ITEM 1. Business
(a) General Development of Business
The Global Opportunity Fund, L.P. (the "Partnership") is a limited partnership organized in April 1992, pursuant to a Limited Partnership Agreement and under the Uniform Limited Partnership Act of the State of Delaware and funded through an offering of limited partnership units. The Partnership commenced trading on September 15, 1993. The Partnership conducts speculative trading of commodity interests.
The Global Opportunity Fund Limited Partnership will terminate on December 31, 2022, unless dissolved earlier pursuant to conditions of the Limited Partnership agreement.
Rodman & Renshaw Futures Management, Inc., an Delaware corporation wholly owned by Rosenthal Collins Group L.P., is the General Partner of the Partnership. In May of 1998 Rosenthal Collins Group, an Illinois Limited Partnership, ("the broker"), was enlisted to act as the commodity clearing firm for the Partnership and it performs various administrative services for the fund. Services performed for the Partnership by the commodity broker or the General Partner under the terms of the Customer and the Limited Partnership Agreements, include the following:
1. Executes all trades on behalf of the Partnership based on instructions of the Partnership's Trading Manager.
2. Maintains the Partnership books and records, which limited partners or their duly authorized representatives may inspect during normal business hours for any proper purpose upon reasonable written notice to the General Partner.
3. Furnishes each limited partner with a monthly statement describing the performance of the Partnership, which sets forth aggregate management fees, incentive fees, brokerage commissions and other expenses incurred or accrued by the Partnership during the month.
4. Forwards annual certified financial statements (including a balance sheet and a statement of income and expenses) to each limited partner.
5. Provides to each limited partner tax information necessary for the preparation of his annual federal income tax return and such other information as the CFTC may by regulation require.
6. Performs secretarial and other clerical responsibilities and furnishes office space, equipment and supplies as may be necessary for supervising the affairs of the Partnership.
7. Administer the redemption of Units.
Under the terms of the Customer Agreement, the Partnership pays brokerage commissions to the commodity broker of $10 per round turn per contract for futures contracts.
The Partnership pays the General Partner, Rodman & Renshaw Futures Management, Inc., an annual brokerage fee equal to an annual rate of seven and one half percent of the average month-end net assets as a whole, as defined, during the year.
Trading Managers responsible for selecting commodity transactions during the first quarter of 1998 were Campbell and Co., Willowbridge, Telesis, and Timetech. Willowbridge was the only Trading Manager retained to trade for the Fund during all of 1998. None of the Trading Managers are affiliated with Rodman & Renshaw Futures Management or with Rosenthal Collins Group. For their services, each Trading Manager received a management fee equal to an annual two percent of the month end net assets, after commissions and charges, based on the portion of Fund equity allocated to the respective Trading Manager. The Fund pays a quarterly incentive fee based on new appreciation on Partnership assets attributable to each Trading Manager, which includes the Partnership's interest income. Such quarterly incentive fee equals 20% of trading profits attributed to the individual Trading Manager. If the fund should incur net losses subsequent to any such payment to a Trading Manager, the Trading Manager shall be entitled to retain amounts previously paid by the Fund; However, no subsequent fee will be paid until the Trading Manager's allocation of equity has experienced new appreciation.
Regulation
Under the Commodity Exchange Act, as amended (the "Act"), commodity exchanges and futures and options trading are subject to regulation by the Commodity Futures Trading Commission (the "CFTC"). The Act requires "Commodity Pool Operators," such as the General Partner and "Commodity Trading Advisors," such as the Trading Managers, to be registered and to comply with various reporting and record keeping requirements. The CFTC may suspend a Commodity Pool Operator's or 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 any Trading Manager's registration as a Commodity Trading Advisor were terminated or suspended, the General Partner and the Trading Manager, respectively, would be unable to continue to manage the business of the Partnership. Should the General Partners' registration be suspended, termination of the Partnership might result. The Act also requires the commodity Broker to be registered as a "Futures Commission Merchant."
In addition to such registration requirements, the CFTC and certain commodity exchanges have established limits on the maximum net long or net short position which any person may hold or control in particular commodities. The CFTC has adopted a rule requiring all domestic commodity exchanges to submit for approval speculative position limits for all futures contracts traded on such exchanges. Most exchanges also limit the changes in commodity 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 operates in one business segment, speculative trading of commodity futures contracts. The Partnership does not engage in sales of goods or services.
