Item 1. Business.
(a) General development of business. The Future Fund (the "Partnership") is a limited partnership organized on November 30, 1978 pursuant to a Limited Partnership Agreement (the "Limited Partnership Agreement") and under the Uniform Limited Partnership Act of the State of Illinois. On July 31, 1987, the Partnership elected to be governed under the Illinois Revised Uniform Limited Partnership Act. The Partnership engages in the speculative trading of futures, options on futures and forward contracts.
Heinold Asset Management, Inc., a Delaware corporation, is the General Partner of the Partnership and, in that capacity, performs various administrative services. The General Partner was organized in 1982 to serve as the general partner and pool operator for public and private commodity pools sponsored by Heinold Commodities, Inc., an affiliate. Until March 31, 1996, the General Partner was a wholly owned subsidiary of Geldermann, Inc., an Illinois corporation ("Geldermann"). On March 31, 1996, the General Partner became a wholly owned subsidiary of Man Group USA Inc. (formerly, E.D. & F. Man Inc.), a New York corporation with headquarters in New York, New York. References herein to the "General Partner" refer to Heinold Commodities, Inc. for the periods prior to November 1, 1988 and to Heinold Asset Management, Inc. for periods on and after November 1, 1988.
Until June 1, 1995, Geldermann acted as the Partnership's futures commission merchant or commodity broker. On that date, Man Financial Inc (the "Commodity Broker") replaced Geldermann as the Partnership's commodity broker. The General Partner and the Commodity Broker perform various services related to the Partnership's trading pursuant to a Customer Agreement. The Partnership conducts its forward contract trading through its affiliates, Man Capital LLC and Man Financial Ltd, as well as other unaffiliated dealers pursuant to various Customer Account Agreements.
The General Partner invested $128,000 in the Partnership at the outset of trading and purchased additional Units for $6,500 during fiscal year 1985. The net asset value of the General Partner's interest in the Partnership, after the redemption of 583 Unit-equivalents for $355,239 on October 1, 1988, 379 Unit-equivalents for $248,362 on November 1, 1991 and 111 Unit-equivalents for $91,757 on October 31, 1994, was $250,617 as of October 31, 2002.
The Partnership's trading manager from the inception of trading until August 1, 1988 had been Millburn Partners, a New Jersey partnership. On August 1, 1988, Millburn Ridgefield Corporation, a Delaware corporation whose sole shareholders consisted of the former partners of Millburn Partners, became the commodity trading advisor for all public commodity pools previously managed by Millburn Partners.
Effective January 1, 1990, the General Partner replaced Millburn Ridgefield Corporation as the Partnership's trading manager with Baldwin Financial Corporation, a Delaware corporation. The Management Contract with Baldwin Financial Company was
assigned to MC Baldwin Financial Company as of January 1, 1992. MC Baldwin Financial Company served as trading manager for the Partnership until December 31, 1995.
Effective January 1, 1996, the General Partner entered into a Trading Manager Agreement whereby it assumed the role of trading manager for the Partnership (the "Trading Manager"). The Partnership is a multi-advisor commodity pool and the Trading Manager allocates the assets of the Partnership among several trading advisors to direct the Partnership's futures and forward trading. References to the Trading Manager from the inception of the Partnership's trading through December 31, 1989 refer to Millburn Ridgefield Corporation, from January 1, 1990 through January 1, 1996 to MC Baldwin Financial Company and on and after January 1, 1996 to Heinold Asset Management, Inc.
The Trading Manager receives a monthly management fee at an annual rate of 4% of the month-end Net Asset Value of the Partnership. The Trading Manager in turn will pay to each trading advisor a management fee equal to 2% to 3% of the assets allocated to each trading advisor to be calculated and paid monthly. The Trading Manager will also receive an incentive fee equal to 20% of any New Trading Profit, as defined in the Partnership's offering document, attributable to each trading advisor to be calculated and paid quarterly or annually. The Trading Manager in turn will pay to each trading advisor an incentive fee equal to 15% to 20% of any New Trading Profit attributable to each trading advisor to be calculated and paid quarterly or annually.
