton desire to enter into this
Agreement in order to set forth the terms and conditions upon
which Welton will render and implement commodity advisory
services in connection with the conduct by the Partnership of
its commodity trading activities during the term of this
Agreement;
Now, Therefore, in consideration of the mutual covenants and
conditions hereinafter set forth, the parties hereto hereby
agree as follows:
1. Duties of the Advisor. The Partnership hereby appoints
Welton as its exclusive attorney-in-fact to invest and reinvest
in Commodities the assets of the Partnership which the General
Partners allocate to Welton on the terms and conditions set
forth herein. This limited power-of-attorney is a continuing
power and shall continue in effect with respect to Welton until
terminated hereunder. To this end, Welton (i) agrees to act as
one of the commodity trading advisors employed by the General
Partners on behalf of the Partnership, and specifically, to
exercise discretion with respect to that portion of the assets
of the Partnership which the General Partners allocate to
Welton's management upon the terms and conditions, and for the
purposes, set forth in this Agreement, and (ii) shall have sole
authority and responsibility for directing the investment and
reinvestment of the Partnership's assets allocated to it in
Commodities for the term of this Agreement pursuant to Welton's
trading systems, methods and strategies included in Welton's
Diversified Portfolio, a description of which is attached hereto
as Exhibit A and hereby made a part hereof (hereinafter referred
to as Welton's ading Approach). To the extent that assets of
the Partnership are invested in United States Treasury bills or
other investments approved by the Commodity Futures Trading
Commission (CFTC) for the investment of customer funds or are
held in cash, the General Partners will have the responsibility
for the management thereof in investments other than
Commodities. Welton will use its good faith best efforts in
determining the investment and reinvestment of the Partnership's
assets allocated to it in compliance with the Partnership's
Trading Policies and limitations as set forth in Exhibit B
attached hereto and hereby made a part hereof (hereinafter
referred to as the Trading Policies), and in accordance with
Welton's Trading Approach, and, to the extent Welton is notified
thereof and (except as set forth in the last sentence of this
paragraph) agrees thereto, in accordance with revisions to such
Trading Policies and limitations made by the General Partners
(each using its good faith business judgment) in accordance with
the terms of this Agreement. In the event that the General
Partners shall, in their sole discretion, determine that any
trading instruction issued by Welton violates the Partnership's
Trading Policies or limitations, or for any other reason, is not
in the best interests of the Partnership, then the General
Partners may override such trading instruction upon prior notice
to Welton, if practical, or otherwise as soon as possible
thereafter. Nothing herein shall be construed to prevent the
General Partners from imposing any additional limitation(s) on
the trading activities of the Partnership if the General
Partners determine (each using its good faith business judgment)
that such limitation(s) are necessary in the best interests of
the Partnership, in which case Welton will adhere to such
limitations following written notification thereof.
Should the General Partners, in their sole discretion, override
any trading instructions issued by Welton for any reason other
than a determination that the trading instructions issued by
Welton violate the Partnership's Trading Policies or
limitations, the General Partners agree that any trading profits
or losses incurred on behalf of the Partnership as a result of
the actions of the General Partners to override Welton's trading
instructions shall be for the account of the Partnership and
Welton shall incur no liability for such profits and losses.
In the event that Welton wishes to use a Trading Approach other
than or in addition to the Trading Approach agreed to by the
General Partners in connection with its trading for the
Partnership, either in whole or in part, it may not do so unless
Welton gives the General Partners prior written notice of its
intention to utilize such different Trading Approach, including
a description of such different Trading Approach and the General
Partners consent thereto in writing.
Welton also agrees to give the Partnership prior written notice
of any proposed material change in its Trading Approach, and
agrees not to make any material change in such Trading Approach
(as applied to the Partnership) without the prior express
written approval of the General Partners, it being understood
that Welton shall be free to institute non-material changes in
its Trading Approach (as applied to the Partnership) without
such prior written approval. Without limiting the generality of
the foregoing, refinements to Welton's Trading Approach, the
addition or deletion of Commodities to or from Welton's Trading
Approach, or a change not exceeding 25% in the leverage of any
such Trading Approach, shall not be deemed a material change in
Welton's Trading Approach, and prior approval of the General
Partners shall not be required therefor.
All purchases and sales of Commodities shall be for the account
and risk of the Partnership.