(c) Narrative Description of Business
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 "Paragraph 1(b) Financial information about industry segments.
PART II ----------
Item 2.
Item 2. Properties
The Partnership does not own any properties.
Item 3.
Item 3. Legal Proceedings
The General Partner is not aware of any pending legal proceedings to which the Partnership or the General Partner is a party.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters
(a) Market Information
There is no trading market for the Units, and none is likely to develop. Units are transferable only after written notice has been given to the General Partner.
Units may be redeemed upon fifteen days notice at their Net Asset Value (as defined in the Limited Partnership Agreement) as of the end of any calendar quarter, less any early redemption penalty as provided in the Limited Partnership Agreement.
(b) Holders
As of December 31, 1998, there were 120 holders of the Limited Partner Units. 7464 units were outstanding on this date, including 537 units of General Partnership interest.
(c) Dividends
There were no dividends or distributions made in respect of the Units and any future distributions will only be made at the discretion of the General Partner.
Item 6.
Item 6. Selected Financial Data
The following page contains a summary of selected consolidated financial data for the Partnership for the fiscal years ended December 31, 1998, 1997, 1996, 1995 and 1994.
THE GLOBAL OPPORTUNITY FUND, L.P. SELECTED FINANCIAL DATA December 31
1998 1997 1996 1995 1994 ---- ---- ---- ---- ----
INCOME:
Trading gains (losses) Realized $ 263,363 $199,213 $567,853 $ 1,614,266 $280,319 Change in unrealized (53,196) 48,261 (410,296) 89,187 (86,031) Foreign currency (loss) (8,145) (8,271) (2,210) (4,895) (10,764) ---------- -------------------- --------- ---------
Total trading and foreign currency gains 202,022 239,203 155,347 1,698,558 183,524
Interest income 58,794 78,133 80,090 166,835 64,062 --------- -------------------- --------- ---------
Total income 260,816 317,336 235,437 1,865,393 247,586 --------- -------------------- --------- ---------
EXPENSES:
Brokerage commissions 89,057 136,558 171,730 283,682 360,858 Management fees 17,083 36,255 58,757 120,929 100,604 Incentive fees 11,890 68,959 45,273 324,275 126,427 Administrative fees 72,000 80,132 69,620 55,000 73,960 State taxes - (95) (1,590) 6,254 0 ---------- -------------------- --------- ---------
Total expenses 190,030 321,809 343,790 790,140 661,849 ---------- -------------------- --------- ---------
NET INCOME (LOSS) 70,786 (4,473) (108,353) 1,075,253 (414,263) ========== ==================== ========= =========
TOTAL ASSETS $ 975,078 $1,554,642$2,122,244 $3,158,002$4,319,234 ========== ==================== ==================
TOTAL LIABILITIES $ 34,844 $ 49,916 $ 87,746 $181,669 $ 64,906 ========== ==================== ==================
PARTNER'S CAPITAL:
Limited Partners (units outstanding): 1998 - 6,927; 1997 - 12,485; 1996 - 17,363; 1995 - 24,658; 1994 - 47,278) 871,265 1,441,460 1,970,331 2,911,630 4,205,575
General Partner (units outstanding: 1998, 1997,1996, 1995 - 537) 68,969 63,266 64,167 64,703 48,753 ---------- -------------------- --------- ---------
Total partners' capital 940,234 1,504,726 2,034,498 2,976,333 4,254,328 ---------- -------------------- --------- ---------
TOTAL LIABILITIES AND
PARTNERS' CAPITAL 975,078 1,554,642 2,122,244 3,158,002 4,319,234 ========== ==================== ========= =========
NET ASSET VALUE PER UNIT - LIMITED PARTNERS $ 125.78 $ 115.46 $ 117.10 $ 118.08 $ 88.95
NET ASSET VALUE PER UNIT - GENERAL PARTNER $ 128.43 $ 117.01 $ 119.49 $ 120.49 $ 90.79
NET INCOME (LOSS) PER LIMITED PARTNER UNIT $ 10.32 $ (1.64) $ (.98) $ 29.13 $ (7.95)
NET INCOME (LOSS) PER GENERAL PARTNER UNIT $ 10.62 $ (1.68) $ (1.00) $ 29.70 $ (8.12)
See Notes to Financial Statements.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
Liquidity
Reference is made to "Item 6. Selected Financial Data" and "Item 8.