On April 1, 1996, the Partnership, pursuant to an exemption from the Commodity Futures Trading Commission (the "CFTC"), was permitted to cease trading on a stand-alone basis. On that date, the Partnership elected to continue to allocate a portion of its assets to managed accounts with commodity trading advisors and to trade the remaining assets through participation in a series of private general partnerships ("Account Partnerships") formed together with other pools of which the General Partner acts as general partner. Only pools of which the General Partner acts as general partner are permitted to participate in these Account Partnerships, and all such pools share pro rata in the profits and losses of the Account Partnerships based on the capital that each pool commits to each such Account Partnership. Because the Account Partnerships combine the assets of numerous pools, they make it possible for even the smaller pools to have access to a number of commodity trading advisors without need of meeting each commodity trading advisors' minimum account size requirements. Although the General Partner has agreed to various incremental accounting procedures, the operation of the Account Partnerships is effectively transparent to the Unitholders. Subsequent to December 1, 1997, substantially all of the Partnership's assets were allocated to the Account Partnerships.
The Partnership shall pay commodity brokerage commissions to the Commodity Broker at an annual rate of 7% of month-end Net Assets per year, plus National Futures Association ("NFA") and give-up fees.
Regulation
Under the Commodity Exchange Act, as amended (the "Act"), commodity exchanges and futures trading are subject to regulation by the CFTC. The National Futures
Association, a "registered futures association" under the Act, is the only non-exchange self-regulatory organization for futures industry professionals. The CFTC has delegated to the NFA responsibility for the registration of "commodity trading advisors," "commodity pool operators," "futures commission merchants," "introducing brokers" and their respective associated persons and "floor brokers." The Act requires "commodity pool operators," such as the General Partner, "commodity trading advisors," such as the Trading Manager and the Trading Advisors, and commodity brokers or "futures commission merchants," such as the Commodity Broker, to be registered and to comply with various reporting and record keeping requirements. The General Partner, the Trading Advisors, and the Commodity Broker are all members of the NFA. The CFTC may suspend a commodity pool operator's or commodity trading advisor's registration if it finds that its trading practices tend to disrupt orderly market conditions or in certain other situations. In the event that the registration of the General Partner as a commodity pool operator or the Trading Advisors' registrations as commodity trading advisors were terminated or suspended, the General Partner and the Trading Advisors would be unable to continue to manage the business of the Partnership, select the Trading Advisors and direct the Partnership's futures and forward trading, respectively. Should the General Partner's registration be suspended, termination of the Partnership might result.
As members of the NFA, the General Partner, the Trading Manager, the Trading Advisors and the Commodity Broker are subject to NFA standards relating to fair trade practices, financial condition and customer protection. As the self-regulatory body of the futures industry, the NFA promulgates rules governing the conduct of futures industry professionals and disciplines those professionals which do not comply with such standards.
In addition to such registration requirements, the CFTC and certain futures exchanges have established limits on the maximum net long or net short position which any person may hold or control in particular futures contracts. The CFTC has adopted a rule requiring all domestic futures exchanges to submit for approval speculative position limits for all futures contracts traded on such exchanges. Many exchanges also limit the changes in futures contract prices that may occur during a single trading day. The Partnership may trade on foreign commodity exchanges that are not subject to regulation by any United States government agency.
(b) Financial information about industry segments. The Partnership's business constitutes only one segment for financial reporting purposes; speculative trading of futures, options on futures and forward contracts. The Partnership does not engage in sales of goods or services. The Partnership's revenue, operating profit and total assets for each of the five fiscal years in the period ended October 31, 2002 are set forth under "Item 6. Selected Financial Data."
(c) Narrative description of business.
(1) See Items 1(a) and (b) above.
