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 speculative trading of 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 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, E.D. & F. Man International Inc. (the #Commodity Broker#) replaced Geldermann as the Partnership's commodity broker. The General Partner and the Commodity Broker perform various services related to the Partnership's trading pursuant to a Customer Agreement.
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 $221,393 as of October 31, 1996.
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 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 prior to January 1, 1996, refer to MC Baldwin Financial Company and on and after January 1, 1996 to Heinold Asset Management, Inc.
The Trading Manager receives a Management Fee at an annual rate of 4% of the average month-end Net Asset Value, as defined, of the Partnership. The Trading Manager will also receive an incentive fee equal to 20% of any New Trading Profit attributable to each trading advisor (including interest income) to be calculated and paid quarterly.
On April 1, 1996, the Partnership, pursuant to an exemption from the Commodity Futures Trading Commission (the "CFTC"), ceased trading on a stand-alone basis. Since that date, the Partnership has been trading 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 which each pool contributes 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 should be effectively transparent to the Unitholders.
The Partnership shall pay commodity brokerage commissions to the Commodity Broker at an annual rate of 7% of average 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 which 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, speculative trading of futures and forward contracts for financial reporting purposes. The Partnership does not engage in sales of goods or services. The Partnership's revenue, operating profit and total assets for each of the five fiscal years in the period ended October 31, 1996 are set forth under "Item 6. Selected Financial Data."
(c) Narrative description of business.
(1) See Items 1(a) and (b) above.
(i) through (xii) -- not applicable.
(xiii) -- the Partnership has no employees.
(d) Financial information about foreign and domestic operations and export sales. The Partnership does not engage in sales of goods or services. See "Item 1(b). Financial information about industry segments."
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 (including a statement of financial condition and a statement of operations) 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 or the Commodity Broker.
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 of Limited Partners will be redeemed in the order that requests for redemption have been received by the General Partner.
(b) Holders. As of November 1, 1996, there were 730 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, 1996.
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.
The supplementary financial information specified by Item 302 of Regulation S-K is not applicable.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
The Partnership filed a Form 8-K on January 16, 1997 indicating a change in accountants for the fiscal year ended December 31, 1997. Such Form 8-K is herein incorporated by reference.
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. Geldermann acts as the Partnership's commodity broker pursuant to the Customer Agreement described in "Item 1(a). General development of business."
The General Partner participates in any appreciation in the net assets of the Partnership in proportion to its investment 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 s with the Trading Advisors who have discretionary authority over the Partnership's futures and forward contract trading. The General Partner owned 220 Unit-equivalents valued at $221,393 as of October 31, 1996, 1.54% 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."
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements:
See Index to Financial Statements, infra.
(a)(2) Financial Statement Schedules:
All Schedules are omitted for the reason that they are not required, are not applicable, or because equivalent information has been included in the financial statements or the notes thereto.
(a)(3) Exhibits as required by Item 601 of Regulation S-K:
(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 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 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 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 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) 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 filed herewith.
(b) Reports on Form 8-K
The Partnership did not file any reports on Form 8-K during the quarter ended October 31, 1996. The Partnership did, however, file a Form 8-K on January 16, 1997, indicating a change in accountants for the fiscal year ended 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, in the City of Chicago and State of Illinois on the 24th day of January, 1997.
THE FUTURE FUND
By HEINOLD ASSET MANAGEMENT, INC. General Partner
By /s/ Daniel E. Ragen Daniel E. Ragen President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the General Partner of the Registrant in the capacities and on the date indicated.
(Being the principal executive officer, the principal financial and accounting officer, and a majority of the directors of Heinold Asset Management, Inc.)
By/s/ Daniel E. Ragen ------------------- Daniel E. Ragen President
The Future Fund (An Illinois Limited Partnership)
Financial Statements as of October 31, 1996 and 1995 and for the Three Years Ended October 31, 1996 and Independent Auditors' Report
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
INDEPENDENT AUDITORS' REPORT
To the General Partner and Limited Partners of The Future Fund:
We have audited the financial statements of The Future Fund (an Illinois Limited Partnership, the "Partnership") as of October 31, 1996 and 1995, and for each of the three years in the period ended October 31, 1996 listed in the table of contents. These financial statements are the responsibility of the Partnership's General Partner. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the financial position of The Future Fund as of October 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended October 31, 1996, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 13, 1996
THE FUTURE FUND (An Illinois Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION OCTOBER 31, 1996 AND 1995
See notes to financial statements.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS YEARS ENDED OCTOBER 31, 1996, 1995, AND 1994
See notes to financial statements.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNER'S CAPITAL YEARS ENDED OCTOBER 31, 1996, 1995, AND 1994
See notes to financial statements.
THE FUTURE FUND (An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS YEARS ENDED OCTOBER 31, 1996, 1995 AND 1995
See notes to financial statements.
THE FUTURE FUND (AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS YEARS ENDED OCTOBER 31, 1996, 1995, AND 1994
1. ORGANIZATION OF THE PARTNERSHIP
The Future Fund (the "Partnership") was organized in November 1978, under the Illinois Uniform Limited Partnership Act (the "Act"), for the purposes of engaging in speculative trading of primarily futures and forward contracts.
Heinold Asset Management, Inc. ("HAMI"), a wholly owned subsidiary of Geldermann, Inc. ("Geldermann"), is the General Partner of the Partnership. On December 12, 1994, the parent of Geldermann, ConAgra, Inc., sold all of the common stock of Geldermann to E.D. & F. Man International ("Man"). As a result, Geldermann and HAMI are wholly owned by Man.