2. Indemnification. Neither Welton, its employees, directors,
officers, shareholders or partners, or any person who controls
or who is controlled by Welton, shall be liable to the General
Partners, their officers, directors, shareholders or employees,
or the Partnership, its partners or any of their successors or
assigns under this Agreement, except by reason of acts or
omissions in contravention of the express terms of this
Agreement or due to their misconduct or negligence or by reason
of not having acted in good faith in the reasonable belief that
such actions or omissions were in, or not opposed to, the best
interests of the Partnership; it being understood that, without
limiting Welton's liability hereunder, trading profits or losses
incurred on behalf of the Partnership shall be for the account
of the Partnership and Welton shall not incur any credit or
liability for such profits or losses and Welton shall not in any
way be responsible for the acts or omissions of the other
trading advisors.
Welton, and each officer, director, shareholder, partner and
employee of Welton, and each person who controls and who is
controlled by Welton, shall be indemnified by the Partnership,
to the fullest extent permitted by law, against any
losses,judgments, liabilities, expenses (including reasonable
attorneys' fees and accountants' fees) and claims, including
settlements, incurred or sustained by Welton in connection with
any acts or omissions of Welton relating to its management of
its allocable share of Partnership assets pursuant to this
Agreement or with its status as a trading advisor to the
Partnership, provided that (i) there has been no judicial
determination that such liability was the result of negligence,
misconduct or a breach of this Agreement on the part of Welton,
nor (ii) any judicial determination that Welton, and its
officers, directors, shareholders, partners and employees (as
applicable), and each person controlling or controlled by
Welton, did not act (or took no action) in good faith and in a
manner reasonably believed by it and them to be in, or not
opposed to, the best interests of the Partnership. Any such
indemnification involving a material amount, unless ordered or
expressly permitted by a court, shall be made by the Partnership
only upon the written advice of independent counsel acceptable
to the Partnership that Welton has met the applicable standard
of conduct described above.
Expenses incurred in defending a threatened or pending civil,
administrative or criminal action, suit or proceeding against
the foregoing indemnitees may be paid by the Partnership or the
General Partners in advance of the final disposition of such
action, suit or proceeding if (i) the legal action, suit or
proceeding, if not sustained, would entitle the indemnitees to
indemnification pursuant to the preceding paragraph, and (ii)
Welton undertakes to repay the advanced funds to the Partnership
and the General Partners in cases in which the foregoing
indemnitees are not entitled to indemnification pursuant to the
preceding paragraph. Expenses incurred in defending a
threatened or pending civil, administrative or criminal action,
suit or proceeding against Welton and one or both General
Partners shall be paid initially by such General Partner(s),
subject to subsequent proportionate reimbursement by Welton in
the event of an unfavorable determination with respect to
Welton; provided, that such initial payment of expenses shall
not be made by such General Partner(s) on behalf of Welton if
Welton elects to be represented by counsel of its own choice or
if the defense of Welton involves distinct issues of law or of
fact, and, provided further, that in the event of the initial
payment of such expenses by such General Partner(s), such
General Partner(s) shall have the exclusive right to select
counsel.
3. Disclosure Obligations of Welton. Welton agrees to make all
necessary disclosures regarding itself, its officers, partners
and principals, trading performance, Trading Approach, customer
accounts (other than the names of customers, or any other
information which Welton deems to be proprietary or confidential
unless such disclosure is required by law or regulation,
including, without limitation, all material disclosures required
in connection with the preparation and filing of any
registration statement or prospectus) and otherwise as may be
required, in the reasonable judgment of the General Partners, to
the General Partners for the purpose of providing information
regarding Welton to the Partnership's limited partners. No
description of Welton in any registration statement, prospectus,
promotional material or otherwise may be distributed by the
General Partners without the prior consent of Welton.
4. Advisor Independence. Welton is and shall for all purposes
herein be deemed to be an independent contractor with respect to
the Partnership, the General Partners and the other trading
advisors of the Partnership, and shall, unless otherwise
expressly authorized, have no authority to act for or to
represent the Partnership, the General Partners or the other
trading advisors in any way or otherwise be deemed to be a
general agent of the Partnership, the General Partners or the
other trading advisors.