(xiii) -- the Partnership has no employees.
(d) Financial information about foreign and domestic operations and export sales. The Partnership does not engage in sales of goods or services. See "Item 1(b). Financial information about industry segments."
Item 2.
Item 2. Properties.
The Partnership does not own any properties. Under the terms of the Limited Partnership Agreement, the General Partner performs the following services for the Partnership:
(1) Manages the business of the Partnership. Pursuant to this authority, the General Partner has entered into a Management Agreement with the Partnership (under which the Trading Manager will serve as trading manager and will retain trading advisors who will have complete discretion with respect to determination of the Partnership's trading decisions) and a Customer Agreement with the Commodity Broker (pursuant to which the Commodity Broker executes all trades on behalf of the Partnership based on instructions of the trading advisors selected by the Trading Manager).
(2) Maintains the Partnership's books and records, which Limited Partners or their duly authorized representatives may inspect during normal business hours for any proper purpose upon 10 days' written notice to the General Partner.
(3) Furnishes each Limited Partner with a monthly statement describing the performance of the Partnership which sets forth aggregate incentive fee allocations, brokerage commissions and other expenses incurred or accrued by the Partnership during the month.
(4) Forwards annual audited financial statements to each Limited Partner.
(5) Provides to each Limited Partner tax information necessary for the preparation of his or her annual federal income tax return.
(6) Performs secretarial and other clerical responsibilities and furnishes office space, equipment and supplies as may be necessary for supervising the affairs of the Partnership.
(7) Administers the redemption of Units.
Item 3.
Item 3. Legal Proceedings.
The General Partner is not aware of any pending legal proceedings to which the Partnership is a party or to which any of its assets are subject. In addition, there are no pending material proceedings involving the General Partner.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
(a) Market Information. There is no trading market for the Units, and none is likely to develop. The Units are transferable only after written notice has been given to and approved by the General Partner. Units may be and have been redeemed upon 10 days' notice at their Net Asset Value as of the end of any month, as provided in the Limited Partnership Agreement. In the event that all Units for which redemption is requested cannot be redeemed as of any redemption date, Units will be redeemed in the order that requests for redemption have been received by the General Partner.
(b) Holders. As of November 1, 2002, there were 389 holders of Units.
(c) Dividends. No distributions or dividends have been made on the Units and the General Partner has no present intention to make any.
Item 6.
Item 6. Selected Financial Data.
The following is a summary of operations of the Partnership for each of the five fiscal years in the period ended October 31, 2002.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Reference is made to "Item 6. Selected Financial Data." and "Item 8.
Item 8. Financial Statements and Supplementary Data.
Financial statements are listed on page of this report.
Selected unaudited quarterly financial information is as follows:
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
The Partnership filed a Form 8-K on September 13, 2002 indicating a change in auditors for the fiscal year ended October 31, 2002. Such Form 8-K is herein incorporated by reference. A report from Ernst & Young LLP dated December 7, 2001 is filed as part of the financial statements to this report.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no directors or executive officers. The Partnership is managed by its General Partner. There are no "significant employees" of the Partnership.
The General Partner is a commodity pool operator registered with the NFA.
Item 11.
Item 11. Executive Compensation.
The Partnership has no directors or officers. The General Partner performs the services described in "Item 2. Properties." herein. Man Financial Inc acts as the Partnership's commodity broker pursuant to the Customer Agreement described in "Item 1(a). General development of business." Man Capital LLC and Man Financial Ltd act as the Partnership's forward dealer pursuant to the Customer Account Agreements described in "Item 1(a). General development of business."
The General Partner participates in any appreciation in the net assets of the Partnership in proportion to its investment in it.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners. The Partnership knows of no person who owns beneficially more than 5% of the Units.
(b) Security ownership of management.