Item 8. Financial Statements and Supplementary Data
Financial statements meeting the requirements of Regulation S-X 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. Disagreements on Accounting and Financial Disclosure
None.
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. Trading decisions for the Partnership are made by the Trading Manager. The General Partner is Rodman & Renshaw Futures Management, Inc., which is owned by Rosenthal Collins Group, L.P. The address of the General Partner is 216 W. Jackson Blvd. Suite 300, Chicago, Illinois 60606.
Item 11.
Item 11. Executive Compensation
The Partnership has no directors or officers. The Fund is managed by the General Partner as described in "Item 1. Business" herein.
During the past year, four trading advisors acted as the Partnership's Trading Managers, pursuant to the Management Contracts described in "Item 1. Business." For the year ended December 31, 1998. Campbell and Co. was paid $17,564 in consulting fees, while Willowbridge was paid $19,702, Telesis $1,229, and Timetech $1,900. For the year ended December 31, 1998 Rodman & Renshaw Futures Management, Inc. has been paid $63,406 in brokerage fees, and Rosenthal Collins Group has been paid $2,852 in brokerage clearing commission. Additionally, Rand Financial Services was paid $8,048 in commission, as they were the clearing brokers for the fund through April of 1998.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
None of the four Trading Managers owned units in the Partnership during 1998. On December 31, 1998 Rodman and Renshaw Futures Management, Inc., the General Partner, owned 7.34% of the Fund while Donald Christensen, a Limited Partner, owned 6.46%.
(b) Security Ownership of Management
Under the terms of the Limited Partnership agreement, the Partnership's affairs are managed by the General Partner and the Trading Manager has discretionary authority over the Partnership's commodity investments. As of December 31, 1998 the General Partner's interest in the Partnership was worth $68,969.
(c) Changes in Control
The Fund's General Partner is Rodman & Renshaw Futures Management, Inc., a Delaware corporation. The General Partner was a wholly-owned subsidiary of Rodman & Renshaw Capital Group, Inc. until April 24, 1998 when it was sold to Rosenthal Collins Group, L.P., an Illinois Limited Partnership. Rosenthal Collins Group, L.P. is a registered Futures Commission Merchant and has served as the clearing broker for The Global Opportunity Fund, L.P. since April 24, 1998. Prior to that date, Rand Financial Services was the clearing broker for the Fund.
J. Robert Collins is a General Partner of Rosenthal Collins Group and is the President of Rodman & Renshaw Futures Management, Inc., the General Partner of The Global Opportunity Fund, L.P.
From January through March of 1998 Campbell and Co., Willowbridge, Telesis, and Timetech were retained as Trading Managers for the Fund. From April through the remainder of 1998, Willowbridge was the sole Trading Manager of the fund. None of the four Trading Managers has any affiliations with the General Partner, Rodman & Renshaw Futures Management, or with Rosenthal Collins Group.
Item 13.
Item 13. Certain Relationships and Related Transactions
Refer to Item 12, section (c)
The General Partner, Rodman & Renshaw Futures Management, Inc., is a Corporation wholly owned by Rosenthal Collins Group.
All charges are described in Item 1. Business, and amounts paid are described in Item 11. Executive Compensation.
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 on page.
(a) (2) Financial Statements Schedules
Schedules are omitted for the reason that they are not required or are not applicable or that equivalent information has been included in the financial statements or the notes thereto.
(a) (3) Exhibits
(3) Articles of Incorporation and By-laws
a. Limited Partnership Agreement (attached to the Prospectus as Exhibit B)
b. Subscription Requirements (attached to the Prospectus as Exhibit B)
c. Power of Attorney (attached to the Prospectus as Exhibit B)
d. Request for Redemption (attached to the Prospectus as Exhibit D)
(10) Material Contracts
a. Brokerage Agreement between the Partnership and Rosenthal Collins Group, L.P.
b. Advisory contract between Registrant and Campbell and Co.
c. Advisory contract between Registrant and Willowbridge.
d. Advisory contract between Registrant and Telesis.
e. Advisory contract between Registrant and Timetech.