The Partnership and the General Partners acknowledge that the
Trading Approach of Welton is the confidential property of
Welton. Nothing in this Agreement shall require Welton to
disclose the confidential or proprietary details of Welton's
Trading Approach, except (i) to the extent required by law or
regulation, or (ii) to the extent that such details may have
come to be disseminated to the general public through the
actions or omissions of persons other than the General Partners
or the Partnership. The Partnership and the General Partners
further agree that they will keep confidential and will not
disseminate Welton's trading advice to the Partnership, except
as, and to the extent, that it may be determined by the General
Partners to be (i) necessary for the retention of professional
service providers or affiliates of the General Partners to
provide ordinary business services to the Partnership, (ii) the
performance of brokerage services with the Partnership's
commodity broker(s), or (iii) required by law or regulation.
5. Commodity Broker. All Commodities trades for the account of
the Partnership shall be made through such commodity broker or
brokers as the General Partners direct. Welton shall have
authority to communicate all orders directly to such broker(s).
Welton shall not have any authority or responsibility in
selecting or supervising any broker for execution of Commodities
trades of the Partnership or for negotiating commission rates to
be charged therefor. At the present time it is contemplated
that the Partnership will execute all Commodities trades through
Cargill Investor Services, Inc. and that brokerage commissions
payable by the Partnership will equal $35 per round turn plus
applicable exchange, clearing, NFA fees, give-up charges and
international differentials.
Welton shall be notified in writing by the General Partners if
any Commodities trades for the account of the Partnership are to
be made through any futures commission merchant other than
Cargill Investor Services, Inc. (S). In addition, Welton may
engage in exchange for physical transactions with respect to
currencies into futures contracts. Welton may execute
transactions at such other broker(s), and upon such terms and
conditions, as Welton and the General Partners agree if such
broker(s) agree to give up all such transactions to CIS for
clearance and the General Partners' consent to executing brokers
shall not be unreasonably withheld.
6. Fees. In consideration of and in compensation for the
performance of Welton's services under this Agreement, the
Partnership agrees that it will pay to Welton the following:
(i) a monthly management fee (the Management Fee) equal to 1/12
of 3% of the Partnership's Net Asset Value (as hereinafter
defined) under the management of Welton as of the end of each
month, and (ii) a quarterly incentive fee (the Incentive Fee) of
Eighteen (18%) of Trading Profits (as hereinafter defined) on
the Net Asset Value (as hereinafter defined) of the Partnership
allocated by the General Partners to Welton's management and the
calculation and payment of such incentive fees shall not be
affected by the performance of the other trading advisors.
Trading Profits for Welton shall be computed as of the close of
trading on the last day of each calendar quarter (March 31, June
30, September 30 and December 31). The first Incentive Fee
which may be due and owing to Welton in respect of any Trading
Profits shall be computed as of the end of the first calendar
quarter during which Welton managed the partnership's assets
allocated to it for at least sixty (60) days. Trading Profits
shall be computed solely on the performance of Welton and shall
not include or be affected by the performance of the other
trading advisors. Payment of the Management Fee and of the
Incentive Fee shall be made as soon as practicable following the
end of the period to which they relate. Management Fee shall be
paid monthly and deducted prior to the calculation of the
quarterly Incentive Fees. The Incentive Fee shall accrue
monthly and be payable to Welton quarterly. Net Asset Value
means the Partnership's total assets less total liabilities,
including any liability for organization and offering expenses,
to be determined on the basis of generally accepted accounting
principles, consistently applied, except as set forth below.
For purposes of this calculation:
(a) Net Asset Value shall include any unrealized profit or loss
on securities and open commodity positions and any other credit
or debit accruing to the Partnership but unpaid or not received
by the Partnership.
(b) All securities and open commodity positions shall be valued
at their then market value which means, with respect to open
commodity positions, the settlement price as determined by the
exchange on which the transaction is effected or the most recent
appropriate quotation as supplied by the Clearing Broker or
banks through which the transaction is effected. If there are
no trades on the date of the calculation due to operation of the
daily price fluctuation limits or due to a closing of the
exchange on which the transaction is executed, the contract will
be valued at fair value as determined by the General Partners.
Interest, if any, shall accrue monthly.