Under the terms of the Limited Partnership Agreement, the Partnership's affairs are managed by the General Partner. The Trading Manager pursuant to its Management Agreement with the Partnership, enters into Management Contracts with the Trading Advisors who have discretionary authority over the Partnership's futures, options on futures and forward contract trading. The General Partner owned 220 Unit-equivalents valued at $250,617 as of October 31, 2002, 2.83% of the Partnership's total equity.
(c) Changes in control.
None
Item 13.
Item 13. Certain Relationships and Related Transactions.
See "Item 11. Executive Compensation" and "Item 12. Security Ownership of Certain Beneficial Owners and Management."
Item 14.
Item 14. Controls and Procedures.
Within 90 days of the filing of this report, the Chief Executive Officer and Chief Financial Officer of the General Partner of the Partnership conducted an evaluation of the effectiveness of the design and operation of the Partnership's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14 and 15d-14). Based on that evaluation, the General Partner's Chief Executive Officer and Chief Financial Officer concluded that the Partnership's disclosure controls and procedures are effective to make known to them in a timely fashion material information related to the Partnership required to be filed in this report. There have been no significant changes in the Partnership's internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements:
See Index to Financial Statements, infra.
(a)(2) Financial Statement Schedules:
All Schedules are omitted for the reason that they are not required, are not applicable, or because equivalent information has been included in the financial statements or the notes thereto.
(a)(3) Exhibits as required by Item 601 of Regulation S-K:
(3) Articles of Incorporation and By-Laws:
(a) Limited Partnership Agreement dated as of November 27, 1978, as amended on February 15, 1979.
(b) Certificate of Limited Partnership of the Partnership as filed with the Cook County Recorder of Deeds on November 30, 1978.
The above exhibits are incorporated by reference from the Form 10-K Annual Report filed by the Partnership for the period ended October 31, 1978.
(c) Form LP-1205 of the Partnership, as filed with the Illinois Secretary of State on July 31, 1987, electing to be governed under the Illinois Revised Uniform Limited Partnership Act.
The above exhibit is incorporated by reference from the Partnership's report on Form 10-K for the fiscal year ended October 31, 1987.
(10) Material Contracts:
(a) Joint Venture Agreement dated as of April 1, 1987 between the Partnership and Millburn Partners.
(b) Customer Agreement dated as of April 1, 1987 between the Joint Venture and Geldermann.
The above exhibits are incorporated by reference from the Partnership's report on Form 10-K for the fiscal year ended October 31, 1987.
(c) Amendment No. 1 to the Joint Venture Agreement between the Partnership and Millburn Partners dated December 31, 1987.
(d) Amendment No. 1 to the Customer Agreement between the Joint Venture and Geldermann dated December 31, 1987.
(e) Amendment No. 2 to the Joint Venture Agreement between the Partnership and Millburn Ridgefield Corporation dated December 31, 1988.
The above exhibits are incorporated by reference from the Partnership's report on Form 10-K for the Fiscal Year ended October 31, 1988.
(f) Management Agreement dated December 14, 1989 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the Partnership's report on Form 10-K filed on January 16, 1990.
(g) Amendment No. 1 to the Management Contract dated December 31, 1991 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the Partnership's report on Form 8-K filed on January 28, 1991.
(h) Amendment No. 2 to the Management Contract dated December 31, 1992 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the Partnership's report on Form 10-K filed on January 31, 1993.
(i) Amendment No. 3 to the Management Contract dated December 31, 1993 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the Partnership's report on Form 10-K filed on January 31, 1994.
(j) Amendment No. 4 to the Management Contract dated December 31, 1994 between the Partnership and the Trading Manager.
The above exhibit is incorporated by reference from the Partnership's report on Form 10-K filed on January 31, 1995.
(k) Trading Manager Agreement dated January 1, 1996 among the Partnership and the Trading Manager.
(l) Form of General Partnership Agreement among various commodity pools of which Heinold Asset Management, Inc. acts as sole general partner.
(m) Form of Management Contract among each Account Partnership and each trading advisor.