(b) Reports on Form 8-K
The General Partner filed a report on form 8-K in February of 1998. The purpose of the filing was a change in independent auditors. The Fund replaced Coopers & Lybrand with McGladrey & Pullen, LLP as auditors.
INDEX OF EXHIBITS
(The following exhibits have been previously filed)
Exhibit Description Number
3.1 Limited Partnership Agreement (attached to the Prospectus as Exhibit A).
3.2 Subscription Requirements (attached to the Prospectus as Exhibit B).
3.3 Power of Attorney (attached to the Prospectus as Exhibit C).
3.4 Request for Redemption (attached to the Prospectus as Exhibit D).
10.01 Customer Agreement between Registrant and Rosenthal Collins Group
10.02 Advisory contract between Registrant and Campbell and Co.
10.03 Advisory contract between Registrant and Willowbridge.
10.04 Advisory contract between Registrant and Telesis.
10.05 Advisory contract between Registrant and Timetech.
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 _______ day of _____________, 1999.
THE GLOBAL OPPORTUNITY FUND, L.P. STATE OF ILLINOIS COUNTY OF COOK By RODMAN & RENSHAW FUTURES MANAGEMENT, INC. SUBSCRIBED and SWORN to before me this _________ day of _______ 1999
- --------------------------- By J. Robert Collins 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.
By RODMAN & RENSHAW FUTURES MANAGEMENT, INC. STATE OF ILLINOIS General Partner of the Registrant COUNTY OF COOK
SUBSCRIBED and SWORN to before me
this day of 1999
By J. Robert Collins President
(the above signatories being the principal executive officer of Rodman & Renshaw Futures Management, Inc.)
The Global Opportunity Fund, L.P. (An Illinois Limited Partnership)
Pages
Report of Independent Accountants
Financial Statements: Statements of Financial Condition as of December 31, 1998 and 1997
Statements of Operations for the years ended December 31, 1998, 1997, and 1996
Statements of Changes in Partners' Capital for the years ended December 31, 1998, 1997, and 1996
Notes to Financial Statements /F-8
Schedules are omitted because they are inapplicable or equivalent information has been included elsewhere herein.
INDEPENDENT AUDITOR'S REPORT
To the Partners The Global Opportunity Fund, L.P. Chicago, Illinois
We have audited the accompanying statements of financial condition of the Global Opportunity Fund, L.P. as of December 31, 1998 and 1997, and the related statements of operations and changes in partners' capital for the years then ended. 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. The financial statements of the Global Opportunity Fund, L.P. for the year ended December 31, 1996, were audited by other auditors whose report, dated March 17, 1997, expressed an unqualified opinion on those statements.
Except as discussed in the following paragraph, 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.
Both current and former management have refused to provide written representations as to their responsibility for the fair presentation of the financial statements and other matters which could materially affect the amounts and classification of items included in the financial statements for the year ended December 31, 1997. Such representations are required under generally accepted auditing standards. Since the current and former management of the Global Opportunity Fund have refused to provide written representations as noted in the preceding paragraph, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the financial statements for the year ended December 31, 1997.
In our opinion, the 1998 financial statements referred to above represent fairly, in all material respects, the financial position of the Global Opportunity Fund, L.P. as of December 31, 1998, and the results of its operations and changes in its net assets for the year then ended in conformity with generally accepted accounting principles.