(c) Brokerage commissions on open positions shall be accrued in
full upon the initiation of such open positions as a liability
of the Partnership. Management Fees shall be paid monthly and
deducted prior to the calculation of the quarterly Incentive
Fee. Trading Profits (for purposes of calculating Welton's
Incentive Fee) is defined as the excess (if any) of (A) the Net
Asset Value of the Partnership's funds under Welton's management
as of the last day of any calendar quarter (before deduction of
Incentive Fees payable for such quarter) over (B) the highest
Net Asset Value of the Partnership's funds under the management
of Welton as of the last day of the most recent calendar quarter
for which an Incentive Fee was due and owing or with respect to
the first Incentive Fee which may be due and owing, the Net
Asset Value of the initial Partnership funds allocated to Welton
on the date Welton commences trading Partnership assets. In
computing Trading Profits, the difference between (A) and (B)
above shall be (i) decreased by all interest realized on the
Welton's allocable share of Partnership assets subject to
Welton's management between the dates referred to in (A) and
(B), and (ii) increased by Welton's allocable share of any
distributions or redemptions paid or payable by the Partnership
as of, or subsequent to, the date in (B) through the date in
(A), and (iii) adjusted (either increased or decreased, as the
case may be) to reflect Welton's allocable share of any
additional allocations or negative reallocations of Partnership
assets from the date in (B) to the last day of the calendar
quarter as of which the current Incentive Fee calculation is
made. For purposes of calculating Trading Profits attributable
to the assets under the management of Welton, the definition of
Net Asset Value shall be modified, insofar as it takes into
consideration the amount of Incentive and Management Fees
payable by and brokerage commissions accrued by the Partnership,
to provide for the allocation of such Incentive and Management
Fees and brokerage commissions specifically to the assets under
the management of Welton which is entitled to such fees or whose
trading decisions generated those brokerage commissions.
Incentive Fees shall be paid within 10 business days after the
end of the quarter for which they are earned. For purposes of
determining whether an Incentive Fee is payable by Units which
are redeemed other than at quarter end, the dates of such
redemptions shall be considered as if they were the last day of
the quarter. If an Incentive Fee shall have been paid by the
Partnership to Welton in respect of any calendar quarter and
Welton shall incur subsequent losses on the Partnership's assets
subject to its management, Welton shall nevertheless be entitled
to retain amounts previously paid to it in respect of Trading
Profits.
In addition, if the amount of assets allocated to Welton's
management is reduced, whether due to redemptions, distributions
or reallocations, there will be a proportionate reduction in the
related loss carryforward amount, the amount of which shall be
determined by multiplying the amount of the loss carryforward by
a fraction, of which the numerator shall be the amount of the
reduction in the assets allocated to Welton's management and the
denominator shall be the amount of the assets allocated to
Welton's management immediately prior to the reduction.
7. Terms and Termination. The term of the Agreement shall
commence on the date this Agreement is executed and continue
until December 31, 1998. This Agreement shall automatically
renew with respect to Welton on the same terms as set forth
herein for three additional twelve-month terms commencing
January 1 and ending December 31, unless the Partnership shall
give Welton 60 days prior written notice prior to termination of
the then-current twelve-month period. This renewal right shall
be applicable irrespective of any change in trading advisors of
the Partnership or reallocation of Partnership assets among the
trading advisors or to other trading advisors. This Agreement
shall terminate automatically in the event that the Partnership
is terminated. This Agreement may be terminated at the election
of the Partnership at any time, upon written notice to Welton in
the event that: (A) the Net Asset Value of Partnership funds
allocated to Welton's management decreases as of the close of
trading on any business day by more than thirty percent (30%)
from the sum of the Net Asset Value of the Partnership's funds
allocated to Welton on the date Welton commenced trading
Partnership assets plus the Net Asset Value of any funds which
may be allocated to Welton thereafter (after adding back all
redemptions, distributions and reallocations made to Welton or
any additional trading advisors in respect of such assets); (B)
Welton is unable, to any material extent, to use its agreed-upon
Trading Approach, as such Trading Approach may be refined or
modified in the future in accordance with the terms of this
Agreement for the benefit of the Partnership; (C) Welton's
registration as a commodity trading advisor under the CE Act, or
membership as a commodity trading advisor with the NFA is
revoked, suspended, terminated or not renewed; (D) the General
Partners determine in good faith that Welton has failed to
conform to (i) the Partnership's Trading Policies or
limitations, as they may be revised or modified, or (ii) any
agreed-upon Trading Approach; (E) there is an unauthorized
assignment of this Agreement by Welton; (F) Welton dissolves,
merges or consolidates with another entity or sells a
substantial portion of its assets, any portion of its Trading
Approach utilized by the Partnership or its business goodwill,
in each instance without the consent of the General Partners;
(G) there is a change of control of Welton; (H) Welton becomes
bankrupt or insolvent; (I) Patrick Welton ceases to be an active
executive officer of Welton; or (J) the General Partners for any
reason or for no reason, in their sole discretion, terminate
this Agreement by providing 30 days' written notice to Welton.