(n) Form of Management Contract among the Partnership and each trading advisor.
The above exhibits are incorporated by reference from the Partnership's report on Form 10-K filed on January 31, 1996.
(o) Back Office Service Agreement dated November 1, 1996 among Managed Asset Service Corp., the General Partner and the Partnership.
The above exhibit is incorporated by reference from the Partnership's report on Form 10-K filed on January 28, 1997.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
The above exhibits are filed herewith.
(b) Reports on Form 8-K
The Partnership filed a Form 8-K on September 13, 2002 indicating a change in auditors for the fiscal year ended October 31, 2002. Such Form 8-K is herein incorporated by reference. A report from Ernst & Young LLP dated December 7, 2001 is filed as part of the financial statements to this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago and State of Illinois on the 27th day of January, 2003.
THE FUTURE FUND
By HEINOLD ASSET MANAGEMENT, INC. General Partner
By /s/ Thomas M. Harte ------------------- Thomas M. Harte President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the General Partner of the Registrant in the capacities and on the date indicated.
Title with Signature General Partner Date
/s/ Thomas M. Harte President (chief operating January 27, 2003 - --------------------------- officer) and Director Thomas M. Harte
/s/ Ira Polk Chief Financial Officer January 27, 2003 - ------------------ (principal accounting officer) Ira Polk and Director
(Being the principal executive officer, the principal financial and accounting officer, and a majority of the directors of Heinold Asset Management, Inc.)
HEINOLD ASSET General Partner of January 27, 2003 MANAGEMENT, INC. Registrant
By /s/ Thomas M. Harte ------------------------ Thomas M. Harte President
CERTIFICATION
I, Thomas M. Harte, certify that:
1. I have reviewed this annual report on Form 10-K of The Future Fund;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: January 27, 2003 /s/ Thomas M. Harte ------------------- Chief Executive Officer
CERTIFICATION
I, Ira Polk, certify that:
1. I have reviewed this annual report on Form 10-K of The Future Fund;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in the Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: January 27, 2003 /s/ Ira Polk ------------ Chief Financial Officer
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED OCTOBER 31, 2002, 2001, AND 2000
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
PAGE(S) Reports of Independent Accountants Financial Statements: Statements of Financial Condition as of October 31, 2002 and 2001 Statements of Operations for the Years Ended October 31, 2002, 2001, and 2000 Statements of Changes in Partners' Equity for the Years Ended October 31, 2002, 2001, and 2000 Statements of Cash Flows for the Years Ended October 31, 2002, 2001, and 2000 Notes to Financial Statements -
Report of Independent Accountants
To the Board of Directors and Partners of the Future Fund:
In our opinion, the accompanying statement of financial condition as of October 31, 2002 and the related statements of operations, changes in partners' equity and cash flows present fairly, in all material respects, the financial position of The Future Fund (the "Partnership") at October 31, 2002, and the results of its operations, the changes in its partner's equity and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Partnership's General Partner; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
January 13, 2003 /s/ PRICEWATERHOUSECOOPERS LLP Chicago, Illinois PricewaterhouseCoopers LLP
Report of Independent Auditors
The Partners The Future Fund
We have audited the accompanying statements of financial condition of The Future Fund (the Partnership) as of October 31, 2001 and 2000, the related statements of operations, changes in partners' equity, and cash flows for each of the three years in the period ended October 31, 2001. These financial statements are the responsibility of the Partnership's General Partner. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 The Future Fund at October 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 2001, in conformity with accounting principles generally accepted in the United States.