Chicago, Illinois March 11, 1999
THE GLOBAL OPPORTUNITY FUND, L.P. (A Delaware Limited Partnership)
STATEMENTS OF FINANCIAL CONDITION December 31, 1998 and 1997
ASSETS 1998 1997 ---- ---- Equity in futures and forwards trading accounts: Cash $ 367,839 $ 464,386 United States Treasury securities, at market value, cost 1997 $1,026,788; 1996 $1,394,294 598,039 1,027,478 Net unrealized appreciation on open contracts 8,120 61,316 ----------- ---------- Total equity in futures and forwards trading accounts 973,998 1,553,180
Receivable from commodity broker 0 0 Other receivable 1,080 1,462 ----------- ---------- $ 975,078 $1,554,642 =========== ========== LIABILITIES AND PARTNERS' CAPITAL
Liabilities Accrued administrative expenses $ 25,009 $ 25,220 Accrued brokerage commissions and fees 5,618 8,822 Accrued management fees 4,217 6,377 Accrued incentive fees 0 9,261 Miscellaneous payables 0 236 ----------- ---------- Total liabilities 34,844 49,916 ----------- ---------- Partners' Capital Limited Partners (units outstanding: 1998 - 6,927; 1997 - 12,485) 871,265 1,441,460 General Partner (units outstanding: 1998 and 1997 - 537) 68,969 63,266 ----------- ---------- 940,234 1,504,726 ----------- ----------
$ 975,078 $1,554,642 =========== ==========
Net asset value per unit, Limited Partners $ 125.78 $ 115.46 =========== ========== Net asset value per unit, General Partner $ 128,43 $ 117.81 =========== ==========
See Notes to the Unaudited Financial Statements.
THE GLOBAL OPPORTUNITY FUND, L.P. (A Delaware Limited Partnership)
STATEMENTS OF OPERATIONS Years Ended December 31, 1998, 1997 and 1996
1998 1997 1996 ---- ---- ----
Revenues: Trading gain (loss): Realized $ 263,363 $ 199,213 $ 567,853 Change in unrealized (53,196) 48,261 (410,296) Foreign currency (loss) (8,145) (8,271) (2,210) ---------- ---------- ---------- Gain from trading 202,022 239,203 155,347
Interest income 58,794 78,133 80,090 ---------- ---------- ---------- Total revenues 260,816 317,336 235,437 ---------- ---------- ----------
Expenses: Brokerage commissions 89,057 136,558 171,730 Management fees 17,083 36,255 58,757 Incentive fees 11,890 68,959 45,273 Administrative expenses 72,000 80,132 69,620 State taxes 0 (95) (1,590) ---------- ---------- ----------- Total expenses 190,030 321,809 343,790 ---------- ---------- -----------
Net income (loss) $ 70,786 $ (4,473) $(108,353) ========== ========== =========== Net income (loss) allocated to: Limited Partners $ 65,083 $ (3,572) $(107,817) ========== ========== ===========
General Partner $ 5,703 $ (901) $ (536) ========== ========== ===========
Net income (loss) per Limited Partner unit outstanding throughout each period $ 10,32 $ (1.64) $ (.98) ========== ========== =========== Net income (loss) per General Partner unit outstanding throughout each period $ 10.62 $ (1.68) $ (1.00) ========== ========== ===========
THE GLOBAL OPPORTUNITY FUND, L.P. (A Delaware Limited Partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL Years Ended December 31, 1998, 1997 and 1996
Total Number of General Limited Units Partner Partners Total --------- ------- -------- ---------
Balance, December 31, 1995 25,195 $ 64,703 $2,911,630 $ 2,976,333
Redemption of 7,832 units of Limited Partnership Interest (7,832) 0 (833,482) (833,482) Net (loss) 0 (536) (107,817) (108,353) -------- --------- ---------- ----------
Balance, December 31, 1996 17,363 64,167 1,970,331 2,034,498
Redemption of 4,341 units of Limited Partnership Interest (4,341) 0 (525,299) (525,299) Net (loss) 0 (901) (3,572) (4,473) -------- --------- ---------- ----------
Balance, December 31, 1997 13,022 63,266 1,441,460 1,504,726
Redemption of 6,095 units of Limited Partnership Interest (5,558) 0 (635,279) (635,279) Net (loss) 0 5,703 65,083 70,786 -------- --------- ---------- ----------
Balance, December 31, 1998 7,464 $ 68,969 $ 871,264 $ 940,233 ======== ========= ========== ==========
December 31, 1998 1997 ---------- ---------- Net asset value per unit, Limited Partners $ 125.78 $ 115.46
Net asset value per unit, General Partner $ 128.43 $ 117.81
NOTES TO FINANCIAL STATEMENTS
NOTE 1. Organization of the Partnership and Significant Accounting Policies
General Description of the Partnership: The Global Opportunity Fund, L.P. (the Partnership) was organized under the Delaware Revised Uniform Limited Partnership Act on April 15, 1992, to engage in the speculative trading of commodity futures, forward contracts, and other commodity interests. It is subject to the regulations of the Commodity Futures Trading Commission (CFTC), an agency of the U.S. Government that regulates most aspects of the commodity futures industry, the rules of the National Futures Association (NFA), an industry self-regulatory organization, and the requirements of commodity exchanges where the Partnership executes transactions. Additionally, the Partnership is subject to the requirements of Futures Commission Merchants (FCMs) through which the Partnership trades.