In addition, Welton has the right to terminate this Agreement at
any time, upon written notice to the Partnership in the event
(i) of the receipt by Welton of an opinion of independent
counsel that solely by reason of Welton's activities with
respect to the Partnership, Welton is required to register as an
investment adviser under the Investment Advisers Act of 1940;
(ii) that the Net Asset Value of Partnership assets under
Welton's management decreases by more than 50% from the time
trading commences solely as a result of a reallocation of
Partnership assets pursuant to Section 7 of this Agreement
(i.e., not including any decrease attributable to losses on
commodity interest transactions directed by Welton) immediately
following any such reallocation; (iii) that the registration of
either General Partner as a commodity pool operator under the CE
Act, or its NFA membership as a commodity pool operator is
revoked, suspended, terminated or not renewed; (iv) that the
General Partners elect (pursuant to Section 1 of this Agreement)
to have Welton use a different Trading Approach in Welton's
management of its allocable share of Partnership assets from
that which Welton is then using to manage such assets and Welton
objects to using such different Trading Approach; (v) that the
General Partners override a trading instruction of Welton
pursuant to Section 1 of this Agreement for reasons unrelated to
a determination by the General Partners that Welton has violated
the Partnership's Trading Policies or limitations; (vi) that the
General Partners impose additional trading limitation(s)
pursuant to Section 1 of this Agreement which Welton does not
agree to follow in its management of its allocable share of
Partnership assets; (vii) there is an unauthorized assignment of
this Agreement by the General Partners of the Partnership; or
(viii) other good cause is shown to which the written consent of
the General Partners is obtained.
In the event that this Agreement is terminated with respect to,
or by, Welton pursuant to this Section 7, Welton shall be
entitled to the Incentive Fee, if any, which shall be computed
as if the effective date of termination was the last day of the
then current calendar quarter. If this Agreement is terminated
on a day other than the last day of a calendar month, the
Management Fee described herein shall be determined as if such
date were the end of a month and such fee shall be pro-rated
based on the ratio of the number of trading days in the month
through the date of termination to the total number of trading
days in the month. The rights of Welton to fees earned through
the date of expiration or termination shall survive this
Agreement until satisfied.
8. Funds Allocated to Management of Welton. Initially, Welton
shall be allocated approximately thirty percent (30%) of the
Partnership's assets to manage in accordance with Section 1 of
this Agreement. At any time thereafter, in their sole
discretion, the General Partners may reallocate assets of the
Partnership among the Partnership's trading advisors or among
other additional trading advisors which may be appointed without
terminating this Agreement. Welton may, however, in its sole
discretion, refuse an increase in its allocation of Partnership
assets. Welton agrees that (i) redemptions, distributions and
payment of Partnership expenses (except Management and Incentive
Fees) shall be charged against, and (ii) interest income earned
by the Partnership shall be credited to, the assets managed by
Welton in what the General Partners determine to be as close as
practicable to Welton's proportionate share of the Partnership's
assets as of the time of the initial allocation or subsequent
reallocation of these assets. Any Management and Incentive Fees
paid or payable by the Partnership to Welton shall only be
charged against the assets of Welton. In the event that losses
incurred by any CTA exceeds the assets allocated to the CTA, the
General Partners will withdraw the funds necessary to cover such
excess losses from the assets under the management of the other
CTAs, including Welton, in proportion to the amount of
Partnership assets being managed by such CTA.