Chicago, Illinois /s/ ERNST & YOUNG LLP December 7, 2001 Ernst & Young LLP
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF FINANCIAL CONDITION OCTOBER 31, 2002 AND 2001
The accompanying notes are an integral part of the financial statements.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED OCTOBER 31, 2002, 2001, AND 2000
The accompanying notes are an integral part of the financial statements.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY FOR THE YEARS ENDED OCTOBER 31, 2002, 2001, AND 2000
The accompanying notes are an integral part of the financial statements.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED OCTOBER 31, 2002, 2001, AND 2000
The accompanying notes are an integral part of the financial statements.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION OF THE PARTNERSHIP
The Future Fund (Partnership) was organized in November 1978, under the Illinois Uniform Limited Partnership Act, for purposes of engaging in the speculative trading of futures, options on futures, and forward contracts. Heinold Asset Management, Inc. (HAMI), a wholly owned subsidiary of Man Group USA Inc. is the general partner of the Partnership (General Partner).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS IN AFFILIATED GENERAL PARTNERSHIPS
Investments in affiliated general partnerships are valued at fair value as determined by the General Partner. In determining fair value, the General Partner utilizes the valuations of the underlying partnerships which are based entirely on the investments that the affiliated general partnerships have with the underlying financial instruments. The affiliated general partnerships value their underlying financial instruments on a mark-to-market basis of accounting. The income (loss) from investments in affiliated general partnerships are presented in the statements of operations on a pro rata basis.
DUE FROM AFFILIATED BROKER
Due from affiliated broker consists of balances, including interest receivable, due from Man Financial Inc. (Man), an affiliate of the General Partner. Man pays the Partnership interest on the Partnership's daily balance at a rate generally equal to 90% of the published 90-day U.S. Treasury bill rate.
Man is registered with the Commodity Futures Trading Commission (CFTC) as a futures commission merchant and is a member of the National Futures Association, an industry self-regulatory agency. Man is also registered with the Securities and Exchange Commission (SEC) and National Association of Securities Dealers, Inc. (NASD) as a securities broker-dealer.
EQUITY IN INCOME (LOSS) OF AFFILIATED GENERAL PARTNERSHIPS
Equity in income (loss) of affiliated general partnerships represents the Partnership's share of profits and losses (including realized and unrealized trading gains and losses on futures, options on futures and forward contracts and foreign currency translations) arising from its investment in the general partnerships.
INCOME AND EXPENSES
Income consists of interest income, which is recognized on an accrual basis. Expenses consist of those as described in Note 3 and are recorded on an accrual basis.
INCOME TAXES
Income taxes are not provided for by the Partnership because taxable income (loss) of the Partnership is includable in the income tax returns of the partners.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
NET INCOME (LOSS) PER UNIT
Net income (loss) per unit of Partnership interest is equal to the change in net asset value per unit from the beginning of the year to the end of the year. Unit amounts are rounded to whole numbers for financial statement presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the General Partner to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates.
3. LIMITED PARTNERSHIP AGREEMENT
The limited partners and the General Partner share in the profits and losses of the Partnership in proportion to the number of units or unit equivalents held by each partner. However, no limited partner is liable for obligations of the Partnership in excess of its capital contribution and profits, if any.
Distributions (other than redemption of units), if any, are made on a pro rata basis at the sole discretion of the General Partner.
Limited partners may redeem any or all of their units as of the end of any month at net asset value per unit on ten days' prior written notice to the General Partner. The Partnership is scheduled to be dissolved on July 1, 2025, or upon the occurrence of certain events as specified in the limited partnership agreement. The Partnership is closed to new subscriptions.
The Partnership bears the expenses incurred in connection with its activities. These expenses include brokerage commissions, trading advisors' management and incentive fees, legal, audit, tax return preparation and filing fees.