The Partnership has a brokerage contract with Man, previously Geldermann, which provides that the Partnership will pay Man brokerage commissions at an annual rate of 7% of average month- end net assets as defined, plus "give-up" and NFA fees.
The Partnership's funds held at Man, previously Geldermann, are in segregated accounts, as required by the Commodity Futures Trading Commission. These funds are used to meet minimum margin requirements for all of the Partnership#s open positions, as set by the exchange upon which each futures contract is traded. These requirements are adjusted, as needed, due to daily fluctuations in the values of the underlying positions. If necessary, certain positions may be liquidated to satisfy resulting changes in margin requirements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 income and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition - Futures and forward contracts are recorded on trade dates and are reflected in the accompanying Statements of Financial Condition at the market value on the last business day of the reporting period. The difference between the original contract amount and the market value of the futures and forward contracts is reflected as the change in net unrealized appreciation. Market values of futures contracts are based upon exchange settlement prices. Market values of forward contracts are based upon quoted rates provided by major financial institutions.
Operating Expenses - The Partnership bears all expenses incurred in connection with its activities. These include brokerage commissions, trading manager#s management fee, trading advisors' incentive fees, "give-up" charges and NFA fees, and periodic legal, auditing, tax return preparation and filing fees. The General Partner bears all other operating expenses.
Income Taxes - No provision for federal income taxes has been made in the accompanying financial statements since the net income (loss) of the Partnership is not taxable as such but is includable in the income tax returns of the individual partners.
Statements of Cash Flows - For purposes of reporting cash flows, cash includes only cash on deposit at financial institutions.
3. FAIR VALUE AND OFF-BALANCE SHEET RISK
The Partnership trades both cash and derivative financial instruments. The Company's principal source of revenues by reporting category for 1996 is as follows:
The Partnership was organized to engage in speculative trading of a diversified portfolio of futures and forward contracts and commodity options. SFAS No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments," defines a derivative as a future, forward, swap or collars. Generally, these financial instruments represent future commitments to exchange interest payment streams or currencies, or to purchase or to sell other financial instruments, at specific terms at specified future dates. Option contracts provide the holder with the right, but not the obligations, to purchase or sell a financial instrument at a specific price before or on an established date. These financial instruments may have market and/or credit risk in excess of amounts recorded in the Statements of Financial Condition.
Market Risk - Derivative financial instruments involve varying degrees of off-balance sheet market risk, whereby changes in the level or volatility of interest rates, foreign currency exchange rates or market values of the underlying financial instruments or commodities may result in changes in the value of the financial instrument in excess of amounts currently reflected in the Statements of Financial Condition. The Partnership's exposure to market risk is influenced by a number of factors, including the relationships among financial instruments with off-balance sheet risk and between financial instruments with off-balance sheet risk and the Partnership's proprietary commodities, as well as the volatility and liquidity in the markets in which the financial instruments are traded.
Fair Value - The derivative instruments used in the Partnership's trading activities are marked to market daily with the resulting unrealized gains or losses recorded in the Statements of Financial Condition and the related income or loss reflected in revenues derived from these transactions. The fair value of derivative financial instruments held or issued for trading purposes as of October 31, 1996 and the average monthly fair value of the instruments for the fiscal year ended October 31, 1996 are as follows:
4. THE LIMITED PARTNERSHIP AGREEMENT
The Limited Partnership Agreement (the "Agreement") provides the following:
Allocation of Profit and Loss for Partnership Accounting Purposes - The Limited Partners and the General Partner share in the profits and losses of the Partnership in proportion to the number of units or unit equivalents held by each. However, no Limited Partner is liable for obligations in excess of his capital contribution and profits, if any, and such other amounts for which a Limited Partner may be liable pursuant to the Act.
Distributions - Distributions (other than redemptions of units) are made on a prorata basis at the sole discretion of the General Partner in accordance with the respective capital accounts of the partners. The General Partner has made no distributions from the Partnership to date.
Redemptions - A Limited Partner (or any assignee thereof) may cause any or all of his units to be redeemed as of the first day of any month following 10 days' written request for redemption, subject to certain other conditions, as described in the Agreement. Redemption is at net asset value as of the previous month-end.
Dissolution - The Partnership will be dissolved on July 1, 1998, or upon the occurrence of certain future events, as specified in the Agreement.
5. ADVISORY AGREEMENT
The Partnership enters into various advisory agreements (the "Advisory Agreements"). As of October 31, 1996, the Partnership's trading advisors are Willowbridge, Marathon, Eckhardt, and SJO.
In addition, effective April 1, 1996, the Fund began trading through participating in a series of private general partnerships ("Account Partnerships") formed together with other Heinold pools. The Fund shares pro rata in profits and losses of such Account Partnerships, based on capital that the Fund contributes to each partnership. A separate Account Partnership was formed for each Commodity Trading Advisor ("Trading Advisor") that the General Partner selected to trade assets of the pools.
Under the terms of the Advisory Agreements and Account Partnership contracts, the Trading Advisors have sole responsibility for determining the Partnership's trades. As compensation for these services, the Trading Advisors receive a monthly management fee, based on a percentage of the Partnership's month-end net assets, as defined in the agreements.
The Trading Advisors also receive either a quarterly or annual incentive fee of 20 percent of new trading profits, as defined. The incentive fee is retained by the Trading Advisors even when "trading losses," as defined, occur in subsequent periods; however, no further incentive fees are payable until such trading losses are recouped by the Partnership.
******
To the best of my knowledge and belief, the information in this statement is accurate and complete.
Heinold Asset Management, Inc. (Pool Operator)
/s/ Lee E. Meyers Lee E. Meyers Executive Vice-President and Chief Financial Officer