9. Other Accounts of Welton. Welton shall be free to manage and
trade accounts for other investors (including other public and
private commodity pools) during the term of this Agreement and
to use the same or other information and Trading Approach
utilized in the performance of services for the Partnership for
such other accounts so long as Welton's ability to carry out its
obligations and duties to the Partnership pursuant to this
Agreement is not materially impaired thereby. Furthermore,
neither Welton nor any shareholder, partner, director, officer,
employee or agent, as applicable, of Welton shall cause or
permit Welton to engage in any business enterprise not presently
engaged in which is unrelated to the giving of commodity advice
or the operation of commodity pools if such other business might
reasonably be expected to have a material adverse effect on
Welton's ability to perform its obligations and duties to the
Partnership under this Agreement, unless it obtains the prior
written consent from the General Partners, which consent shall
not be unreasonably withheld. In addition, Welton, and its
shareholders, partners, directors, officers, employees and
agents, as applicable, also will be permitted to trade in
Commodities for their own accounts so long as Welton's ability
to carry out its obligations and duties to the Partnership is
not materially impaired thereby.
So long as Welton is performing services for the Partnership, it
agrees that it will not accept additional capital for management
in the Commodities markets if doing so would have a reasonable
likelihood of resulting in Welton having to modify materially
the Trading Approach being used by Welton for the Partnership in
a manner which might reasonably be expected to have a material
adverse effect on the Partnership (without limiting the
generality of the foregoing, it is understood that this
paragraph shall not prohibit the acceptance of additional
capital, which acceptance requires only routine adjustments to
trading patterns in order to comply with speculative position
limits or daily trading limits).
Welton agrees that, in its management of accounts other than the
account of the Partnership, Welton will not knowingly or
deliberately favor any other account managed or controlled by it
or any of its principals or affiliates (in whole or in part)
over the Partnership on an overall basis. The preceding
sentence shall not be interpreted to preclude (i) Welton from
charging another client fees which differ from the fees to be
paid to Welton hereunder, or (ii) an adjustment by Welton in the
implementation of any agreed upon Trading Approach in accordance
with the procedures set forth in Section 1 hereof, which is
undertaken by Welton in good faith in order to accommodate
additional accounts or adjustments deemed, in good faith, by
Welton to be appropriate to the management of a larger account.
Welton, upon request, shall provide the General Partners with an
explanation of the material differences, if any, in performance
between the Partnership and any other comparable account for
which Welton or any of its principals or affiliates acts as a
commodity trading advisor (in whole or in part).
Upon the reasonable request of the General Partners, Welton shall
provide the General Partners with such information as they
reasonably may request for the purpose of confirming that the
Partnership has been treated equitably with respect to advice
rendered during the term of this Agreement by Welton for other
accounts (including accounts of Welton or its shareholders,
partners, directors, officers, employees, and agents) managed by
Welton, which the parties acknowledge to mean that the General
Partners may inspect all records of Welton related to such other
accounts during normal business hours upon its prior written
request. Welton may, in its discretion, withhold from any such
report or inspection the name of the client for whom any such
account is maintained and, in any event, the Partnership and the
General Partners shall keep all such information obtained by it
from Welton confidential.
10. Speculative Position Limits. If, at any time during the
term of this Agreement, it appears to Welton that it may be
required to aggregate the Partnership's Commodities positions it
controls with the positions of any other accounts it or any of
its shareholders, partners, directors, officers, employees, or
agents owns or controls for purposes of applying the speculative
position limits of the CFTC, any exchange, self-regulatory body,
or governmental authority, Welton will promptly notify the
General Partners when the Partnership's positions are first
included in an aggregate amount which equals or exceeds the
applicable speculative limit and will promptly respond
thereafter to requests from the General Partners with respect to
the percentage of the applicable speculative limit reflected by
the aggregate positions owned or controlled by Welton or any of
its shareholders, partners, directors, officers, employees, or
agents. Welton agrees that if its trading recommendations are
altered because of the potential application of speculative
position limits, Welton will modify its trading instructions to
the Partnership and its other accounts in a good faith effort to
achieve an equitable treatment of all accounts; Welton will
liquidate Commodities positions and/or limit the taking of new
positions in all accounts it manages, including the Partnership,
as nearly as possible in proportion to the assets available for
trading of the respective accounts to the extent necessary to
comply with applicable speculative position limits. Welton
presently believes and represents that its program for the
management of the Partnership's account can be implemented for
the benefit of the Partnership notwithstanding the possibility
that, from time to time, speculative position limits may become
applicable.
11. Brokerage Confirmations and Reports. The General Partners
will instruct the Partnership's commodity broker or brokers to
furnish Welton with copies of all trade confirmations and
monthly trading statements relating to the Partnership's assets
under the management of Welton. Welton will maintain records
and will monitor all open positions relating thereto.