250,000 units of Limited Partnership interest were available during the initial offering period. The Partnership is closed and not presently selling additional units.
The General Partner and each Limited Partner share in the profits and losses of the partnership in proportion to their respective interest in the partnership. A Limited Partner's loss is limited to the amount of his or her investment.
Significant accounting policies are as follows:
Accounting estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition: Futures contracts are recorded on trade date and gains or losses are realized when contracts are liquidated. Unrealized gains or losses on open contracts (the difference between contract purchase price and market price) at the date of the statement of financial condition are included in equity in broker trading accounts. Any change in net unrealized gain or loss from the preceding period is reported in the statement of operations. Market value of futures contracts is based upon exchange settlement prices.
Income taxes: No provision for federal income taxes has been made in these financial statements as each partner is individually responsible for reporting income or loss based on their respective share of the Partnership's income and expenses as reported for income tax purposes. The Partnership is required to pay an Illinois replacement tax of 1.5% of net income related to those limited partners who are not otherwise subject to the tax.
Dissolution of Partnership: The Partnership will terminate on December 31, 2022 or at an earlier date if certain conditions occur, including a decline in aggregate net assets to less than $250,000, a decline in the net asset value per unit as of the end of any month to less than $25, or under certain other circumstances, as set forth in the Limited Partnership Agreement.
Newly issued accounting standards: In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," (SFAS No. 133) was issued. The Company adopted SFAS 133 during 1998. The impact on the Company's financial position and results of operations was not material.
Right of setoff of certain amounts: Pursuant to the Partnership's agreement with its FCM, all balances placed on deposit with such broker, whether used for trading purposes or not, are available to be used for margin purposes on any exchange and for any contract in which the Partnership trades. The Partnership has similar agreements with a financial institution for its over-the-counter forward contracts. As a result, the financial statements only present the net asset or liability relating to such trading activities.
NOTE 2. General Partner
For the fiscal years ended December 31, 1996 and 1997, the General Partner has been Rodman & Renshaw Futures Management, Inc. Effective April 1998, the General Partner became a wholly owned subsidiary of Rosenthal Collins Group, L.P. (Rosenthal Collins). The General Partner conducts and manages the business of the Partnership and is required by the Limited Partnership Agreement to maintain an investment in the Partnership of at least 1% of the outstanding units in the Partnership. The Limited Partnership Agreement also requires the General Partner to maintain a net worth (as defined in the Limited Partnership Agreement) of not less than 10% of the total contributions to the Partnership.
NOTE 3. Operating Expenses
Brokerage commissions payable to the respective FCM or General Partner include other trading fees and are charged based on a percentage of partnership net assets. Also, the Partnership incurs ongoing legal, accounting and administrative costs.
NOTE 4. Related Party Transactions
In 1996, Rodman & Renshaw, Inc., an affiliate of Rodman & Renshaw Futures Management, Inc. was the Partnership's FCM. In 1997 and through 1998, an unaffiliated FCM was the broker. Effective May 1998, Rosenthal Collins became the Partnership's FCM.
The Partnership pays the FCM (General Partner in 1998) 0.625 of 1% (a 7.5% annual rate) of the Partnership's month-end assets for brokerage and other services. Furthermore, the Partnership pays all "give-up" fees, as defined. For the years ended December 31, 1998, 1997, and 1996, brokerage commission expenses totaled $89,057, $136,558 and $171,730, respectively. As of December 31, 1998, brokerage commissions payable to the General Partner were $5,618.