4. INVESTMENTS IN AFFILIATED GENERAL PARTNERSHIPS
The Partnership invests in a series of private affiliated general partnerships (General Partnerships) formed together with other HAMI limited partnerships. The General Partnerships engage in the speculative trading of futures, options on futures, and forward contracts based on their respective trading strategies. Each Trading Advisor has been directed by HAMI to trade each general partnership based on the level of capital the Partnership commits. The Partnership shares pro rata in profits and losses of such General Partnerships, based on the capital that the Partnership commits, as defined in the offering document, to each General Partnership.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
A separate General Partnership is utilized for each Commodity Trading Advisor (Trading Advisor) that the General Partner selects to trade Partnership assets. An affiliate of the General Partner is the Trading Advisor for Heinold General Partnership III. Under the terms of its management contract, each Trading Advisor has sole responsibility for determining the General Partnership's trades. As compensation for these services, each Trading Advisor receives a monthly management fee paid by HAMI and allocated to the Partnership based on a percentage of the Partnership's month-end assets, as defined in the offering document. Each Trading Advisor also receives a quarterly or annual incentive fee paid by HAMI and allocated to the Partnership based on a percentage of new trading profits, as defined in the offering document. The incentive fee is retained by a Trading Advisor even when trading losses, as defined in the offering document, occur in subsequent periods; however, no further incentive fees are payable until such trading losses (other than those attributable to redemptions) are recouped by the General Partnership. At October 31, 2002, there were carryforward losses related to the Partnership for incentive fee purposes as follows: Heinold General Partnership Account III $(134,748), Heinold General Partnership Account IV $(119,479), Heinold General Partnership Account V $(61,571), and Heinold General Partnership Account VI $(175,042).
At October 31, 2002, investments in General Partnerships were as follows:
At October 31, 2001, investments in General Partnerships were as follows:
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Each of the General Partnerships had total assets (no liabilities) consisting of the following at October 31, 2002:
Each of the General Partnerships had total assets (no liabilities) consisting of the following at October 31, 2001:
The General Partnerships incur no expenses. Each General Partnership's funds are held by, and its transactions cleared through, Man. These funds are used to meet minimum margin requirements for all of the General Partnership's open positions as set by the exchange where each futures contract is traded. These requirements are adjusted, as needed, due to daily fluctuations in the values of the underlying positions. Certain positions may be liquidated, if necessary, to satisfy resulting changes in margin requirements. Forward contracts are entered into on an arm's-length basis with Man Financial Ltd and Man Capital LLC, affiliates of the General Partner.
5. AGREEMENTS
The Partnership has a brokerage contract with Man which provides that the Partnership pay a monthly brokerage fee of 0.5833% (7% annually) of the Partnership's month-end net assets, as defined, plus NFA fees and related give-up charges.
The Partnership pays HAMI a monthly management fee of 0.333% (4% annually) of the Partnership's month-end net assets, as defined in the offering document. HAMI, in turn, pays each Trading Advisor of the General Partnerships at a rate of up to 4%. The Partnership pays the Trading Advisors a quarterly incentive fee of 20% of the Partnership's new trading profits, as defined in the offering document.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. DERIVATIVE FINANCIAL INSTRUMENTS
The General Partnerships trade derivative financial instruments. Derivative financial instruments involve varying degrees of market risk, whereby changes in the level or volatility of interest rates, foreign currency exchange rates, or market values of the underlying financial instruments or commodities may result in changes in the value of the financial instrument in excess of the amounts reflected in the summarized financial information of each respective General Partnership in Note 4.
Credit risk arises from the potential inability of counterparties to perform in accordance with the terms of the contract. Each General Partnership's exposure to credit risk associated with counterparty nonperformance is limited to the current cost to replace all contracts in which the General Partnership has gains. Exchange-traded financial instruments, such as futures and options on futures contracts, give rise to limited counterparty exposure as the clearing organization acts as the counterparty to all contracts.
The Partnership has general partner liability with respect to its interest in each of the General Partnerships.
The Partnership's and General Partnership's assets held at Man are in segregated accounts as required by the Commodity Futures Trading Commission.
7. FINANCIAL HIGHLIGHTS
The following represents the ratios to average limited partners' equity and other supplemental information for the year ended October 31, 2002:
* Net investment loss includes interest income and all expenses. ** An individual investors' return may vary from these returns based on the timing of capital transactions.