12. Welton's Representations and Warranties. Welton represents
and warrants that:
(a) it has full capacity and authority to enter into this
Agreement, and to provide the services required of it hereunder;
(b) it will not, by entering into this Agreement and by acting
as a commodity trading advisor to the Partnership, (i) be
required to take any action contrary to its incorporating
document, or any applicable statute, law or regulation of any
jurisdiction or (ii) breach or cause to be breached any
undertaking, agreement, contract, statute, rule or regulation to
which it is a party or by which it is bound which, in the case
of (i) or (ii), would materially limit or materially adversely
affect the performance of its duties under this Agreement;
(c) it is duly registered as a commodity trading advisor under
the CE Act and is a member of the NFA as a commodity trading
advisor, and it will maintain and renew such registration and
membership during the term of this Agreement;
(d) it has provided the Partnership with a copy of its most
recent Disclosure Document as required by Part 4 of the CFTC's
regulations, receipt of which is hereby acknowledged by the
Partnership and the General Partners; and
(e) the amount of Partnership assets to be allocated to Welton
would not, assuming that the Partnership's Net Asset Value is
$11,575,000 as of the commencement of trading by Welton, result
in Welton being required to alter its Trading Approach to a
degree which reasonably could be expected to have a material
adverse effect on the Partnership.
The within representations and warranties shall be continuing
during the term of this Agreement, and, if at any time, any
event has occurred which would make or tend to make any of the
foregoing not true, with respect to Welton, Welton will promptly
notify the Partnership in writing thereof.
13. The General Partners' Representations and Warranties. Each
General Partner represents and warrants on behalf of the
Partnership and itself that:
(a) it has the capacity and authority to enter into this
Agreement;
(b) it will not, by acting as general partner to the
Partnership, (i) be required to take any action contrary to its
incorporating documents or any applicable statute, law or
regulation of any jurisdiction, or (ii) breach or cause
to be breached any undertaking, agreement, contract, statute,
rule or regulation to which it or the Partnership is a party or
by which it or the Partnership is bound, which in the case of
(i) or (ii), would limit or materially affect the performance of
its or the Partnership's duties under this Agreement; and
(c) it is duly registered as a commodity pool operator under the
CE Act and is a commodity pool operator member of the NFA, and
it will maintain and renew such registration and membership
during the term of this Agreement.
The within representations and warranties shall be continuing
during the term of this Agreement, and, if at any time, any
event has occurred which would make or tend to make any of the
foregoing not true, the General Partner with respect to which
such representation or warranty is no longer true promptly will
notify Welton in writing.
14. Assignment. This Agreement may not be assigned by any party
without the express prior written consent of the other parties.
15. Successors. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and the successors and
permitted assigns of each of them, and no other person (except
as otherwise provided herein) shall have any right or obligation
under this Agreement. The terms successors and assigns shall
not include any purchasers, as such, of Units.
16. Amendment or Modification. This Agreement may not be
amended or modified except by the written consent of the
parties. Welton shall receive a copy of all proposed and final
amendments and modifications to this Agreement so long as it is
an advisor to the Partnership.
17. Notices. Each notice, request, demand, approval or other
communications which may be or is required to be given under
this Agreement shall be in writing in English and shall be
deemed to have been properly given when delivered personally at
the address set forth below for the intended party during normal
business hours at such address, when sent by facsimile or other
electronic transmission to the respective facsimile transmission
numbers of the parties set forth below with telephone
confirmation of receipt, or when sent by recognized overnight
international courier service or by prepaid registered air mail,
return receipt requested, postage prepaid, addressed as follows:
If to CISI:
CIS Investments, Inc.
233 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
Attention: Barbara A. Pfendler
Facsimile: (312) 460-4939
Confirm: (312) 460-4926
with a copy to:
Chapman and Cutler
111 West Monroe Street
Suite 1600
Chicago, Illinois 60603-4080
Attention: Paul C. Kosin
Facsimile: (312) 701-2361
Confirm: (312) 845-3791
If to the Partnership:
IDS Managed Futures, L.P.
233 South Wacker Drive
Suite 2300
Chicago, Illinois 60606
Attention: Barbara A. Pfendler
Facsimile: (312) 460-4939
Confirm: (312) 460-4926
with a copy to:
Chapman and Cutler
111 West Monroe Street
Suite 1600
Chicago, Illinois 60603-4080
Attention: Paul C. Kosin
Facsimile: (312) 701-2361
Confirm: (312) 845-3791
If to IDS Futures:
IDS Tower 10
Minneapolis, Minnesota 55440
Attention: Ronald Powell, Esq.