NOTE 5. Commodity Trading Advisors
The Partnership has advisory agreements with various commodity trading advisors (CTA's). Each of the advisory agreements may be renewed at or prior to their expiration at the option of the General Partner. Each CTA, however, may terminate its advisory agreement with the Partnership prior to the expiration of its initial agreement upon 90 days' prior written notice. The CTA's will determine the commodity futures and forward trades to be made on behalf of the Partnership, subject to certain trading policies and to certain rights reserved to the General Partner.
The CTAs receive a monthly management fee of 0.166 of 1% of month-end Net Assets (as defined) allocated to them (2% annual rate).
Quarterly incentive fees equal to 20% based on any new trading profit, as defined, generated by each CTA, considered individually, are paid to the respective CTA. Such payments are also made in respect of units redeemed as of the interim months during a quarter, to the extent of 20% of any such new trading profit attributable to such units.
NOTE 6. Distributions and Redemptions
A Limited Partner may request and receive redemption of units owned as of the close of business on the last business day of any calendar month with a minimum of ten days written notice.
The General Partner does not presently intend to make regular distributions of either profits or capital to Limited Partners, particularly in view of Limited Partners' monthly redemption rights. In the event that the Partnership recognizes substantial profits, the General Partner may reconsider, but there can be no assurance whatsoever that any distributions will be made. Accordingly, the Limited Partners may incur current income tax liabilities in excess of any distributions received by them from the Partnership.
NOTE 7. Deposits With Brokers The Partnership deposits cash and U.S. Government securities with FCMs subject to CFTC regulations and various exchange and broker requirements. Margin requirements are satisfied by the deposit of cash and securities with such brokers. The Partnership earns interest income on its cash deposited with the brokers.
NOTE 8. Net Income (Loss) Per Unit The net income (loss) per Limited Partnership unit outstanding throughout each period is the difference between the net asset value per unit at the beginning and end of the period.
NOTE 9. Trading Activities and Related Risks The Partnership engages in the speculative trading of U.S. and foreign futures contracts, options on U.S. and foreign futures contracts, and forward contracts (collectively, derivatives). Net trading results from derivatives for the years ended December 31, 1998, 1997 and 1996, are reflected in the statement of operations and equal gain from trading less brokerage commissions. Such trading results reflect the net gain arising from the Partnership's speculative trading of futures contracts, options on futures contracts, and forward contracts. These derivatives include both financial and nonfinancial contracts held as part of a diversified trading strategy. The Partnership is exposed to both market risk, the risk arising from changes in the market value of the contracts; and credit risk, the risk of failure by another party to perform according the terms of a contract.
The purchase and sale of futures and options on futures contracts requires margin deposits with FCMs. Additional deposits may be necessary for any loss on contract value. The Commodity Exchange Act (CEAct) requires an FCM to segregate all customer transactions and assets from the FCM's proprietary activities. A customer's cash and other property (for example, U.S. Treasury bills) deposited with an FCM are considered commingled with all other customer funds subject to the FCM's segregation requirements. In the event of an FCM's insolvency, recovery may be limited to a pro rata share of segregated funds available. It is possible that the recovered amount could be less than the total of cash and other property deposited.
For derivatives, risks arise from changes in the market value of the contracts. Theoretically, the Partnership is exposed to a market risk equal to the value of futures and forward contracts purchased and unlimited liability on such contracts sold short. As both a buyer and seller of options, the Partnership pays or receives a premium at the outset and then bears the risk of unfavorable changes in the price of the contract underlying the option. Written options expose the Partnership to potentially unlimited liability; for purchased options the risk of loss is limited to the premiums paid.
The General Partner has established procedures to actively monitor and minimize market and credit risks. The Limited Partners bear the risk of loss only to the extent of the market value of their respective investments and, in certain specific circumstances, distributions and redemptions received.
NOTE 10. Fair Value of Financial Instruments
The Partnership believes that the carrying value of its financial instruments is a reasonable estimate of fair value. Equity in commodity futures trading accounts and the United States Treasury securities are recorded at market using market quotations from the Partnership's FCM. The fair value of all other financial instruments reflected in the statement of financial condition (primarily receivable from commodity broker and accrued expenses) approximate the recorded value due to their short-term nature.