Facsimile: (612) 671-3767
Confirm: (612) 671-2088
If to Welton:
via regular mail
Welton Investment Corporation
P.O. Box 6147
Carmel, California 93921-6147
Attention: Patrick Welton
Facsimile: (408) 626-5199
Confirm: (408) 626-5190
via courier service
Welton Investment Corporation
Eastwood Building, 2nd Floor
San Carlos Between 5th and 6th
Carmel, California 93921-6147
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
17th Floor
New York, New York 10022
Attention: Fred M. Santo
Facsimile: (212) 940-7079
Confirm: (212) 940-8720
Notices shall be given to such other addressee or address, or
both, or by way of such other facsimile transmission number, as
a particular party may from time to time designate by written
notice to the other parties hereto.
Each notice, request, demand, approval or other communication
which is sent in accordance with this Section shall be deemed
given and received for all purposes of this Agreement as of five
business days after the date of deposit thereof for prepaid
registered air mail in a duly constituted post office or branch
thereof in the county of origin of the sending party, two
business days after deposit with a recognized overnight
international courier service or, in the case of a facsimile
transmission, the earlier of (i) confirmation of receipt of said
facsimile transmission by the intended recipient thereof or a
person at the same business address as said intended recipient;
or (ii) electronic verification by the sender's facsimile
machine of the receipt of said facsimile transmission by the
intended recipient's facsimile machine; provided, however, that
any such electronic verification which does not occur prior to
5:00 p.m. (local time of the recipient thereof) on a business
day shall be deemed to have occurred at 9:00 a.m. (local time of
the recipient thereof) on the next business day following the
date of such electronic verification. Notice given to a party
hereto by any other method shall only be deemed to be given and
received when actually received in writing by such party.
18. Governing Law. The parties agree that this Agreement shall
be governed by and construed in accordance with the laws of the
State of Delaware without regard to conflict of laws principles.
19. Survival. The provisions of this Agreement shall survive
the termination of this Agreement with respect to any matter
arising while this Agreement was in effect.
20. Promotional Material. Welton agrees that prior to using
any promotional literature in which reference to the Partnership
is made (other than a simple statement to the effect that Welton
is an advisor to the Partnership or solely in the context of the
preparation of required performance tables and notes thereto and
descriptions thereof), Welton shall furnish a copy of such
information to the General Partners and will not make use of any
literature containing references to the Partnership to which the
General Partners reasonably object, except as otherwise required
by law or regulation.
21. No Waiver. No failure or delay on the part of any party
hereto in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other rights
power or remedy. Any waiver granted hereunder must be in
writing and shall be valid only in the specific instance in
which given.
22. Headings. Headings to Sections herein are for the
convenience of the parties only, and are not intended to be or
to affect the meaning or interpretation of this Agreement.
23. Complete Agreement. Except as otherwise provided herein,
this Agreement and the Representation Agreement contemplated in
the last paragraph of Section 3 constitutes the entire agreement
between the parties with respect to the matters referred to
herein, and no other agreement, verbal or otherwise, shall be
binding upon the parties hereto.
24. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and
all of which, when taken together, shall constitute one original
instrument.
25. Best Efforts. As used in this Agreement, Best efforts
shall mean the efforts that a prudent person or entity desirous
of achieving a result would reasonably use in similar
circumstances in order to achieve such result as expeditiously
as possible; provided, however, that an obligation to use best
efforts under the Agreement does not require the person or
entity subject to that obligation to incur any substantial
financial obligations or any onerous non-financial obligations
or to waive any material rights.
26. The General Partners acknowledge that they have received
the commodity trading advisor disclosure document of Welton.
The General Partners further acknowledge that Welton uses
different proprietary trading programs and that these different
trading programs may achieve different trading results.
In Witness Whereof, this Advisory Contract has been executed
for and on behalf of the undersigned as of the day and year
first above written.
IDS Managed Futures, L.P. Welton Investment Corporation
CIS Investments, Inc., By
General Partner Its
By
Its
IDS Futures Corporation,
General Partner
By
Its
CIS Investments, Inc.
By
Its
IDS Futures Corporation
By
Its